Issue briefs and reports - Atlantic Council https://www.atlanticcouncil.org/category/in-depth-research-reports/ Shaping the global future together Fri, 09 Aug 2024 18:36:33 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.5 https://www.atlanticcouncil.org/wp-content/uploads/2019/09/favicon-150x150.png Issue briefs and reports - Atlantic Council https://www.atlanticcouncil.org/category/in-depth-research-reports/ 32 32 What attacks on shipping mean for the global maritime order https://www.atlanticcouncil.org/in-depth-research-reports/report/what-attacks-on-shipping-mean-for-the-global-maritime-order/ Fri, 09 Aug 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=781919 This report discusses the history of attacks on shipping, the rules implemented to keep shipping safe, and the new and serious threats posed by the Houthis and other actors. It also discusses steps Western governments and the shipping industry can take to reduce the harm posed by such attacks.

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Table of contents

Executive summary

For as long as shipping has existed, merchant vessels have been vulnerable to attacks, especially in wartime. Starting in the beginning of the twentieth century, when international trade expanded rapidly, nations signed a string of treaties to protect merchant vessels from attacks by hostile states. With a few notable exceptions, most importantly the Iran-Iraq “Tanker War” in the 1980s, countries have complied with these rules.

Since the late 2010s, however, there has been a radical increase in state-linked attacks and harassment of merchant vessels. Around that time, Iran and, to a lesser extent, Israel began attacking vessels linked to the other side, primarily in the Strait of Hormuz, a situation that persists. China, for its part, has taken to harassing merchant vessels in the South China Sea in a strategy to enforce its unilateral territorial claims. The harm imposed on merchant vessels further increased in November 2023, when the Iran-linked Houthi rebels launched geopolitically linked attacks on shipping in the Red Sea. Eight months later—despite interventions by the US Navy, the United Kingdom’s (UK) Royal Navy, European Union (EU) navies, and other Western navies—the attacks continue and have caused large-scale rerouting to the Cape of Good Hope.

The increasing attacks on merchant vessels pose an acute threat not just to seafarers and shipping companies, but also to the global maritime order on which modern economies are based. This report discusses the history of attacks on shipping, the rules implemented to keep shipping safe, and the new and serious threats posed by the Houthis and other actors. It also discusses steps Western governments and the shipping industry can take to reduce the harm posed by such attacks. These steps include:

  • collective threats of rerouting away from risky waters;
  • directed-energy weapons on naval vessels protecting merchant shipping; and
  • increased focus on disrupting militias’ supply chains.

History of attacks on shipping

“Japan’s dependence on international economic ties for its survival is well recognized…In recent years, however, another source of vulnerability has assumed importance-the threat of international shipping disruptions in the Middle East.” Thus begins an article in the academic journal Pacific Affairs—not from 2023, but from 1986. In the Persian Gulf, Iraq had taken to attacking merchant ships linked to Iran as part of its war against the Islamic Republic.

The attacks began in 1981, the war’s second year, when Iraq attacked five merchant vessels, “largely to reduce Iran’s oil exports, which go entirely by sea and which help finance Iran’s war effort.”1 The following year, Iraq attacked sixteen vessels carrying Iranian oil; the next year, it was twenty-two. In 1984, Iran began responding in kind. That year, Iraq attacked fifty-three tankers linked to Iran, while Iran attacked sixteen tankers linked to Iraq. By 1987, the numbers had risen to eighty-eight attacks by Iraq and ninety-one by Iran. The systematic attacks on the other side’s merchant vessels became known as the Tanker War, and it alarmed the outside world, which by that point was dependent on the supply of oil through the Persian Gulf. “Mizuo Kuroda, Japanese ambassador to the United Nations, in the Security Council debate on the gulf conflict in May 1984, made an appeal that Iran and Iraq and all other states exercise the utmost restraint, and asked that both countries respect the right of safe navigation. (However, attacks on neutral shipping have continued.),” the Pacific Affairs article noted. In the summer of 1987, after neutral Kuwait had concluded that Kuwaiti-flagged tankers could no longer travel through the Gulf and asked for permission to have them reflagged as American, the tankers were reflagged and the United States launched Operation Earnest Will, which saw US Navy vessels escort the US-flagged Kuwaiti vessels between the Gulf of Oman and their home ports.2

When the Iran-Iraq war ended the following year, more than 320 merchant mariners had been killed, injured, or were missing. Three hundred and forty merchant vessels had been damaged, some more than once. Some 30 million tons of cargo had been damaged, while eleven ships had been sunk and three dozen declared total losses.3

The Tanker War became infamous because it was a blatant case of aggression against merchant shipping as a tool of war, and it took place during a period in which countries’ economies were beginning to globalize. The Warsaw Pact countries largely operated in parallel with Western market economies and China was still a mostly closed economy, but Japan and South Korea were trading heavily with Western economies,Latin American economies had also begun opening up, and Middle Eastern oil fueled many countries’ growing economies. It was against this background that the Tanker War was such a shock. It demonstrated to increasingly commercially linked countries that global shipping—the most important tool of global trade—could easily be targeted by interested nations and that there was little other countries could do to stop the attacks.

However, geopolitically motivated attacks on shipping are nearly as old as shipping itself.4 Indeed, merchant vessels have been regularly attacked during wars. As H. B. Robertson, Jr. notes

  • During the Napoleonic era, both France and England utilized their differing strengths in an attempt to curtail the other’s logistic and commercial capabilities. In the American Civil War, the blockade of the Confederacy was a principal component of the Union’s war strategy. The indispensable condition for victory by Japan in its 1905 war with Russia was control of the seas. Without this advantage, Russia could have resupplied its superior land armies from the sea. During the progress of both WorId Wars, success of the maritime resupply effort of the Allied Powers, particularly Great Britain, was the sine qua non of victory.5

Until the nineteenth century, “privateers” also attacked merchant vessels on behalf of a country’s armed forces in exchange for bounties from the vessels.6

The reason merchant vessels have so systematically been attacked during wars is, of course, that they carry vital supplies to the adversary. “If it is true that merchant shipping can be critical to a nation’s ability to prosecute a war effort, it is equally true that the opposing power will seek to interdict that supply effort,” Robertson notes. “Tactics, weapons systems and geography are variables that will affect any interdiction effort but the interdiction effort fits nearly with the general principles of war.”7

Yet, by the time World War I erupted, nations realized that unrestricted warfare against merchant shipping was unsustainable and sought to restrict it. Traditional (or customary) international law had established a distinction between enemy naval ships and enemy merchant vessels, with the latter granted protection from attacks. The Hague Conventions, to which forty-four countries agreed in 1907, included an article on the status of merchant ships following the outbreak of hostilities. It stipulated that “the belligerent may only detain it, without payment of compensation, but subject to the obligation of restoring it after the war, or requisition it on payment of compensation” and that “enemy merchant ships which left their last port of departure before the commencement of the war, and are encountered on the high seas while still ignorant of the outbreak of hostilities cannot be confiscated.”8

The Hague Convention became international customary law, the de facto legal baseline governing merchant shipping during armed conflict. This meant that “merchant ships, even those sailing under the flag of the enemy, are considered as civilian objects and manned by civilian crews, and so long as they maintain their proper role, are subject only to seizure as prize and subsequent condemnation in prize courts of the capturing belligerent. Only in special circumstances is the capturing power allowed to destroy the prize, and then only after removing the passengers, crew and ship’s papers to a place of safety.”9 Germany had, however, developed a submarine fleet. During World War I, these submarines set about attacking merchant vessels supplying the Allies. In the first months of 1917, following German submarine attacks on several US merchant ships, the United States declared war on Germany.10

In the years after World War I, states sought to further codify merchant vessels’ rights, which resulted in the London Protocol of 1936. By 1939, all of World War I’s combatant countries except Romania had joined the protocol, which stipulated

  • A warship, whether surface vessel or submarine, may not sink or render incapable of navigation a merchant vessel without having first placed passengers, crew and ship’s papers in a place of safety. For this purpose the ship’s boats are not regarded as a place of safety unless the safety of the passengers and crew is assured, in the existing sea and weather conditions, by the proximity of land, or the presence of another vessel which is in a position to take them on board.11

Even so, World War II saw regular attacks on merchant vessels. International customary law was simply ignored. As a result, some vessels sought to reduce the risk of attack by sailing under neutral countries’ flags (including the increasingly popular flag of Panama). As Robertson notes, both the Allies and the Axis powers attacked enemy merchant vessels—and sometimes even neutral merchant ships—and did so without ensuring the safety of the passengers, the crews, or the ships themselves, even though the protocol obliges warring parties to take such action.

  • Both sides justified these practices either on the basis of reprisal (which in itself is an admission that absent the first violation by the other side, the practice is illegal under international law) or on assertions that the other side had incorporated its merchant fleet into the combatant force by mounting offensive weapons on the ships, convoying them, requiring them to report enemy submarine sightings, and ordering them to take offensive action against surfaced submarines.12

Toward and after the end of World War II, the world’s nations attempted to create a global system of rules and institutions, with the United Nations (UN) at its center. In addition to the United Nations itself, nations created the International Civil Aviation Organization, the Food and Agriculture Organization, the World Health Organization (WHO), and a string of other bodies. In 1948, they adopted the Convention on the International Maritime Organization and agreed to form the Inter-Governmental Maritime Consultative Organization (IMCO). The name was later changed to the International Maritime Organization (IMO) and came into force ten years after its adoption. The organization’s statutes placed little emphasis on maritime security, focusing instead on promoting economic action in support of freedom and reducing discrimination in some countries.13 Article C, for example, states an IMCO aim “to provide for the consideration by the Organization of matters concerning unfair restrictive practices by shipping concerns.”14

Indeed, such was the desire for safe shipping among the world’s nations that a focus on security in the IMCO’s founding statute seemed unnecessary. Harm caused by pirates and criminals posed a problem, but even the most ideologically opposed governments agreed that shipping needed to be kept safe. Countries deliberately harming merchant vessels was no longer acceptable.

Even with the IMCO’s rules in place, ships continued to face considerable threats, but such threats came from criminals, terrorists, and malcontents. In 1961, a group led by Captain Henrique Galvao hijacked the Portuguese passenger ship Santa Maria in protest against the regime of Antonio de Salazar. In subsequent years, Cuban exile groups attacked Russian and Cuban merchant vessels, though they sometimes got the wrong ship, and the Palestinian terrorist group PLFP attacked vessels bound for Israeli ports. Groups with other causes similarly found shipping a convenient target. RAND researchers summarized the problem.

  • Besides guerrillas and terrorists, attacks have been carried out by modern day pirates, ordinary criminals, fanatic environmentalists, mutinous crews, hostile workers, and foreign agents. The spectrum of actions is equally broad: ships hijacked, destroyed by mines and bombs, attacks with bazookas, sunk under mysterious circumstances; cargos removed; crews taken hostage; extortion plots against ocean liners and offshore platforms; raids on port facilities; attempts to board oil rigs; sabotage at shipyards and terminal facilities; even a plot to steal a nuclear submarine.15

The Tanker War received such global attention because it was an extremely rare example of nation-states targeting merchant vessels. The attacks created considerable risks for vessels beyond those linked to the two respective countries. “Like the Houthis today, the Iraqi and Iranian armed forces at that time weren’t always that accurate in their targeting,” noted Svein Ringbakken, a maritime executive with several decades in the business who now serves as managing director of the Norway-based maritime war insurer DNK.16 Of the vessels attacked, sixty-one sailed under the Liberian flag, forty-one under the flag of Panama, thirty-nine under the flag of Cyprus, and twenty-six under the flag of Greece. A number of other Western countries similarly saw vessels sailing under their flag attacked. Forty-six were Iranian flagged. Ringbakken added that “the ships that were going back and forth to [in the Gulf] were often attacked several times each, so the number of attacks were much higher than the 340 ships that were listed as having been attacked.” Had the merchant vessels carrying oil and other supplies through the Gulf been less sturdy, the human and material losses caused by the Tanker War would have been even more dramatic.

But not even during the height of the Cold War, in the 1960s and 1970s, did NATO or Warsaw Pact member states systematically seek to harm merchant vessels linked to the other side. NATO and Warsaw Pact countries indisputably acted unethically in other ways, but in the maritime domain they respected rules, conventions, and the neutrality of merchant shipping. They did so not least because they also depended on ships carrying goods to and from their countries being able to travel safely.

Indeed, when the attacks by terrorists and other non-state entities continued, the world’s nations convened to negotiate and adopt the International Convention for the Safety of Life at Sea (SOLAS), the fifth version of global shipping’s cornerstone safety treaty, which governs the safety of the vessels themselves. (Previous versions had been adopted in 1914—in response to the Titanic disaster—and then in 1929, 1948, and 1960.)17 Five years later, in 1979, nations adopted the International Convention on Maritime Search and Rescue (SAR), which entered into force in 1985. SAR governs the responsibilities of coastal states in maritime search and rescue; the 1979 version divided the world’s oceans into thirteen search-and-rescue regions and introduced the obligation for countries to operate rescue co-ordination centers on a twenty-four-hour basis with trained, English-speaking, staff.18

The crowning achievement of Cold War maritime agreements took place in 1982, when negotiators representing 160 nations adopted the United Nations Convention on the Law of the Sea (UNCLOS), the “constitution of the oceans.”19 UNCLOS covers crucial areas including exploitation of ocean and seabed resources, as well as maritime transit rights. Crucially, coastal states are given territorial rights over waters extending twelve nautical miles from their coastlines; foreign vessels have the right to sail through these waters under UNCLOS’s “innocent passage” provision. Coastal states are also given limited rights in the Exclusive Economic Zones extending another two hundred nautical miles beyond their territorial waters.20

A rare case of apparently state-linked attacks on merchant shipping took place in 1984, when nearly twenty vessels transiting the Red Sea were struck by mines. Egyptian and Western authorities subsequently identified the Ghat, a Libyan-flagged merchant vessel, as the culprit. Libya’s motivation for the attacks appears to have been ruler Muammar al-Qaddafi’s desire to demonstrate what he punish other Arab regimes’ misguided policy of maintaining close relations with the West.21

From the early 1990s, the end of the Cold War and the beginning of more harmonious relations between crucial groupings of countries decreased geopolitically linked risk everywhere, including in shipping. Crucially, the end of the Cold War delivered an extraordinary rise in commercial relations between previously hostile countries. In addition, China had begun opening up its closed economy in the 1980s and was quickly becoming a manufacturing hub for Western companies. The rapidly growing trade and resulting globalization were facilitated by global shipping. Between 1990 and 2019, global shipping grew nearly threefold, from 4,008 million tons loaded to 11,076 million tons loaded.22

During the 1990s and 2000s, and until the late 2010s, shipping had to contend with spikes in piracy attacks, but geopolitically linked attacks remained minimal. The few attacks that took place, most prominently an explosion on the French-flagged oil tanker Limburg off the coast of Yemen, were carried out by terrorists.23 In Nigeria in the early 2000s, the Movement for the Development of the Niger Delta—a local militant group—kidnapped oil workers and attacked oil facilities and pipelines, though this was done in protest against inequalities in Nigeria.

The mostly peaceful period ended around 2019, when a proxy war targeting merchant vessels unfolded in the Strait of Hormuz, an indispensable body of water through which more than 20 percent of global petroleum travels.24 In 2018, Donald Trump’s administration took the United States out of the Joint Comprehensive Plan of Action (JCPOA), also known as the “Iran nuclear deal.” Soon after that, Iran began to regularly harass merchant vessels in the Strait of Hormuz. In a particularly high-profile incident, Iran’s Islamic Revolutionary Guard Corps (IRGC) seized the Swedish-owned, UK-flagged oil tanker Stena Impero passing through the Strait of Hormuz on July 19, 2019, and took the crew hostage.25 Though the IRGC alleged that the tanker had struck a fishing boat and failed to obey IRGC instructions, there was no evidence of this. Since then, attacks on merchant vessels have continued. Merchant vessels sailing under flags ranging from those of Norway to the United Arab Emirates have been struck by mines, magnetic mines, and torpedoes.26 In August 2023, the United States dispatched a naval and Marine force to the strait to “support deterrence efforts.”27 By that point, there had been twenty attacks on merchant shipping in the strait since the beginning of 2021, including two on July 5, 2023, when Iranian naval vessels attempted to seize two oil tankers.28 The US Navy and Marine presence appears to have succeeded in deterring the aggression, which subsided after the force’s arrival. As with all deterrence measures, though, it’s impossible to know whether the attackers had already been planning to reduce their aggression or whether the deterrence measures changed their cost-benefit calculus.

Threats to commercial vessels in the Black Sea, the Taiwan Strait, and the South China Sea

In early 2022, another threat to global shipping emerged when Russia deployed close to two hundred thousand troops to its border with Ukraine. It was clear that any invasion by Russia would also involve attacks on Ukraine’s Black Sea ports and on shipping in the Black Sea. In the weeks immediately following the invasion, several merchant vessels in Ukrainian waters and ports were struck in suspected Russian attacks. On February 25, for example, a tanker was struck by missiles. Two crew members were injured, and the crew was forced to abandon ship.29 On March 2, a Bangladeshi seafarer was killed when a shell hit his vessel in the Ukrainian port of Olvia.30 In addition, when Russia invaded, ships crewed by some 800–1,000 seafarers were docked in seven Ukrainian ports and, in practice, unable to leave. Being stuck in Ukrainian ports, of course, made them an easy target for Russian attacks and also raised the risk of their becoming collateral damage of attacks against other targets.31 “There were more than 90 vessels [stuck in Ukrainian ports] to start with, and during the [UN-negotiated grain] Corridor [between Russia and Ukraine that allowed ships carrying grain to leave Ukrainian ports, traveling through a Black Sea corridor on to international destinations], about 30 got out. We ended up with around 65 claims for total loss,” said Neil Roberts, the secretary of the maritime insurance industry’s Joint War Committee, which lists international waters according to risk level.32

Shipping in the Taiwan Strait has been similarly threatened, but has not yet been attacked. When, in April 2023, President Tsai Ing-wen of Taiwan met with US Speaker of the House Kevin McCarthy in California, Beijing registered its displeasure by launching an offensive military exercise targeting Taiwan and sending a coast guard “inspection flotilla” to the Taiwan Strait. The strait is the main passage for cargo moving between Southeast Asia and Japan, South Korea, and northern China, which makes it one of the world’s busiest maritime thoroughfares; some 240–500 ships per day, including nearly nine in ten of the world’s largest container vessels, pass through the strait on an average day.33 Beijing, which considers Taiwan a region of China, argues it has “sovereignty and jurisdiction” over the strait, while Taiwan and countries including the United States consider it international waters divided along the strait’s unofficial median line.

By threatening to inspect ships passing through the strait, on the basis of legal powers not recognized by Taiwan and large parts of the international community, China would be able to severely disrupt shipping in the strait and, thus, cause considerable problems for shipping globally. Yet, the deployment of an inspection flotilla—whether or not it carries out any inspections—hardly reaches the threshold where the US Navy or another navy would consider it necessary to intervene. In its law-enforcement scope of inspections of merchant vessels (albeit on Taiwan’s side of the median line), China’s inspection flotilla differs from the overtly aggressive actions China’s coast guard, maritime militia, long-distance fishing fleet, and other maritime entities take. All, though, constitute a risk to civilian vessels. Roberts noted

  • China has long been “leaning in” via its fishing fleet, and it’s been building all these little islands in the South China Sea. The Chinese government issues white papers to float their ideas, for example saying they’ll allow their Coast Guard to fire on all vessels in their territorial waters. And if nobody reacts, then they make it policy. Whilst the littoral states do not agree, they’re up against a huge nation and there’s no one in the area who’s in a position to react. That comparative disparity is what China has leveraged in deploying the inspection flotilla to the Taiwan Strait.34

In addition, China’s maritime militia, coast guard, and long-distance fishing fleet habitually harass vessels, including civilian ones. These activities are of particular concern in the South China Sea, through which approximately one-third of global trade travels, as China claims some 90 percent of these waters under its “nine-dash line” policy.35 These practices, which will be analyzed in a subsequent report as part of the Atlantic Council’s Maritime Threats project, are not specifically targeted against shipping but instead target a wide range of vessels, including civilian ones. Survey vessels sailing under the flags of Norway and Vietnam, for example, have been harassed by a combination of Chinese vessels.36 Since the beginning of the 2020s, the harassment has increased significantly, creating an environment of heightened uncertainty and risk for merchant vessels. This uncertainty is heightened because it’s entirely unclear how coastal states and de facto protectors of the global maritime order, most notably the US Navy, can deter such activities. As Ringbakken noted

  • China has its Navy, it has its Coast Guard and it has the militia and the fishing boats and this kind of crossover between the fishing boats and the militia, which is a strange construct. And China has a long-term perspective. These small skirmishes and the small transgressions are not viewed as an attempt to undercut the global maritime regime, but that’s what they are. It’s what you might call the Chinese water torture method. Any kind of countermeasure from the Americans or others would seem disproportionate. The activity is just merely little bit out of normal and not like what the Houthis are doing in the Red Sea, and that makes responding even harder. You don’t send a naval group to try to stop this kind of behavior because it seems too minor. So it goes on.37

The US military has come to much the same conclusion. “It’s getting more aggressive, they’re getting more bold and it’s getting more dangerous,” Admiral John Aquilino told media in late April 2024, shortly before handing over command of the US Indo-Pacific Command. He added that China was increasing its aggression through a “boiling the frog” strategy. “There needs to be a continual description of China’s bad behavior that is outside legal international norms,” he noted. “And that story has to be told by all the nations in the region.”38

Indeed, China’s maritime harassment can easily be expanded to target many more cargo ships, in addition to the fishing vessels and supply vessels that have until now been the most frequently targeted categories. In the area of unilateral inspection flotillas , if the flotilla that was dispatched during Tsai’s visit to California were to be followed by similar measures, shipping companies and their insurers would need to assess whether it’s worth sending vessels through the Taiwan Strait. “Even if the US Navy wanted to intervene, it would be seen a gross intrusion, and it could spark something far worse. The merchant ships are on their own,” Roberts noted.39 Ships don’t need to go through the strait to reach destinations other than Taiwan; they can simply travel along Taiwan’s eastern coast. That route, however, would render them unable to call at Taiwan’s main port—the massive Port of Kaohsiung—or the Port of Taipei. This is what makes a blockade of Taiwan, whether executed by the China Coast Guard, the People’s Liberation Army Navy, China’s maritime militia, or a combination of the three, possibly with other entities also involved, such a troubling scenario.40 “What would happen to Taiwan if ships don’t call at its ports? Well, ultimately the people of Taiwan will starve ,” Roberts said. “But shipowners have to focus on crew welfare and they’d just go around [east of Taiwan] and take a bit more fuel. It’s really difficult.”41

Houthi attacks on merchant vessels: A new form of aggression

On November 19, 2023, armed commandos belonging to the Yemeni Houthi militia stormed the Galaxy Leader, a Bahamas-flagged roll-on, roll-off (RORO) carrier traveling through the Red Sea near the Yemeni port of Hodeida. The commandos, who filmed themselves arriving in a helicopter, took the twenty-five-strong crew hostage and directed the Galaxy Leader to Hodeida and then the port of Al Saleef, which is also controlled by the Houthis.42 The Galaxy Leader had apparently been targeted because it is part-owned by Israeli national Abraham “Rami” Ungar, though his firm is registered in the United Kingdom.

“The Yemeni Naval Forces managed to capture an Israeli ship in the depths of the Red Sea taking it to the Yemeni coast. The Yemeni armed forces deal with the ship’s crew in accordance with the principle and values of our Islamic religion,” Houthi spokesman Yahya Sare’e declared on X on the same day.

  • The Yemeni armed forces reiterate their warning to all ships belonging to or dealing with the Israeli enemy that they will become a legitimate target for armed forces. […] Yemeni armed forces confirm that they will continue to carry out military operations against the Israeli enemy until the aggression against Gaza stops and the heinous acts against our Palestinian brothers in Gaza and the West Bank stop…If the international community is concerned about regional security and stability, rather than expanding the conflict, it should put an end to Israel’s aggression against Gaza.43

“All ships belonging to the Israeli enemy or that deal with it will become legitimate targets,” the Houthis added in a statement after the hijack.44 The opportunistic labeling of the attacks as being an act of support for the people of Gaza was a clever move by the Houthis, gaining the attacks attention far beyond the global maritime community and gaining the Houthis sympathy for their actions among the public in countries troubled by Gazans’ plight. It also made any response by the United States and other Western countries geopolitically fraught. A few days later, assailants identified as Houthis attacked the Israel-linked tanker Central Park in the Gulf of Aden, the body of water that leads into the Red Sea.45 On December 3, the Houthis attacked three additional vessels.46

The attacks continued, though the targeted vessels’ alleged Israeli links were not always clear or even existent. On December 9, the militia expanded its scope, saying it would also target ships headed for Israeli ports. Two days later, it hit the Strinda, a tanker owned, managed, and flagged in Norway and crewed by Indians, which the Houthis said was headed for Israel, though the owner said the tanker was bound for Italy.47

On December 15, a Houthi drone struck the Liberian-flagged Al Jasrah and two Houthi missiles struck the MSC Palatium III, which was also sailing under Liberian flag; both were thought to be headed for Israeli ports. On the same day, the Houthis threatened another Liberian-flagged vessel, the MSC Alanya, and told it to turn around.48 “The Houthis’ targeting mechanism wasn’t that good, or their intelligence wasn’t entirely up to speed,” Ringbakken said. “And we don’t know for sure whether that was by chance or whether they didn’t mind a little bit of collateral damage because that got them more attention.”49

Indeed, the Houthis appear to have decided to make necessity into an extraordinary virtue. Instead of having to conduct painstaking research into vessels’ complex ownership and management structure, and their cargo’s provenance and destination, the Houthis—while declaring that they were targeting Israeli-linked vessels—attacked a range of merchant vessels in the Red Sea, the Bab el-Mandeb Strait, and the Gulf of Aden. That, of course, has made the waters unsafe for vessels form all countries, though the Houthis appear to consistently have exempted vessels linked to Russia and China. Retired Rear Admiral Nils Wang, a former chief of the Danish Navy, noted the following.

  • It’s instructive to compare the Houthis’ attacks to the piracy of the Horn of Africa [that was particularly frequent in the early 2010s]. With the pirates off the Horn of Africa, the intimidation of international shipping was the same. That made launching a counter-piracy operation straightforward. Everybody, including China, Pakistan, Iran, everybody was of the opinion that this piracy had to be stopped. Indeed, the military operations against piracy at that time were probably the biggest multinational military operation that has ever taken place, if you count on how many countries, regions, and continents were involved. Everyone agreed that the piracy had to be stopped. If you then compare that to the situation now in the Red Sea, the Houthis only seem to be targeting ships linked to the West, not to Russia and China. And it’s only the Western world that is intervening to protect the ships there.50

By pure coincidence, the IMO Assembly—the IMO’s governing body—was scheduled to hold its biannual meeting in late November and December 2023. Various items had been submitted for consideration by the assembly, including measures to prevent the growing dark fleet.51Unsurprisingly, the Houthis’ attacks received urgent attention. The Bahamas, the world’s eighth-largest flag state, criticized the Houthis’ attacks on merchant vessel as a “violation of all of the norms relating to innocent passage of ships.”52 And, referring to the Houthis, the country added, “Here we have non-state actors so who do you hold responsible?”

That is the dilemma posed by the Houthis’ novel campaign against shipping. The militia attacks ships ostensibly for geopolitical reasons, and it’s backed by a nation-state, but it’s not an official government. The militia is also linked to Iran but doesn’t officially represent this country either. “That makes it difficult to make this a matter between a hostile country and other countries, but at the same time, the Houthis are a completely different category from pirates and other opportunistic attackers without government links,” Wang said.53

It should, therefore, come as no surprise that Western governments have struggled to formulate strategies to deter the attacks.

International response to the Houthis’ attacks

On December 18, the United States announced the establishment of Operation Prosperity Guardian, a naval task force comprising the United States, the United Kingdom, Bahrain, Canada, Denmark, France, Italy, Netherlands, Norway, the Seychelles, Spain, and several other nations, amounting to a total of twenty countries.54 Some opted not to divulge their participation out of concern that doing so could increase the risks for their countries. “The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners, and violates international law,” US Secretary of Defense Lloyd Austin said in the press release announcing the task force. “The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade. Countries that seek to uphold the foundational principle of freedom of navigation must come together to tackle the challenge posed by this non-state actor launching ballistic missiles and uncrewed aerial vehicles (UAVs) at merchant vessels from many nations lawfully transiting international waters.”55

Operation Prosperity Guardian is set up as “highway patrol in the Red Sea and the Gulf of Aden” with the task of averting attacks on merchant vessels, not punishing the Houthis.56 It will “respond to and assist as necessary commercial vessels that are transiting this vital international waterway,” Pentagon spokesman Major General Pat Ryder said in a briefing on December 21.57 “It’s a defensive coalition meant to reassure global shipping and mariners that the international community is there to help with safe passage.”58

Prosperity Guardian is a fitting name for a naval coalition tasked with thwarting the attacks on merchant vessels in the Red Sea and the adjacent Bab el-Mandeb Strait and Gulf of Aden. The water forms a crucial thoroughfare in the globalized economy; under normal circumstances, some 15 percent of global maritime trade passes through it.59 Indeed, in deciding to attack shipping, the Houthis have opted for the form of aggression that would yield by far the most global disruption and attention.

Since December 19, Prosperity Guardian’s members have escorted merchant vessels with links to a wide range of countries (not just the countries involved in the operation). They have also regularly thwarted attacks. This is deterrence by denial: by denying the attackers the gain they seek, the defenders are changing the attackers’ cost-benefit calculus. “You always have the right to self-defense,” Wang noted. “So if you are shot at, you or your defenders can shoot back. That’s mandate for all the ships participating in Prosperity Guardian: they can shoot as soon as they see any threat emerging.”60

Retired Vice Admiral Andrew Lewis, who until 2021 commanded the US Navy’s Second Fleet and in an earlier posting commanded the US Navy’s Carrier Strike Group 12, described the situation as follows.

  • The Houthis’ attacks are essentially a culmination of the threats we’ve seen over the past 15 years. At the beginning of that period, we broadly saw terrorist and piracy threats. As things progressed, we saw the Houthis become more active. As recently as nine years ago, when I was a carrier strike group commander, we were intercepting Iranian convoys of dhows that were transiting to either Oman or Yemen to go to Yemen with the weaponry the Houthis are now using to target vessels in the Red Sea and Bab el-Mandeb Strait. For a period of time, we intercepted these convoys and forced them to turn around, so the equipment wasn’t flowing through, but they continued to build up that capability, and that is the result we’re seeing now.61

The fact that there was no global body policing Iran’s shipments of weapons through the Red Sea thus became the source of the dramatic threats to shipping in the Red Sea once the Houthis acquired enough weaponry to launch their attacks.

Indeed, despite the launch of Prosperity Guardian, the Houthis’ attacks accelerated. On December 26, for example, US naval vessels and aircraft in the Red Sea shot down twelve one-way attack drones, three anti-ship ballistic missiles, and two land-attack cruise missiles within a period of ten hours.62 Such lack of success would convince a conventional adversary to give up. But the novel aspect of the Houthis’ campaign against shipping is not just their comparatively modern weaponry (including the fact that they’re the first non-state group to have fired anti-ship ballistic missiles) but also that the ability to harm merchant vessels is secondary in their cost-benefit calculus. “The difference between piracy and the Houthis is that piracy is criminality. It’s to make money,” said retired Vice Admiral Duncan Potts, who until 2018 was the UK armed forces’ director general of joint force development and previously commanded the EU’s ATALANTA counter-piracy mission. “And like any other business model, if the cost and the risk gets too high, you just move elsewhere. But for the Houthis the attacks are not about money.”63 The Houthis’ priority is not even to sink vessels, which is what a traditional adversary attacking vessels would intend. Instead, their top priority has turned out to be to gain global attention and to cause fear among shipping companies, their insurers, and their customers, and thus to gain a global platform.

The Houthis’ cost-benefit calculus also differs from that of the West’s traditional adversaries, as they primarily use cheap drones and missiles. An often-quoted cost per Houthi missile is $2,000. Simon Lockwood, head of shipowners at Willis Towers Watson, noted that it is these weapons’ relative lack of sophistication that—together with the Houthis’ sloppy research—causes the most fear in the shipping industry. “How do you cause a massive amount of disruption? You just create that level of uncertainty that causes companies in the maritime industry to say, ‘we can’t go into the Red Sea,’” he said. “If I were that way inclined, I would laud the Houthis’ ability to create absolute mayhem with relatively unsophisticated weapons, just to scare off merchant vessels.”64

However, the Houthis’ current weapons are a significant improvement from the weaponry used by militias in the early 2000s. The Limburg was attacked by a suicide bomber driving an explosive-laden small boat into the vessel’s hull. Today, by contrast, the Houthis have sophisticated missiles as well as relatively simple drones. “Improvements in technology are a key reason these attacks are happening,” Ringbakken noted. “When I started in this job and even ten years into the job, my experts were telling me that for groups of terrorists and others to hit a moving target like a vessel is extremely difficult. Now the Houthis have proved that it’s quite easy. There’s technological development in targeting technology that has made it possible for groups like the Houthis to drag their equipment around on a lorry and then target and hit a ship far away out in the sea. That was not possible a decade ago.”65 Even the best of these missiles and drones don’t reach the technological sophistication of those used by first-rate armed forces, and the Houthis’ drones only hit ships randomly. But the combination is powerful. “The Houthis’ weapons are a mix of very, very advanced missiles and very, very cheap drones. It’s dangerous cocktail,” Wang said.66 The fact that a non-state group that has signed no maritime conventions and feels bound by no maritime rules has access to this dangerous cocktail is a serious threat to global shipping.

Indeed, the drones and missiles cause fear among shipping companies, and thwarting them requires far more sophisticated—and far more expensive—technology. Offensive missiles don’t need to be very precise, at least if the attacker’s objective is not to harm specific targets. By contrast, defensive missiles—whose task is to shoot down the offensive missiles—must be extremely precise. US Navy defensive missiles cost, on average, between $1.5 million and $2.5 million each.67 For the Houthis, $2,000-a-piece missiles supplied by Iran are a bargain, especially because the missiles spread fear in the shipping industry, regardless of whether they hit their intended target.

Despite Operation Prosperity Guardian’s efforts, the Red Sea has become too risky for many shipping lines and their insurers. By late December 2023, shipping traffic through the Red Sea had decreased by nearly 20 percent.68 On January 3, the United States, UK, Germany, Italy, South Korea, and several other Western countries (and, again, Bahrain) issued a stern statement, warning the Houthis of consequences should the attacks continue:

  • Ongoing Houthi attacks in the Red Sea are illegal, unacceptable, and profoundly destabilizing. There is no lawful justification for intentionally targeting civilian shipping and naval vessels. Attacks on vessels, including commercial vessels, using unmanned aerial vehicles, small boats, and missiles, including the first use of anti-ship ballistic missiles against such vessels, are a direct threat to the freedom of navigation that serves as the bedrock of global trade in one of the world’s most critical waterways. These attacks threaten innocent lives from all over the world and constitute a significant international problem that demands collective action.69

The Houthis—logically, according to their cost-benefit calculus—responded with a highly complex attack comprising Iranian-designed one-way attack drones, anti-ship cruise missiles, and an anti-ship ballistic missile.70 Shooting them down required the efforts of F/A-18s from USS Dwight D. Eisenhower, USS Gravely (DDG 107), USS Laboon (DDG 58), USS Mason (DDG 87), and the Royal Navy’s HMS Diamond (D34).71 The fact that Iran supplies the drones and missiles and, in some cases, intelligence to the Houthis, is well-known both to maritime executives and to Western militaries. It would, however, be legally dubious and highly risky for Western armed forces to militarily punish Iran for the Houthis’ attacks. “The maritime domain is unfortunately a welcome arena for escalation without making it state to state,” Ringbakken said.72

Indeed, the Houthis have demonstrated that they can keep escalating because the United States and other Western allies are loath to retaliate against Iran. On January 11, the United States and UK, supported by Australia, Bahrain, Canada, and the Netherlands—operating as part of a new coalition operating in parallel with Prosperity Guardian—launched strikes against Houthi targets in Yemen. “These strikes are in direct response to unprecedented Houthi attacks against international maritime vessels in the Red Sea—including the use of anti-ship ballistic missiles for the first time in history,” President Joe Biden said in a statement. “These attacks have endangered US personnel, civilian mariners, and our partners, jeopardized trade, and threatened freedom of navigation.”73 Further strikes have followed; by the end of February, the United States and the UK had carried out strikes on an almost daily basis.74

Not even this punishment has convinced the Houthis to end their attacks. In early 2024, they instead expanded the scope of their attacks, targeting vessels linked to the United States and the UK in addition to those linked to Israel. On January 18, for example, they launched two anti-ship ballistic missiles against a Marshall Islands-flagged, US-owned, Greek-operated tanker.75 Since then, the United States and the Prosperity Guardian allies have thwarted Houthi drones, missiles, and anti-ship missile attacks on an almost daily basis, while the US- and UK-led strike coalition has continued its strikes against strategic installations in Houthi-held Yemeni territory.76

As before, the Houthis decide what constitutes links to the countries concerned, which puts every vessel at risk of attack. “We can disagree with them and argue that a ship they’ve attacked is not linked to one of these three countries, but once the rocket has hit your ship, it’s too late,” Ringbakken noted.77 Lockwood added, “US links, UK links, Israeli links: that’s rubbish. The attacks are about targeting shipping for effect, and it’s crippling shipping.”78 By April 2024, sixty-five countries’ interests had been affected by the campaign, according to the US Defense Intelligence Agency.79 Only ships linked to Russia and China have appeared safe. Indeed, in an effort to keep their vessels safe, by the beginning of 2024 some captains had adopted a strategy of incorrectly communicating to the Houthis that they had an all-Chinese crew. On February 19, the EU announced the formation of another naval mission in the Red Sea. Operation Aspides, comprising France, Germany, Italy, and Belgium, would protect merchant vessels alongside Prosperity Guardian and the strike coalition.80 The Houthis, meanwhile, appeared to continue sparing any vessels linked to Russia and China.81

By March 2024, forty merchant vessels had been successfully attacked, thirty-four of which had sustained damage.82 A few weeks later, the rate of Houthi attacks appeared to have slowed. “Their pace of operations is not what it was,” US Air Force Lieutenant General Alexus Grynkewich, the top US Air Force commander for the Middle East, told a press conference.83 Grynkewich attributed the slowdown to the effect of the US strikes, which had curtailed the Houthis’ arsenal of drones and missiles.84 Crucially, despite a reduced arsenal, the Houthis appeared undeterred and kept up their missile and drone strikes. The US Central Command, communicating through its Twitter (X), reported Houthi attacks on a near-daily basis.85 Yet the United States seemed to have little confidence the strikes would fundamentally improve security for Red Sea shipping. Grynkewich told reporters that Iran’s continued supply of weapons was a “complicating factor.”

Indeed, in the second half of April, the attacks increased again. On April 26, for example, the Houthis launched three anti-ship ballistic missiles from Yemen into the Red Sea, where they nearly hit one vessel and struck another, an apparently erroneously targeted suspected shadow vessel.86 By the end of the month, the US Navy and allies had shot down Houthi drones and missiles or struck Houthi installations around 130 times, according to publicly known numbers.87 An exact figure of how many vessels have been targeted by the Houthis is impossible to establish, precisely because the Houthi attacks are vague and may not always hit a vessel, though the attacks are always successful in spreading fear.88 Without Prosperity Guardian’s defense of merchant vessels, the harm to vessels would, of course, be far more extensive. The number of vessels available to attack had also dropped significantly as Western-linked vessels’ owners were diverting them to the Cape of Good Hope route. By the end of February, traffic in the Suez Canal (and thus the Red Sea) had dropped by 50 percent.89 By contrast, Red Sea traffic by Chinese merchant vessels rose by 73 percent between October 2023 and March 2024, compared to the same period one year earlier.90 “The fact that you’ve got so many ships now avoiding the area tells you everything,” said Guy Platten, secretary general of the International Chamber of Shipping. “We absolutely welcome Operation Prosperity Guardian and the EU naval forces, because their presence does provide some sort of protection, but you can’t get every ship. But what does this mean for seafarers? These ships have crews, they’re not just inanimate objects. Nobody wants to risk their lives, and owners also have a responsibility and a duty of care for the seafarers on their ships.”91

The attacks have an effect on seafarers far beyond the ones working on vessels that have been struck by the Houthis—and, thus, on the globalized economy. “Shipping depends absolutely on its crew,” Roberts noted. “People have compared being a member of crew to being in prison, but with worse internet. It’s just not a great life. They don’t get many breaks, they get criminalized at the drop of a hat. It’s really not very attractive. And then on top of that, now you’ve got attacks on vessels. If you haven’t got crew and you haven’t got security, then the supply chain isn’t going to work for you. There’s got to be some serious thought given to this. If the crews don’t want to go, then nothing happens.”92

Indeed, the global shortage of seafarers is becoming so severe that, if not enough of them are willing to crew ships having to pass through perilous waters, ships risk being unable to leave port. “There’s a limited number of people in our navies who could be drafted in to help on commercial ships,” Roberts said. “And would they be willing or able or allowed to do that? Governments would have to set priorities and start with the oil tankers and absolutely vital food. Luxury goods traveling on container ships, not so much. What is the appetite for consumer goods when you’ve got a threatened environment?”93

The Houthis have continued their attacks despite paying a significantly higher price, measured in damaged or destroyed infrastructure in Houthi-held Yemeni territory. By April 2024, the militia appeared to have expanded its campaign into the Indian Ocean, to which the Gulf of Aden’s eastern end is connected but which is located several hundred nautical miles from the Red Sea. On April 26, the militia struck the MSC Orion, a container ship sailing under the flag of Madeira, off the coast of Somalia.94

Then, on May 2, the militia announced it was expanding its attacks to the eastern Mediterranean. “We will target any ships heading to Israeli ports in the Mediterranean Sea in any area we are able to reach,” Houthi military spokesman General Yahya Saree said. He added that the decision would be implemented “immediately, and from the moment this statement is announced.”95 By the end of June, no such attacks had occurred, but the Houthis kept up their attacks in the Red Sea and surrounding waters and expanded their arsenal. On May 13, EUNAVFOR Aspides reported that it had escorted 100 vessels since its inception less than three months earlier.96 On May 28, the Marshall Islands-flagged bulk carrier Laax was hit—twice.97 In June, the Antigua and Barbuda-flagged cargo ship Norderney was hit.98 Five days later, a Liberia-flagged, Greek-owned coal carrier was hit so badly that its crew had to be evacuated, with one member unaccounted for.99 Two days after that, another vessel reported two explosions nearby—apparent failed attempts to hit it.100 As the attacks continued, the Houthis expanded their arsenal. On June 23, the militia reported having attacked a Liberia-flagged bulk carrier, this time using not flying drones or missiles but an uncrewed boat (which can also be referred to as a waterborne drone).101 Four days later, another Houthi uncrewed boat attacked a vessel, this time a Malta-flagged bunker.102 The Houthis’ use of uncrewed boats continued in July. On July 20, for example, an uncrewed boat appearing to be loaded with explosives approached a Liberian-flagged vessel the Houthis subsequently described as American. Armed guards onboard the merchant vessel managed to repel the attack.103 In the subsequent 24 hours, US forces destroyed four such boats.104 DNK and other maritime companies had been predicting this expansion, especially because the Houthis were already using airborne drones. The expansion also continued along the path of ever more sophistication. On June 26, the Houthis claimed to have struck another vessel with a hypersonic missile, a highly sophisticated weapon heretofore not used by militias.105

Because modern merchant vessels are sturdy, even the successful attacks caused mostly minor material damage. They did, however, have a human toll. At the time of writing, the attacks have cost four seafarers their lives, and many seafarers whose ships were attacked have been left traumatized.106 On June 25, the Philippines—the world’s leading provider of seafarers—announced it was considering banning its nationals from serving on vessels transiting the Red Sea.107 While such plans are hardly surprising, they will further harm Western ships, as Philippine seafarers overwhelmingly crew Western-linked vessels, while Russian and Chinese vessels are primarily crewed by Russian and Chinese nationals.

The attacks have also continued to illustrate the Houthis’ inaccuracy in targeting (and their faulty due diligence). On April 26, for example, they struck the Andromeda Star, a vessel owned in the UK, flagged in Panama, and operated in the Seychelles.108 On May 18, they struck the M/T Wind, a Greek-owned, Panamanian-flagged oil tanker. The two were, however, hardly Western vessels; they’re part of the dark fleet carrying Russian oil. In another illustrative turn of events, Western coalition ships in the Red Sea came to their aid.109

Measured in the cost-benefit term of vessels hit by strikes compared to losses and damage to the attacker side, the Houthis’ campaign has, as we have seen, largely been a failure. Indeed, traditional armed forces would likely have ceased their attacks after such an increase on the cost side of the cost-benefit calculus. Yet the Houthis have not only kept up their campaign but expanded it. This again illustrates how the Yemeni militia reacts differently than traditional armed forces because it uses a different cost-benefit calculus. From the Houthis’ perspective, the benefit is not the number of vessels destroyed or severely damaged, but the inordinate global attention and power the attacks generate. The militia appears to measure cost purely in monetary expenses for its weaponry, and that cost is modest. In the Houthis’ calculus, the cost in number of targets missed, environmental damage in Yemeni waters, and infrastructure destroyed by US-UK airstrikes appears to be marginal. Attacks on shipping “are a great weapon that can be used, for want of a better expression, to prevent or effect change in a particular area or cause damage to other nations and to shift the order of the world,” Lockwood said. “That’s the real danger that we face with the Houthis.110” Captain (Navy) Niels Markussen, the director of NATO’s Shipping Center, added

  • The Houthis’ capability appears to have been reduced to around 50 percent as we speak [in March 2024], but they still have the will to continue as long as we’re not taking over their territory with land forces, which we’d have to do to prevent them from using their coastline to launch attacks. Western and allied navies can do what they’re doing right now, they can lie outside the coast and they can protect ships, they can shoot down the drones and the missiles that are coming out, but some of these drones and missiles will get through, meaning that the Red Sea is not safe for shipping. We cannot guarantee safe passage through the Red Sea. And it’s that uncertainty that they will keep using against us.111

The Houthis are so illustrative because they’re not a one-off campaign but represent a triply new threat to shipping. The militia is not an officially recognized state and doesn’t operate according to the same calculus as traditional armed forces. At the same time, it’s linked to a government that supplies it with a range of weaponry, including highly sophisticated kinds. Because the Houthis’ objective is to wreak havoc on Western-linked merchant shipping, it matters little how successful their strikes are. What’s more, because global trade is so intense, they can wreak havoc on not just shipping, but on the globalized economy. Wang summarized the predicament facing Western nations, the default protectors of global shipping.

  • Is the Western defense against incoming missiles sustainable? When you’re using two-million-dollar missiles to shoot down a drone worth a few hundred dollars, there’s a long-term problem. Of course, if you are attacked by a ballistic missile, you need to engage it with a very advanced missile. That’s the only way you can counter it. But the combination of advanced missiles and very, very cheap weapons is basically drawing resources from the Western coalition at a pace that’s not sustainable in the long run. When it comes to drones, it takes a lot of courage to wait and to engage a drone when it comes into gun range, which would be the cheap way of doing it. But if you have a warship worth a billion dollars, you need to engage the drone or missile as soon as you can in order to cope with the threat as far out as possible. So you will have to waste expensive missiles on drones in order to be safe on board. And that raises, you could say, a technological challenge that you have on warships today because all warships are filled with advanced missiles. That has been the rule of the game because to engage a peer adversary you need advanced missiles and you also need to have precision deep strike capability to engage the enemy ashore from the sea. So that part is still valid. But you need another way of dealing with cheap drones that is coming towards you.112

Indeed, as Wang had predicted, the Biden administration appeared to conclude that the Houthis—with their fundamentally different cost-benefit calculus—could not be defeated militarily. In April, the US government appeared to be trying to find a diplomatic solution with the Houthis. One such solution involved removing the designation as a terrorist group, which the United States had imposed in January 2024, in a quid pro quo that would see the Houthis cease their attacks. “We would certainly study that but not assume it’s an automatic thing,” Tim Lenderking, President Biden’s special envoy for Yemen, told news media.113

The shipping industry’s response

The shipping industry (including shipping lines and insurers) possesses centuries-long experience assessing new and growing threats. Lloyd’s Market Association, a large marketplace for underwriters, traces its origins to Edward Lloyd’s coffeehouse in central London, where from 1688 seafarers, bankers, and underwriters met to discuss business. Today the insurance industry maintains bodies like the Joint War Committee (JWC), which operates a list of so-called listed areas. In regular meetings and emergency sessions, the JWC’s members assess risky waters. The most dangerous ones are “listed,” which means that shipping operators must clear passage with their insurers before sending their vessels through them. About a week before Russia’s invasion of Ukraine, the JWC listed Russia’s and Ukraine’s parts of the Black Sea, as well as the Sea of Azov. In mid-December, the JWC expanded its listed parts of the Red Sea.114

Red-flagging bodies of water is a logical measure for the shipping industry: it creates a common basis on which a critical mass of the industry can act. The JWC’s listing of Black Sea waters and the Sea of Azov was followed by Russia’s 2022 invasion of Ukraine , which left no doubt that sailing through these waters was inadvisable.115 In cases short of war, where the case for not sailing may be less obvious, the listed designation prompts shipping companies and insurers to approach perilous waters with caution, which creates a somewhat unified industry response.

This is what has taken place since the Houthis’ hijacking of the Galaxy Leader. Some shipping companies have diverted all their ships away from the Red Sea to the route around the Cape of Good Hope, which adds some 10–12 days to a vessel’s journey and added logistical complexity involving the reception and delivery of cargo and arrival and departure of crews. Other shipping lines have diverted some of their vessels. In late March 2023, the Bab el-Mandeb Strait had a seven-day moving average of thirty-one vessels; one year earlier, the seven-day moving average was seventy-six vessels.116 In early April 2023, the Cape of Good Hope had a seven-day moving average of forty-three vessels; by early March 2024, the seven-day moving average was seventy-eight vessels.117

Avoiding risky waters is a feasible strategy in the short term, but it doesn’t solve the problem of the Houthis and other state-linked outfits targeting shipping. “If you just look at these rebels, whether their actions are backed by Iran or not, the impact they’re having on not just shipping in the Red Sea and the Gulf of Aden, but on global trade generally, is substantial,” Lockwood said. “It will lead to shortages, and it will have an inflationary impact on trade. It will also lead to opportunism among people who see an opportunity to push prices.”118

Indeed, the attacks will create a contentious debate across the shipping sector (and its clients) about what added costs are acceptable—the alternative being to stop shipping goods altogether—and who should pay for them. “You have commercial pressures,” Ringbakken noted. “You have cars on the way from China to be launched in the European market and [the client] saying, ‘you have to get the cars to the market.’ But as insurers, we have to assess the risk, and if the risk increases we increase the premiums, which increases the costs.”119 The costs haven’t become prohibitive, meaning they are not so high that customers opt not to ship their goods.

  • It’s quite expensive to go around the Cape, and the Egyptians are pretty good at calculating what the cost is to go through the Suez Canal. As an example, if you have a 65-million-dollar tanker [a tanker insured for a value of $65 million], that’s our average ship going through [the Red Sea and the Suez Canal]. She will pay one million dollars to go through the canal and it would pay $650,000 in war risk premium to go through. That makes it slightly cheaper to go around the Cape, but it’s also 16 days more.120

By contrast, Chinese-owned and Chinese-flagged vessels, which are under no threat of attack, don’t face additional premiums in the Red Sea.

Indeed, it may only be when the number of total losses—vessels sunk or rendered unusable—begins accumulating that the Western shipping industry and maritime insurers will collectively opt out of the Red Sea route. By May 2024, there had been two total losses resulting from the Houthis’ attacks. Had modern vessels not been so sturdy, the total losses would have been significantly higher. And, added Ringbakken, “there’s of course a duty of care for the crew, and at some point most operators will have realized that there is a chance if not of being targeted at least of being subject to collateral damage.”121 Rerouting to the Cape of Good Hope, however, also brings additional expense. By April 2024, ports along the cape route had also reached, and in many cases surpassed, capacity as a result of the sudden influx of ships. As a result, vessels calling at these ports frequently need to wait for a berth, and storage yards struggle to handle the cargo.122

The Houthis’ campaign against shipping is, in fact, brilliantly executed gray zone aggression (sometimes referred to as hybrid aggression). It causes real harm to the entities, people, and countries targeted, but—because it’s not a military aggression by a government—the targeted countries struggle to respond. The peril posed by the Houthis is not just that shipping in the Red Sea will continue to be dangerous. Their campaign also sends the message that the global maritime order is crumbling and those violating its rules can do so with impunity.

The lesson other militias and hostile states are likely to draw from the Houthi campaign is that a militia or hostile state can cause immense and immediate harm to countries through similar campaigns by groups that are not officially or technically armed forces. Wang notes that

  • in global maritime strategy, there has always been a strong focus on choke points—a narrow strategic important strait, like the Malacca Strait, the Strait of Hormuz, the Great Belt in Denmark, the channel area between Europe the UK, the Strait of Gibraltar and so on. And you also have choke points in the Northern Sea route [the route that leads from the Barents Sea near Russia’s border with Norway, along Russia’s Arctic coast and on to the Bering Strait]. And those chokepoints will always potentially be subjects for aggression against global shipping because it’s so easy to inflict the sea waves from the shore thanks to the short distance from the shore.123

In the early 2000s, the Strait of Malacca—a crucial shipping lane located between Indonesia, Malaysia, and Thailand—experienced a spike in piracy, which subsided dramatically when Malaysia, Singapore, Indonesia, and Thailand began jointly patrolling the strait.124 It and similar narrow, strategic bodies of water may see the emergence of militias backed by a state in the region, perhaps even ad hoc militias created to attack shipping for geopolitical purposes. The Strait of Gibraltar, the English Channel, and the Great Belt, all located between nations that maintain friendly relations, are less at risk of geopolitically motivated attacks on shipping. The Great Belt, however, is a crucial thoroughfare for “shadow vessels” going to and from Russia.125 Such vessels could be used to harm regular shipping in the Great Belt and the neighboring Baltic Sea.

In each case, the attackers’ objective would not be to sink merchant ships but to frighten the shipping industry for geopolitical reasons—for example, to gain global attention or, in the case of separatist groups, to gain some kind of legal recognition. The Baltic Sea could, for example, see the emergence of a maritime-style Wagner Group that might officially simply operate merchant vessels but unofficially frighten other merchant vessels by its mere presence.

As with the Houthis, such groups’ cost-benefit calculus is likely to fundamentally differ from that of traditional armed forces. Indeed, states with hostile intentions could create proxy groups to harm merchant vessels associated with other countries. Similarly, China could expand its use of maritime harassment by making it more frequent, using it in more areas, or both, and other countries could decide to similarly send geopolitical signals by dispatching inspection flotillas or initiate maritime harassment. Indeed, from China’s perspective, the Philippines engages in maritime harassment in parts of the South China Sea that Beijing considers Chinese waters, though the Philippines and other governments consider the waters Philippine.126

As we have seen, the Houthis’ attacks are just the most dramatic example of geopolitically linked forms of aggression currently facing global shipping. If these forms of aggression are not deterred, they will continue to grow in quantity and will be joined by new forms. In the immediate term, such aggression will pose a threat to shipping operations in affected waters. In the longer term, it will also threaten functioning of the global maritime order, which depends on a critical mass of countries and other entities—whether they be militias or shipping companies—respecting maritime rules. If such compliance with maritime rules can’t be taken for granted, shipping lines and other companies involved in global shipping will be wary of sailing through certain bodies of water. This would harm not only countries located adjacent to such bodies of water but the entire conduct of global shipping.

Improving strategies to counter attacks on shipping

When the Houthis attacked the Central Park, it was clear that the countries trying to protect the global maritime order were facing a new type of adversary. This recognition among Western governments and maritime companies, though, was only marginally helpful, because it was entirely unclear what strategies Western governments could use against such an adversary. As we have seen, Western governments have struggled to establish an effective response to the Houthis’ attacks precisely because the Houthis are a new kind of adversary, whose logic differs from that of nation-states and traditional armed forces. Lewis notes:

  • If the Houthis were not an enemy, I would have an admiration for their strategy, but as it is I just have a distaste for their whole approach. They’re putting military forces, nation states, and industry at risk because they’re playing by different rules. How do you defend against this thing, how do you prepare to nullify it? It’s very costly for industry, and it’s very costly for militaries trying to enforce maritime rules. When it comes to the Houthis, we know who their backer is, Iran, so an extreme solution would be to hit it and all the military targets associated with it. But that would be too risky.127

Indeed, hitting the state sponsor of every kind of aggression against merchant shipping would not only be highly risky, but would also quickly overextend the capacity of Western navies. The Russian and Chinese navies have not intervened against the Houthis’ attacks. This is regrettable from a maritime-order protection perspective but hardly surprising, given that both countries violate maritime rules in other ways.128 They also seem to tolerate the Houthis’ attacks, which have—with the exception of a few cases of apparently misdirected attacks—spared vessels linked to Russia and China.

However, there are several steps Western governments and the shipping industry can take to at least partly blunt the impact of state-linked aggression against merchant vessels. They include the following.

Preemptive diversion of shipping

A yet-untried way to defang the Houthis and prospective similar attackers would be for a core group of governments and Western-based shipping companies and maritime insurers to declare that all merchant shipping linked (by flag, ship ownership, or cargo) to a core group of countries will be diverted. “As soon as you are away from the coasts, on the oceans, it’s much more difficult for paramilitary organizations to attack,” Wang noted. “The solution to the Red Sea attacks may be to collectively put everything on the southern route around the Cape of Good Hope.”129

This kind of collective action would involve an extraordinary diplomatic effort to bring together enough countries—including flag-of-convenience states—as well as shipping companies and underwriters. But success in assembling such a coalition would produce significant power. The threat of shipping diverting to the Cape of Good Hope—not out of fear, but as part of a collective decision by a wide-ranging group of governments and companies in the shipping industry—would, in the case of the Houthis, turn the Yemeni militia from a self-proclaimed anti-Western fighting force into a force driving business away from the Red Sea, the Bab el-Mandeb Strait, the Gulf of Aden, and the Suez Canal. Such an undertaking would have to be led by the US State Department, the Egyptian government, or, given the number of EU-linked vessels affected, the European Commission. If the lead entity were to succeed in getting enough governments and companies to commit to the plan, it could present the plan as an ultimatum. In the case of the Houthis, given that the plan would leave the militia and its sponsor Iran isolated, Iran may well conclude that the Houthis’ campaign has achieved its objectives and force the Houthis to end it.

Intra-industry risk updates

Vessels would be helped by risk updates not just when sailing in waters such as the Red Sea that are known to be home to attacks, but also in waters where new attacks are being orchestrated. The International Chamber of Commerce operates a Kuala Lumpur-based organization called the ICC International Maritime Bureau (IMB), which is meant to function as a hub for maritime threat updates. But Peter Broadhurst, head of Inmarsat Maritime Safety, noted that updates logged with the IMB are often forwarded slowly and may not reach vessels at all.

  • The information is there. If you’ve got a ship that’s just been hit by a rocket, it’s got a crew on board, and they’ll want to abandon it. The nearest rescue is another vessel, either a military vessel that’s shadowing it or another commercial ship. Somebody needs to go and help these guys, and if you don’t tell them they’re not going to know.130

Shipping companies and related firms could, he suggested, form an industry-funded outfit that would function as the hub for such updates.

Such a hub could be further aided by artificial intelligence (AI)-aided risk updates. Mature AI companies and AI startups could train artificial intelligence to detect anomalies in maritime thoroughfares and other strategic bodies of water and forward any anomalies—such as the accumulation of hardware or personnel in locations from which attacks could be launched—to the hub. After assessing whether the anomalies posed a risk to merchant vessels, the hub would alert shipping companies.

Use of directed-energy weapons

Directed-energy weapons use concentrated electromagnetic energy to “incapacitate, damage, disable, or destroy enemy equipment, facilities, and/or personnel.”131 The Congressional Research Service (CRS) notes that these weapons include high-energy lasers, which are used by “ground forces in short-range air defense, counter-unmanned aircraft systems, or counter-rocket, artillery, and mortar missions [and] could theoretically provide options for boost-phase missile intercept.”132 That makes these weapons—if they can easily be produced and used—an extremely cost-effective alternative to defensive missiles and, indeed, more cost-effective than missiles of the kind the Houthis use.133 “If you can engage the enemy with laser weapons, you don’t have the logistics problem anymore because you can reload while you are at sea. It’s just a matter of having enough energy,” Wang said. “And that development of energy weapons is likely to be accelerated now as a result of the war in Ukraine, but definitely also as a result of the situation in the Red Sea.”134 These defensive capabilities could also be developed as exportable, commercially procurable, standalone systems that commercial shipowners can procure and install on their fleets, which would enhance vessels’ defensive capability and, thus, lower risk and insurance premiums. For military customers, manufacturers could modify and enhance the weapons to meet military requirements such as increased power output and integration with other weapons.

For fiscal year 2024, the US Department of Defense has requested around $1 billion for unclassified directed-energy weapons. In a speech in January 2024, Vice Admiral Brendan McLane, the commander of the US Pacific Fleet’s Naval Surface Force, “called for a directed energy weapon to be deployed on every Navy ship.”135 Such large-scale development, though, is likely to take some time. At the time of writing, only nineteen directed-energy weapons are installed on US naval vessels.136

Selective protection dependent on flag registration

Countries sending naval forces to the Red Sea (and prospective future flashpoints) to defend merchant vessels could also announce that they will only protect vessels sailing under their flags. “To a certain extent, you can send naval vessels to the Red Sea in order to protect shipping,” Wang noted.” But it’s the same ships that are needed in the Indo-Pacific and in the North Atlantic and in the Baltic Sea and off the coast of Norway. When it comes to Western naval resources, it’s a zero-sum game.”137 During the Tanker War, when the government of Kuwait asked the US government to allow Kuwaiti-flagged tankers—which were coming under attack—to be reflagged under US flag, Washington complied and provided the tankers with naval protection.138

Western governments could declare that they will only seek to protect ships flagged in their countries, on the basis that shipowners that don’t commit to the rules of Western countries also can’t expect their protection. China and Russia, for example, have a history of only protecting merchant vessels sailing under their flags. Restricting protection would, however, do little for the general protection of the global maritime order, especially because the past several decades have seen the trend toward flags of convenience accelerate. In 2022, more than 70 percent of global ship capacity, as measured in deadweight tons, was registered under a foreign flag with beneficial owners and registries being in different countries, UN Trade and Development (UNCTAD) reports.139 Only 0.9 percent of merchant vessels (measured in deadweight tons) sail under US flag, 0.5 percent sail under UK flag, and 0.3 percent sail under German flag. The three largest flag states are Panama and Liberia, with more than 16 percent each, and the Marshall Islands with 13.2 percent.140

Indeed, trying to reverse the shipping industry’s pervasive use of flags of convenience while, at the same time, trying to protect shipping against state-linked attacks would likely be impossible. “If you look at all our economies in the West, irrespective of where the vessels are flagged, the goods they are transporting are fundamental to our economy,” said Potts, who has commanded the US-led Coalition Task Group in the northern Gulf and has also commanded NATO’s High Readiness Force (Maritime).141 He added:

  • In the Red Sea, Persian Gulf, and Strait of Hormuz region, historically we used to say we’re absolutely flag blind about who we’re protecting. Because the West, all our economies, rely on freedom of navigation for global trade and the well-being of our economy. Whether you’re Marshall Island-flagged or US-flagged or UK-flagged or Greek-flagged or anything else, we would treat them exactly the same because it’s only when the whole system works that the shipping works.142

And, Potts noted, “Often the cargo is more valuable than the ship. Who owns the cargo? Where’s it going? Who’s insuring it? Who owns the ship? With many ships, you can identify several different countries who have a stake in the ship and should take responsibility.”143

Freedom-of-navigation operations

In freedom-of-navigation operations (FONOPs, also known as FON operations or FON assertions), a country’s naval vessels underline the importance of innocent passage by sailing through waters over which another country wrongfully claims jurisdiction or otherwise tries to interfere with civilian traffic. FONOPs are regularly conducted by the Royal Navy, and especially the US Navy, as a constabulary measure to protect the global maritime order.

In the South China Sea, the US Navy now regularly undertakes FONOPs through waters that are internationally recognized as belonging to the Philippines or other countries but are claimed by China under its “nine-dash line” policy. Noted retired Rear Admiral David Manero, a former US defense attaché to Russia and the UK, respectively, said, “In order to be successful doing freedom and navigation operations, you have to be consistent, and your messaging has to be on, and it has to always be refined. Imagine taking that whole message among several nations and coordinate it. This is why we’re doing it, citing the law of the sea. But it involves a great deal of coordination.”144

To date, FONOPs have rarely been conducted in response to state-linked attacks on merchant vessels, simply because such attacks have been so rare. The US Navy has, however, conducted FON-related operations in the Strait of Hormuz and in the Bab el-Mandeb. The latter challenge Yemen’s requirement for foreign warships and nuclear-powered vessels to obtain Yemen’s permission prior to transiting its territorial waters. The United States also regularly conducts FONOPs in the South China Sea.145 There would be little point conducting FONOPs against attackers like the Houthis because they don’t represent nation-states and have such a different cost-benefit calculus. FONOPs would, however, be useful against inspection flotillas, should China or other countries begin to regularly deploy such flotillas in internationally disputed waters. In practice, such FONOPs would need to involve the US Navy or the Royal Navy, as other Western governments would be hesitant to lead such operations.

Yet it would be illusory to think that the US and UK navies could conduct simultaneous FONOPs around the world and, in essence, provide a global maritime constabulary. This would stretch the two navies’ resources beyond the breaking point. In the Taiwan Strait, FONOPs would also involve the risk of confrontation with the world’s largest navy, that of China, “with a battle force of over 370 platforms, including major surface combatants, submarines, ocean-going amphibious ships, mine warfare ships, aircraft carriers, and fleet auxiliaries.”146

Indeed, the attacks against, and harassment of, merchant vessels have reached a quantity that key Western navies would struggle to tackle. The Royal Navy, for example, has some eighty vessels, but only twelve of them are frigates, while eight are offshore patrol vessels and six are destroyers.147

Disrupting the delivery of weapons

As previously noted, the US Navy has long tried to interdict weapons supplies being shipped to the Houthis. Indeed, it began doing so long before it was evident that the militia would use the weapons to attack shipping. Now that it’s clear the weapons are being used not just in Yemen’s civil war but also to harm global shipping, the United States and its allies could ramp up these efforts. They could also announce they’re expanding such efforts to other weapons-smuggling operations. Until now, the smuggling has primarily harmed civilians in countries affected by civil war. But with the Houthis likely to inspire copycat attacks on shipping, disrupting the supplies of weapons and weapons components has gained additional urgency. “We need to really understand the Houthis’ supply chains and how the components for weapons that they then assemble get into the country,” Potts said. “It will be complex to map this, but it’s a practical step we can take.”148 To map these supply chains, governments could also confer with the private sector, as some companies are likely to have information that could help governments establish a clearer picture.

They could also confer with AI companies that can track and trace movements of suspected arms components to Houthi-controlled areas of Yemen. Indeed, governments could establish cooperation with AI companies, especially with startups seeking to prove their technologies, to receive early indications of patterns suggesting potentially worrying developments involving other groups and states. Such collaboration would add to observations already provided by intelligence services.

Armed guards on board

When piracy increased heavily off the coast of Somalia in the early 2000s, many shipping companies responded by hiring armed guards. The Houthis’ seizure of the Galaxy Leader quickly prompted suggestions of armed guards onboard merchant vessels in the Red Sea. Guards on merchant vessels are, however, relatively lightly armed and would not be able to protect a vessel against trained militias like the Houthis. Indeed, because ship guards are not soldiers, they’re legally prevented from operating military equipment and would thus not be able to protect ships from missile and (most) drone attacks. They would likely also struggle to thwart a professionally executed hijacking of the kind the Houthis mounted against the Galaxy Leader. This is illustrated by the fact that, even though ships in the Red Sea have increased “armed guards on board” signals since the Houthis began their attacks, the attacks have continued.149 In addition, armed resistance against a seizure attempt by a militia would risk escalating into a situation in which navies would feel compelled to intervene.

Western countries could, however, offer vessels protection by law-enforcement officers. Such officers’ task could be defined as defending the cargo rather than the ship. That would mean the exporting or importing country could offer embarked law enforcement that would be able to employ military or quasi-military defensive capabilities. The United States has tried this concept: the Navy and Marine task force that was deployed to the Strait of Hormuz in August 2023 included the offer of servicemembers embarking on merchant vessels if the vessels’ owners and managers requested such protection.

Conclusion

Since the beginning of the nineteenth century, the world’s nations have gradually built a set of rules and agreements that allows merchant shipping to operate without constant fear of attacks by hostile states. They have done so because nations’ economies—at least since the Industrial Revolution—rely on global shipping.

The Houthis’ attacks in the Red Sea, however, have introduced a new threat to merchant shipping: geopolitically connected attacks that are linked to a hostile state but not carried out by it. The Yemeni militia has, in fact, demonstrated that building up a capacity to act in the maritime domain is possible for a non-state actor with no maritime tradition. The fact that the Houthis are not the armed forces of an internationally recognized country and operate with a completely different cost-benefit calculus than traditional armed forces make them such a fierce threat to global shipping. So does the fact that they use more sophisticated weapons than previous generations’ militias have had at their disposal, and that the weapons are inexpensive and attractive to use. Other militias (including ones yet to be formed) will likely want to copy the Houthis’ successful concept in other maritime chokepoints and heavily trafficked waters.

For the global shipping industry (except vessels linked to Russia and China, which the Houthis exempt from their attacks), this means that a neutral sector can be severely harmed and disrupted, at great expense to the shipping industry. The Houthis’ different cost-benefit calculus means retaliating against their strikes has little effect on their motivation. The harm to seafarers as a result of the Houthi attacks now presents an additional problem for Western shipping companies and, thus, global supply chains. So far, the shipping industry has managed to recruit seafarers—these days, predominantly from India, the Philippines, and Indonesia.150 If attacks continue, shipping’s already precarious recruitment situation will worsen significantly. “Who wants to work in a war zone?” Broadhurst asked. “Unless we can protect seafarers, how can global trade continue?”151 At the end of June 2024, the Philippine government banned Philippine seafarers from working on ships that had been attacked in the Red Sea and the Gulf of Aden.152

Instead, Western governments and the shipping industry will need to use means other than traditional military force to reduce the pain caused by the Houthis (and prospective future attackers of a similar kind). These efforts—including the preemptive threat of collective rerouting away from perilous waters and the use of direct-energy weapons—will require public-private collaboration. Western governments and shipping companies could start by announcing that they are increasing their collaboration beyond the immediate needs in the Red Sea. This would signal to prospective attackers that Western governments and companies are prepared for new maritime gray zone aggression and will have a better strategy to thwart it than has been the case in the Red Sea.

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1    Ronald O’Rourke, “The Tanker War,” Proceedings, US Naval Institute, May 1988, https://www.usni.org/magazines/proceedings/1988/may/tanker-war.
2    Bradley Peniston, “Operation Earnest Will,” Navybook, last visited June 14, 2024, https://www.navybook.com/no-higher-honor/timeline/operation-earnest-will/.
3    O’Rourke, “The Tanker War.”
4    Piracy is not covered in this report, which exclusively analyzes state-linked aggression against shipping
5    H. B. Robertson, Jr., “U.S. Policy on Targeting Enemy Merchant Shipping: Bridging the Gap Between Conventional Law and State Practice,” in Richard J. Grunawalt, ed., International Law Studies 65 (1993), 338, https://digital-commons.usnwc.edu/cgi/viewcontent.cgi?article=1744&context=ils#:~:text=The%20conundrum%20of%20this%20situation,legitimate%20targets%20of%20direct%20attack.
6    “Privateer,” Britannica, last visited June 14, 2024, https://www.britannica.com/technology/privateer.
7    Robertson, Jr., “U.S. Policy on Targeting Enemy Merchant Shipping,” 338.
8    “Hague Convention VI—Status of Enemy Merchant Ships at the Outbreak of Hostilities: 18 October 1907, 205 Consol. T.S. 305, 3 Martens Nouveau Recueil (ser. 3) 533, entered into force Jan. 26, 1910,” University of Minnesota Human Rights Library, last visited June 14, 2024, http://hrlibrary.umn.edu/instree/1907e.htm.
9    Robertson, Jr., “U.S. Policy on Targeting Enemy Merchant Shipping,” 339
10    “American Entry into World War I, 1917,” US Department of State, last visited June 14, 2024, https://2001-2009.state.gov/r/pa/ho/time/wwi/82205.htm.
11    Ibid., 342.
12    Robertson, Jr., “U.S. Policy on Targeting Enemy Merchant Shipping,” 342.
13    “Convention on the International Maritime Organization,” International Maritime Organization, 1948, https://www.imo.org/en/About/Conventions/Pages/Convention-on-the-International-Maritime-Organization.aspx.
14    Ibid.
15    Brian Michael Jenkins, et al., “A Chronology of Terrorist Attacks and Other Criminal Actions against Maritime Targets,” RAND, September 1983, https://www.rand.org/content/dam/rand/pubs/papers/2006/P6906.pdf.
16    Interview with the author, March 14, 2024.
17    “International Convention for the Safety of Life at Sea (SOLAS), 1974,” International Maritime Organization, 1974, https://www.imo.org/en/About/Conventions/Pages/International-Convention-for-the-Safety-of-Life-at-Sea-(SOLAS),-1974.aspx.
18    Ibid. International maritime rules, treaties, and conventions will be discussed at greater length in a later report.
19    Tullio Treves, “United Nations Convention on the Law of the Sea,” Audiovisual Library of International Law, December 10, 1982, https://legal.un.org/avl/ha/uncls/uncls.html. UNCLOS entered into force in 1994.
20    “United Nations Division for Ocean Affairs and the Law of the Sea, United Nations Convention on the Law of the Sea of 10 December 1982: Overview and Full Text,” United Nations, 1982, https://www.un.org/depts/los/convention_agreements/convention_overview_convention.htm.
21    Richard A. Mobley, “Revisiting the 1984 Naval Mining of the Red Sea: Intelligence Challenges and Lessons,” Studies in Intelligence 66, 2 (June 2022), 22f, https://www.cia.gov/resources/csi/static/RedSeaMiningMystery1984.pdf.
22    Felix Richter, “The Steep Rise in Global Seaborne Trade,” Statista, March 26, 2021, https://www.statista.com/chart/24527/total-volume-of-global-sea-trade/.
23    “U.S. Charges Saudi for 2002 Oil Tanker Bombing,” Maritime Executive, February 6, 2014, https://maritime-executive.com/article/US-Charges-Saudi-for-2002-Oil-Tanker-Bombing-2014-02-06.
24    “The Strait of Hormuz is the World’s Most Important Oil Transit Chokepoint,” US Energy Information Administration, November 21, 2023, https://www.eia.gov/todayinenergy/detail.php?id=61002.
25    “Stena Impero: Seized British Tanker Leaves Iran’s Waters,” BBC, September 27, 2019, https://www.bbc.com/news/world-middle-east-49849718.
26    Patrick Wintour, “A Visual Guide to the Gulf Tanker Attacks,” Guardian, June 14, 2019, https://www.theguardian.com/world/2019/jun/13/a-visual-guide-to-the-gulf-tanker-attacks.
27    C. Todd Lopez, “U.S. Forces Arrive to Support Deterrence Efforts at Strait of Hormuz,” US Department of Defense, August 7, 2023, https://www.defense.gov/News/News-Stories/Article/Article/3485733/us-forces-arrive-to-support-deterrence-efforts-at-strait-of-hormuz.
28    Heather Mongilio, “Video: Iranian Navy Warship Fires on Oil Tanker in the Strait of Hormuz,” USNI News, July 5, 2023, https://news.usni.org/2023/07/05/video-iranian-warship-fires-on-oil-tanker-in-the-strait-of-hormuz.
29    “Merchant Ships Attacked and on Fire off Ukraine,” Maritime Executive, March 25, 2022, https://www.maritime-executive.com/article/merchant-ships-attacked-and-on-fire-off-ukraine.
30    Matt Coyne and Gary Dixon, “Engineer Killed in Attack on Bangladeshi Bulker in Black Sea,” TradeWinds, March 2, 2022, https://www.tradewindsnews.com/casualties/engineer-killed-in-attack-on-bangladeshi-bulker-in-black-sea/2-1-1177847.
31    Elisabeth Braw, “Foreign Seafarers Are Stranded in Ukraine for Christmas,” Foreign Policy, December 27, 2022, https://foreignpolicy.com/2022/12/27/seafarers-stranded-ukraine-christmas-russia-war/.
32    Interview with the author, April 5, 2024.
33    Alexander Lott, Hybrid Threats and the Law of the Sea (Leiden, Netherlands: Brill, 2021),172, https://brill.com/display/book/9789004509368/BP000013.xml?language=en&body=pdf-60830; Katie Zeng Xiaojun, “East Asia: Impact of China and Taiwan Conflict on Shipping,” Maritime Intelligence, September 6, 2022, https://www.riskintelligence.eu/analyst-briefings/east-asia-impact-of-china-and-taiwan-conflict; “Taiwan Strait: Pray We’ll Always Be as Lucky,” Lloyd’s List, August 5, 2022, https://www.lloydslist.com/LL1141850/Taiwan-Strait-pray-well-always-be-as-lucky.
34    Interview with the author, April 5, 2024. China’s construction of artificial islands and its long-distance fishing fleet, whose estimated nearly seventeen thousand vessels fish other countries’ waters dry, will be examined in a subsequent report within the Atlantic Council’s Threats to the Global Maritime Order project.
35    Bec Strating, “China’s Nine-Dash Line Proves Stranger than Fiction,” Interpreter, April 12, 2022, https://www.lowyinstitute.org/the-interpreter/china-s-nine-dash-line-proves-stranger-fiction; Anthony H. Cordesman, Arleigh A. Burke, and Max Molot, “The Critical Role of Chinese Trade in the South China Sea,” in China and the U.S.: Cooperation, Competition and/or Conflict an Experimental Assessment, Center for Strategic and International Studies, October 1, 2019, http://www.jstor.org/stable/resrep22586.30.
36    Gregory B. Poling, Tabitha Grace Mallory, and Harrison Prétat, “Pulling Back the Curtain on China’s Maritime Militia,” Center for Strategic and International Studies and Center for Advanced Defense Studies, November 2021, 5, https://csis-website-prod.s3.amazonaws.com/s3fs-public/publication/211118_Poling_Maritime_Militia.pdf?VersionId=Y5iaJ4NT8eITSlAKTr.TWxtDHuLIq7wR.
37    Interview with the author, March 14, 2024.
38    Demetri Sevastopulo, “US Pacific Commander Says China Is Pursuing ‘Boiling Frog’ Strategy,” Financial Times, April 28, 2024, https://www.ft.com/content/f926f540-d5c2-43f2-bd8f-c83c0d52bcda.
39    Interview with the author, April 5, 2024.
40    Marek Jestrab, “A Maritime Blockade of Taiwan by the People’s Republic of China: A Strategy to Defeat Fear and Coercion,” Atlantic Council, December 12, 2023, https://www.atlanticcouncil.org/content-series/atlantic-council-strategy-paper-series/a-maritime-blockade-of-taiwan-by-the-peoples-republic-of-china-a-strategy-to-defeat-fear-and-coercion/.
41    Interview with the author, April 5, 2024.
42    “Hijacked Car Carrier’s Crew Treated ‘As Well As Can Be Expected,’” Maritime Executive, December 5, 2024, https://maritime-executive.com/article/hijacked-car-carrier-s-crew-treated-as-well-as-can-be-expected.
43    Yahya Sare’e (@Yahya_Saree), “The Yemeni Naval Forces managed to capture an Israeli ship in the depths of the Red Sea taking it to the Yemeni coast. The Yemeni armed forces deal with the ship’s crew in accordance with the principle and values of our Islamic religion,” Twitter, November 19, 2023, 11:23 a.m., https://twitter.com/Yahya_Saree/status/1726290072994296194.
44    Isabel Debre and Jon Gambrell, “Yemen’s Houthi Rebels Hijack an Israeli-Linked Ship in the Red Sea and Take 25 Crew Members Hostage,” Associated Press, November 20, 2023, https://apnews.com/article/israel-houthi-rebels-hijacked-ship-red-sea-dc9b6448690bcf5c70a0baf7c7c34b09.
45    Ibid.
46    U.S. Central Command (@CENTCOM), “Today, there were four attacks against three separate commercial vessels operating in international waters in the southern Red Sea. These three vessels are…” X post, December 3, 2023, https://x.com/CENTCOM/status/1731424734829773090.
47    Nadine Awadalla, Terje Solsvik and Phil Stewart, “Yemen’s Houthis Claim Missile Attack on Norwegian Tanker in Tense Middle East,” Reuters, December 12, 2023,
https://www.reuters.com/world/middle-east/cruise-missile-yemen-strikes-tanker-ship-us-officials-2023-12-12/.
48    John Gambrell, “2 Attacks Launched by Yemen’s Houthi Rebels Strike Container Ships in Vital Red Sea Corridor,” Associated Press, December 15, 2023, https://apnews.com/article/yemen-houthi-ship-attack-israel-hamas-69289146266b9042b5896aa4679605ef.
49    Interview with the author, March 14, 2024.
50    Interview with the author, March 28, 2024.
51    The dark fleet will be the subject of a subsequent report.
52    “Crew of Seized Galaxy Leader Allowed ‘Modest’ Contact with Families—Shipowner,” Reuters, December 5, 2023, https://www.reuters.com/world/middle-east/crew-seized-galaxy-leader-allowed-modest-contact-with-families-shipowner-2023-12-05/.
53    Interview with the author, March 28, 2024.
54    Phil Stewart, “More than 20 Countries Now Part of US-led Red Sea Coalition, Pentagon Says,” Reuters, December 22, 2023, https://www.reuters.com/world/more-than-20-countries-now-part-us-led-red-sea-coalition-pentagon-2023-12-21/.
55    “Statement from Secretary of Defense Lloyd J. Austin III on Ensuring Freedom of Navigation in the Red Sea,” US Department of Defense, press release, December 18, 2023, https://www.defense.gov/News/Releases/Release/Article/3621110/statement-from-secretary-of-defense-lloyd-j-austin-iii-on-ensuring-freedom-of-n/.
56    Jim Garamone, “Ryder Gives More Detail on How Operation Prosperity Guardian Will Work,” US Department of Defense, December 21, 2023, https://www.defense.gov/News/News-Stories/Article/Article/3624836/ryder-gives-more-detail-on-how-operation-prosperity-guardian-will-work/.
57    Ibid.
58    Ibid.
59    Parisa Kamali, et al., “Red Sea Attacks Disrupt Global Trade,” International Monetary Fund, March 7, 2024, https://www.imf.org/en/Blogs/Articles/2024/03/07/Red-Sea-Attacks-Disrupt-Global-Trade.
60    Interview with the author, March 28, 2024.
61    Interview with the author, March 13, 2024.
62    U.S. Central Command (@CENTCOM), “U.S. assets, to include the USS LABOON (DDG 58) and F/A-18 Super Hornets from the Eisenhower Carrier Strike Group, shot down twelve one-way attack drones, three anti-ship ballistic missiles, and two land attack cruise missiles in the Southern Red Sea that were fired by the Houthis over a 10 hour period which began at approximately 6:30 a.m. (Sanaa time) on December 26. There was no damage to ships in the area or reported injuries,” Twitter, December 26, 2023, 2:36 p.m., https://twitter.com/CENTCOM/status/1739746985652158755.
63    Interview with the author, April 10, 2024.
64    Interview with the author, March 14, 2024.
65    Interview with the author, March 14, 2024.
66    Interview with the author, March 28, 2024.
67    Wes Rumbaugh, “Cost and Value in Air and Missile Defense Intercepts,” Center for Strategic and International Studies, February 13, 2024, https://www.csis.org/analysis/cost-and-value-air-and-missile-defense-intercepts.
68    Bridget Diakun, “Red Sea Activity Down Nearly 20% after Containership Exodus,” Lloyd’s List, January 4, 2024, https://www.lloydslist.com/LL1147824/Red-Sea-activity-down-nearly-20-after-containership-exodus.
69    “A Joint Statement from the Governments of the United States, Australia, Bahrain, Belgium, Canada, Denmark, Germany, Italy, Japan, Netherlands, New Zealand, Republic of Korea, Singapore, and the United Kingdom,” White House, January 3, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/01/03/a-joint-statement-from-the-governments-of-the-united-states-australia-bahrain-belgium-canada-denmark-germany-italy-japan-netherlands-new-zealand-and-the-united-kingdom/.
70    “US CENTCOM Statement on 26th Houthi Attack on Commercial Shipping Lanes in the Red Sea,” US Central Command, January 9, 2024, https://www.centcom.mil/MEDIA/STATEMENTS/Statements-View/Article/3639970/us-centcom-statement-on-26th-houthi-attack-on-commercial-shipping-lanes-in-the/.
71    Ibid.
72    Interview with the author, March 14, 2024.
73    “Statement from President Joe Biden on Coalition Strikes in Houthi-Controlled Areas in Yemen,” White House, press release, January 11, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/01/11/statement-from-president-joe-biden-on-coalition-strikes-in-houthi-controlled-areas-in-yemen/.
74    Phil Stewart and Idrees Ali, “US, British Forces Carry out More Strikes against Houthis in Yemen,” Reuters, February 25, 2024, https://www.reuters.com/world/middle-east/us-british-forces-carry-out-additional-strikes-against-houthis-yemen-2024-02-24/.
75    U.S. Central Command (@CENTCOM), “Third Houthi Terrorists Attack on Commercial Shipping Vessel in Three Days: On Jan. 18 at approximately 9 p.m. (Sanaa time), Iranian-backed Houthi terrorists launched two anti-ship ballistic missiles at M/V Chem Ranger, a Marshall Island-flagged, U.S.-Owned, Greek-operated tanker ship. The crew observed the missiles impact the water near the ship. There were no reported injuries or damage to the ship. The ship has continued underway,” Twitter, January 18, 2024, 6:42 p.m., https://twitter.com/CENTCOM/status/1748143745567010833.
76    Ibid.
77    Interview with the author, March 14, 2024.
78    Interview with the author, March 14, 2024.
79    “Yemen: Houthi Attacks Placing Pressure on International Trade,” US Defense Intelligence Agency, 2024, 3, https://www.dia.mil/Portals/110/Images/News/Military_Powers_Publications/YEM_Houthi-Attacks-Pressuring-International-Trade.pdf.
80    Mared Gwyn Jones, “EU Launches Mission Aspides to Protect Red Sea Vessels from Houthi Attacks,” Euronews, February 19, 2024, https://www.euronews.com/my-europe/2024/02/19/eu-launches-mission-aspides-to-protect-red-sea-vessels-from-houthi-attacks.
81    Sam Dagher and Mohammed Hatem, “Yemen’s Houthis Tell China, Russia Their Ships Won’t Be Targeted,” Bloomberg, March 21, 2024, https://www.bloomberg.com/news/articles/2024-03-21/china-russia-reach-agreement-with-yemen-s-houthis-on-red-sea-ships?sref=NeFsviTJ.
82    “Who Are the Houthis and Why Are They Attacking Red Sea Ships?” BBC, March 15, 2024, https://www.bbc.com/news/world-middle-east-67614911.
83    Sam Chambers, “Washington Seeks New Ways to Deescalate Red Sea Shipping Crisis,” Splash 247, April 4, 2024, https://splash247.com/washington-seeks-new-ways-to-deescalate-red-sea-shipping-crisis.
84    Ibid.
86    U.S. Central Command (@CENTCOM), “April 26 CENTCOM Red Sea Update: At 5:49 p.m. (Sanna time) on April 26, Iranian-backed Houthi terrorists launched three anti-ship ballistic missiles (ASBMs) from Houthi-controlled areas of Yemen into the Red Sea in the vicinity of MV MAISHA, an Antigua/Barbados flagged, Liberia operated vessel and MV Andromeda Star, a UK owned and Panamanian flagged, Seychelles operated vessel. MV Andromeda Star reports minor damage, but is continuing its voyage,” Twitter, April 26, 2024, 7:46 p.m., https://twitter.com/CENTCOM/status/1784021287553135050.
87    Jonathan Lehrfeld, Diana Stancy and Geoff Ziezulewicz, “All the Houthi-US Navy Incidents in the Middle East (that We Know of),” Military Times, last updated April 30, 2024, https://www.militarytimes.com/news/your-military/2024/02/12/all-the-houthi-us-navy-incidents-in-the-middle-east-that-we-know-of/.
88    Chambers, “Washington Seeks New Ways to Deescalate Red Sea Shipping Crisis.”
89    Kamali, et al., “Red Sea Attacks Disrupt Global Trade.”
90    Takeshi Kumon, “Chinese Cargo Ships Poised to Gain from Red Sea Tensions,” Nikkei Asia, April 27, 2024, https://asia.nikkei.com/Politics/Middle-East-crisis/Chinese-cargo-ships-poised-to-gain-from-Red-Sea-tensions2.
91    Interview with the author, April 11, 2024.
92    Interview with the author, April 5, 2024.
93    Interview with the author, April 5, 2024.
94    Robert Wright, “Houthis Extend Attacks on Shipping to Wider Indian Ocean,” Financial Times, May 1, 2024, https://www.ft.com/content/778a80a0-1f55-4ffc-ade0-857bd5bd9b92; “MSC Orion,” Vessel Finder, last visited June 14, 2024, https://www.vesselfinder.com/vessels/details/9857157.
95    “Houthis Say They Will Target Israel-Bound Ships Anywhere within Their Range,” Al Jazeera, May 3, 2024, https://www.aljazeera.com/news/2024/5/3/yemens-houthis-say-they-will-target-ships-heading-for-israel-within-range.
96    EUNAVFOR Aspides (@EUNAVFORASPIDES), “EUNAVFOR ASPIDES: 100 close protections. In less than 3 months since its official launch, Operation ASPIDES completed 100 CP, providing safe transit of merchant vessels,” X, May 9 2024, 10:49 a.m., https://x.com/EUNAVFORASPIDES/status/1788597163435360334.
97    Jana Choukeir, Tala Ramadan and Adam Makary, “Bulker Damaged Near Yemen by Two Missile Attacks, Security Sources Say,” Reuters, May 28, 2023, https://www.reuters.com/world/middle-east/vessel-tilts-off-yemens-coast-after-attack-by-missiles-ambrey-says-2024-05-28/.
98    “Yemen’s Houthi Rebels Claim Latest Attack on Cargo Ship in Gulf of Aden,” VOA, June 9, 2024, https://www.voanews.com/a/yemen-s-houthi-rebels-claim-latest-attack-on-cargo-ship-in-gulf-of-aden/7649384.html.
99    Neil Jerome Morales and Jonathan Saul, “Bulk Carrier ‘Tutor’ Abandoned After Houthi Attack,” Reuters, June 14, 2024, https://gcaptain.com/rescue-underway-for-bulk-carrier-missing-crew-member-after-houthi-attack/.
101    “Houthis Claim Attacks on Two Ships in Red Sea and Indian Ocean,” Reuters, June 24, 2024, https://www.reuters.com/world/middle-east/houthis-claim-attacks-two-ships-red-sea-indian-ocean-2024-06-23/.
102    “Houthis Hit Another Merchant Ship with a Bomb Boat,” Maritime Executive, June 27, 2024, https://www.maritime-executive.com/article/houthis-hit-another-merchant-ship-with-a-bomb-boat.
103    Mike Schuler, “Watch: Houthi Drone Boat Destroyed by Armed Guards,” gCaptain, July 23, 2024, https://gcaptain.com/watch-houthi-drone-boat-destroyed-by-armed-guards/.
105    “Video: Houthis Claim First Launch of Hypersonic Missile Targeting MSC Ship,” Maritime Executive, June 26, 2024, https://www.maritime-executive.com/article/houthis-claim-first-launch-of-hypersonic-missile-targeting-distant-msc-ship.
106    “Surviving Crewmembers of Bulker Tutor Recount Ordeal of Houthi Attack,” Maritime Executive, June 17, 2024, https://www.maritime-executive.com/article/surviving-crewmembers-of-bulker-tutor-recount-ordeal-of-houthi-attack.
107    “Seafarer Supply, Quinquennial, 2015 and 2021,” United Nations Trade and Development, last visited July 22, 2024, https://unctadstat.unctad.org/datacentre/dataviewer/US.Seafarers; “Philippines Says 78 Crew Refused to Sail Red Sea as it Increases Ban,” Maritime Executive, June 26, 2024, https://www.maritime-executive.com/article/philippines-says-78-crew-refused-to-sail-red-sea-as-it-increases-ban.
108    “April 26 Red Sea Update,” US Central Command, press release, April 26, 2024, https://www.centcom.mil/MEDIA/PRESS-RELEASES/Press-Release-View/Article/3758387/april-26-red-sea-update/.
109    TankerTrackers.com, Inc. (@TankerTrackers), “Ironically, WIND (9252967) is a Dark Fleet tanker that not only we know very well from Venezuela, but was carrying Russian oil last night in the Red Sea,” Twitter, May 18, 2024, 10:23 a.m., https://x.com/TankerTrackers/status/1791852091876528209; U.S. Central Command, (@CENTCOM), “Houthis strike M/T Wind in Red Sea: At approximately 1 a.m. (Sanaa time) May 18, Iranian-backed Houthis launched one anti-ship ballistic missile (ASBM) into the Red Sea and struck M/T Wind, a Panamanian-flagged, Greek owned and operated oil tanker…” Twitter, May 18, 2024, 10:20 a.m., https://x.com/CENTCOM/status/1791851421152743816; “Houthi Attack Damages Shadow Fleet Tanker Carrying Russian Oil,” Maritime Executive, May 18, 2024, https://www.maritime-executive.com/article/houthi-attack-damages-shadow-fleet-tanker-carrying-russian-oil.
110    Interview with the author, March 14, 2024.
111    Interview with the author, March 18, 2024.
112    Ibid.
113    Sam Dagher, “US May Revoke Houthi Terrorist Label If They Stop Red Sea Ship Attacks,” Bloomberg, April 3, 2024, https://www.bloomberg.com/news/articles/2024-04-03/us-may-revoke-houthi-terrorist-label-if-they-stop-red-sea-ship-attacks?srnd=economics-v2&sref=NeFsviTJ.
114    Elisabeth Braw, “The Last Thing Ukraine Needs Is a Shipping Crisis. But It’s About to Have One,” Prospect Magazine, February 17, 2022, https://www.aei.org/op-eds/the-last-thing-ukraine-needs-is-a-shipping-crisis-but-its-about-to-have-one; Jonathan Saul, “London Marine Insurers Widen High Risk Zone in Red Sea as Attacks Surge,” Reuters, December 18, 2023, https://www.reuters.com/markets/commodities/london-marine-insurers-widen-high-risk-zone-red-sea-attacks-surge-2023-12-18.
115    A UN-sponsored “grain corridor” was later created to allow the shipment of Ukrainian grain to world markets.
116    “Trade Disruptions in the Red Sea,” IMF Portwatch, last visited June 14, 2024, https://portwatch.imf.org/pages/573013af3b6545deaeb50ed1cbaf9444.
117    Ibid.
118    Interview with the author, March 14, 2024.
119    Interview with the author, March 14, 2024.
120    Interview with the author, May 9, 2024.
121    Interview with the author, March 14, 2024.
122    Robert Wright, “Mediterranean Ports Warn of Overflowing Storage Yards in Latest Threat to Supply Chain,” Financial Times, April 23, 2024, https://www.ft.com/content/1f0a7add-1412-4b27-926f-cb99338fa520.
123    Interview with the author, March 28, 2024.
124    “Drastic Drop in Piracy in Malacca Straits,” Maritime Security Asia, April 21, 2011, https://web.archive.org/web/20171107012031/http://maritimesecurity.asia/free-2/piracy-2/drastic-drop-in-piracy-in-malacca-straits/.
125    For more about the shadow fleet, see: Elisabeth Braw, “Russia’s Growing Dark Fleet: Risks for the Global Maritime Order,” Atlantic Council, January 11, 2024, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/russias-growing-dark-fleet-risks-for-the-global-maritime-order. The dark fleet will also be analyzed in an extensive report as part of the Atlantic Council’s Threats to the Global Maritime Order initiative.
126    Again, these activities will be analyzed in a subsequent report as part of the Atlantic Council’s Maritime Threats project.
127    Interview with the author, March 14, 2024.
128    Russia’s use of the shadow fleet will be discussed in a subsequent report as part of the Atlantic Council’s Maritime Threats project, as will other maritime violations including China’s maritime harassment.
129    Interview with the author, March 28, 2024.
130    Interview with the author, March 21, 2024.
131    “Defense Primer: Directed-Energy Weapons,” Congressional Research Service, last updated February 1, 2024, https://sgp.fas.org/crs/natsec/IF11882.pdf.
132    Ibid.
133    Ibid.
134    Interview with the author, March 28, 2024.
135    Stew Magnuson, “Directed Energy Weapons: Here Now? Or 5 Years Off?” National Defense, February 29, 2024, https://www.nationaldefensemagazine.org/articles/2024/2/29/editors-notes-directed-energy-weapons-here-now-or-5-years-off.
136    Ibid.
137    Interview with the author, March 28, 2024.
138    MG Wachenfeld, “Reflagging Kuwaiti Tankers,” Duke University, last visited June 14, 2024, https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3026&context=dlj.
139    “Review of Maritime Transport 2023,” United Nations Conference on Trade and Development, 2023, 32, https://unctad.org/system/files/official-document/rmt2023_en.pdf.
140    Ibid., 33.
141    Interview with the author, April 10, 2024.
142    Ibid.
143    Ibid.
144    Interview with the author, March 21, 2024.
145    “IKE Strike Group Transits the Strait of Hormuz,” US Navy, November 27, 2023, https://www.navy.mil/Press-Office/News-Stories/Article/3598368/ike-strike-group-transits-the-strait-of-hormuz/.
146    “Report to Congress on Chinese Naval Modernization,” USNI News, February 1, 2024, https://news.usni.org/2024/02/01/report-to-congress-on-chinese-naval-modernization-20.
147    “Number of Vessels in the Royal Navy of the United Kingdom in 2023, by Type,” Statista, December 8, 2023, https://www.statista.com/statistics/603297/type-of-vessels-in-royal-navy/.
148    Interview with the author, April 10, 2024.
149    “Windward Trade Patterns & Risk Insights Report Q4/2023,” Windward, January 2, 2024, https://windward.ai/blog/windward-q4-risk-report/.
150    “Seafarer Supply, Quinquennial, 2015 and 2021,” UN Trade and Development, last updated July 18, 2023, https://unctadstat.unctad.org/datacentre/dataviewer/US.Seafarers.
151    Interview with the author, April 2, 2024.
152    Marita Moaje, “Pinoy seafarers no longer allowed on ships attacked in Red Sea,” Philippine News Agency, June 25, 2024, https://www.pna.gov.ph/articles/1227677.

The post What attacks on shipping mean for the global maritime order appeared first on Atlantic Council.

]]> The future of digital transformation and workforce development in Latin America and the Caribbean https://www.atlanticcouncil.org/in-depth-research-reports/report/the-future-of-digital-transformation-and-workforce-development-in-latin-america-and-the-caribbean/ Thu, 08 Aug 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=775109 During an off-the-record private roundtable, thought leaders and practitioners from across the Americas evaluated progress made in the implementation of the Regional Agenda for Digital Transformation.

The post The future of digital transformation and workforce development in Latin America and the Caribbean appeared first on Atlantic Council.

]]> The sixth of a six-part series following up on the Ninth Summit of the Americas commitments.

An initiative led by the Atlantic Council’s Adrienne Arsht Latin America Center in partnership with the US Department of State continues to focus on facilitating greater constructive exchange among multisectoral thought leaders and government leaders as they work to implement commitments made at the ninth Summit of the Americas. This readout was informed by a private, information-gathering roundtable and several one-on-one conversations with leading experts in the digital space.

Executive summary

At the ninth Summit of the Americas, regional leaders agreed on the adoption of a Regional Agenda for Digital Transformation that reaffirmed the need for a dynamic and resilient digital ecosystem that promotes digital inclusion for all peoples. The COVID-19 pandemic exacerbated the digital divide globally, but these gaps were shown to be deeper in developing countries, disproportionately affecting women, children, persons with disabilities, and other vulnerable and/or marginalized individuals. Through this agenda, inclusive workforce development remains a key theme as an avenue to help bridge the digital divide and skills gap across the Americas.

As part of the Atlantic Council’s consultative process, thought leaders and practitioners evaluated progress made in the implementation of the Regional Agenda for Digital Transformation agreed on at the Summit of Americas, resulting in three concrete recommendations: (1) leverage regional alliances and intraregional cooperation mechanisms to accelerate implementation of the agenda; (2) strengthen public-private partnerships and multisectoral coordination to ensure adequate financing for tailored capacity-building programs, the expansion of digital infrastructure, and internet access; and (3) prioritize the involvement of local youth groups and civil society organizations, given their on-the-ground knowledge and role as critical indicators of implementation.

Recommendations for advancing digitalization and workforce development in the Americas:

  1. Leverage regional alliances and intraregional cooperation mechanisms to accelerate implementation of the agenda.
  • Establish formal partnerships between governments and local and international universities to broaden affordable student access to exchange programs, internships, and capacity-building sessions in emerging fields such as artificial intelligence and cybersecurity. Programs should be tailored to country-specific economic interests and sectors such as agriculture, manufacturing, and tourism. Tailoring these programs can also help enhance students’ access to the labor market upon graduation.
  • Ensure existing and new digital capacity-building programs leverage diaspora professionals. Implement virtual workshops, webinars, and collaborative projects that transfer knowledge and skills from technologically advanced regions to local communities. Leveraging these connections will help ensure programs are contextually relevant and effective.
  • Build on existing intraregional cooperation mechanisms and alliances to incorporate commitments of the Regional Agenda for Digital Transformation. Incorporating summit commitments to mechanisms such as the Alliance for Development in Democracy, the Americas Partnership for Economic Prosperity, the Caribbean Community and Common Market, and other subregional partnerships can result in greater sustainability of commitments as these alliances tend to transcend finite political agendas.
  • Propose regional policies to standardize the recognition of digital nomads and remote workers, including visa programs, tax incentives, and employment regulations. This harmonization will facilitate job creation for young professionals and enhance regional connectivity.
  1. Prioritize workforce development for traditionally marginalized groups by strengthening public-private partnerships and multisectoral collaboration.
  • Establish periodic and open dialogues between the public and private sectors to facilitate the implementation of targeted digital transformation for key sectors of a country’s economy that can enhance and modernize productivity. For instance, provide farmers with digital tools for precision agriculture, train health care workers in telemedicine technologies, and support tourism operators in developing online marketing strategies.
  • Foster direct lines of communication with multilateral organizations such as the Inter-American Development Bank and the World Bank. Engaging in periodic dialogues with these actors will minimize duplication of efforts and maximize the impact of existing strategies and lines of work devoted to creating digital societies that are more resilient and inclusive. Existing and new programs should be paired with employment opportunities and competitive salaries for marginalized groups based on the acquired skills, thereby creating strong incentives to pursue education in digital skills.
  • Collaborate with telecommunications companies to offer subsidized internet packages for low-income households and small businesses and simplify regulatory frameworks to attract investment in rural and underserved areas, expanding internet coverage and accessibility.
  • Enhance coordination with private sector and multilateral partners to create a joint road map for sustained financing of digital infrastructure and workforce development to improve investment conditions in marginalized and traditionally excluded regions and cities.
  1. Increase engagement with local youth groups and civil society organizations to help ensure digital transformation agendas are viable and in line with local contexts.
  • Facilitate periodic dialogues with civil society organizations, the private sector , and government officials and ensure that consultative meetings are taking place at remote locations to ensure participation from disadvantaged populations in the digital space. Include women, children, and persons with disabilities to ensure capacity programs are generating desired impact and being realigned to address challenges faced by key, targeted communities.
  • Work with local actors such as youth groups and civil society organizations to conduct widespread awareness campaigns to help communities visualize the benefits of digital skills and technology use. Utilize success stories and case studies to show how individuals and businesses can thrive in a digital economy, fostering a culture of innovation and adaptation.
  • Invest in local innovation ecosystems by providing grants and incentives for start-ups and small businesses working on digital solutions. Create business incubators and accelerators to support the growth of digital enterprises, particularly those addressing local challenges.
  • Offer partnership opportunities with governments to provide seed capital, contests, digital boot camps, and mentorship sessions specifically designed for girls and women in school or college to help bridge the gender digital divide.
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]]> Sailing through the spyglass: The strategic advantages of blue OSINT, ubiquitous sensor networks, and deception https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/sailing-through-the-spyglass-the-strategic-advantages-of-blue-osint-ubiquitous-sensor-networks-and-deception/ Thu, 08 Aug 2024 10:43:41 +0000 https://www.atlanticcouncil.org/?p=781627 In today’s technologically enabled world, the movements of every vessel—from nimble fishing boats to colossal aircraft carriers—can be meticulously tracked by a massive network of satellites and sensors. With every ripple on the ocean’s surface under scrutiny, surprise naval maneuvers will soon be relics of the past.

The post Sailing through the spyglass: The strategic advantages of blue OSINT, ubiquitous sensor networks, and deception appeared first on Atlantic Council.

]]> In today’s technologically enabled world, the movements of every vessel—from nimble fishing boats to colossal aircraft carriers—can be meticulously tracked by a massive network of satellites and sensors. With every ripple on the ocean’s surface under scrutiny, surprise naval maneuvers will soon be relics of the past. The vast expanse of the world’s oceans will no longer be shrouded in mystery, but illuminated by data streams flowing from millions of eyes and ears aware of every movement from space to seabed.

Open-source intelligence (OSINT) refers to intelligence derived exclusively from publicly or commercially available information that addresses specific intelligence priorities, requirements, or gaps. OSINT encompasses a wide range of sources, including public records, news media, libraries, social media platforms, images, videos, websites, and even the dark web. Commercial technical collection and imagery satellites also provide valuable open-source data. The power of OSINT lies in its ability to provide meaningful, actionable intelligence from diverse and readily available sources.

Thanks to technological advances, OSINT can provide early warning signs of a conflict to come long before it actually breaks out. On land, the proliferation of inexpensive and ubiquitous sensor networks has rendered battlefields almost transparent, making surprise maneuvers more difficult. Through open-source data from smartphones and satellites, persistent OSINT provides early warning of mobilization and other key indicators of military maneuvers. This capability is further augmented by artificial intelligence (AI)-enhanced reconnaissance and real-time data analysis, which have proven remarkably effective in modern conflicts including in Ukraine, Azerbaijan, Gaza and Israel, and Sudan. As this paradigm extends to maritime operations, it brings unique challenges and characteristics compared to land operations.

As technology races forward, Blue OSINT stands out as a key tool in the arsenal of contemporary naval warfare during global great-power competition. Blue OSINT harnesses data from commercial satellites, social media, and other publicly available sources to specifically enhance maritime domain awareness, identify emerging threats, and inform strategic decisions.

The current state of Blue OSINT across the spectrum of conflict points to an accelerating technology-driven evolution enabling maritime security and sea-control missions. The US Navy (USN) can enhance Blue OSINT collection with its own commercially procured sensor networks and bespoke uncrewed systems to shape operational environments, prevent and resolve conflicts, and ensure accessibility of sea lines of communications.

Commercially procured sensors span a wide array of technologies, including sonar and acoustic sensors, as well as video and seismic devices that are utilized to detect activities in strategic locations. These sensors can function independently or operate from uncrewed systems, providing flexibility and adaptability in various maritime operations. For instance, uncrewed aerial systems (UAS) equipped with high-resolution cameras and radar can deliver persistent surveillance over expansive oceanic areas, while uncrewed underwater vehicles (UUVs) with sonar capabilities can monitor subsea activities, such as submarine movements and underwater installations. These uncrewed platforms enable the continuous collection of critical data, enhancing the Navy’s situational awareness and operational readiness without putting sailors at risk.

For the US Navy to best support the joint force and maintain its strategic edge, it must integrate ubiquitous sensor networks and Blue OSINT into naval strategies adapted for tomorrow’s increasingly complex maritime environment. The Navy’s multiyear Project Overmatch is a good start to developing its “network of networks” and contributing to the Joint All-Domain Command and Control (JADC2) program.

With escalating tensions in the South China Sea, conventional forces are stretched thin and face asymmetric threats such as the People’s Liberation Army Navy (PLAN)’s undersea sensing arrays and China’s maritime militia forces. Integrating Blue OSINT and sensor networks into the Navy’s strategies complements traditional naval power, while allowing intelligence missions to be conducted at lower risk and cost. Moreover, the open-source nature of this information enhances the Navy’s ability to share information and collaborate with allies and partners while bypassing cumbersome security classification issues. By relying on easily shareable information, the Navy can better synchronize efforts with partner navies, making command of the sea a more coordinated and viable endeavor.

The impact of evolving open-source intelligence on warfare

Feature OSINT Traditional Intelligence
Source of data Commercial satellites, social media, public sources HUMINT, SIGINT, classified sources
Coverage Global, real-time updates, highly accessible Selective, based on specific operational requirements
Cost Low cost, leveraging existing commercial infrastructure High cost, involving extensive human and technical resources
Risk Low risk, minimal direct exposure Higher risk, involves clandestine operations
Data volume Extremely high, necessitates AI and advanced analytics Moderate to high, manageable with traditional methods
Ease of sharing High, fewer classification issues Low, often restricted by security classifications
Data warning Effective, provides pre-conflict indicators Effective, but often limited by operational scope
Deception tactics Requires advanced techniques to counteract Relies on traditional counterintelligence and technical methods
Collaboration Enhances collaboration with allies using open data Limited, restricted sharing due to classification
Operational impact Supports continuous monitoring and quick response Supports deep, targeted insights into adversaries

The table above provides a comparison between OSINT and traditional intelligence methods, highlighting the strengths and weaknesses of each approach. OSINT offers global, real-time updates at a lower cost by leveraging existing commercial infrastructure. This approach presents a lower risk, as it involves minimal direct exposure and facilitates easier information sharing due to fewer classification issues.

On the other hand, traditional intelligence methods such as human intelligence (HUMINT) and signals intelligence (SIGINT) provide selective, targeted insights based on specific operational requirements. These methods often involve higher costs and risks due to the need for extensive human and technical resources, as well as the nature of clandestine operations. While traditional intelligence can offer deep, targeted insights, it is often limited by operational scope and security classification issues, making information sharing more challenging.

In the maritime domain, these distinctions are particularly significant. The concept of Blue OSINT integrates these principles specifically for naval operations, emphasizing the need for continuous monitoring and rapid-response capabilities.

Blue OSINT and persistent maritime monitoring

In the pre-conflict stage, global satellite coverage and social media provide a wealth of data that can map maritime activity with unprecedented detail. Nonprofit organizations like Global Fishing Watch use commercial satellite constellations to track ships and monitor maritime activity. Increased affordability and accessibility of satellite technology have enabled nongovernmental and commercial entities to contribute to maritime domain awareness in new ways. For instance, maritime radar emissions—once the exclusive domain of military and intelligence satellites—are now easily observable and “tweetable,” allowing for vessel identification to be accomplished more easily when actors execute deceptive techniques. Similarly, platforms like X (formerly Twitter) host numerous “ship spotting” accounts, where enthusiasts post photos and updates of vessels passing through strategic chokepoints and major straits, further enriching the available data.

Through persistent monitoring and large-scale data analysis, Blue OSINT can be used to significantly mitigate the challenge of monitoring large exclusive economic zones (EEZs). It offers a cost-effective alternative to traditional patrols, allowing these navies to adopt a more targeted approach when deploying their limited resources. By embracing Blue OSINT, naval forces can enhance their surveillance and response capabilities without a heavy financial burden, ensuring that these forces remain agile and effective in their maritime operations. Additionally, data streams from ubiquitous sensor networks can be coupled with Blue OSINT collection to give naval intelligence experts near-endless amounts of data in support of complex reconnaissance operations, without placing sailors and special operators at increased risk to collect it.

In addition to myriad opportunities for intelligence collection, using Blue OSINT presents technological challenges for the US Navy. The sheer volume of data generated by ubiquitous sensor networks and Blue OSINT tools necessitate substantial investments in software and analytic tools to manage and interpret this information effectively. Intelligence professionals must sift through endless amounts of data to identify actionable insights. Even the most skilled analysts need software and computer processing that can help organize and parse raw data.

To address these challenges, the US Navy and other maritime forces are ramping up investments in commercially procured sensor networks and cutting-edge analytic tools. In June 2024, the National Geospatial-Intelligence Agency issued its first-ever commercial solicitation for unclassified technology to help track illicit fishing in the Pacific. Such investments aim to access, exploit, and process the massive amounts of data generated, a key step to achieving comprehensive maritime domain awareness. Better software and analytic tools can help maximize the potential of Blue OSINT and sensor networks, ensuring that intelligence analysts can better inform decision-makers at the speed of relevance.

Strategic deployment of distributed sensors

While Blue OSINT provides valuable insights into chokepoints and shipping lanes, it does not yet offer comprehensive coverage of the open ocean. Its effectiveness is greater in populated and coastal areas, where the density of electronic devices and human activity is significantly higher than on the high seas. Moreover, OSINT data can often be easily manipulated, presenting challenges in ensuring the accuracy and reliability of the information gathered. For example, although ships emitting Automatic Identification System (AIS) signals can be tracked on the web, navies are aware that bad actors often tamper with their transponders in order to disguise their locations, ultimately limiting the signals’ reliability.

To bypass these limitations of open-source data, navies and intelligence agencies can enhance their Blue OSINT capabilities by augmenting them with strategically deployed clandestine sensor networks in key locations, such as harbors, straits, and other critical chokepoints. This combination of data flows allows for effective monitoring and data collection on vessel movements, communications, and adversary intentions. Additionally, other covert sensors can be hidden on the seabed or disguised on civilian vessels, like fishing boats, in regions such as the South China Sea. Using distributed sensors along with Blue OSINT data ensures continuous and comprehensive maritime situational awareness, even in areas less frequented by military assets.

However, fixed sensor networks alone are insufficient to cover the dynamic maritime environment. Deploying a mobile network of distributed sensors necessitates a diverse array of platforms and technologies. While military satellites, ships, and aircraft equipped with advanced sensors can offer intermittent coverage, they are costly and limited in number, and their findings are less easily shareable with partners and allies. To bridge these gaps, allied navies should invest in affordable and scalable solutions such as uncrewed surface vehicles (USVs), UUVs, and UASs. Outfitted with various sensors, these platforms can effectively detect and track adversary movements, ensuring that navies maintain situational awareness across the vast expanse of the Pacific Ocean and other critical regions.

Small UASs launched from naval ships can be used to rapidly surveil large swaths of sea, providing real-time data on both surface and subsurface activities. Recognizing the strategic advantage of uncrewed systems, China has taken a bold step to outpace the US Navy by developing an aircraft carrier specifically designed to launch and recover UASs, rather than sophisticated manned platforms like the J-20 fighter jet. This significant investment in a carrier solely for uncrewed vehicles by the PLAN should prompt the United States to reconsider, and potentially adjust, its future resourcing strategy. Similarly, USVs can conduct long-duration patrols at a fraction of the cost of manned ship operations, exemplified by Saildrone vessels patrolling the Indian Ocean, providing the USN a robust sensor network. UUVs, deployed from submarines or surface ships, can monitor subsea activities, such as the movement of submarines and other submersible assets.

By monitoring the air, sea, and underwater environments, uncrewed vehicles and their sensors can significantly enhance overall maritime situational awareness. However, these tools are only effective if they are integrated into a cohesive architecture that combines traditional intelligence, surveillance, and reconnaissance (ISR) with Blue OSINT data and affordable long-term leave-behind sensors. Project Overmatch exemplifies how to achieve this integration by developing a network that links sensors, shooters, and command nodes across all domains. For instance, Project Overmatch aims to leverage advanced data analytics, artificial intelligence, and secure communications to create a unified maritime operational picture, enabling faster and more informed decision-making. By incorporating these elements, the US Navy can ensure that uncrewed vehicles and their sensors are effectively utilized to maintain operational superiority in the maritime domain.

Moreover, the low-signature nature of some of these sensors increases the odds that they can operate undetected by adversaries, providing a strategic advantage. By deploying sensors in unexpected locations, and disguising them as civilian assets in some cases, navies can gather intelligence without alerting potential threats to their presence.

Blue OSINT and sensor networks in conflict

While Blue OSINT collection and distributed sensor networks can easily collect data in uncontested waters, they have immediate applications to modern maritime conflict as well. For instance, in the event of a cross-strait invasion by the People’s Republic of China (PRC), the transparency provided by Blue OSINT would make it difficult for navies to maneuver undetected. Satellites and social media continuously monitor naval piers, strategic chokepoints, and even some open ocean areas, making it increasingly difficult to achieve tactical surprise. Historical instances—such as Japan’s attack on Pearl Harbor, the D-Day invasion, or the successful surprise dash to transit the English Channel by the German fleet during World War II—would be much harder to achieve in the modern era due to the pervasive nature of Blue OSINT.

In the context of a potential Taiwan invasion, Blue OSINT would likely be used to detect and closely follow Chinese naval activities, including the movement of amphibious assault ships and submarines. OSINT analysts frequently examine satellite imagery of Chinese shipyards and military installations, which could provide early indications of mobilization.

However, relying solely on satellite imagery and AIS for Blue OSINT is insufficient. Multi-intelligence capabilities are essential to provide a comprehensive assessment. For instance, in 2020, two commercial firms collaborated to use radio frequency and synthetic aperture radar collection to detect Chinese illegal, unregulated, and unreported fishing near the Galapagos EEZ. This open-source technique revealed the ability to identify fishing vessels that turned off their AIS to cross into the EEZ. In a future conflict with China, the same methodology of combining multiple Blue OSINT sources could be used to identify and track vessels of the People’s Armed Forces Maritime Militia (PAFMM). This would bypass the AIS vulnerabilities that the PAFMM traditionally exploits to avoid detection, while also revealing its intentions as directed by the PLAN.

The Russo-Ukraine conflict revealed how OSINT can thwart surprise maneuvers and provide crucial targeting data deep behind enemy lines. However, it also underscores the limitations of OSINT in sparsely populated environments, such as the open ocean. For example, in December 2023, as missiles flew over the Red Sea, 18 percent of global container-ship capacity was rerouted. While civilian mariners and commercial shipping significantly contribute to Blue OSINT during peacetime, their absence in a high-risk conflict scenario would shift the burden more heavily onto satellite and uncrewed systems.

Deception and stealth

While the US Navy can take advantage of these technologies, its adversaries can, and almost certainly will, do the same. The US Navy and its allies must develop countermeasures to mitigate the risks posed by sensor networks while also leveraging its benefits. One approach is to invest in advanced deception tactics designed to mislead adversaries. These include the use of decoys, electronic warfare, and signal spoofing to create false targets and confuse enemy sensors. The Navy has been quietly developing these tools to obscure its true movements and intentions, ultimately confounding adversaries and making it harder for them to accurately target US forces.

In addition to deception, the United States and its allies need to enhance their naval stealth capabilities to evade adversaries’ distributed sensor networks. This involves not only minimizing the electromagnetic signatures of their vessels, but also employing innovative designs and operational tactics to reduce their radar cross-sections and avoid detection.

Distributed sensors in conflict

The ability to complement Blue OSINT with distributed sensors will be a decisive factor in near-term conflict dynamics. Just as frontline units in Ukraine are detected and targeted by cheap drones and stationary sensors, naval forces can be identified and pinpointed by similar systems at sea. Distributed sensors can provide continuous monitoring and data collection, ensuring that navies can maintain situational awareness and respond swiftly to emerging threats.

Three pillars are necessary to distribute sensors effectively across the ocean.

First, large conventional fleets play a critical role in maritime strategy. These fleets must be capable of extended operations and diverse missions, providing the backbone of naval presence, power projection, sea lines of communication, and, ultimately, sea control. During the COVID-19 pandemic, the US Navy demonstrated its endurance with record-length deployments, showcasing an advantage that could be significant in future maritime campaigns.

Second, organic reconnaissance drones are essential. Each destroyer and aircraft carrier should be equipped with its own fleet of multi-domain drones to conduct surveillance and gather intelligence. Currently, US carrier strike groups rely on land-launched surveillance drones, which are vulnerable and limited in number. Integrating organic drones into each vessel would enhance situational awareness and operational flexibility, allowing for more effective and autonomous intelligence-gathering capabilities.

Third, large fleets of affordable USVs and UUVs can deploy sensors across the ocean, increasing sensor hours at sea and improving maritime domain awareness. The first Replicator tranche is equipping forces with thousands of attritable systems to turn the Taiwan Strait into “an unmanned hellscape,” demonstrating the strategic value of uncrewed systems in contested waters. Moreover, the Navy is experimenting with diverse types of uncrewed platforms, aiming to create a distributed fleet architecture that is even more lethal than today’s carrier-centric fleet. These unmanned systems provide a cost-effective means to enhance surveillance and reconnaissance capabilities across vast oceanic areas, ensuring that the Navy can maintain a strategic advantage in both peacetime and conflict scenarios.

Recommendations

To maximize the efficacy of maritime domain awareness, it is crucial to integrate data from both Blue OSINT and ubiquitous sensor networks. While these two systems of data collection are largely distinct, their combined use can significantly enhance the accuracy and comprehensiveness of intelligence assessments and naval warfare.

  1. Leverage Blue OSINT. Significant investment in artificial intelligence and advanced analytics is necessary to manage and interpret the endless amounts of data generated by open-source intelligence. By fostering a coordinated approach to maritime security, Blue OSINT can facilitate easier information sharing with allies and partners, but only if its utilization is preplanned. Collaborative pathways for Blue OSINT data collection, processing, and analysis must take shape early in the concept and planning phases. This collaborative effort will significantly enhance collective situational awareness and operational effectiveness, making it easier for navies to synchronize their efforts. Additionally, complementing Blue OSINT with traditional intelligence collection such as HUMINT and SIGINT provides a comprehensive threat assessment. By integrating these capabilities, navies can more easily attain a well-rounded understanding of adversary actions.
  2. Commercially procure distributed sensing capabilities and networks. The US Navy must invest in Replicator-style unmanned platforms that can affordably deploy sensors across maritime battlefields, similar to the use of small UAS for land reconnaissance. These commercially procured distributed sensing platforms will significantly enhance the Navy’s ability to continuously and comprehensively monitor vast areas, improving overall maritime domain awareness.
  3. Recognize a new maritime operating environment. The US Navy must prepare for protracted missions away from easily monitored ports and chokepoints while penetrating adversary-controlled, denied waters. This mission set requires a robust logistical framework capable of supporting extended deployments in remote and contested waters. By developing sophisticated tactics to deceive and confuse distributed sensor networks, the Navy can minimize its visibility to adversaries and maintain strategic surprise. This necessitates investing in advanced deception technologies such as electronic warfare, signal spoofing, and decoys to create false targets and obscure true movements. Additionally, enhancing the stealth capabilities of vessels through innovative designs and operational practices will further ensure that naval forces can evade detection and operate effectively in a sensor-saturated environment. By embracing these realities, the Navy can sustain its operational effectiveness and strategic advantage across the competition continuum.

Conclusion

In an era of distributed sensing networks and Blue OSINT, adaptation is not just about leveraging technology but also about evolving operational doctrines to meet the challenges of contemporary maritime conflicts. By integrating Blue OSINT capabilities, deploying distributed sensors, and countering (and employing) deception, naval forces can maintain an asymmetric advantage in the increasingly visible and contested maritime domain.

The success of modern naval operations hinges on the ability to swiftly adapt to technological advancements and evolving threats. Navies must transcend beyond traditional methods and embrace innovative strategies to remain agile and effective. This demands a concerted effort from all levels of naval leadership, from policymakers to forward operators, to implement these changes.

On the unforgiving sea, only those who rapidly transform to the era of Blue OSINT will avoid the abyss, with the rest risk sinking into obsolescence as adversaries gain decisional advantage. Navies that fail to adjust to the realities of Blue OSINT and sensor networks risk ending up like the Russian Black Sea Fleet: at the bottom of the ocean.

Authors

Guido L. Torres is a nonresident senior fellow with the Atlantic Council’s Forward Defense Program and the executive director of the Irregular Warfare Initiative.

Austin Gray is co-founder and chief strategy officer of Blue Water Autonomy. He previously worked in a Ukrainian drone factory and served in US naval intelligence.

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]]> China Pathfinder: Q2 2024 update https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/china-pathfinder-q2-2024-update/ Wed, 07 Aug 2024 15:11:39 +0000 https://www.atlanticcouncil.org/?p=784137 In the second quarter of 2024, China’s leaders insisted that economic growth was strong and on track. However, China's financial vital signs–property markets, stock prices, and consumer sentiment–all indicate weakness.

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The gulf between economic data and official pronouncements grew through the second quarter of 2024. Property markets, stock prices and consumer sentiment all indicated weakness while China showcased engagement with foreign investors and private Chinese firms to signal intent to boost activity. But new policy actions were not market friendly in the period before the July 2024 Third Plenum economic planning meetings. There were a few encouraging signs for foreign investors, including pledges to discipline local protectionism and arbitrary regulations, but these have been heard before, and “promise fatigue” is a serious problem. Most of the clusters we track showed limited progress or further divergence from OECD norms. On trade, China refused to acknowledge the legitimacy of the overcapacity concerns the world was alarmed about.

The second quarter generally reflected the takeaway from the July plenum meetings: China will leverage whatever it can to drive technological advancement, and national security will override efficiency at home and engagement abroad. New rules to address excess local regulation contain expansive national security carveouts, as do pilot measures to allow foreign investment in data centers and telecom. Beijing’s commitment to direct state support to vast swaths of the economy was reinforced this quarter, with the state planning plenum manifesto as a capstone.


Source: China Pathfinder. A “mixed” evaluation means the cluster has seen significant policies that indicate movement closer to and farther from market economy norms. A “no change” evaluation means the cluster has not seen any policies that significantly impact China’s overall movement with respect to market economy norms. For a closer breakdown of each cluster, visit https://chinapathfinder.org/

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]]> A Russia without Russians? Putin’s disastrous demographics https://www.atlanticcouncil.org/content-series/russia-tomorrow/a-russia-without-russians-putins-disastrous-demographics/ Wed, 07 Aug 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=782641 A new Atlantic Council report explores the effect of Putin's politics on domestic Russian demographic change. Is Putin heading towards a Russia without Russians?

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Russia’s full-scale invasion of Ukraine in February 2022 challenged much of the common Western understanding of Russia. How can the world better understand Russia? What are the steps forward for Western policy? The Eurasia Center’s new “Russia Tomorrow” series seeks to reevaluate conceptions of Russia today and better prepare for its future tomorrow.

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Table of contents

Introduction

I. Addressing the Soviet legacy

II. Pre-war policies

III. The ethnic variable

IV. Wartime policies undermine population growth

V. Conclusion

About the author

Russia’s future will be characterized by a smaller population. Russian President Vladimir Putin’s war has virtually guaranteed that for generations to come, Russia’s population will be not only smaller, but also older, more fragile, and less well-educated. It will almost certainly be ethnically less Russian and more religiously diverse. While some might view diversity as a strength, many Russians do not see it this way. In a world with hordes of people on the move to escape war, persecution, poverty, and the increasing impact of climate change, xenophobic political rhetoric sells well.

Putin has spoken frequently about Russia’s demographic problems, beginning in his first months as president. Despite spending trillions of rubles on high-profile “national projects” to remedy the situation, population decline continued. Putin’s choice of timing for military aggression in Ukraine might have reflected an understanding that Russia’s demographic (and economic) situation would not improve in the next two decades. However, the war is turning a growing crisis into a catastrophe.

The demographic consequences from the Russian war against Ukraine, like those from World War II and the health, birth rate and life expectancy impact from Russia’s protracted transition in the 1990s, will echo for generations. Russia’s population will decline for the rest of the twenty-first century, and ethnic Russians will be a smaller proportion of that population. The ethnic and religious groups that embrace the “traditional family values” Putin favors are predominantly non-Russian.

United Nations scenarios project Russia’s population in 2100 to be between 74 million and 112 million compared with the current 146 million. The most recent UN projections are for the world’s population to decline by about 20 percent by 2100. The estimate for Russia is a decline of 25 to 50 percent.

While Russia is hardly unique in facing declining birth rates and an aging population, high adult mortality, and infertility among both men and women, increasingly limited immigration and continuing brain drain make Russia’s situation particularly challenging. Population size is determined by a combination of natural factors—birth rates and life expectancy, along with the emigration-immigration balance. Putin’s war on Ukraine has undermined all the potential sources of population growth.

There have been four important inflection points in demography policy since Putin became president. The first came in 2006, when Putin’s rhetoric about demography finally resulted in specific policies: demography was one of the first four national projects he launched at that time. The second significant change came following Russia’s annexation of Crimea in 2014. The reaction to that aggression in Ukraine, Moldova, and other former Soviet republics narrowed the number of countries providing labor to Russia.

A third key moment was the Crocus City Hall terrorist attack near Moscow in March 2024. Tajiks made up half of the immigrants to Russia in 2023, but that has become politically problematic in the aftermath of the Crocus attack. The most recent policy shifts accompanied the formation of a new government in May 2024. Initial reports promise a long-term approach that perhaps begins to recognize Russia’s new demographic reality. It comes too late, and the measures proposed fail to offer new solutions.

The paper begins with a summary of the demographic problems the Russian Federation inherited from the Soviet Union and its ineffective initial response. The second section reviews the deteriorating situation after 2013. The third section focuses on ways Russia’s full-scale war against Ukraine is exacerbating all of these challenges. The conclusion suggests what impact population decline will have on Russia’s future.

Addressing the Soviet legacy

The Soviet Union experienced multiple demographic shocks in the twentieth century. Following Joseph Stalin’s death, recovery appeared possible. Yet by the 1960s, Russia’s high infant mortality and low adult life expectancy were outliers compared with most highly industrialized countries.

The population shock from World War II echoed for decades. Soviet leader Mikhail Gorbachev’s anti-alcohol campaign in 1986–1987 generated a brief improvement in life expectancy, but this was hardly enough to change the dynamic.

Economic disruptions, beginning with Gorbachev’s perestroika and continuing into the 1990s, resulted in fewer births, higher mortality, and significant emigration. The dissolution of the Soviet Union spurred massive population relocation, as millions of Russians and non-Russians returned to their titular homelands. Every former Soviet republic became more ethnically homogeneous. This trend has continued within the Russian Federation, as some non-Russian republics continue to become less Russian. Russians relocating within the Russian Federation have reduced the population in the Far East.

Russia’s immigration-emigration balance involves several population flows. Russians have moved back to Russia from newly independent former Soviet republics. As Russia’s economy improved, labor migrants, primarily from former Soviet republics, have found formal and informal work in Russia. Prior to the war, the immigrants compensated for the multiple waves of (mostly Russian) people emigrating from Russia.

The breakdown of the Warsaw Pact —and then the Soviet Union itself—disrupted economic linkages and supply chains that had existed for decades. Economic insecurity reduced already-declining birth rates across much of the post-Soviet space. Russia’s total fertility rate (TFR)—the number of births per woman—dropped from just below replacement level in 1988 to 1.3 in 2004. Maintaining a population level requires a TFR of at least 2.1 without positive net immigration; Russia’s high adult mortality rate requires one even higher.

In his initial inaugural address in August 2000, Putin warned that Russia could become “an enfeebled nation” due to population decline. Despite the warnings, little was done. Russia’s TFR increased from 1.25 in 2000 to 1.39 in 2007. This slight improvement reflected better economic conditions due to rising oil prices, and a (temporarily) larger number of women in the 18–35 age cohort.

One reason for persistent difficulty in achieving higher birth rates or TFR numbers has been the legacy of Soviet polices. Lack of access to effective birth control and male resistance to condom use resulted in abortion being the widely used solution for unwanted pregnancies. Murray Feshbach calculated that the Soviet-era abortion rate averaged seven per woman. Far less attention has been devoted to male infertility. Alcohol and substance abuse have resulted in unusually high infertility rates among Russian men.

Low birth rates are only one part of the population problem. Unhealthy diet and lifestyle, binge alcohol consumption, and accidents contribute to the high adult mortality numbers. When Putin was first elected president in 2000, Russian men aged 18–64 were dying at four times the rate of European men. Russian women were perishing at about the same rate as European men.
Until early 2005, Putin’s public position was that Russia could offset its population decline by attracting more Russians living in former Soviet republics to return to Russia, bringing with them needed skills while augmenting the ethnic Russian population. This immigration offset much of the population loss in the 1990s but has increasingly declined since Putin became president. Significantly, non-Russians became the dominant labor migrants.

Data from the Russian state statistics service Goskomstat indicate legal immigration peaked at 1.147 million in 1994 and declined each year thereafter, shrinking to 350,900 in 2000 and 70,000 in 2004.

Despite the declining numbers, the Russian government adopted a highly restrictive law in 2002 limiting legal immigration. When the Security Council discussed immigration again in 2005, Putin called for a more “humane approach,” dropping the racial and religious criteria. Yet he followed this with a “clarification” prioritizing Russian speakers. It is possible that Putin understood the situation but adjusted his rhetoric in accord with public opinion.

Russian media reports of a massive influx of Chinese immigrants in the 1990s were wildly exaggerated. By 2000, as oil prices rose, workers from Central Asia, Ukraine, and Moldova found formal or informal work in Russia. Russia incorporated the populations of Crimea and eastern Ukraine in 2014, and additional territories since 2022, which accounts for official claims of a larger “Russian” population.

Immigrants to Russia have come overwhelmingly from former Soviet republics, which account for 95–96 percent of the total. Just five countries that were part of the Soviet Union (Azerbaijan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) had population growth between 1989 and 2004. Migrants from two former Soviet republics with declining populations, Ukraine and Moldova, continued to provide labor until 2014. Putin reiterated the importance of demography in his inaugural addresses in 2012, 2018, and 2024, and in many of his annual call-in programs. Several times he has acknowledged the failure to achieve promised increases in births. Yet there appears to be no learning curve regarding policies. Putin’s 2024 address promised more of the same: paying Russians to have larger families, accompanied by invoking the need for more soldiers to defend the motherland.

Pre-war policies

As the price of oil increased in the 2000s, Putin’s government debated how to use the windfall to address persistent demographic challenges. As in many countries, immigration remains politically fraught. Russian nationalist groups adopted “Russia for the Russians” as a campaign slogan. Improving life expectancy is an ideal solution, but it is slow and expensive, depending on adults taking care of their health. Putin’s government opted for pro-natal policies. In his presidential address in 2006, Putin cited demography as “the most serious problem in Russia today.” Rather than listening to advisers familiar with the basket of diverse policies that improved birth rates in France and Sweden—prenatal and postnatal care, parental leave, daycare, preschool programs, housing support, and other incentives—Russia’s government emphasized “maternity capital.”

The initial maternity capital program offered incentives to women for the birth or adoption of a second or additional child. The funds, paid when a child turned three, could be used for housing, the child’s education at an accredited institution, the mother’s pension, or assistance for children with disabilities. Over time, changes have included payment for a first child and improved housing. The annually indexed funding was enough to encourage additional births in rural areas and smaller towns but had little impact in higher-priced urban areas that are home to 70 percent of the population. Moreover, many women who experienced giving birth in a Russian maternity hospital decided once was sufficient.

The pro-natal policy coincided with slightly higher Russian birth rates, raising the TFR from 1.3 when the maternity-capital program was launched in 2007 to nearly 1.8 in 2015. Most demographers, however, attribute the higher numbers to a (temporarily) larger cohort of women in prime child-bearing years, economic growth due to higher oil prices during Putin’s first two terms, and hopes that nationwide protests over the 2011–2012 elections augured real change. After 2012, the reduced number of returning compatriots offset the gains in births.

Despite the augmented maternity-capital program, Russia’s TFR dropped back to 1.5 by 2019, prior to COVID-19 and the full-scale invasion of Ukraine. Russian official sources continued to report the rate as 1.8. Without immigration, even a TFR of 1.8 would result in Russia’s population decreasing by about 20–25 percent in each generation.

The other endogenous factor in natural population change is life expectancy. Russia is hardly an outlier in experiencing lower birth rates. Most countries outside of Africa are projected to have smaller populations in the coming decades. Yet Russia continues to be exceptional among developed countries in the rate of mortality among adults aged 18–64. Russia’s economic recovery during Putin’s first two terms as President did lead to some improvement. While Russian men died at four times the rate of European men in 1990, by 2022 the rate was merely double the European rate.

The modest improvements during Putin’s first two terms were due to the economic recovery, greater stability, and efforts to improve healthcare. Yet the major focus of the healthcare program was not the badly needed primary and preventive care. Instead, most of the funds were used to purchase expensive new equipment, creating opportunities for graft.

The improvements in life expectancy began to reverse by 2019. Russia’s COVID-19 response was deeply flawed, resulting in the highest per-capita death rate among industrialized countries, though official statistics have consistently concealed the impact.

Economic benefits from people living longer are double edged. The impact depends on individuals’ capacity to work and the related dependency ratio for the population. Societies need enough able-bodied workers to support the young, the old, and the disabled.

Russia’s demographic issues involve quality as well as quantity. Even before Putin opted to invade Ukraine, Russia was experiencing another significant brain drain. Just before the war, Valerii Fal’kov, Russia’s Minister of Science and Higher Education, told Putin that the number of scientists in Russia was declining. Outside of atomic energy and the defense industry, Russia’s best specialists preferred to work in the US, Europe, and “even China.” Nikolai Dolgushkin, Academy of Sciences Chief Scientific Secretary, reported that emigration by scientists had increased from 14,000 in 2012 to 70,000 in 2021. Russia was the only developed nation where the number of scientific personnel was shrinking.

The challenges have become more serious, as the war on Ukraine has resulted in as many as half a million young men killed or wounded, women choosing to forego having children, women being sent to fight in Ukraine, and more than one million mostly young and highly educated people choosing to leave Russia.

Replacing them has been increasingly undermined by shortsighted government policies. In a country with a history of claiming to be multinational while viewing Russians as the system-forming ethnicity, recent government policies are creating additional difficulties. One of the great ironies of the situation Putin has created is that, in addition to poor rural villagers, the demographic groups best matching his August 2022 decree advocating “preservation and strengthening traditional Russian spiritual-moral values” are Russia’s non-Russian and non-Russian Orthodox populations.

The ethnic variable

Russia’s birth rates vary across regions and ethnic and religious populations. The rates in major urban centers resemble those of Central Europe, with later marriages, widespread use of birth control, and a large number of single-child families. Rural regions and small towns tend to retain more traditional values around child-rearing. People in these venues marry and begin having children earlier and are far more likely to have two or more children. Yet 70 percent of Russians live in the urban centers. The citizens most likely to have large families live in villages, small towns, and Russia’s non-Russian regions and Republics. In 2023, the non-Russian share of the population was about 30%.

Putin-era policies have persistently undermined the principles of federalism enshrined in Russia’s 1993 constitution. Some non-Russians believe the assault on their special status stems, in part, from Russians fearing their higher birth rates.

Significant differences in birth rates among ethnic and religious groups within Russia pose serious policy challenges. Some groups have been more resistant to the “demographic transition” than others. The predominantly non-Russian and Muslim republics of the North Caucasus are experiencing the “demographic transition” more slowly than most Russian regions. The Chechens in particular have responded to their deportation to Central Asia during World War II with a strong pro-natal ethos.

Comparative studies find relationships between high birth rates and traditional religious beliefs in multiple places. Some accounts emphasize higher birth rates among Muslims, despite wide variation across communities. Religious conservatives in many faiths record higher birth rates: evangelical Christians, Mormons, Hindus, Orthodox Jews, and others. Some groups have historically been known for large families. In Russia, some non-Russian ethnic groups have higher birth rates than Russians. The birth rates in the largely Muslim North Caucasus have been a particular concern for Moscow. Despite birth rates among many ethnic populations declining, births in many non-Russian communities continue to remain higher than those of ethnic Russians.

Several analysts call attention to a phenomenon of ethnic groups that feel threatened responding with high fertility rates. Russia’s “punished peoples”—those accused of sympathizing with the Germans during World War II and deported from their homelands—have received particular attention. Marat Ilyasov, a scholar from Chechnya who now teaches in the US, makes a strong case for the Chechens, one of the groups that managed to return to their ancestral territory, striving for high birth rates to guarantee the nation’s survival. They have the highest birth rates in the country.

Chechens are hardly the only ethnic group in the North Caucasus with birth rates higher than the Russian average. Some official sources intentionally downplay the numbers of Chechens and other non-Russian groups in an attempt to emphasize “Russianness” and downplay the significance of non-Russian populations.

Some Russian demographers suggest that non-Russians are increasingly experiencing the “demographic revolution,” but at a slower pace. While this is plausible, complaints about changing definitions and undercounting in recent Russian censuses provide ample grounds for skepticism regarding the official numbers.

Even the official data show that birth rates continue to be higher among many of the non-Russian groups in Russia. Many leaders of non-Russian peoples claim that these populations are being sent to fight in Ukraine in far larger numbers than ethnic Russians. Russian officials try to emphasize that it is the rural population that provides most of the soldiers, due to the high wages the military offers.

Data show that individuals from ethnic republics in Russia’s far east and south have a far higher chance of being mobilized for combat. While proving intent is complicated, the numbers are shocking. Men living in Buryatia have a 50- to 100-percent greater chance of being sent to fight in Ukraine than a resident of Moscow or St. Petersburg.

It is too early to gauge whether the high numbers of deaths and injuries will stimulate a response by some groups to try increasing birth rates. It does appear that the war is resulting in a more serious decline in births among ethnic Russians in urban centers than in both Russian and non-Russian rural communities. Russia’s non-ethnic-Russian citizens increasingly perceive their populations as being singled out as cannon fodder in Ukraine.

Immigrants have also been pressed into military service, causing a precipitous drop in immigration.

Wartime policies undermine population growth

Russia’s natural population growth has been curtailed by mobilization, casualties, emigration, and widespread reluctance to have children. Illegally annexing Crimea added 2.4 million people to Russia’s population, but significantly reduced immigration from Ukraine and Moldova. After 2014, labor migration to Russia was limited to five countries in Central Asia. Since Russia’s full-scale invasion of Ukraine stalled, the Kremlin has consistently needed more troops, forcing increasing numbers of these workers into military service.

Offering high salaries has attracted mercenaries from Cuba, Syria and elsewhere, but devious tactics have discouraged many labor migrants. In 2023, half of Russia’s labor migrants came from Tajikistan. The Crocus City Hall terror attack in March 2024, which Russian law enforcement alleges was carried out by Tajiks, is curtailing this pipeline. Tajiks have been rounded up for deportation and subjected to physical violence. Efforts to develop new sources of labor migration from Southeast Asia have been undermined by Russia continuing to send labor migrants to Ukraine.

Russia’s full-scale invasion of Ukraine also provoked another large exodus of Russians from Russia. Some families had their bags packed and were ready to leave when Russian troops crossed the border in February 2022. Mobilization in September 2022 caused an additional exodus, primarily by young men. Many information technology (IT) specialists left, believing they could continue to work while abroad.

A man walks past banners in support of the Russian Army in Saint Petersburg, Russia. (Anton Vaganov via REUTERS)

Emigration by hundreds of thousands of young men, and an unknown number of young women, is reducing the already small cohort of Russians in prime reproductive years. Hundreds of thousands of men being sent to serve in Ukraine further limits reproductive potential. Russian women have increasingly opted to avoid pregnancy in the face of economic difficulties and growing uncertainty. In the first half of 2023, a record number of Russians applied for passports for travel abroad “just in case” (na vsyaki sluchi).

The regime has responded with efforts to prevent abortion and limit birth control. This comes at a time when abortions are less frequent. Some Russian women are choosing sterilization instead. This represents an ironic shift from the Soviet-era legacy of many women being unable to have children due to multiple abortions. Births in 2023 reflected the lowest fertility rate in the past two or three centuries.

The declining value of the ruble and raids on immigrant communities to conscript workers to fight in Ukraine have reduced the number of Central Asians seeking work in Russia. The number willing to become paid mercenaries is limited.

Russia’s leadership apparently did not anticipate the need to recruit additional soldiers for a protracted war in 2022. Doing so now represents a serious challenge. Data in 2015 indicated that Russians were pleased that Crimea was under Russian control. However, fewer than 20 percent of Russians surveyed thought their government should spend large sums to rebuild occupied areas of Ukraine, especially the Donbas region. Fewer than 10 percent said it was worth risking Russian lives to keep these territories.

The Russian government’s polling consistently reports approval for the war as high as 70–80 percent. Some Western analysts accept these numbers, and some have commissioned their own polling that confirms strong support for the war. Others are dubious, reporting data similar to those of 2015, when respondents were asked about financing reconstruction or the need to suffer casualties.

One indication that Russia’s leadership understands the problem of sending Russians to fight in Ukraine is an increasingly desperate and shortsighted attempt to find alternatives to mobilizing more Russians. After the February 2022 invasion provoked a large exodus of Russians of all ages, the “partial” mobilization conducted in September 2022 resulted in tens of thousands more, primarily young men, leaving the country. No one has precise data, and many of these Russian citizens have moved on from their initial refuge. If seven hundred thousand Russians now registered as living in Dubai is any indication, the émigrés may number far more than one million.

The people mobilized are overwhelmingly from low-income rural and non-Russian regions. Stories have emerged about recruits needing to provide their own equipment, including bandages in case of injury. Some received less than a week of training before being sent into combat. These conditions confirm the belief that the authorities view them as expendable cannon fodder. The result is widespread efforts to evade serving.

In an attempt to reduce the need for mobilization, other tactics were developed. Yevgeny Prigozhin, founder of the paramilitary Wagner Group, toured Russian prisons to offer convicts the opportunity to serve six months in Ukraine in return for presidential pardons. Tens of thousands took him up on the offer and died at the front. Survivors have returned to Russia, with some resuming their criminal activity, including rape and murder.

Prigozhin perished when his plane was shot down a few months after he staged an aborted march to Moscow to convince Putin to fire military commanders the Wagner leader deemed incompetent. But his program lives on, and recent reports indicate it is being expanded to include female prisoners.

Ironically, while the convicts who survive their six-month contracts have been allowed to return home, Russians who have been fighting for two years or more are still on active duty. Their families are furious. One of the few significant protest groups left in Russia, “the Council of Wives and Mothers,” that has protested the length of time their husbands and sons have been forced to serve, was declared a foreign agent in July 2023 in an effort by Putin to stifle public awareness of the treatment of soldiers and overall casualties in the war.

Despite major recruitment efforts, Russia is not experiencing a major influx of new immigrants or returning compatriots. The full-scale war has further limited the already diminishing prospects of inducing a large share of the 30 million Russians living outside of Russia to return home. In 2006, Putin signed a decree establishing a program to encourage Russians to return, and some eight hundred thousand did so between 2006 and 2018. The number of both applications and returns declined in 2020 due to COVID-19. The numbers recovered slightly in 2021 but declined after the start of the full-scale war in 2022. In 2023 the number applying to return was the lowest in a decade. The number who did return dropped below the 2020 COVID-19 level:

Legislation designed to prohibit Russians—especially mobile IT workers—from working while abroad has provoked sharp battles between security services and Russian companies that depend on these employees in a tight labor market.

Treatment of Central Asian and other foreign labor migrants has increasingly shifted to forced labor and sometimes outright slavery. Central Asians working in Russia have been rounded up and sent to join the war on Ukraine. A study of the Uzbek community reports that many Uzbeks have been arrested for minor or contrived offenses and sentenced to terms of fifteen, twenty, or even twenty-five years. Once in prison, they are offered the Wagner option of “volunteering” to fight in Ukraine.

Predatory practices have extended beyond Russia’s usual sources of migrant workers. Individuals from Nepal, Syria, and India have been recruited to work in factories or as guards at various venues in Russia. After they arrive, their passports are confiscated and they are sent to fight in Ukraine. As during World War II, punishment squads are deployed to prevent soldiers from retreating. These predatory tactics differ from the treatment of Cuban and African mercenaries who are attracted by the money.

In addition to money, another inducement to attract foreign fighters is the offer of Russian citizenship. If these commitments are honored, the result will be to add more non-Russians to the country’s population. The disastrous long-term impact of the predatory recruitment policies is clear. As information (and bodies) reach families, word spreads. Russian programs to increase labor recruitment in Southeast Asia are being undermined as word of these tactics spreads.

Conclusion

Why would a leader who has proclaimed demography to be one of the most serious threats to a nation’s future launch an unprovoked war against a neighboring country that was a significant source of labor before 2014? We may never be able to answer this. We can conclude that Putin has turned a daunting crisis into a cataclysm.

Putin’s policies cannot solve these demographic problems. He has been reiterating the importance of Russia’s dire demographic situation for a quarter-century. Manipulating demographic data, adding people in occupied Ukrainian regions to Russia’s population, and omitting war casualties from the census do not generate sustainable population growth. These tactics cannot meet the needs of employers who report serious labor shortages in nearly every sector of the economy. Russia’s defense industry is operating “three shifts” by requiring workers to work sixty to seventy hours per week. The sustainability of these measures and the impact on quality raise significant questions. Financial incentives are undermined when workers are compelled to make “voluntary” contributions to fund the war effort.

In 2022–2023, the most serious labor shortages were reported in agriculture and construction, sectors that rely heavily on Central Asian migrants. Now Russia’s government is endeavoring to attract labor from India, Pakistan, and North Korea to replace the war casualties and émigrés. Firms involved in production, retail, logistics, and e-commerce face labor shortages. While manufacturers continue to prefer Russian workers, one company told journalists that bringing workers from India required paying salaries at the same level as those for Russian staff, plus the cost of transporting and registering the workers. Yet the company was looking for a contractor to arrange providing five hundred workers from India. The reasoning was that workers who lack Russian language are less likely to be recruited by competitors, while foreign workers who know Russian are more mobile.

A Russian entrepreneur noted that labor brokers in Kazakhstan smuggle thousands of workers from Bangladesh into that country in containers each year. They are now offering their services to Russian employers, suggesting that the same tactics can be used to bring workers from India. Others point out that labor from India remains crucial in several Middle Eastern countries where wages are higher, making Russia the option for the least skilled and least desirable migrants.

Sources of labor globally are increasing due to population growth in developing countries that face serious impacts from climate change. Demographers project that the major growth in global population during the rest of the twenty-first century will be in Africa. Yet the six African countries with the largest populations also appear on most lists of the places likely to face the greatest threats from climate change. As in Latin America, this will result in “green migration.” These are not traditional sources of labor for Russia, and the regime may choose to rely on these countries for mercenaries.

Putin’s government has not evinced visible concern that Russia’s population might be cut in half by century’s end. Unless Russia’s leaders can develop and finance a more effective set of policies, the only solutions to population decline will be a combination of incorporating non-Russian territory and/or immigration from Asia and Africa.

If Putin truly believed that demography is an existential problem for Russia, he might have calculated how many Ukrainians lived or worked in Russia before annexing Crimea and launching an invasion.

Putin’s regime is both seeking and discouraging repatriation by compatriots. On February 1, 2024, Russian media reported new legislation allowing the government to seize property belonging to Russians outside the country who criticize the war on Ukraine. Multiple instances have been reported of Russian diplomats and security personnel demanding that other countries detain and repatriate Russians who speak freely. Threats to seize their property in Russia are a logical extension of policies threatening family members still living in Russia.

At the same time, Russia’s policy does encourage compatriots to return, even as other citizens continue to depart.

One possible solution to the problems compounding Russia’s labor shortage would be to decentralize policy, allowing Russian regions to make their own decisions about attracting foreign labor. The resulting competition could go a long way toward improving conditions for foreign workers. Regional development was the prime mover in China’s massive urbanization and industrialization after 1978. While this involved horizontal mobility within the country, the model would resemble the significant influx of immigrants that, at least thus far, has kept the US population at well above replacement level. As Russia’s population continues to decline, immigrants will be increasingly vital to economic recovery.

Invading Ukraine while facing a catastrophic demographic challenge appears to have been a massive folly for the Kremlin. Hubris based on an astonishing intelligence failure might account for the miscalculation. Another possible explanation is that Putin understood that Russia’s economic and demographic challenges mean the country would not be in a more favorable condition any time in the coming decades.

Every corner of Russia’s economy is experiencing personnel shortages, while war casualties continue to shrink the able-bodied population. Russians and their leaders must learn to value diversity, or Russia will have an increasingly smaller and older population. Either way, there will be fewer ethnic Russians.

About the author

Harley Balzer retired in July 2016 after 33 years in the Department of Government, School of Foreign Service, and associated faculty member of the History Department at Georgetown University. He was founding director of the Center for Eurasian, Russian, and East European Studies from 1987-2001. Prior to Georgetown he taught at Grinnell College and Boston University, and held post-doctoral fellowships at Harvard’s Russian Research Center and the MIT Program in Science, Technology and Society. In 1982-83 he was a congressional fellow in the office of Congressman Lee Hamilton, where he helped secure passage of the Soviet-East-European Research and Training Act (Title VIII).

In 1992-93 Balzer served as executive director and chairman of the board of the International Science Foundation, George Soros’s largest program to aid the former Soviet Union. From 1998 to 2009, he was a member of the Governing Council of the Basic Research and Higher Education (BRHE) Program, funded by the MacArthur Foundation, Carnegie Corporation, and Russian Ministry of Education. BRHE established 20 Research and Education Centers at Russian Universities, and was significantly expanded by the Russian government using their own resources.

His publications have focused on Russian and Soviet history, Russian politics, Russian education, science and technology, and comparative work on Russia and China.

The Eurasia Center’s mission is to promote policies that strengthen stability, democratic values, and prosperity in Eurasia, from Eastern Europe in the West to the Caucasus, Russia, and Central Asia in the East.

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]]> Justice Fair Play Initiative: The key to improving justice delivery in Colombia https://www.atlanticcouncil.org/in-depth-research-reports/report/justice-fair-play-initiative-the-key-to-improving-justice-delivery-in-colombia/ Wed, 31 Jul 2024 12:00:00 +0000 https://www.atlanticcouncil.org/?p=779288 An accessible judicial system is crucial in countering global threats to democracy by enabling swift and fair dispute resolutions. This study demonstrates that such system can reduce uncertainty and create an environment conducive to investment and sustainable economic development.

The post Justice Fair Play Initiative: The key to improving justice delivery in Colombia appeared first on Atlantic Council.

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Access to justice is a crucial component of the rule of law and the defense of democracy. A robust judicial system ensures that laws are applied fairly and equitably, strengthens confidence in institutions, protects rights, and promotes transparency and accountability, which are essential for democratic stability and economic development.1 In a global context where threats to democracy are increasing, strengthening access to justice and the rule of law becomes even more critical. An accessible judicial system acts as a safeguard against those threats.2 Access to justice for businesses and the general Colombian population is vital to ensure both fairness and economic efficiency. When businesses can resolve disputes quickly and fairly, uncertainty is reduced, fostering a favorable investment climate and sustainable economic development.

This research, based on a holistic and integrated approach, involves two key elements: a thorough understanding of access to justice and a comprehensive view of the justice system. The first element implies that effective access to justice extends beyond the initial approach to legal systems; it encompasses both the entry point and the ongoing journey within the system. The right to access justice is fully realized when it results in a prompt, comprehensive, and enforceable solution. This understanding of access to justice is essential for addressing the multifaceted challenges faced by individuals and corporations in Colombia.

Building on this thorough understanding of access to justice, this research sheds light on the problems faced by actors within the system, which affect companies of all sizes and citizens alike, regardless of their socioeconomic status. It explores the procedural journey, revealing systemic issues and managerial barriers embedded in the justice system. Forty-four percent of respondents expressed medium to high concerns about judicial corruption and threats to judicial independence and impartiality.

The second element is the comprehensive view of the Colombian justice system. Such a view requires data collection regarding the three routes of access to justice in Colombia, all different in nature: the judicial branch; administrative officials with jurisdictional functions; and individual entities that have the right to administer justice, such as conciliators and arbitrators.

The Colombian constitutional system allows the congress to delegate certain judicial powers to specific administrative authorities including superintendencies (regulatory agencies) of industry and commerce, finance, corporations, and health; police inspectors; and family commissariats, among others. However, it is worth noting that administrative authorities’ judicial power excludes criminal prosecutions and proceedings.3 When administrative authorities exercise jurisdictional functions through resolutions, they act as judges rather than as administrative entities. Individuals can choose, preventively, whether to approach judicial-branch judges or superintendencies judges with jurisdictional functions to resolve their disputes.

This report seeks to identify public policy recommendations that can enhance the efficiency and equity of the justice system through a holistic and integrated approach. Tackling access to justice during the process is crucial not only for the private sector, which relies on the justice system to protect its interests, but also for the broader Colombian society. This will ensure that justice is accessible and equitable for all.

By the numbers

Expert Insights

“This timely and deeply researched report exposes another one of Colombia’s many paradoxes: although it has perhaps the most legalistic society in the hemisphere, the justice system is widely seen as incapable of delivering consistent and reliable results. The report’s authors suggest specific, concrete, and practical policy recommendations to improve justice delivery. As the report notes, a credible and efficient justice system is key to a thriving democracy, and this report will be a key resource for those committed to justice reform.”

Kevin Whitaker, Nonresident Senior Fellow, Adrienne Arsht Latin America Center, Atlantic Council; Former US Ambassador to Colombia, US Department of State

Key data

For all jurisdictions and types of disputes included in this study (both judicial and administrative proceedings), fewer than half of the companies surveyed fully or partially agreed that the duration of proceedings is reasonable. This finding is consistent with the study’s qualitative research component and existing cross-country data on unreasonable civil-justice delays from the World Justice Project (WJP). Colombian scores on timeliness of civil-justice delivery in the WJP Rule of Law Index are lower than those of both best-in-class nations (e.g., Germany or the Netherlands) and regional and income peers in Latin America (See Graph 1).

Delays permeate the system, affecting small, medium, and large companies. When companies were asked about the obstacles limiting effective access to justice when dealing with judicial authorities, the number of legal processes that never concluded scored as the highest obstacle, with 51 percent of companies ranking it as their top obstacle and 15 percent ranking it as a medium level obstacle (See Figure 1).

Similarly, when asked about the obstacles limiting effective access to justice when resorting to administrative authorities, interviewees ranked unjustified delays as the biggest obstacle. Forty-one percent of companies ranked it as the top obstacle and 20 percent ranked it as a medium-level obstacle (See Figure 2).

In terms of judicial independence from hierarchical superiors and other sources, superintendencies perform worse than all other paths to justice, and considerably below all judges (44 percent of companies either totally or mostly disagree that this path is free from this pressure). Critically, in terms of access to justice, it is the second-worst mechanism (34 percent of companies find it difficult to access this mechanism), (See Figure 4).

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US-Colombia Advisory Group

The Atlantic Council’s US-Colombia Advisory Council, with Senators Ben Cardin (D-MD) and Bill Hagerty (R-TN), as honorary Co-Chairs, is a nonpartisan, binational, and multi-sectoral group committed to advancing a whole-of-society approach to addressing the most vital policy issues facing the US-Colombia relationship—with a recognition of the broader implications for bilateral interests across the region more broadly.

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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1    Brian Z. Tamanaha, On the Rule of Law: History, Politics, Theory (Cambridge, UK: Cambridge University Press, 2004), https://books.google.com/books?hl=en&lr=&id=p4CReF67hzQC&oi=fnd&pg=PA1&dq=On+the+Rule+of+Law:+History,+Politics,+Theory&ots.
2    “2020 Corruption Perceptions Index—Explore the Results,” Transparency.org, 2020, https://www.transparency.org/en/cpi/2020.
3    Pursuant to Article 116 of the Colombian Constitution and Article 24 of the General Code of Procedure, some administrative authorities exercise jurisdictional functions, which are exceptional, must deal with precise matters, and must be duly attributed to them by law.

The post Justice Fair Play Initiative: The key to improving justice delivery in Colombia appeared first on Atlantic Council.

]]> After 2011, the United States stayed on the sidelines—to Libya’s detriment https://www.atlanticcouncil.org/in-depth-research-reports/report/after-2011-the-united-states-stayed-on-the-sidelines-to-libyas-detriment/ Tue, 30 Jul 2024 14:33:16 +0000 https://www.atlanticcouncil.org/?p=781417 When reflecting over the last decade of the US policy, especially in the Trump and Biden administrations, three consistent trends emerge: insufficient support for the UN political process to restore legitimacy to Libya’s political; leadership, repeated appeals to eastern warlord and head of the Libyan National Army (LNA) Khalifa Haftar to participate in a political process; and most consequentially for the United States, a seeming lack of attention to Russia’s increased presence in Libya.

The post After 2011, the United States stayed on the sidelines—to Libya’s detriment appeared first on Atlantic Council.

]]> In the previous volume on foreign actors in Libya, I divided U.S. involvement into five stages, including the intervention itself, the immediate post-conflict period, and the aftermath of the tragic death of Ambassador Chris Stevens in Benghazi. As is well documented, Ambassador Stevens’ death created a long-lasting political firestorm starting in the 2012 election year and was revived by targeting Hillary Clinton in 2016 for her alleged responsibility as secretary of state at the time, even though she was exonerated in a Republican-led Congressional select committee report. This disincentivize investing political capital or risk in Libya’s stability. Just as President Obama saw the post-intervention period as primarily a European problem, the United States continued to be risk averse when it came to investing in Libya, demonstrated most clearly by the withdrawal of the U.S. embassy during the early stages of 2014-2015 civil war. The embassy became the Libya External Office based in Tunis after a brief stint in Malta. Ten years later, the Biden administration is working with Congress to restore an initial presence in Tripoli, whereas most countries returned their embassies over the last several years.

When reflecting over the last decade of the U.S. policy, especially in the Trump and Biden administrations, three consistent trends emerge (though to different degrees): insufficient support for the UN political process to restore legitimacy to Libya’s political; leadership, repeated appeals to eastern warlord and head of the Libyan National Army (LNA) Khalifa Haftar to participate in a political process; and most consequentially for the United States, a seeming lack of attention to Russia’s increased presence in Libya.

Libya will never be at the top of the agenda for the United States in the Middle East, let alone for the rest of Washington’s foreign policy agenda. However, through a higher degree of attention and engagement, the United States can make significant inroads toward stability in a country that has the potential to benefit its neighbors and the region through proper management of its oil wealth, investing billions of dollars still frozen from the Qaddafi era, and preventing Russian expansion in the wider area.

Insufficient Political Engagement

The Skhirat Agreement or the Libyan Political Agreement (LPA) tried to end the 2014-2015 civil war between Haftar’s Dignity operation and the Dawn Coalition consisting mainly of militia groups around Misrata and Tripoli. Instead, the overall split of Libya remains mostly between Haftar (addressed below) and political survivor Aguila Salah in the east and the UN-recognized pseudo governments and armed groups in the West.  The LPA created two chambers: the legislature, the House of Representatives (responsible for making laws) based in Tobruk, and the High State Council (HCS) based in Tripoli. The HSC has a consultative role, but its legal role was never completely spelled out. The UN appointed Fayez Sarraj as prime minister.  Among other factors, Haftar’s refusal to accept that the military would be under civilian control, as stipulated in the LPA, effectively nullified one of its most important elements.

For the following years, the international community tried to forge a consensus by holding summits in Europe: including in France in first in 2017, 2018, then in Italy in 2018. These conferences elevated Haftar from a renegade general to an international statesman on par with Sarraj. Despite the presence of foreign heads of state, none of these summits resulted in an agreement to implement the LPA or to adopt a process for elections. After another civil war broke out in 2019, German Chancellor Angela Merkel hosted an international conference on Libya in Berlin in January 2020 intended to halt the violence. When a ceasefire finally occurred in October 2020, the UN created the Libya Political Dialogue Forum, whose members chose a President and prime minister, Mohamed Menfi and Abdel-hamid Dbaibah. The Dbaibah government was supposed to implement elections at the end of 2021. The elections were delayed for a number of reasons yet Dbaibah remains prime minister of the Government of National Unity three years after his initial appointment and Haftar still controls of the East.

In this context, the U.S. stood mostly on sidelines, attempting to establish some progress between Sarraj and Haftar through direct meetings and attending the European meetings at a ministerial level or below. What the U.S. can always do, however, is pressure foreign actors, or “spoilers,” who support competing sides on the Libyan political spectrum to reach consensus.  At different times, the U.S. could have pressed Egypt, the UAE, France and Turkey, Qatar, and Italy to weigh in with their own Libyan allies to accept political compromise. The problem with organizing a coordinated and effective diplomatic effort is that Libya is routinely far down on the “call sheet” for senior level engagements and there’s usually more pressing issues in the bilateral relationships with the above states than Libya. Without the necessary backing from the White House or Secretary of State a  special envoy can be easily ignored.

The one positive thing the United States did in was to develop a new set of sanctions in 2016 targeting individuals that “threaten the peace, security, or stability of Libya, including through the supply of arms or related materiel.” Agulia Salah was named as the first target as well as western militia leader Salah Badi. However, because Salah had no U.S. bank accounts to be frozen and had not ambitions to travel to Washington, the sanctions on him were symbolic and European partners allowed him to travel and participate in conferences. Applying the sanctions to Haftar would have been a different story.

Overestimation of Haftar’s Influence and Value

General Khalifa Haftar emerged not during but after the 2011 revolution. Positioning himself as an anti-Islamist, he appeared as an alternative force to the growing influence of Islamist militias, who were killing individuals, whether they were members of the brutal security establishment or nonideological judges. Eventually he defeated the extremists in Benghazi and turned his sights on Derna, which hosted a strong Ansar alSharia presence. With the support of anti-Muslim Brotherhood countries such as Egypt, the UAE, and, to a certain extent, France, his domination over the so-called Libyan National Army grew. But the Obama administration who distinguished between political Islamists, like Tunisia’s Rachid Ghannuchi, and militant Islam, bristled at statements calling all Islamists terrorists. The war ended in a standstill and UN Special Representative Bernadino Leon forged the LPA, leaving the international community pressing Haftar to accept a temporary government and placing the army under civilian control, effectively giving him a veto over any political compromise.

As Haftar became implacable, he had the temerity to attack Tripoli the day Secretary-General Guterres was visiting to help launch his Special Representative Ghassan Salame’s national dialogue. If there ever were a reason for sanctioning someone for threating the “peace and stability” of Libya, this was clearly it. But the United States chose not to, and Haftar benefited from the support of Syrian, African, and most importantly, Russian Wagner Group mercenaries who almost succeed in capturing Tripoli. There continues to be a debate about what former National Security Advisor John Bolton told Haftar during the run-up to the war and whether he gave Haftar a “green or yellow light” to attack if he could take Tripoli quickly. Regardless, the war dragged on, and the United States ignored the consequences.

Shortly after the October 2020 ceasefire, the UN created the Libya Political Dialogue Forum. Seventy-Five members of Libyan society discussed future political issues and selected a temporary prime minister who would govern until national elections at the end of 2021. Abdul-hamid Dbaibah won a surprising if not controversial victory over Aguila Salah. Haftar once again played spoiler by taking various positions on the legality of a military presidential candidacy – one of the key issue blocking elections.

As elections moved into an indefinite delay, the United States (along with its allies) tried to engage with Haftar in an effort to get him to cooperate on the possibility of holding national elections and to expel Russian forces from the east. As movement restrictions in Libya ease for American officials, U.S. representatives have met Haftar at least six times during the Biden administration. One such visit was delayed after Haftar (or Russia) shot down a reconnaissance drone preparing for the visit of the U.S. special envoy. Haftar has made no moves toward accepting elections and he has only grown closer to the Russians.

The Russian Are Coming

The Wagner Group’s mercenaries have been in Libya since at least 2018 according to public estimates. Since then, their presence has only grown. The U.S. Africa Command documented Russian fighter jets and cargo carriers traveling from Syria to Jufra Airbase in central Libya in July 2020 as well as to the al-Khadim airbase close to Benghazi. Haftar also uses Wagner to secure control of key oil facilities. This relationship expanded toward the end of the 2019-2020 civil war when Russian snipers, and the combination of Chinese-origin drones and mobile air defense units almost changed the tide of the war until Turkey intervened with superior drones and operators. At the same, the UN Panel of Experts estimated there were between 1200-2000 Wagner personnel in Libya by the summer of 2020.

Initially, Russia denied its presence in Libya just as it denied Wagner deployments in Syria and eastern Europe. After Yevgeny Prigozhin died almost a year ago, Haftar was co-opted by the emerging “Africa Corps” of the Russian ministry of defense and received almost monthly visits from Russian Deputy Defense Minister Yunus-Bek Yevkurov. In fact, just one day after hosting the commander of U.S. Africa Command, Haftar headed to Moscow for a meeting with Vladimir Putin.

Russian interests in Libya are clear: it seeks access to a port in Libya, airbases to monitor NATO across the Mediterranean, and transit to its emerging allies in the Sahel. It is on track to fulfill all these ambitions unless the United States and its NATO partners make a concerted effort to counter Russian ambitions.

To date that has not transpired as the United States is focused on more pressing issues. But it will be a huge detriment to U.S. interests if Russia is allowed to deepen its presence in Libya and Africa. Part of a strategy to counter Russia in Libya requires investing more in Libya’s frozen domestic scene. Only a more legitimate government can challenge Haftar and assert its own nationalist instincts that Libyans displayed during the initial phase of the post-2011 transition.

Ben Fishman is the Steven D. Levy Senior Fellow in the Linda and Tony Rubin Program on Arab Politics at The Washington Institute, where he focuses on North Africa. He served from 2009 to 2013 on the National Security Council where he held several posts, including director for North Africa and Jordan.

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]]> Libya is the crucial hub for Moscow’s activities in Africa https://www.atlanticcouncil.org/in-depth-research-reports/report/libya-is-the-crucial-hub-for-moscows-activities-in-africa/ Tue, 30 Jul 2024 14:32:31 +0000 https://www.atlanticcouncil.org/?p=781413 Over the past decade, Russia’s involvement in Libya is evidence of its realization that it could transition from a marginal power to a significant competitor in the country, and thus in the broader Middle East and North Africa.

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]]> Over the past decade, Russia’s involvement in Libya is evidence of its realization that it could transition from a marginal power to a significant competitor in the country, and thus in the broader Middle East and North Africa. As Russia became disillusioned by its perception of the West’s actions in Libya as aimed at regime change, it shifted its stance from cooperative to antagonistic. This disillusionment strengthened Russia’s determination to establish a strong presence in the country, exemplified by its deployment of mercenaries to Libya to secure greater power and influence.

Russia’s withdrawal from the Middle East

Until the collapse of the Soviet Union and subsequent end to the Cold War, Russia maintained a strong foothold in the Middle East, recognizing the region’s potential importance to global power dynamics. During the Cold War in particular, Russia maintained its presence by creating allies among those Arab nations that would help it achieve its goal of creating an anti-Western camp, most notably Egypt, Syria, Iraq, and Libya, along with Algeria, Yemen, and Sudan. Its relations expanded from diplomatic ties to arms shipments to support for liberation movements such as the Palestinian Liberation Organization. The Soviet influence in the region was most obvious in its support for the Arab states during the Suez Canal Crisis (1956), the Six-Day War (1967), and the Yom Kippur War (1973), conflicts that saw a strong involvement by the United States on the side of Israel.

The 1990s, however, saw a major shift in Russia’s presence in the Middle East and North Africa with the collapse of the Soviet Union. The subsequent economic crisis forced Russia to dramatically scale back its involvement in the region, reducing both military engagement and economic support in order to focus on domestic issues. Additionally, Boris Yeltsin, the then president, saw a window to improve relations with the West. Scaling back Russia’s presence in what had been confrontational states represented one way to resolve tensions at a time when the country was reeling from internal economic turmoil. As a result, Russia played a marginal role in major confrontations such as the First Gulf War (1990–91), the US invasion of Afghanistan (2001), and the Iraq War (2003–11).

The 2011 NATO-led intervention in Libya to topple Muammar Gaddafi represented the beginning of the end of Russia’s disengagement from the region. Due to the ongoing rapprochement with the West, Russia’s then president, Dmitry Medvedev, abstained from adopting the United Nations Security Council Resolution 1973. This allowed Western intervention in Libya to overthrow the longtime dictator, who had by then turned on his own people. To many experts, Medvedev’s decision not to veto the resolution signaled an important change in Russia’s support of its Arab allies and allowed for a regime change to happen. Among the most notable critics of this action was Vladimir Putin, the then prime minister, who described the West’s subsequent intervention as akin to “medieval calls for crusades.”

The intervention in Libya left an indelible mark on Russian elites, many of whom saw it as emblematic of Western attempts to meddle in foreign countries and impose Western-like values. This threat left Russia feeling disillusioned with the West, which it accused of hypocrisy because of its violations of international law by interfering in Libya. It also left Russia feeling isolated at a time when the United States had promised that a regime change in Libya would not occur, and when Russia-US relations were strong and based on the pursuit of mutual trust. It cemented Russia’s persistent belief in the principle of nonintervention as a means to maintain stability and the status quo in the rules-based order, a belief that it accused the West of not sharing, with the 2003 US-led intervention in Iraq and subsequent deposition of Saddam Hussein as an example.

Russian reengagement

Russia’s distrust of the West and recognition of the importance of the Middle East and North Africa region help explain its intervention in Syria in 2015 and in Libya in 2017. Following two decades of relative disengagement from the region, Russia saw a window of opportunity to reassert itself with the outbreak of the Syrian civil war and the request by Syrian President Bashar al-Assad for help. Additionally, the United States’ lack of intervention, underscored by the failure of Barack Obama, the then president, to adhere to his “red line” commitment, cemented Russia’s belief that the United States would not interfere in its quest for increased influence in the area.

The end of two decades of Russian disengagement came with the recapturing of Aleppo from rebel forces in December 2016, thanks to Russian involvement, and Libyan General Khalifa Haftar’s request for help a month earlier. Libya, engulfed in a civil war, saw the United Arab Emirates (UAE) and France aiding Haftar, with Russia emerging as a prominent ally at a time when its presence in the region was becoming more entrenched.

Emboldened by its victories in Syria and the potential to exert influence in the region by supporting another Arab country, Russia began deploying mercenaries to Libya as early as 2018, marking a definitive turning point from the previous two decades of disengagement. From its marginalized position, Russia saw Libya not only as another window of opportunity to reemerge as a great power competing for influence in North Africa but also as a gateway to other regions, such as sub-Saharan Africa. With the deployment of troops under the Kremlin’s authority, the days of being second to Western regime change in neighboring regions were over, and the potential for the resurgence of Russian primacy once again became a real prospect.

Russia reemerged as a regional power in the Middle East when Haftar attempted a takeover of Tripoli in 2019, with Russian forces fighting alongside Haftar’s. Egypt and the UAE were also involved, while Qatar and Turkey supported the Government of National Accord forces of Libya’s then prime minister, Fayez al-Sarraj. Libya became a military quagmire for foreign power interferences, with Russia refusing to be the marginal player it had been during the First Gulf War and the US invasion of Iraq. While Haftar’s objective of gaining control of Libya was thwarted by Turkish troops, Russian involvement in the country remained consistent, with around 2,000 mercenary troops permanently stationed in eastern Libya, evidence of Russia’s unabated goal to establish a continued presence.

Ongoing influence

Russia’s full-scale invasion of Ukraine is keeping the Kremlin largely occupied with redefining its borders to the west. Yet, “Southern missions” have not been downgraded to lesser-scale priorities. On the contrary, some 800 – 1200 mercenaries from Wagner (now called Africa Corps) remain present in Libya, many controlling key oil production facilities and thus positioning the Kremlin to control output from Libya and affect world oil prices. Their continued presence illustrates the Kremlin’s conviction that North Africa and the Middle East is a region of vital importance, with enormous untapped resources that could help Russia’s economy in the long term. It also underscores that Russia is making a strategic bet during a time when the American presence is diminishing and the Chinese presence is growing, asserting itself alongside China as a main power by buying local support through influence and mercenary deployment.

This strategy of Russian reassertion is further exemplified by the ongoing activities of the Africa Corps in the wider Sahel region, where the mercenary group’s control has been well documented and is set to increase. In recent years, the area has been destabilized by numerous coups, creating power vacuums in Mali, Burkina Faso, and Niger. Russia and China have moved to fill these voids, seeking to expand their influence as French and American troops have withdrawn. While Western countries focus on short-term diplomatic solutions, Russia appears to be ahead in its strategy, providing military and financial support to nations it considers strategically important.

Indeed, it would be a mistake to frame Russia’s presence in Libya exclusively under its competition with the West. Its presence is driven primarily by national interests, many of which are linked to the continent of Africa. Libya serves as the crucial hub for Moscow’s mission in Africa due to its geographical location and political instability, which favors Russia’s actions. Strategically positioned at the crossroads of Africa and Europe, it provides Russia with a gateway to its operations in Sudan, Chad, Niger, and other Sahel and Central Africa countries, eventually projecting power and influence across these regions. Libya’s ongoing political chaos creates opportunities for Russia to establish footholds through alliances with both local factions and official authorities. This is exemplified by Russia’s support of General Haftar over the past few years and its more recent relations with the government of Tripoli. Not least, the country’s fragmented governance has guaranteed Russia much-needed access to air and naval military bases, especially across Cyrenaica, allowing it to coordinate its military expeditions. By maintaining a strong presence in Libya, Russia is able to pursue its broader geopolitical goals, including defying the West, expanding its military reach, and securing critical resources that are essential to sustain its economy and long-term strategic aspirations.

Chiara Lovotti is an Italian Institute for International Political Studies (ISPI) research fellow and scientific coordinator of the Rome MED-Mediterranean Dialogues, the annual flagship event of ISPI and the Italian Ministry of Foreign Affairs. She is a specialist in Middle Eastern and North African international relations, with a focus on Russia’s foreign policy in the area and associated political and security issues. 

Alissa Pavia is associate director of the Atlantic Council’s North Africa Program. She is responsible for providing research and analysis on North Africa while also expanding the program’s reach with like-minded centers, foundations, and government agencies.

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]]> After anti-migration efforts shrank its influence, Rome needs a new Libya policy https://www.atlanticcouncil.org/in-depth-research-reports/report/after-anti-migration-efforts-shrank-its-influence-rome-needs-a-new-libya-policy/ Tue, 30 Jul 2024 14:31:35 +0000 https://www.atlanticcouncil.org/?p=781410 It has been more than thirteen years since the outbreak of the 2011 Libyan revolution and the moment when Italy reluctantly supported the NATO-led intervention that imposed a no-fly zone over Libya purportedly to protect the population from Muammar Gaddafi’s retaliation.

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]]> It has been more than thirteen years since the outbreak of the 2011 Libyan revolution and the moment when Italy reluctantly supported the NATO-led intervention that imposed a no-fly zone over Libya purportedly to protect the population from Muammar Gaddafi’s retaliation.

The overthrow of Gaddafi’s regime led to more of a decade of intermittent civil war and conflict, dismantling of state institutions, and rampant kleptocracy, turning Libya into a battleground for competition between external powers. Meanwhile, Italy has seen nine governments since the Libyan revolution. These governments have come to power against a backdrop of political instability and economic uncertainty, the rise in populism and “sovranismo” (sovereignism), and geopolitical tensions in Italy’s eastern and southern neighborhoods. Irrespective of Rome’s different ruling coalitions, the crisis in Libya resulted in a rethink of Italy’s geopolitical posture and strategic orientation toward the North African country, questioning Rome’s approach to international intervention and national priorities, the resources and tools of its foreign policy, and its projection of power over the wider Mediterranean region. The conclusion of the debate has been that a stable Libya is strategically crucial for Italy, for political, security, and economic reasons.

However, the last decade has seen the gradual fading of Rome’s influence over Libya and the downsizing of its ambitions. The political leverage Italy historically possessed in Libya dwindled over the years. How did Italy squander its political capital and credibility in Libya? How could a country with prominent interests and a strong economic interest fail in Libya? The focus on short-term gains over long-term strategy played a pivotal role. Understanding the root causes of this marginalization is crucial for reshaping Italy’s approach to Libya and revitalizing its role in the region.

Migration policies have undermined Rome’s credibility in Libya

Between 2014 and 2017, over six hundred thousand migrants arrived in Italy, most departing from Libyan shores after enduring extensive journeys across Africa. Many suffered violence, forced labor, and sexual exploitation in both formal and informal Libyan detention centers. The migration issue became a focal point in Italian politics for several reasons: from challenges in managing the reception and integration of migrants once they arrived, to political exploitation of unfounded fears about terrorist infiltration and cultural clashes, to concerns about the country’s democratic stability during a period of economic uncertainty.

In 2017, amidst peak concerns about a surge in migrant arrivals and with Italy gearing up for elections, Interior Minister Marco Minniti introduced a new strategy for addressing the Libyan crisis. Stabilizing Libya became not just a priority in itself, but a means to control migration flows and counter transnational threats. Rome engaged extensively: it worked closely with the Government of National Accord (GNA) led by Fayez al-Sarraj, signing agreements, providing financial aid and technical support, and becoming the first Western nation to reopen its embassy in Tripoli. Italy also established connections with Field Marshal Khalifa Haftar in the east; engaged with southern tribes, cities, and municipalities; and even interacted with less-transparent groups like militias and armed factions, despite their involvement in smuggling and trafficking, which Italian authorities publicly denied but independent investigations corroborated. This approach proved effective as migrant arrivals dropped dramatically from July 2017, as evidenced by arrival data.

Despite changes in leadership and shifting political coalitions in Rome, the core strategy remained consistent even after the Government of National Unity, led by Abdulhamid al-Dabaiba, took office in Tripoli in 2021. Italy saw different governments come and go: Giuseppe Conte’s “yellow-green” government (2018–19), Conte’s “yellow-red” government (2019–21), followed by Mario Draghi’s national unity government (2021–22), and now Giorgia Meloni’s leadership since October 2022.

However, new dynamics emerged as migrant departures shifted from the west to the east of Libya in recent years. Rome responded by increasing engagement with eastern Libyan authorities both politically and economically. This shift was highlighted by Haftar’s visit to Rome in May 2023 and a subsequent meeting held by Meloni in Benghazi on May 7.

So far, Italy, along with EU funds, has allocated almost €479 million to the “externalization” of its border to Libya, i.e. the act of empowering foreign actors to stop migrants from reaching Italy. However, this strategy of externalizing migration management—funding patrols and technology, and investing significant political attention and resources—has had significant unintended consequences. By treating militias as interlocutors, even indirectly through recognized institutions or actors with national ambitions, Italy inadvertently empowered and legitimized ambiguous players. This has altered local power balances and undermined prospects for peace in Libya. Since the implementation of this policy, evidence has emerged of its destabilizing effects and distortions of local equilibria, influenced by Italy’s perception of threats and insecurity stemming from migration policies.

Italy’s leverage of foreign actors was not aimed at stabilizing Libya but rather at addressing Italian perceptions of insecurity

Despite its interactions with local actors, Italy has not been among the most influential players shaping Libya’s dynamics. Other countries such as Egypt, the United Arab Emirates, Turkey, Russia, France, and Qatar have exploited Libya’s internal divisions to advance their own domestic and international agendas. This interference has spoiled prospects for the establishment of stable Libyan institutions, state reconstruction, and durable peace. 

In this complex scenario, Rome has struggled to effectively stabilize Libya or facilitate consensus among Libyan factions based on international law and the desires of the Libyan people. Instead, Italy has mainly offered symbolic support for UN efforts without substantial mediation efforts or concrete peace proposals following the underwhelming results of the Palermo conference, a two-day conference in November 2018 intended to advance the UN-sponsored stabilization process for Libya.  

In the complex web of Libyan, regional, and international agendas, Rome has primarily used foreign relationships to advance its migratory policies and address minor issues. For instance, with the UAE, one of the most involved foreign players shaping Libyan internal dynamics through its strong support to Haftar, Italy leveraged its influence to secure the release of fishermen arbitrarily detained by Haftar’s forces. Last year, Italian Foreign Minister Antonio Tajani visited the UAE twice, with migration from Libya featuring prominently in his discussions. The UAE’s president, Sheikh Mohamed bin Zayed Al Nahyan, then took part in the International Conference on Development and Migration in Rome, marking the start of the “Rome Process.”

Even with Ankara, Rome sought to align on its priorities in Libya. In 2020, Turkey emerged as a decisive actor in countering Haftar’s assault on Tripoli, supporting western Libyan authorities, under both the Sarraj and Dabaiba governments. Despite initial concerns about Ankara’s growing influence exerted over Tripolitania, and despite political competition and overlapping economic interests, Rome sought Turkey’s “solidarity” on the migration issue, which emerged as a central point of recent Italy-Turkey bilateral meetings.

Interestingly, Turkey’s recent imposition of visas for Bangladesh citizens entering the country was cited as an example of cooperation between Rome and Ankara. In 2022, more than 15,200 Bangladeshis arrived in Italy, with many transiting through Libya, about a third of whom travelled through Turkey. To avoid tensions with Ankara, Rome refrained from taking a more assertive stance on other contentious strategic issues, such as energy resource exploitation in the Eastern Mediterranean and maritime borders.

Another significant aspect of the Rome-Ankara entente involves Egypt, another key player in Libya. Rome leveraged recent regional diplomatic efforts to establish a triangular dialogue with Egypt and Turkey on Libyan issues, aiming to bridge differences and engage major supporters of the two rival power centers in Libya’s west and east.

Ambiguity between western and eastern authorities marginalized Rome’s ambitions in Libya

To control migration flows, Rome has blurred the lines between Libya’s western and eastern authorities. Initially a staunch supporter of the Skhirat Agreement, which led to the establishment of the GNA at the beginning of 2016, Italy found itself dealing with a divided country as Libya remained split between competing centres of power. This situation prompted then Italian minister of interior Marco Minniti to establish connections with Haftar during his tenure, integrating him into Italy’s new approach to the Libyan crisis.

This trend was further strengthened under the following two governments led by Conte (2018–21). Haftar’s presence at the Palermo conference in 2018, originally aimed at reconciling Libya’s factions, was seen more as a personal gesture to Conte than a genuine effort to forge an agreement with Tripoli.

Italy’s ambiguity peaked in April 2019 when Haftar attacked Tripoli. Conte declared that “Italy is neither in favor of Sarraj nor of Haftar, but of the Libyan people.” When Sarraj requested Italy to send troops and support, Rome did not officially respond, prompting Tripoli to seek and ultimately received crucial support from Ankara. Turkey’s military backing of the GNA gave Ankara significant political and economic influence over Tripolitania, sidelining Italy and diminishing its presence, role, and ambitions in Libya.

As another sign of Italy’s waning influence, the Bilateral Assistance and Support Mission in Libya (MIASIT), which includes the “Hippocrates” Task Force and the military field hospital in Misrata, has been downsized. 

Rethinking a new Libya policy for Italy

Over the past decade, Italy’s influence over the Libyan crisis has steadily declined. This decline can be attributed to two main factors: first, Italy prioritized managing migration over consistent efforts to stabilize Libya. Second, Rome played an ambiguous role by engaging with both western and eastern Libyan authorities, which complicated its diplomatic and  strategic approach.

Today, Italy seems willing to revitalize its role in North Africa (as well as in the Sahel and the rest of the continent) with the “Piano Mattei” (Mattei Plan), named after the founder of Italy’s ENI energy group. The late Enrico Mattei was known for advocating fairer relations across the Mediterranean. A steering committee has been formed, and initial pilot projects in nine African countries are set to begin soon. Notably, Libya is not among these countries, although during Meloni’s visit to Tripoli in May 2024, memoranda of understanding on health, education, and sport were signed under the Mattei Plan’s framework. However, merely enhancing development cooperation is insufficient to reestablish Italy’s influence in Libya.

To achieve this, the Italian government needs to fundamentally rethink its approach to migration. This involves moving away from polarizing political debates and shifting focus from securitizing migration to recognizing its political, demographic, and economic potential for Italy’s future. Instead of solely emphasizing police and border controls, Italy should centralize discussions on these broader impacts.

In Libya, this shift would diminish the economic power and political legitimacy that Italy unintentionally bolstered among various local and regional “spoilers of peace.”  Moreover, Italy’s reduced dependence on Libyan energy resources—marked by the lowest natural gas exports in thirteen years in 2023—should embolden Italian leadership. This could open up opportunities to propose innovative pathways to peace and national reconciliation with its southern neighbor.

Italy and Libya share deep historic ties. Rome played a crucial role in Libya’s international rehabilitation in the 1990s and has a longstanding tradition of political, economic, social, and cultural connections with Libyan counterparts. This relationship reached a symbolic peak when Italy decided to reopen its embassy in Tripoli in 2017, despite the exodus of many other international actors. Today, it’s time for Italy to make up for lost opportunities and strengthen its ties with Libya.

Karim Mezran is director of the North Africa Initiative and resident senior fellow with the Rafik Hariri Center and Middle East Programs at the Atlantic Council focusing on the processes of change in North Africa. Mezran holds a PhD in international relations from the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University, a JD in comparative law from the University of Rome (La Sapienza), an LLM in comparative law from the George Washington University, an MA in Arab studies from Georgetown University, and a BA in management from Hiram College.

Aldo Liga is a research fellow for the Middle East and North Africa Centre at the Italian Institute for International Political Studies. He is also a PhD candidate at the Institut Français de Géopolitique (University of Paris 8). He holds a bachelor’s degree in political science from the “Cesare Alfieri” (University of Florence) and a master’s degree in international security from Sciences Po Paris.

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]]> Benghazi is a major stumbling block for national reconciliation efforts https://www.atlanticcouncil.org/in-depth-research-reports/report/benghazi-is-a-major-stumbling-block-for-national-reconciliation-efforts/ Tue, 30 Jul 2024 14:31:19 +0000 https://www.atlanticcouncil.org/?p=781405 In May 2014 Libyan General Khalifa Haftar launched a then-unauthorized military operation from Benghazi, Libya’s second city. The operation, which Haftar named Karama, or Dignity, was centered on but not limited to Benghazi; its declared aim was to eradicate what Haftar and his associates described as terrorism. However, it prompted a swell of armed opposition from those who suspected it was a pretext for the septuagenarian general’s ambition to rule Libya.

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]]> In May 2014 Libyan General Khalifa Haftar launched a then-unauthorized military operation from Benghazi, Libya’s second-largest city. The operation, which Haftar named Karama, or Dignity, was centered on but not limited to Benghazi; its declared aim was to eradicate what Haftar and his associates described as terrorism. However, it prompted a swell of armed opposition from those who suspected it was a pretext for the septuagenarian general’s ambition to rule Libya.

On July 5, 2017, Haftar announced the complete “liberation” of Benghazi, although fighting in the downtown area of Sidi Khreibish only ended in January 2018. Between 2014 and 2018, Benghazi underwent the most significant transformation in its modern history, with displacement, dispossession, and the killing of thousands overturning generations-old social and economic dynamics. The consequences shaped not only the city’s current trajectory but also political and social developments in Libya more generally.

The four-year conflict resulted in the destruction of large areas of Benghazi; in 2021, its municipality said it had documented more than 6,000 properties that had been partially or wholly damaged during the fighting. Moreover, it divided families and neighbors, prompted the most extensive displacement in postcolonial Libya, and created new forms of identity rooted in grievance and partisan narratives of what had sparked the conflict. In a country where the legacy of Muammar Gaddafi–era property redistribution remained an obstacle to reconciliation, widespread seizures of property and land both during and after the fighting drove further antagonism in Benghazi.

Soon after its launch, Operation Dignity gained significant public support among the residents of Benghazi, who were becoming increasingly frustrated with deteriorating security. A series of assassinations had roiled the city. Former regime security personnel were targeted, along with civil society activists, judges, and journalists. The killings—mostly drive-by shootings and car bombings—generated both fear and widespread anger. Many commentators blamed groups, including Ansar al-Sharia, designated an al-Qaeda affiliate by the United States in January 2014 after it was linked to the 2012 diplomatic mission attack in which US ambassador Chris Stevens and several of his colleagues were killed.

Apart from its suspected role in the assassinations and bombings that shook Benghazi, Ansar al-Sharia had long unnerved many. The debate over how to address the problem of the group and its associates’ growing presence and influence in the city had divided residents before the launch of Dignity, and subsequently proved one of the main drivers of the ensuing conflict.

Operation Dignity began with attacks—including air strikes—on Ansar al-Sharia, as well as several armed groups that identified as “revolutionary” rather than Islamist. Faced with a common threat, a number of these militias united with Ansar al-Sharia under an umbrella group they named the Benghazi Revolutionaries Shura Council (BRSC). Some groups that did not join BRSC continued to fight alongside it. The prominence of Ansar al-Sharia within the BRSC alliance benefited Haftar and his allies, serving to buttress their claim that their opponents were terrorists. When an Islamic State group affiliate emerged in Benghazi in late 2014, it recruited scores of Ansar al-Sharia members, who joined returnees from Syria and foreign fighters. Beheadings and other brutal tactics associated with the Islamic State group in Syria and Iraq became a feature of the fighting in Benghazi, and helped consolidate popular support for Dignity.

These developments reinforced the views of those who had warned that a “force only” approach to Benghazi’s extremism challenge, together with Haftar’s scattershot targeting of a wide range of factions he considered a threat to his personal ambitions, risked not only radicalizing a far larger cohort but also pushing Benghazi into a long internecine war.

After the war, it was clear several new societal dynamics had emerged in the city. These dynamics were often shaped by perceptions of who had lost and who had gained from the conflict. Among those who had fought for or staunchly supported Dignity, there was a triumphalist mood. Several appeared to benefit materially, taking over abandoned properties or participating in Benghazi’s war economy. There was a reshuffling of key posts in the city, with existing personnel replaced with individuals from eastern tribes now considered “victors” due to their support of Haftar and his operation.

Benghazi residents who had not participated in the conflict but who adopted the Dignity narrative of how and why it had started were relieved to see Ansar al-Sharia and its associates gone. Many bonded through a collective memory of the conflict as solely a battle against terrorism, and in the process created new social milieus and civil society organizations.

Other social dynamics brought about by the war caused concern among the city’s population. The influence wielded by the Madkhali Salafists prompted much trepidation. As Haftar advanced through Benghazi during the war, the armed Madkhalis he had recruited took over mosques and religious institutions in the city. Later fully entrenched, the Madkhalis issued rulings against women traveling without a male guardian; called for all gatherings to be gender segregated; denounced any celebration of the Prophet Muhammad’s birthday, traditionally a popular holiday in Libya; prohibited demonstrations as sinful; and intimidated civil society actors and cultural institutions. 

Another dynamic was the emergence of a stronger regional identity. This was particularly evident among a younger generation that had little adult experience of pre- Dignity Benghazi. The black flag of the short-lived Emirate of Cyrenaica (1949–51)—more recently associated with federalists seeking greater autonomy for eastern Libya and hard-line separatists—became an increasingly common sight in the city.

Benghazi also began to look different. While the reconstruction of neighborhoods damaged during the war was piecemeal, other parts experienced a building boom. In many cases, the increased construction was related to economic predation by Haftar’s inner circle—particularly his sons, a number of whom were given military ranks without any background or training—and their Libyan Arab Armed Forces units. In 2021, Osama al-Kizza, head of municipal planning in Benghazi, warned that a surge in unregulated construction was resulting in districts that lacked roads, water, sanitation systems, and other infrastructure.

A decade after Operation Dignity tipped Benghazi into four years of fighting, the people of the city—whether residents, internally displaced, or displaced overseas—continue to disagree about what caused the war and why it lasted so long. The trajectory of the conflict has been the subject of much revisionism, but there is consensus that Benghazi experienced an unprecedented transformation as a result. The social and economic dynamics that emerged from the 2014–18 war not only upended what had been a generations-old status quo. They also gave rise to new identities, both among the majority of Benghazi residents who were broadly favorable toward Dignity and among those who opposed the operation and were exiled. Partisan narratives of the war have created powerful communal bonds in its aftermath. The disappearance, detention, or killing since 2018 of prominent figures who were erstwhile allies or supporters of Haftar, among them a female parliamentarian, a female lawyer, and a former Dignity commander, has in some cases prompted disquiet and the questioning of both the current Haftar-dominated status quo and the operation that led to it. 

While many of the displaced have resettled in Benghazi, others who were displaced due to their opposition to Dignity or wider political views believe it remains unsafe for them to return. The city presents a particularly difficult challenge for greater reconciliation in Libya. In the absence of any comprehensive reconciliation efforts, it is unlikely that the decade-old divisions among extended families, neighbors, and communities that once called Benghazi home can be resolved.

Mary Fitzgerald is a writer, researcher, and consultant specializing in the Mediterranean region, with a focus on Libya. She has worked on Libya for more than a decade. She spent several months on the ground during Libya’s 2011 uprising, lived in Tripoli in 2014, and continues to make regular trips to the country.

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]]> Internationalized kleptocracy is on the rise in Libya https://www.atlanticcouncil.org/in-depth-research-reports/report/internationalized-kleptocracy-is-on-the-rise-in-libya/ Tue, 30 Jul 2024 14:31:01 +0000 https://www.atlanticcouncil.org/?p=781398 On April 16, 2024, UN Special Representative for Libya Abdoulaye Bathily announced he would resign, citing a “lack of political will and good faith” among Libyan leaders. Few would disagree with his diagnosis that the vested interests of Libyan leaders have created a roadblock for progress.

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]]> On April 16, 2024, UN Special Representative for Libya Abdoulaye Bathily announced he would resign, citing a “lack of political will and good faith” among Libyan leaders. Few would disagree with his diagnosis that the vested interests of Libyan leaders have created a roadblock for progress. Bathily conducted eighteen months of shuttle diplomacy before concluding that the leaders he was seeking to negotiate a better future for Libya with were acting in their own interests instead of those of the country. These events are sadly reflective of how recent years have represented a boon for Libyan kleptocrats who have found ways to prosper amid the Libyan state’s governance crisis. Moreover, they do so with the active support and complicity of external state actors. This trajectory bodes ill for Libya’s future.

The rise of Libya’s kleptocrats

By predicating political progress on agreement between the “five major actors” in Libya in order to reach elections, Bathily ensured a situation whereby those currently in power would have a monopoly over what comes next. In truth, however, only two of the five major actors he identified—Khalifa Haftar, commander of the Libyan Arab Armed Forces and Abdulhamid al-Dabaiba, the head of the Tripoli-based Government of National Unity (GNU)—have a meaningful influence on what happens on the ground. The other three—the heads of the Presidency Council and the High State Council and the speaker of the House of Representatives—draw their influence from their formal mandates, as well as political support from Turkey and Egypt, respectively.

Even if Bathily had created a more inclusive and representative process, there is a strong chance that vested interests would have ensured its failure. Indeed, it has become increasingly apparent that any political strategy will be doomed unless efforts are made to tackle the growth of kleptocracy that is sustaining the status quo.

For proof of this, it is necessary to look at the leaders and interests at the heart of the discussions. The Dabaiba family’s vast wealth has been generated through the management of Libyan state funds that remain subject to investigation, and the expansion of spending under Dabaiba’s GNU has been connected to widespread corruption. Meanwhile, Haftar’s dominion over eastern and southern Libya has translated into direct control over parallel institutions and their publicly funded budgets, which are subject to no oversight. When a fund for reconstruction was established in eastern Libya in recent months under the leadership of Khalifa’s son Belqacem (who appears to have no qualifications for the role), it was declared that there would be no financial oversight from the Libyan state’s anti-corruption agencies. The two sets of kleptocrats, the Haftars and the Dabaibas, also appear to have an under-the-table understanding on the management of the National Oil Corporation, through which state spending is skyrocketing, with little to show for it.

Libya’s list of kleptocrats is not limited to the Haftars and the Dabaibas. Armed group leaders and corrupt businessmen continue to build wealth and influence at the populace’s expense. Taken together, the vast majority of what acts as Libya’s formal state is controlled by kleptocratic forces. A recent report by The Sentry found that an array of illicit industries results in enormous wealth and power not only with the tacit but often active support of public institutions. The resources of the state are being plundered through widespread contract fraud and several forms of trafficking, including large-scale abuse of fuel subsidies for smuggling purposes.

This ubiquitous barrage of corruption is hurting the population. Prices continue to rise, leaving ordinary Libyans in a position where they need to spend more for less. Tragedies such as the September 2023 floods in Derna and surrounding areas, where over four thousand five hundred deaths have been recorded and thousands more are missing and presumed dead, show the extent to which the state has become hollowed out, as vested rather than public interests prevail.

International complicity and partnership with the kleptocrats

While Bathily’s criticisms in his recorded remarks to the UN Security Council focused on Libyan leaders, much of his comments to the press afterward also took aim at the regional and wider international picture. “Libya today is a battleground,” Bathily noted. “We needed all of the support of all the international and regional players to achieve meaningful results. Unfortunately, we have seen… parallel tracks taken by different foreign actors which undermine efforts of the UN. As long as this exists, there is no room for a solution in the future,” he bleakly concluded before later stating that “Libya is the prey to foreign economic interferences.” 

This conclusion is accurate. Of course, there will continue to be a focus on security dynamics, particularly as a result of Russia’s growing presence in Libya and international concerns over the Sahel’s “arc of instability.” However, the economic plunder of the state continues at pace. In the oil sector, the 2022 deal to appoint a new chairman of the National Oil Corporation was brokered by the United Arab Emirates, while a Turkish-led and UAE-based energy merchant has grown increasingly involved in Libya’s fuel imports and crude exports. At the time of writing, recriminations over the contracting of oil concessions in Libya to international companies are rising, with widespread allegations that some newly formed companies are in fact fronts for Libyan kleptocrats and their international partners. These dynamics raise serious concerns over who is profiting from Libya’s oil sector and highlight a significant reduction in transparency at a time when expenditures on fuel subsidies have reached unprecedented levels. Meanwhile, the Belqacem Haftar-led reconstruction fund is busy signing contracts, primarily with companies from Egypt, which openly eschew any form of oversight.

These dynamics illustrate that the accumulation of wealth by Libyan kleptocrats comes with the full knowledge and, indeed, support of regional interests, making it harder for the United Nations to adopt firm positions or marginalize Libyan leaders who enjoy continuing support from regional actors. 

How to tackle these dynamics

Successive UN special representatives have found this fusion of Libyan and regional interests impossible to untangle. Ghassan Salamé sought to bring the international players with interests in Libya together through the Berlin process—which held one meeting in 2020 and another in 2021—with the support of the German government, but any consensus built remained short-lived. Today, it appears that the UAE and Turkey have found accommodation with one another through the alignment of economic interests. And, while Egypt has continued to interfere in the political process to achieve its goal of displacing the GNU, it has also pursued its economic interests through its partnership with Haftar’s dominant alliance in Libya’s east.

While the status quo, which keeps deteriorating and might collapse any day, seems comfortable for Libyan kleptocrats and their international partners, the Libyan population increasingly suffers the consequences, runaway inflation by way of a depressed dinar being only one of them. The situation is also harmful to the interests of the United States and like-minded states. Mounting corruption in the oil sector imperils the status of Libya as a key oil producer, and Haftar’s engagement with Russia has led to a growing influx of weaponry and men through eastern Libya in recent weeks.

The question then becomes how this kleptocratic boom can be addressed. In reality, it will fall to the United States and like-minded governments such as in the United Kingdom and Germany to impose greater pressure in a concerted and targeted way on the kleptocracy to address the cause of Libya’s governance crisis rather than its symptoms. This will require support for Libyan institutions that are trying to push back against these dynamics in highly challenging and dangerous circumstances. It will also require the use of targeted network sanctions on the kleptocratic elite and calling out their enablers in external states through clear diplomatic messaging. The UAE, recently removed from the Financial Action Task Force’s “gray list” for anti-money laundering and countering the financing of terrorism, should be a particular point of emphasis. An ongoing Organized Crime and Corruption Reporting Project-led investigation has identified that the Gulf state remains a prime location for those seeking to invest despite being subject to allegations of criminality and corruption. The United States and its like-minded allies should seek enhanced engagement between the private and public sectors through the use of business advisories and intelligence-sharing mechanisms to ensure Libyan kleptocrats can no longer launder and then stash their ill-gotten gains in financial centers and wealthy states across the globe.

A forceful focus on the kleptocracy is not a silver bullet by any means, but it is an attempt to attack the underlying cause behind most of the country’s problems in a way that has, to date, been lacking. The challenge of delivering on promises of democratic change for the Libyan people seems as far away now as ever. However, with a change of focus, international stakeholders can start to help Libyans begin to right the wrong of decades of kleptocracy and start to exact some accountability for the ongoing plunder of the country’s public resources. Only in such an environment will the next special representative have a more meaningful chance of success.

Oliver Windridge is the Director of Illicit Finance Policy at The Sentry.

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]]> The UN should take a bolder stance in Libya https://www.atlanticcouncil.org/in-depth-research-reports/report/the-united-nations-in-libya-the-sisyphean-transition/ Tue, 30 Jul 2024 14:30:39 +0000 https://www.atlanticcouncil.org/?p=781396 The two main armed conflicts of the last two years—in Gaza and Ukraine—have led to the belief that international politics are ruled again by sheer force and that the United Nations is no longer a relevant actor.

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]]> The two main armed conflicts of the last two years—in Gaza and Ukraine—have led to the belief that international politics are ruled again by sheer force and that the United Nations is no longer a relevant actor. Libya, where international rules have been violated periodically in the last decade, represents one of the first examples of the ongoing dismantling of the global order. At the same time, the Libyan case is unique in that the UN has played a key role in shaping the political configuration of the North African country, not always necessarily in a positive way.

From the authorization of the 2011 military intervention to the creation of the Governments of National Accord and Unity, the UN has had successes but also relevant failures in Libya. The recent resignation of UN Special Representative Abdullah Bathily points to the need for the UN to move beyond interim agreements between elites and to take a bolder stance. The volatile state of global affairs makes progress in Libya uncertain. Still, it is clear that the iteration of past mistakes in the transition process will not lead to a different outcome.

From the 2011 revolution to the arms embargo

The current situation in Libya can be traced back to the 2011 NATO-led military intervention, sanctioned by UN Security Council Resolution (UNSCR) 1973 (2011), and that led to the fall of Muammar Gaddafi’s regime. Under the premise of the Responsibility to Protect (R2P), the UN mandated the international community to establish a no-fly zone to protect civilians against war crimes carried out by Gaddafi’s army. However, as the situation deteriorated, the mission turned into a full-fledged regime-change operation, and Russia and China criticized what they saw as a breach of the scope of the resolution. Ever since, consensus within the Security Council on Libya has been elusive, and at the global level, the concept of R2P will likely remain on the shelf for a long time.

The UN’s role in Libya is described mainly in UNSCRs 1970 (2011), 1973 (2011), and 2009 (2011) and can be summarized as follows: the establishment of an arms embargo, an assets freeze, and a travel ban; the creation of a Sanctions Committee and a Panel of Experts (PoE) to monitor the situation on the ground; a referral to the International Criminal Court for crimes committed during and after the civil war; and, most importantly, the creation of a body to promote political dialogue and the reestablishment of state authority. UNSCR 2146 (2014) also calls for UN member states to inspect high-sea vessels to prevent the illicit export of crude oil from Libya, a decision adopted days after the oil tanker MV Morning Glory departed from Cyrenaica without the consent of the authorities in Tripoli.

When it comes to the arms embargo, its lack of an enforcement mechanism is responsible for the current situation in Libya, much more than the looting of arsenals following the collapse of Gaddafi’s regime. Divisions among Security Council members and at the European Union, competition between Turkey and the United Arab Emirates in the aftermath of the Arab Spring, and the growing US disinterest in the Middle East and North Africa region are all factors that explain why the continuous flow of weapons has not been halted. The nine reports of the UN PoE detail persistent violations that have not been followed by specific actions and point directly at, among others, the responsibility of Russia, a veto-wielding permanent member of the Security Council. Interestingly, the embargo was the first to include a specific clause banning “the provision of armed mercenary personnel.” Despite this stipulation, today, Libya has become one of the main bases of operations for the Wagner Group, a Russian mercenary group now operating under the banner of Africa Corps.

Guiding the peace process: The role of the United Nations Support Mission in Libya

Unlike with the embargo, the UN has taken a leading role in the transition process by creating a support mission, the United Nations Support Mission in Libya (UNSMIL) and appointing six consecutive special representatives to the secretary-general. In its current form [UNSCR 2542 (2020)], the tasks of UNSMIL are to further political dialogue and guide the transition process, help maintain the ongoing cease-fire, and support key Libyan institutions, including securing uncontrolled arms. The latter state-building element of the mission has been watered down through the years, with an initial mandate to “restore public security and promote the rule of law” that never met its expectations. In practice, UNSMIL offers a setting for Libyan elites to bargain for political and economic influence.

The drafting of the Libyan Political Agreement (LPA) in Skhirat, Morocco, and the subsequent creation of the Government of National Accord (GNA) in 2015 were UNSMIL’s first major achievements, which nevertheless had little success beyond signaling to the international community who was Libya’s legitimate authority. This failure can be attributed to the weak institutional legacy of Gaddafi’s hyper-personalist regime and, most importantly, to foreign meddling. UN special representatives have constantly complained about the role of third actors in funneling arms and money into the conflict. For instance, Ghassan Salamé, who served as UN special representative from 2017 to 2020, described Libya as “a textbook example of foreign interference.” However, some inherent flaws in the design of the LPA can also be blamed on the UN.

The main weakness of the UN-inspired political agreement is that it prioritized political reunification at the expense of legal, economic, and security sector reform. This made the GNA dependent on the goodwill of militias, while counterfeit banknotes continue to this day to flow into the Libyan market. Neither did UNSMIL push for the drafting of a definitive constitutional text, and in its absence, the LPA now appears to act as the top of the Libyan normative hierarchy. Another caveat of the UNSMIL strategy was to include all major political factions within the framework of the LPA, ossifying institutions with little popular legitimacy, including the House of Representatives (HoR), which was elected a decade ago with a voter turnout of 18 percent. In addition, the emphasis on local and regional representation (for instance, within the Presidential Council, whose three members represent Libya’s three historical regions) has turned into local parochialism and clientelist competition.

The fact that all actors on the ground have international support has forced UN special representatives to be pragmatically dovish. But at times, it appears they have become victims of their narrative, ignoring bellicose behaviors and focusing on “reconciling” rivals that already have tacit understandings of how to share Libya’s riches. This is most evident in the case of Khalifa Haftar and his self-styled Libyan Arab Armed Forces (LAAF), whose 2014 power grab was decisive in the collapse of Libya’s transition. UN personnel have periodically traveled to Haftar’s headquarters in Rajma, east of Benghazi, despite the irregular nature of the LAAF and its links with war crimes and human rights violations. In 2015, the HoR appointed Haftar as supreme commander of the Libyan army. Still, the LPA is clear that this process should have been done through a joint committee also comprising the executive and the upper chamber, the High Council of State. The fact that Haftar launched his 2019 offensive on Tripoli the same day UN Secretary-General António Guterres was on a visit to eastern Libya is evidence of his disdain for the organization.

By 2018, conferences in Paris and Palermo had shifted the international debate, emphasizing the need for organizing elections in Libya. This was a desire equally shared by the population, as confirmed in consultations organized by UNSMIL in the context of a new Libyan National Conference. Following the collapse of Haftar’s campaign on Tripoli, however, the UN mission organized a voting process with seventy-five electors instead of pushing ahead with the plebiscite. This Libyan Political Dialogue Forum (LPDF) was to choose a new Government of National Unity (GNU) to organize presidential and parliamentary elections by December 24, 2021. In this sense, while the forum was another significant UN-led turning point, it seemed to replicate previous mistakes, extending an endless interim period and bringing to the table those most interested in maintaining the status quo. Some even described the LPDF as a rendezvous between “dinosaurs” and “kleptocrats.”

In addition to the questions of representativity, including the underrepresentation of women, the UN was not able to effectively address the allegations that the chosen and current Prime Minister Abdulhamid al-Dabaiba had bribed his way to power. If this was not enough, the HoR soon withdrew its recognition of the GNU, returning Libya to the previous stalemate and rendering the whole process pointless. As time passed, it became evident that neither Dabaiba nor the HoR felt particularly pressed to hold the election by December 2021. Surprisingly, before his resignation in April 2024, Bathily, who served as UN special representative from 2022 to April 2024, was working on yet another transitional government, ignoring the aspirations of the population and the already-expired UN-proposed election timeline.

The UN must break the Libyan impasse

International norms and institutions are being challenged worldwide. However, this does not make the UN a mere bystander, and it is certainly not the case in Libya. Willingly or not, all Security Council members made Gaddafi’s downfall possible and failed to agree on embargo measures to stop the flow of weapons into Libya. Regarding the transition process, UNSMIL has inadvertently trapped Libya in a far-too-complex institutional web.

Bathily’s farewell declaration describes Libya as a “mafia state” dominated by political and military elites that follow their narrow interests. It points to the need for a new UNSMIL strategy, moving beyond the emphasis on reconciliation and pact-making and instead pushing for elections and accountability. The UN should not push for the creation of a third transitional executive, giving its seal of approval to yet another clique of elites. At the very least, this principled stand would raise awareness of the situation on the ground, and it could serve as revulsive in the otherwise endless political impasse.

Álvaro de Argüelles is a PhD candidate at Universidad Autónoma de Madrid (UAM), Spain. He holds a double major in international studies and law from Universidad Carlos III de Madrid and a master’s degree in Arab and Middle Eastern studies from UAM. Argüelles is a board member of the Foro de Investigación sobre el Mundo Árabe y Musulmán.

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]]> Libya’s protracted crisis, ten years of electoral deadlock https://www.atlanticcouncil.org/in-depth-research-reports/report/libya-protracted-crisis-ten-years-on/ Tue, 30 Jul 2024 14:28:35 +0000 https://www.atlanticcouncil.org/?p=781361 A decade has passed since the last elections were held in Libya, and the country remains mired in a stalemate and deeply divided.

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Explore our collection of essays

A decade has passed since the last elections were held in Libya, and the country remains mired in a stalemate and deeply divided. Despite several attempts led by the United Nations to stabilize the country, competing centers of power have failed to agree on new elections and a transition to peace. Yet, the enduring challenges Libya faces extend beyond the political impasse to include governance failures, economic hardships, widespread kleptocracy and corruption, and the spread of militias and armed actors—with external meddling turning the country into a theater for international rivalries.

This set of essays, edited by Karim Mezran and Aldo Liga, tracks how the situation in Libya has evolved over the last ten years, addressing important questions such as:

  • What is obstructing efforts to agree upon a new stabilization pathway for Libya?
  • What role are international actors playing in either resolving the crisis or perpetuating it?
  • How are internal political struggles and relations with other countries affecting the situation?
  • What can the international community do to move past these challenges?

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Internationalized kleptocracy is on the rise in Libya

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Benghazi is a major stumbling block for national reconciliation efforts

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In May 2014 Libyan General Khalifa Haftar launched a then-unauthorized military operation from Benghazi, Libya’s second city. The operation, which Haftar named Karama, or Dignity, was centered on but not limited to Benghazi; its declared aim was to eradicate what Haftar and his associates described as terrorism. However, it prompted a swell of armed opposition from those who suspected it was a pretext for the septuagenarian general’s ambition to rule Libya.

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After anti-migration efforts shrank its influence, Rome needs a new Libya policy

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Libya is the crucial hub for Moscow’s activities in Africa

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After 2011, the United States stayed on the sidelines—to Libya’s detriment

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When reflecting over the last decade of the US policy, especially in the Trump and Biden administrations, three consistent trends emerge: insufficient support for the UN political process to restore legitimacy to Libya’s political; leadership, repeated appeals to eastern warlord and head of the Libyan National Army (LNA) Khalifa Haftar to participate in a political process; and most consequentially for the United States, a seeming lack of attention to Russia’s increased presence in Libya.

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]]> Effective US government strategies to address China’s information influence https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/effective-us-government-strategies-to-address-chinas-information-influence/ Tue, 30 Jul 2024 12:00:00 +0000 https://www.atlanticcouncil.org/?p=782361 To mount the most effective response to Chinese influence and the threat it poses to democratic interests at home and on the international stage, the United States should develop a global information strategy, one that reflects the interconnected nature of regulatory, industrial, and diplomatic policies with regard to the information domain.

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China’s global influence operations have received increasing attention in the national security community. Numerous congressional hearings, media reports, and academic and industry findings have underscored China’s increased use and resourcing of foreign information manipulation and interference (FIMI) tactics in its covert operations both in the United States and abroad.

In response, US government offices the Foreign Malign Influence Center (FMIC), the Global Engagement Center (GEC), and the Cybersecurity and Infrastructure Security Agency (CISA), among others, have made strides in raising awareness of the issue and charting pathways to increase the resilience of the US information ecosystem to foreign influence. To date, however, the efforts to counter the influence of the People’s Republic of China (PRC) have been fragmented. That fragmentation is indicative of a lack of cohesion around the concept of influence operations itself.

Across the government and nongovernment sectors alike, there is considerable variation regarding the definition and scope of information manipulation. For example, the Department of State’s (DOS’s) GEC has an expansive definition, which includes “leveraging propaganda and censorship, promoting digital authoritarianism, exploiting international organizations and bilateral partnerships, pairing cooptation and pressure, and exercising control of Chinese-language media.” Others define it more narrowly as disinformation and propaganda spread by a foreign threat actor in a coordinated, inauthentic manner, and largely occurring on social media platforms.

This variation is a reflection of the holistic and multifaceted nature of Chinese influence. Coercive tactics and influence operations have long been a central part of China’s strategic tool kit and core to how it engages with the outside world. Because China conceives of the information domain as a space that must be controlled and dominated to ensure regime survival, information operations are part of a much bigger umbrella of influence that spans the economic, political, and social domains. It may be more useful to think of information manipulation as existing within the broader conceptual framework of China’s weaponization of the information domain in service of its goal to gain global influence.

As previous work by the Digital Forensic Lab (DFRLab) has shown, China’s approach to the information domain is coordinated and proactive, taking into account the mutually constitutive relationships between the economic, industrial, and geopolitical strategies of the Chinese Communist Party (CCP). The aim of its efforts is to gain influence—or “discourse power”—with the ultimate goal of decentering US power and leadership on the global stage. One of the main mechanisms through which the CCP seeks to achieve this objective is by focusing on the dominance of information ecosystems. This ecosystem encompasses not only narratives and content that appear in traditional and social media but also the digital infrastructure on which communication systems rely, the policies that govern those systems at the international level, and the diplomatic strategy deployed by Beijing’s operatives abroad to gain buy-in for the CCP’s vision of the global order.

The DFRLab’s previous two reports, which explored China’s strategy and the impacts of its operations abroad, found that the United States will not be successful in addressing the challenges of Chinese influence if it sees that influence as separate from the interconnected economic, political, and technical domains in which its strategy is embedded.

To this end, the DFRLab hosted a series of one-on-one expert interviews, conducted research and workshops, and held a virtual roundtable discussion with scholars and practitioners with expertise on or experience in addressing authoritarian influence and information operations, US government processes and policies around these issues, and Chinese foreign policy. This issue brief is part of a larger body of work that examines the Chinese government’s interests and capabilities and the impacts of party’s efforts to shape the global information ecosystem. The focus of this report is on how the US government can best respond to those challenges, including the architecture, tools, and strategies that exist for addressing PRC influence and information manipulation, as well as any potential gaps in the government tool kit.

This report finds that, to mount the most effective response to Chinese influence and the threat it poses to democratic interests at home and on the international stage, the United States should develop a global information strategy, one that reflects the interconnected nature of regulatory, industrial, and diplomatic policies with regard to the information domain. A core assumption undergirding this concept is that US policymaking space tends to over-index on the threat of information manipulation in particular while under-indexing on the core national interest of fostering a secure, interoperable information environment on a larger scale.

The limits of understanding Chinese influence as systemic and part of a broader strategy has sometimes led US response to be pigeonholed as an issue of strategic communications, rather than touching on the information and technology ecosystems, among others, where China focuses its information and influence efforts. Responding to Chinese influence with government messaging is not sufficient to address the complex nature of the challenge and places the United States in a position of reactivity.

In short, understanding that the CCP (1) integrates its tech industrial strategy, governance policy, and engagement strategy and (2) connects its approach at home to how it engages abroad, the United States needs to do the same, commensurate with its values. It should not respond tit-for-tat but rather have a collective strategy for a global competition for information that connects its tech strategy to its governance approach to its engagement around the world.

That is not to say that a US strategy on information resilience should mirror China’s, or that such a strategy should be developed in response to the PRC’s actions in the information domain. Nor is it to say that the United States should adopt a similar whole-of-government approach to the information domain. There are silos by design in the US system and important legal and normative foundations for the clear delineation of mission between them. What this issue brief argues for is a strategic breaking down of silos to facilitate proactive action versus a dangerous breaking down of legally required silos.

This report emphasizes that the United States should articulate how major initiatives like the CHIPS and Science Act, regulatory approaches like the recent executive orders on AI and data security, and the DOS’s recent cyberspace and digital policy strategy are part of a cohesive whole and should be understood and operationalized as such.

The strategy should outline what the United States stands for as much as what it is against. This requires that the United States frame its assessment of threat within a broader strategy of what its values are and how those values should be articulated in its regulatory, strategic, and diplomatic initiatives to promote open information environments and shore up information resilience. This includes working with allies and partners to ensure that a free, open, and interoperable internet is a global priority as well as a domestic one; developing common standards for understanding and thresholding foreign influence; and promoting connectivity at home and abroad. One finding of this report is that the United States is already leaning into its strengths and values, including championing policies that support openness and continuing support for civil society. This, along with the awareness of influence operations as the weaponization of the information domain, is a powerful response to authoritarian attacks on the integrity of both the domestic US and global information spaces.

The United States has a core national security interest in the existence of a rules-based, orderly, and open information environment. Such an environment facilitates the essential day-to-day tasks related to public diplomacy, the basic expression of rights, and investment in industries of strategic and economic value. Absent a coherent strategy on these core issues related to the integrity of the United States’ information environment that is grounded in an understanding of the interconnected nature of their constitutive parts, the challenges of foreign influence and interference will only continue to grow. This issue brief contains three sections. For sections one and two, experts in different aspects of the PRC’s information strategy addressed two to three main questions; during the course of research, further points were raised that are included in the findings. Each section represents a synthesis of the views expressed in response to these questions. The third section comprises recommendations for the US government based on the findings from the first two sections.

About the author

Kenton Thibaut

Staff

Kenton Thibaut

Senior Resident Fellow, China

Digital Forensic Research Lab

China Disinformation

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]]> How Venezuela became a model for digital authoritarianism https://www.atlanticcouncil.org/in-depth-research-reports/how-venezuela-became-a-model-for-digital-authoritarianism/ Mon, 22 Jul 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=781182 As Venezuelans head to the polls on July 28, the massive online surveillance apparatus developed under incumbent Nicolás Maduro watches street video, monitors social media and phone communications, and gathers data from online movements. What's behind this digital repression—and will it spread?

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Once the most vigorous democracy in Latin America, Venezuela started down a slow path toward autocracy twenty-five years ago. It also became a model for digital authoritarianism and an exporter of democratic backsliding to the rest of the Americas. Control of the information space, widespread surveillance, and digital repression are significant pillars of the current regime’s survival. Incumbent Nicolás Maduro is counting on this, along with electoral manipulation and judicial control, to remain in power as Venezuela holds a presidential election on July 28. Nonetheless, a cohesive democratic coalition mobilizing the population across the country has a serious chance of making this election the starting point for a transition toward re-democratization.

The media landscape in Venezuela is fragmented and marked by censorship. The rise of government-run media and state control through ownership changes or censorship mechanisms led independent journalists to migrate to small internet outlets. Venezuela’s media ecosystem shrank further when the country’s economy collapsed after 2015. The aftermath of the 2017 cycle of protests saw another significant shift in the media landscape, with surviving newscasts characterized by censorship and heavily biased coverage in favor of the ruling party. In addition, censorship has caused the closure of many radio stations, leaving many areas without access to local or regional news. The National Telecommunications Commission in Venezuela routinely censors the use of certain topics and words during programming, and also bans interviews with democratic opposition leaders. It prohibits public coverage of corruption allegations or human rights violations attributed to state officials or their family members, coverage of citizen protests or demonstrations against the regime, and discussion of international courts and other human rights entities.

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Additional contributions by Marco Ruíz and Valentina Aguana

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]]> Modernizing space-based nuclear command, control, and communications https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/modernizing-space-based-nuclear-command-control-and-communications/ Mon, 15 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=769668 While nuclear command, control, and communications (NC3) is in the midst of a modernization overhaul, the space-based elements of NC3 face unique geopolitical, technical, and bureaucratic challenges. This paper focuses on space-based missions and elements of the existing NC3 system, analyzing how ongoing modernization programs are addressing these challenges as well as offering recommendations.

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If I take nuclear command and control and spread it across 400 satellites … how many satellites do I have to shoot down now to take out the US nuclear command and control?”

Gen. B. Chance Saltzman, Chief of Space Operations (CSO) United States Space Force (USSF)

Abstract

US nuclear command, control, and communications (NC3) is a bedrock for nuclear deterrence and the US-led, rules-based international order that it supports. Like the rest of the US nuclear arsenal, NC3 is in the midst of a modernization overhaul. The space-based elements of NC3, however, face different geopolitical, technical, and bureaucratic challenges during this modernization. Geopolitically, the two-nuclear-peer challenge, China’s perception of NC3 and strategic stability, and the prospect of limited nuclear use call into question the sufficiency of existing and next-generation NC3. Technically, Russia and China are developing more sophisticated counterspace weapons, which hold at risk space-based US NC3. Bureaucratically, the US Department of Defense (DOD)’s shift to a proliferated space architecture may not be appropriately prioritizing requirements for systems that are essential for NC3 missions. To address these challenges, space-focused agencies in the DOD need to ensure that nuclear surety is not given short shrift in the future of space systems planning. 

Introduction

The NC3 system is one of the most opaque, complex, hardened, least understood, and perhaps least appreciated foundations for nuclear deterrence and strategic stability. While each military service is busy developing and attempting to resource its instantiation of combined joint all domain command and control (CJADC2), NC3 has not yet enjoyed this same focus and attention. As security dynamics and technology developments continue to evolve, the United States must commit appropriate resources and focus to ensure the continuing effectiveness of NC3. In simple terms, NC3 is the protected and assured missile, air, and space warning and communication system enabling the command and control of US nuclear forces that must operate effectively under the most extreme and existentially challenging conditions—employment of nuclear weapons. The 2022 US Nuclear Posture Review explains the five essential functions of NC3: “detection, warning, and attack characterization; adaptive nuclear planning; decision-making conferencing; receiving and executing Presidential orders; and enabling the management and direction of forces.”1

The NC3 system must never permit the use of nuclear weapons unless specifically authorized by the president, the only use-approval authority (negative control), while always enabling their use in the specific ways the president authorizes (positive control). Risk tolerance for NC3 systems is understandably nonexistent; there can be no uncertainty in the ability of the United States to positively command and control its nuclear forces at any given moment. The DOD and Department of Energy’s National Nuclear Security Administration use the term “nuclear surety” to describe their comprehensive programs for the safety, security, and control of nuclear weapons that leave no margin for error. The requirement for nuclear surety is constant, but it is becoming more difficult to deliver because threats to US NC3 systems are increasing, due to geopolitical, technical, and bureaucratic trends and developments. 

The geopolitical environment has shifted in significant ways since current US NC3 systems were deployed. The space-based elements of NC3 are now threatened in unprecedented ways, due to Chinese and Russian testing and deployment of a range of counterspace capabilities that can hold space-based NC3 systems at risk. As demonstrated by the current war in Ukraine, even regional conflicts can manifest long-standing questions and concerns about NC3 in a multipolar and increasingly complex global security environment. Layer in China’s quantitative and qualitative rise in strategic nuclear weapons delivery systems and the unwillingness of China’s leadership to have basic discussions about strategic stability, and the 1960s architecture that is the foundation of US NC3 systems seems to be growing increasingly inadequate to deal with the geopolitical challenges of today and tomorrow. The reality is that the current NC3 system and architectures were predicated upon a bipolar nuclear geopolitical situation that no longer exists. Today, a multipolar, globally proliferated, and largely unconstrained nuclear weapons environment requires integrated deterrence across domains, sectors, and alliances. 

The E-4B National Airborne Operations Center, which provides travel support for the Secretary of Defense and their staff to ensure command and control connectivity outside of the continental United States. Credit: US Air Force.

The geopolitical environment has shifted in significant ways since current US NC3 systems were deployed. The space-based elements of NC3 are now threatened in unprecedented ways, due to Chinese and Russian testing and deployment of a range of counterspace capabilities that can hold space-based NC3 systems at risk. As demonstrated by the current war in Ukraine, even regional conflicts can manifest long-standing questions and concerns about NC3 in a multipolar and increasingly complex global security environment. Layer in China’s quantitative and qualitative rise in strategic nuclear weapons delivery systems and the unwillingness of China’s leadership to have basic discussions about strategic stability, and the 1960s architecture that is the foundation of US NC3 systems seems to be growing increasingly inadequate to deal with the geopolitical challenges of today and tomorrow. The reality is that the current NC3 system and architectures were predicated upon a bipolar nuclear geopolitical situation that no longer exists. Today, a multipolar, globally proliferated, and largely unconstrained nuclear weapons environment requires integrated deterrence across domains, sectors, and alliances. 

While the geopolitical environment has evolved, so too has the technology available to deliver NC3 capabilities. Many of the current NC3 systems were developed decades ago using analog technology but are now being updated to digital interfaces, switches, and underlying network topologies. This transition will enable enhanced capabilities, but it will also open more threat vectors that can be exploited via various cyber means through all segments of the system. As the space-based systems that are part of the NC3 system are being comprehensively upgraded, whether for missile warning (detecting and characterizing a missile), missile tracking, or delivering persistent assured communications, the DOD must work to eliminate exploitable cyber vulnerabilities and maintain distributed end-to-end network and supply chain security. 

Additionally, almost all the DOD’s bureaucratic structures that acquired the current NC3 systems have changed, sometimes in radical ways. Primary responsibility for acquisition of important elements of the NC3 system are now divided between several organizations that are not focused on nuclear surety, making it a significant challenge to achieve effective integration and unity of command and effort across this structure. Moreover, the overall architecture for US space systems is transitioning toward a hybrid approach that uses commercial, international, and government systems and capabilities to enhance space mission assurance. The benefits of this hybrid approach seem clear for most mission areas, but it is not necessarily optimal for NC3. The DOD must ensure that nuclear surety remains a foundational and non-negotiable requirement for next-generation NC3 systems and cannot allow this requirement to be out-prioritized by other important considerations or become adrift in new bureaucratic structures.

Given the importance of the capabilities, evolving geopolitical and technical threats, and the diverse units planning modernization of the system, the United States must think carefully about the best ways to acquire the next-generation, and generation-after-next, of space-based NC3 to continue delivering nuclear surety in a new landscape that is characterized by a breathtaking degree and pace of change, troubling factors which seem likely to persist or even accelerate. The 2022 US Nuclear Posture Review reaffirms the US commitment to modernizing NC3 and lays out key challenges: 

We will employ an optimized mix of resilience approaches to protect the next-generation NC3 architecture from threats posed by competitor capabilities. This includes, but is not limited to, enhanced protection from cyber, space-based, and electro-magnetic pulse threats; enhanced integrated tactical warning and attack assessment; improved command post and communication links; advanced decision support technology; and integrated planning and operations.”

2022 Nuclear Posture Review.

This paper characterizes the existing NC3 system and focuses on its space-based missions and elements. It describes how orbital dynamics shape space security and examines the emerging geopolitical, technical, and bureaucratic challenges to the extant NC3 system. Finally, it analyzes how ongoing modernization programs are addressing these challenges and offers some recommendations. 

What is the NC3 system?

The nature of NC3

Department of the Air Force (DAF) doctrine defines the NC3 system as “the means through which Presidential authority is exercised and operational command control of nuclear operations is conducted. The NC3 system is part of the larger national leadership command capability (NLCC), which encompasses the three broad mission areas of: (1) Presidential and senior leader communications; (2) NC3; (3) and continuity of operations and government communications.”2

The current NC3 architecture is comprised of two separate but interrelated layers. The DOD’s 2020 Nuclear Matters Handbook describes it as follows: 

The first layer is the day-to-day architecture which includes a variety of facilities and communications to provide robust command and control over nuclear and supporting government operations. The second layer provides the survivable, secure, and enduring architecture known as the “thin-line.”

Office of the Deputy Assistant Secretary of Defense for Nuclear Matters, Nuclear Matters Handbook 2020 [Revised], https://www.acq.osd.mil/ncbdp/nm/NMHB2020rev/chapters/chapter2.html.

The thin-line uses several communication technologies and pathways to provide “assured, unbroken, redundant, survivable, secure, and enduring connectivity to and among the President, the Secretary of Defense, the CJCS [Chairman of the Joint Chiefs of Staff], and designated commanders through all threat environments to perform all necessary command and control functions.”3 Assessments of space-based NC3 tend to focus most on the ways these systems support the thin-line; this assured connectivity is an essential foundation, but any comprehensive analysis must also consider the contributions of space systems to broader NC3 functions. Moreover, the highly integrated nature of modern command, control, communications, and battle management (C3BM) systems necessitates the integration of NC3 capabilities into a broader system-of-systems across the C3BM enterprise. For the DAF, this integrated system-of-systems is the DAF Battle Network and includes more than fifty-five programs and $21.5 billion in procurement as part of the broader DOD CJADC2 initiative.4

An Upgraded Early Warning Radar (UEWR), a dual-sided ballistic missile early warning radar, at US Space Force’s northernmost base in Greenland. Credit: US Space Force.

To instantiate a survivable communications network, the NC3 system is comprised of terrestrial, airborne, and space-based systems. Satellite terminals like the Family of Advanced Beyond Line-of-Sight Terminals (FAB-T) ensure that the satellite communications, cryptographic keys, and actual control functions of the network are available to the necessary decision-makers during nuclear conflict.5 Boeing was the original contractor for the FAB-T program, but a February 2023 report delivered to Congress from Frank Calvelli, the assistant secretary of the Air Force for space acquisition and integration, indicated that FAB-T had fallen more than a decade behind schedule under Boeing and that a new sole-source contract for FAB-T was awarded to Raytheon in 2014.6 Allowing FAB-T to fall more than a decade behind schedule is an indication of the DOD’s reduced emphasis on NC3 in the post-Cold War era. 

Satellite command post terminals in airborne command centers like the E-4B National Airborne Operations Center and the E-6B Looking Glass Airborne Nuclear Command Post (ABNCP) on the Navy’s Take Charge and Move Out (TACAMO) aircraft ensure that national decision-makers can command and control nuclear forces even if key ground sites and decision-makers come under attack.7 TACAMO aircraft can link national decision-makers with “naval ballistic missile forces during times of crisis. The aircraft carries a Very Low Frequency communication system with dual trailing wire antennas” and can also perform the Looking Glass ABNCP mission, which facilitates the launch of US land-based intercontinental ballistic missiles using a robust and survivable airborne launch-control system.8

Current NC3 missions and space systems

Space systems provide three capabilities that are essential for the NC3 enterprise: missile warning/missile tracking (MW/MT), assured communications, and nuclear detonation detection. Space-based MW/MT uses infrared sensors to detect missile launches worldwide. This can be the first warning of an attack and, when combined with other attack indications from systems using different phenomenologies, provides high confidence that an actual attack is underway. This warning is essential for initiating other steps that may include moving the president, conferencing with senior leaders, and determining response options. Today, the space-based infrared system (SBIRS) provides MW/MT. SBIRS consists of the space segment of geostationary Earth orbit (GEO) satellites, highly elliptical orbit (HEO) sensors, legacy Defense Support Program (DSP) satellites, and the associated worldwide deployed ground systems. SBIRS satellites were first launched in 2011, and the sixth and final satellite was launched in August 2022.9 In 2017, then-Commander US Strategic Command (USSTRATCOM) Gen. John Hyten famously described SBIRS satellites as “big, fat, juicy targets,” pledging that USSTRATCOM would no longer support acquisition of such NC3 systems and that “we are going to go down a different path. And we have to go down that path quickly.”10 The Missile Defense Agency (MDA) (and its predecessor organizations) has, since the 1980s, conducted several experiments and developed prototype capabilities supportive of MW/MT/missile defense and adaptive nuclear planning. MDA’s prior efforts include Delta 180, Midcourse Space Experiment/Space-Based Visible, and Space Tracking and Surveillance System.11

Assured, survivable communications capabilities are essential for the president to conduct conferences with senior leaders and exercise command and control over nuclear forces. Space-basing enhances survivability and enables global communications. The Advanced Extremely High-Frequency (AEHF) system currently provides many communication links for nuclear command and control. AEHF provides “survivable, global, secure, protected, and jam-resistant communications for high-priority military ground, sea and air assets.”12 AEHF replaced the Cold War-era Milstar system; the first AEHF satellite was launched in 2010, and the sixth and final satellite was launched in March 2020.

A rendition of the Advanced Extremely High Frequency (AEHF) System, a space-based communication system. Credit: US Space Force.

A final space capability providing important support to NC3 is data about the location of nuclear detonations worldwide. This information is essential for effective and adaptive planning in a nuclear conflict. The United States Nuclear Detonation Detection System (USNDS) currently provides this capability.13 As described by the DOD, “the USNDS is a worldwide system of space-based sensors and ground processing equipment designed to detect, locate, and report nuclear detonations in the earth’s atmosphere and in space. The USNDS space-based segment is hosted on a combination of global positioning system (GPS) satellites, DSP satellites, and other classified satellites.”14 The enhanced detection capabilities of the Space and Atmospheric Burst Reporting System (SABRS-2) payload were first deployed in 2016. 

How the attributes of space and space systems shape space security

Comprehensive analysis about modernizing space-based NC3 cannot be complete without a baseline understanding of the attributes of space and space systems that shape the most appropriate modernization paths and trade-offs. NC3 systems were first moved to space in the 1960s because this domain provides unique speed and positional advantages, persistent emplacement, and a global perspective. These developments were highly effective and efficient, despite the considerable expense of developing reliable space hardware and the great energy required to move a satellite above the atmosphere at the bottom of Earth’s gravity well and to accelerate it so it can sustain the specific orbit for which it was designed. Orbital dynamics, along with the lack of traditional cover and concealment measures available on Earth, means satellites can be more easily detected, tracked, and targeted than terrestrial forces, which are routinely able to maneuver and hide. 

Attributes of space launch and orbital dynamics also drive space technology and operations in significant ways. Traditional satellite architectures have been shaped by several factors, including the costs and dangers of space launch (still the most hazardous part of satellite operations), significant limitations on capability to service satellites, perceived economies from custom-building very small numbers of increasingly capable and large satellites, and the ability of just a few of these highly capable satellites to perform a variety of key missions very competently. Due to these factors, several countries, and the United States in particular, in the past chose to develop and operate a very small number of highly expensive, sophisticated, and exquisitely capable satellites. Each of these attributes adds to the vulnerability of legacy satellite architectures and exacerbates temptations for enemies to negate them because these orbital assets are so fragile, so few, increasingly important, operate in highly predictable ways, and cannot today be repaired, refueled, or upgraded on orbit.

Another important defining characteristic of most space systems is that they are dual use, meaning that they can be used for both civilian and military applications. This dual-use characteristic has been inherent since the earliest days of space technology development and is highlighted by a description of Wernher von Braun (the leading space technology pioneer) as a “dreamer of space, engineer of war.”15 The hybrid space architecture under development by the United States is an integrated system of both government (civil, national security, intelligence) and commercial (industry) elements that is also inherently dual use, particularly when the government procures commercial goods and services. This architecture can also be extended to international and institutional (interagency, academia) allies, coalition members, and partners. Dual-use considerations sometimes create difficult balancing and trade-off issues, as the United States and other countries attempt to promote space technologies and activities considered to be benign, while limiting similar capabilities or actions that may be threatening or destabilizing.

An implication of the dual-use nature of space systems is that any satellite that can transmit or maneuver could be sent toward a potential collision (known as a conjunction) with a nearby satellite or used to jam satellite transmissions, making it a simple anti-satellite (ASAT) weapon. Such use is not likely to be as effective as a purpose-built ASAT weapon, but increasing development of in-orbit servicing, assembly, and manufacturing (ISAM) and active debris removal (ADR) capabilities may blur and complicate distinctions between commercial, civil, and military applications and operations. Similarities between ASAT systems and some of the technologies and operations of ISAM and ADR systems are so great that analysts worry that widespread development of these beneficial commercial and civil capabilities would also create significant but latent ASAT potential.16 The dual-use characteristic of satellites or spacecraft is perhaps the single largest factor that complicates space security considerations, making it more difficult for analysts to determine ways to incentivize desired applications, constrain malign potential, and consider how these factors shape space superiority.

Dedicated or dual-use capabilities can strengthen capability, capacity, resilience, and security, but security is an ambiguous and relative concept. Analysts use the term “security dilemma” to describe the relative and interactive aspects of security and study them as a cause of war and one of the central problems of international relations.17 The characteristics of space and satellites exacerbate some of these issues and make their relative contributions to security more ambiguous and elusive. Accordingly, modernizing space-based NC3 in the context of these technical and political issues is a complex endeavor that may promote or inhibit cooperation under the security dilemma.18

On this subject, strategist Brad Townsend builds from earlier analysis and applies it directly to space, finding that the current space security situation is less dire than some originally predicted.19 CSO Saltzman acknowledges that the security dilemma is a concern but notes that weapons are not inherently offensive or defensive: “Weapons are just weapons. And the operations that you choose to undertake with those weapons makes them more offensive or defensive.”20 As described in a 2023 New York Times Magazine profile of the US Space Force: 

The important question, as [General Saltzman] saw it, was this: At what point does a buildup of defensive weapons in space constitute an ability to conduct offensive operations so that someone else feels threatened? “There is a balance here,” he said. “And this is about stability management. What actions can we take to protect ourselves before we start to cross the line and maybe create a security dilemma?” The line, he suggested—harder to find in space, no doubt, and at this point not clearly defined—had not yet been crossed.

Gertner, “What Does the US Space Force Actually Do?” Interior quotes are from General Saltzman.

A final attribute of space capabilities is rapidly evolving due to the burgeoning commercial space sector: the value of commercial space systems in supporting a wide range of military operations. These contributions have grown exponentially, as illustrated by the stunning successes of the Ukrainians in defending their country following the Russian invasion.21 Commercial space capabilities provide critical information that strengthens worldwide support for Ukraine, supply communications connectivity that is essential for coordinating many Ukrainian military operations, and demonstrate that states do not necessarily need to own and operate space systems to use them effectively.

US Vice President Kamala Harris announces a new US pledge to not destructively test direct-ascent anti-satellite weapons during a visit to Vandenberg Space Force Base in April 2022. US Space Force photo by Michael Peterson.

These characteristics of space and space systems are driving the United States toward a wholesale reorientation of its national security space enterprise that is focused on improving resilience and advancing better transparency- and confidence-building measures (TCBMs) for space governance. The current enterprise-wide modernization and recapitalization of government space systems provides resilient, robust, and responsive solutions, seeking to take advantage of new capabilities and technologies through approaches including highly proliferated constellations in multiple orbits; in-plane and multi-orbit, multi-node cross-links; and shorter development and deployment cycles. Helpful TCBM steps include the United Nations Committee on the Peaceful Uses of Outer Space’s promulgation of twenty-one guidelines for the long-term sustainability of space activities, the North Atlantic Treaty Organization’s declaration that space is a fifth operational domain where attacks could invoke Article 5 defense obligations, the DOD’s tenets of responsible space behavior in space, and the pledge by the United States that it will no longer conduct destructive direct-ascent (DA)-ASAT tests that has now been joined by several other countries and adopted by the United Nations General Assembly.22 These steps and others seem to be generating momentum toward greater consensus and more specifics on what constitutes responsible behavior in space, which will facilitate the “naming and shaming” of parties that do not act in responsible ways. Nonetheless, these efforts also highlight just how far the space governance regime is from governance regimes in other domains that include much more specific obligations and robust verification mechanisms, rather than voluntary guidelines and pledges.

Geopolitical challenges to the current NC3 system

Two elements of the changing international security environment pose a challenge to the current NC3 system beyond what it was designed to face—principally, the nature and number of nuclear-armed countries which the United States seeks to deter using its nuclear arsenal and the increasing risk of limited nuclear use. The People’s Republic of China (PRC), the “pacing challenge” for the DOD, is currently engaged in a significant nuclear breakout. This has two key consequences for NC3. First, the increased focus on, and risk of nuclear conflict with, China raises the salience of Beijing’s possible lack of understanding of or appreciation for the principle of noninterference with space-based NC3 that Washington and Moscow arrived at during the Cold War. The second challenge posed by China’s nuclear breakout is the so-called two-nuclear-peer problem.23 The United States may need to deter or, if deterrence fails, restore deterrence against two nuclear peers which may aggress against the United States or its allies in coordination, in sequence, or in overlapping timeframes. This development may raise the requirements for survivable NC3. Finally, US government documents evince a growing concern that Russia and China may be lowering the threshold for limited nuclear use to achieve their aims in a conflict with the United States or its allies, potentially requiring a graduated US nuclear response. These developments create a challenging environment for effective NC3 operations. 

The NC3 system is arguably the most important communication system that the US maintains and is the bedrock of nuclear deterrence. As such, deliberate degradation or destruction of these capabilities is a “red line” (meaning an unacceptable action that could trigger a nuclear war) for senior US decision-makers. Disruption, degradation, or denial of NC3 capabilities could have strategically destabilizing effects for the United States, as well as the allies that depend on US extended deterrence commitments to ensure their security. Japan, the Republic of Korea, and NATO allies all tangibly benefit from US extended strategic deterrence commitments that are predicated on assured NC3; confidence in US extended deterrence commitments is undermined if states question whether NC3 will always work as needed. 

The first key development in the international security environment posing challenges to NC3 is the changing nature and number of nuclear-armed states which the United States seeks to deter using its nuclear arsenal. China’s growing importance as a nuclear competitor presents a challenge to space-based NC3 because Washington and Beijing do not have a mutual understanding of red lines surrounding NC3 assets that is comparable to the understanding Washington developed with Moscow during the Cold War. The current NC3 system evolved based on important assumptions about strategic nuclear bipolarity between two superpowers with a shared understanding about red lines and at least a nominal commitment to reducing the risk of strategic miscalculation in decisions about using nuclear weapons. 

China presents strategic challenges that cannot be met with the approaches used for Russia. The United States and China do not maintain regular strategic security dialogues designed to reach shared understanding about critical issues, such as red lines on disrupting NC3. Whereas Russia and the United States generally agree that degrading, denying, disrupting, or destroying systems associated with NC3 is destabilizing and potentially a precursor to nuclear exchange, there is no such understanding with China, and Chinese leaders may even see value in such uncertainty.24 Additionally, China has chosen to remain outside of strategic arms control treaties and dialogues, ostensibly because it fails to see a strategic benefit to being bound to the terms of such agreements and is unwilling to submit to a stringent verification regime. Instead, China has been pursuing rapid quantitative and qualitative growth in its entire nuclear force structure and C3BM systems, while also concurrently developing and fielding counterspace and cyber weapons that could be employed against US space-based NC3 systems. Specifically, China’s first deployment of its own ballistic missile early warning satellites and putative move toward a nuclear launch-on-warning posture could be quite destabilizing. 

The DF-41 land-mobile missile on parade. The DF-41 is one of China’s most advanced intercontinental ballistic missiles and a significant component of its nuclear breakout. Credit: Chinese People’s Liberation Army.

With China’s rapid nuclear modernization, the United States faces a possible two-nuclear-peer problem of deterring simultaneous, sequential, or overlapping aggression from both China and Russia. China has achieved a strategic breakout with its rapid expansion in scope, scale, and capabilities for strategic nuclear weapons, including their own nuclear triad in development and operations. China is expected to field a nuclear arsenal of at least one thousand deliverable warheads by 2030, a number which may continue to grow, and presents considerable challenges for effective NC3 in various two-nuclear-peer conflict scenarios.25

An additional geopolitical challenge to NC3 is the increased likelihood of limited nuclear use by Russia or China. Limited nuclear use—that is, nuclear employment less than a full exchange against strategic targets in either party’s homeland—poses challenges to NC3 because NC3 elements may need to survive several limited exchanges while maintaining the ability to characterize attacks in detail to enable the National Command Authority to order responses that convey clear messages of resolve and restraint in a graduated manner. Recent world events and US government analysis demonstrates concern that both Russia and China are considering limited nuclear use strategies. President Vladimir Putin’s Russia has backslid toward destabilizing activity in which the employment of “tactical nuclear weapons” has been contemplated to an unprecedented extent. As reported by the BBC, “In February 2022, shortly before invading Ukraine, President Putin placed Russia’s nuclear forces at ‘special combat readiness’ and held high-profile nuclear drills.”26 As the conflict in Ukraine continued, Putin made this statement: “If the territorial integrity of our country is threatened, we will, without a doubt, use all available means to protect Russia and our people. This is not a bluff.”27 Even before the Russian re-invasion of Ukraine, scholars and analysts had grown concerned that Russia would consider using nuclear weapons in a limited way in Europe.28

As will be described in more detail in the following section, the problem of limited nuclear use is particularly nettlesome when considering that the nuclear taboo since Nagasaki may be weakening. Uncertainty caused by the latest round of threatening rhetoric and dynamic saber-rattling over Ukraine clearly reemphasizes the need for a robust, assured NC3 system that can operate through all contemplated nuclear scenarios, including nuclear detonations in space and regional nuclear exchanges. These kinds of unprecedented scenarios highlight tangible architectural threats to the system as it currently exists, even with the strategic competitor with whom the United States has the most historical basis for reducing miscalculation. 

Nuclear dynamics have moved far beyond the nuclear bipolarity of the Cold War; today’s world is robustly multipolar with the peer competitors or peer adversaries of the United States having an “unlimited partnership” that is further complicated by their alliances and relationships with other emerging nuclear powers. The NC3 architecture as designed in the 1960s surely did not contemplate India, Pakistan, North Korea, and others potentially using nuclear weapons which the United States would need to be able to detect, characterize, respond to, and operate through. The physical architecture, data throughput capacity links, and even geographic and temporal constraints of the NC3 system all require upgrading and expansion to address today’s far more complex and challenging geopolitical environment. 

Counterspace threats to space-based NC3

Accelerating development, testing, and deployment of a range of Chinese and Russian counterspace capabilities significantly challenges the ability of space-based NC3 to continue delivering nuclear surety. Other states, including Iran and North Korea, also possess some limited counterspace capabilities, but these capabilities are considerably less worrisome than those of China and Russia and are not the focus of this paper. 

The DOD recognizes significant threats to its space systems from Russia and China, including to space-based NC3. As one of the authors has argued:

By describing space as a warfighting domain, the 2018 National Defense Strategy marked a fundamental shift away from legacy perspectives on uncontested military space operations and aspirations for free access and peaceful purposes espoused in the Outer Space Treaty. America’s potential adversaries, particularly China and Russia, now view space—from launch, to on-orbit, the up- and downlinks, and the ground stations—as a weak link in US warfighting capabilities. Conversely, the United States for generations believed space to be a permissive environment and did not make major investments in defensive capabilities, even as almost all modern military operations became increasingly reliant on space capabilities. These facts, coupled with the reemergence of great power competition, have led adversaries to believe that by denying US space-enabled capabilities, they can gain strategic advantage over US response options—making those options less assured, less opportune, and less decisive.”

Peter L. Hays, “Is This the Space Force You’re Looking For? Opportunities and Challenges for the US Space Force,” in Benjamin Bahney, ed., Space Strategy at a Crossroads: Opportunities and Challenges for 21st Century Competition, Center for Global Security Research, Lawrence Livermore National Laboratory, May 2020, 20. The following five paragraphs draw substantially from Hays’ chapter cited here.

Most disturbingly, US adversaries, particularly China with its lack of interest in strategic arms control and seeming disregard for traditional norms surrounding stability and deterrence, may now perceive that undermining the efficacy of space-based NC3 may be one of its most attractive options for gaining strategic advantage. These are destabilizing conditions in that:

Adversaries may believe they can deter US entry into a conflict by threatening or attacking US space capabilities. This may even embolden adversaries to employ a space attack as a “first salvo” in anti-access/area-denial (A2/AD) strategies. This is a potentially dangerous situation that has moved past an inflection point and is starting to create strategic disadvantages rather than the strategic advantages space traditionally provided the United States. From a Clausewitzian perspective, the Space Force must also consider whether current US space strategy may be approaching a culminating point where it becomes counterproductive to continue either offensive or defensive space operations in wartime [unless it has deployed a far more resilient architecture].

Hays, “Is This the Space Force You’re Looking For?,” 20. Internal citations omitted.

China has reformed its military and developed significant capabilities to hold at risk US space assets. As part of its 2015 military reforms, China established the People’s Liberation Army (PLA) Strategic Support Force (SSF).29 The SSF combines space and counterspace capabilities, electronic warfare, and cyber operations in one organization and enables the PLA to be more effective in its approach to space as a warfighting domain. “The PLA views space superiority, the ability to control the space-enabled information sphere and to deny adversaries their own space-based information gathering and communication capabilities, as critical components to conduct modern ‘informatized warfare.’”30 In the words of a recent DOD report to Congress on protection of satellites: 

The PRC views counterspace systems as a means to deter and counter outside intervention during a regional conflict. The PLA is developing, testing, and fielding capabilities intended to target US and allied satellites, including electronic warfare to suppress or deceive enemy equipment, ground-based laser systems that can disrupt, degrade, and damage satellite sensors, offensive cyberwarfare capabilities, and direct-ascent anti-satellite (DA-ASAT) missiles that can target satellites in low Earth orbit (LEO). The PRC has launched multiple experimental satellites to research space maintenance and debris cleanup with advanced capabilities, such as robotic arm technologies that could be used for grappling other satellites. In 2022, the PRC’s Shijian-21 satellite moved a derelict satellite to a graveyard orbit above geosynchronous Earth orbit (GEO).”

US Department of Defense, “Space Policy Review and Strategy on Protection of Satellites,” September 2023, 2-3, https://media.defense.gov/2023/Sep/14/2003301146/-1/-1/0/COMPREHENSIVE-REPORT-FOR-RELEASE.pdf.

The Shijian-21 demonstration was particularly threatening to US space-based NC3, as it indicated a potential capability to grapple and move or disable noncooperative satellites; many of the most important US NC3 systems are in GEO. 

The PRC continues to seek new methods to hold US satellites at risk, probably intending to pursue DA-ASAT weapons capable of destroying satellites up to GEO. As the PRC has developed and fielded these counterspace weapons, it has simultaneously promoted false claims that it will not place weapons in space and, along with Russia, has proposed at the United Nations a draft of a flawed, legally-binding treaty on the nonweaponization of space that is inherently unverifiable and unenforceable.”

“Space Policy Review and Strategy on Protection of Satellites,” 3.

For decades, Russia has developed doctrine and pursued capabilities to target US satellites, including NC3 systems.

Russia reorganized its military in 2015 to create a separate space force because Russia sees achieving supremacy in space as a decisive factor in winning conflicts. Although Russia has a smaller fleet of satellites than China, Russia operates some of the world’s most capable individual ISR [intelligence, surveillance, and reconnaissance] satellites for optical imagery, radar imagery, signals intelligence, and missile warning. Russia increasingly integrates space services into its military, though it wants to avoid becoming overly dependent on space for its national defense missions because it views that as a potential vulnerability. Russia is developing, testing, and fielding a suite of reversible and irreversible counterspace systems to degrade or deny US space-based services as a means of offsetting a perceived US military advantage and deterring the United States from entering a regional conflict. These systems include jamming and cyberspace capabilities, directed energy weapons, on-orbit capabilities, and ground-based DA-ASAT missile capabilities. In November 2021, Russia tested a DA-ASAT missile against a defunct Russian satellite, which created more than 1,500 pieces of trackable space debris and tens of thousands of pieces of potentially lethal but non-trackable debris. The resulting debris continues to threaten spacecraft of all nations in LEO, astronauts and cosmonauts on the International Space Station, and taikonauts on China’s Tiangong space station.”

“Space Policy Review and Strategy on Protection of Satellites,” 3. Internal citations omitted.

Launch preparations for the Russian Nudol system, which serves as both an anti-ballistic missile interceptor as well as an anti-satellite weapon, 2021. Russian Ministry of Defense

In a most disturbing scenario, the efficacy of commercial LEO satellites in supporting Ukraine could lead the Russians (or the Chinese in a Taiwan invasion, for instance) to assess that the greatest military effectiveness from the limited use of nuclear weapons would be to detonate just one in LEO. A high-altitude nuclear detonation (HAND) would raise the peak radiation flux in parts of the Van Allen radiation belts by three to four orders of magnitude, cause the failure in weeks to months of most if not all LEO satellites not specifically hardened against this threat, result in direct financial damages probably approaching $500 billion and over $3 trillion in overall economic impact, and present daunting response challenges, since the attack would be outside of any state’s sovereign territory and not directly kill anyone.31

Modernization plans for space-based NC3

While the NC3 system currently appears to be sufficiently redundant, capable, and secure, it must be modernized to keep pace with the evolving geopolitical environment, technical developments, and planned modernization of the nuclear triad (submarines, bombers, and land-based missiles). As described by the DOD’s Nuclear Matters Handbook: 

In July 2018, the Secretary of Defense and the Chairman of the Joint Chiefs of Staff formally appointed the USSTRATCOM Commander to be “the NC3 enterprise lead, with increased responsibilities for operations, requirements, and systems engineering and integration.” USSTRATCOM has created an NC3 Enterprise Center inside the command’s headquarters at Offutt Air Force Base, Nebraska. On November 5, 2018, Commander, USSTRATCOM stated, “It is imperative that the US government modernize its three-decade-old NC3 in a manner that accounts for current and future threats to its functionality and vulnerabilities.” The NC3 Enterprise Center is developing and evaluating NC3 architectures and approaches for modernization.”

Nuclear Matters Handbook 2020, 28.

In earlier congressional testimony, General Hyten had simply stated that “nuclear command and control and communications, NC3, is my biggest concern when I look out towards the future.”32

US Navy VADM David Kriete, then-deputy commander of US Strategic Command, announced the initial operational capability of the Nuclear Command, Control, and Communications Enterprise Center in April 2019. USSTRATCOM photo.

No nuclear weapon delivery platform can execute its mission without NC3, but the NC3 system is so complex that a former commander of USSTRATCOM stated it includes over 204 individual systems.33 While many space systems contribute ISR data that supports NC3, this analysis focuses just on the space systems that were designed for and dedicated to supporting NC3. Focusing on space systems in this way is, however, becoming increasingly difficult, as the DOD works to modernize both its overall space architecture and space-based NC3. Modernizing the ground- and air-based NC3 systems supporting the triad remains on a relatively straightforward path, but the path toward modernizing space-based NC3 is being reconsidered within the context of broader changes to deploy a more resilient hybrid space architecture overall. This requires consideration of different factors and trade-offs than those that shaped legacy US space-based NC3. Defense planners must now consider the value of disaggregated, diversified, and distributed systems supporting just NC3 versus entangled systems supporting many mission areas; the role of proliferation and protection; the proper timing and phasing of deployments; appropriate ways commercial systems and deception might support space-based NC3; and the many challenges associated with balancing and integrating across an increasingly complex NC3 enterprise. A recent detailed analysis of these complex factors and trade-offs from Wilson and Rumbaugh presented the troubling finding that “the US decision to disaggregate its nuclear-conventional satellite communications capabilities poses strategic consequences, but it may not have been a strategic decision.”34 An even more detailed report analyzing just the sensor requirements and trade-offs for missile defense against hypersonic threats is over one hundred pages long.35 As the DOD’s work to field a resilient, hybrid space architecture proceeds apace, it is not always clear that the requirement for nuclear surety in space-based NC3 has been analyzed and weighted appropriately. 

The DOD has major programs and plans in place to modernize systems supporting the NC3 missions of assured communications and MW/MT. For assured communications, the plan is to augment and eventually replace AEHF with the Evolved Strategic Satcom (ESS) program by the 2030s.36 ESS will operate in GEO and will provide a worldwide and Arctic protected, secure, and survivable satellite communications system supporting critical networks for strategic operations. The ESS system is being acquired by Space Systems Command (SSC); it “is the first DOD hybrid space program that is leveraging alternate acquisition pathways for each of its segments” under the adaptive acquisition framework that the DOD implemented in 2020.37 ESS satellites are currently being acquired using a middle-tier acquisition (MTA) down-select rapid prototyping competition between Boeing and Northrop Grumman. SSC is expected to issue a request for proposals on ESS satellites in 2024, and the program is projected to cost about $8 billion.38 In May 2024, SSC announced it is seeking proposals for the development and production of four ESS satellites through a competitive contract award; the program is projected to cost about $8 billion.39 The ESS Program Office plans to transition from the MTA-rapid prototyping pathway to a tailored major capability acquisition (MCA) pathway beginning with the award of the ESS space segment production contract. The space segment is being designed to deliver an integrated system capability that is resilient, flexible, cyber secure, and utilizes a modular open system architecture to support NC3. The ground “segment is leveraging a series of Software Acquisition Pathway contracts for subsets of mission capability in agile software sprints”; in May 2023, Lockheed Martin and Raytheon each won $30 million contracts to develop prototypes of the ground system for ESS.40 Use of alternate acquisition pathways and competing teams of contractors is designed to spur innovation and speed, “allowing development to stay ahead of changing strategic need.”41 The first prototype payloads are due to launch in 2024. Much depends on validating the performance of the prototypes and successful integration of the separate acquisition pathways for the space and ground segments.

Specific details regarding how MW/MT capabilities will be improved are complex and evolving. Efforts are now divided between three separate organizations: SSC, the Space Development Agency (SDA), and the MDA. MW/MT is “the first capability area to be redeveloped through a resilient-by-design approach.”42 As advocated by General Hyten and explained in a report to Congress: “This effort assessed architectures designed to meet future warfighting performance needs, establish resilience against modern military threats, and ensure cost parameters, resulting in recommendations on numbers of satellites and diversifying capabilities across orbital regimes.”43 Using a Combined Program Office construct, SSC, SDA, and MDA are teaming to develop and implement a system-of-systems integration strategy for MW/MT and missile defense (MD) constellations of satellites in LEO, GEO, medium Earth orbit (MEO), and polar orbital regimes.  

These efforts to develop next-generation overhead persistent infrared (NG-OPIR) capabilities are designed to provide MW/MT capabilities that can support MD for evolving intercontinental and theater ballistic missile threats using satellites in various orbits that are more survivable against emerging threats. “SSC’s Resilient MW/MT-MEO space and ground efforts pivot the Department of the Air Force’s legacy missile warning force design to a more resilient multi-orbit approach to counter advanced missiles, hypersonic glide vehicles, and fractional orbital bombardment threats.”44 SCC’s NG-OPIR will be deployed in GEO (Next Generation OPIR GEO or NGG) and Polar (Next Generation OPIR Polar or NGP) orbits.45 The original plan called for three NGG satellites and two NGP satellites; in its fiscal year 2024 request, the USSF cut the number of NGG satellites to two, and Congress has subsequently requested more information about the analysis underlying this change to the NGG program structure.46 Lockheed Martin was awarded the contract to build NGG satellites and ground systems projected to cost $7.8 billion, and Northrop Grumman won a $1.9 billion definitized contract to build two NGP satellites; the first NGP is to be launched in 2028.47 Both the NGG and NGP programs are expected to transition from the rapid prototype MTA pathway to the MCA pathway in early 2024. Additionally, SSC announced that, in November 2023, it “completed the critical design review for six [MW/MT/MD] satellites built by Millennium Space Systems that will go in MEO, clearing the way to start production ahead of a first scheduled launch by late 2026.”

The SDA, an independent space acquisition organization that was established in March 2019 and became part of the Space Force in October 2022, is leading parts of the effort to field resilient-by-design MW/MT capabilities via new proliferated space architectures. SDA’s business model values speed, simplicity, and resilience, while lowering costs by “harnessing commercial development to achieve a proliferated architecture and enhance resilience”; SDA plans to deliver a new layer (or tranche) of LEO satellites to support various missions every two years.48 The first satellites in the Tranche 1 Tracking Layer are to begin launching in late 2024 and will include “28 satellites in Low Earth Orbit (LEO) optimized for use by Indo-Pacific Command to monitor Chinese and North Korean missile launches.”49 In September 2023, SDA issued a solicitation for the Tranche 2 Tracking Layer that will provide MW/MT capabilities by using infrared sensors for near-global continuous stereoscopic coverage and incorporating missile defense fire-control-quality infrared sensors on a selected number of satellites.50 The Tranche 2 Tracking Layer is being designed to have some capabilities against advanced missile threats, including hypersonic missile systems, and is scheduled for first launch in April 2027. 

MDA’s current MW/MT/missile defense (MW/MT/MD) program is the HBTSS (Hypersonic and Ballistic Tracking Space Sensor), an experimental early warning mission to “demonstrate the sensitivity and fire-control quality of service necessary to support both the emerging hypersonic threat kill chain and dim upper stage ballistic missiles.”51 Two HBTSS satellites were launched on February 14, 2024; the system is intended to work with SDA’s Tracking Layer, track dim targets not visible with current sensors, and provide near-global coverage. A DOD press release about the HBTSS launch indicated: 

MDA, the US Space Force and SDA are collaborating to develop HBTSS as a space sensor prototype demonstration providing fire-control quality data required to defeat advanced missile threats. Ultimately, this data is critical to enabling engagement by missile defense weapons, including engagement of hypersonic glide-phase weapons. This “birth-to-death” tracking by HBTSS will make it possible to maintain custody of missile threats from launch through intercept regardless of location.”

“MDA, SDA Announce Upcoming Launch of the Hypersonic and Ballistic Tracking Space Sensor and Tranche 0 Satellites,” DOD Press Release, February 14, 2024, https://www.defense.gov/News/Releases/Release/Article/3676902/mda-sda-announce-upcoming-launch-of-the-hypersonic-and-ballistic-tracking-space/.

It is laudable that the DOD is moving in innovative ways so quickly and comprehensively to field MW/MT/MD capabilities designed to be more resilient and address evolving missile threats. However, it is not clear from unclassified sources how the various significantly different approaches will meet stringent nuclear surety requirements for MW/MT. Operationally, the new approach will require the USSF to transition from its decades of experience in interpreting high-fidelity infrared data from a few exquisite sensors toward developing improved understanding of new missile threats based on lower fidelity inputs from many more sensors. Effectively integrating across these proliferated sensors acquired by separate agencies to produce an MD “kill chain”52 is likely to be an even more significant challenge that will require focused attention and resources. In the words of one missile defense scholar: 

It remains unclear, however, how many HBTSS or HBTSS-derived payloads will eventually be fitted to SDA’s Tracking Layer constellation. While MDA requested $68 million for the program in FY 2023, funding is expected to decline after demonstration activities conclude and responsibility for fire control transfers to SSC and SDA. Following this transition, SDA aims to launch four HBTSS-derived sensor payloads as part of its Tranche 1 activities and an additional six fire control sensors in Tranche 2. Further developmental spirals, the priority accorded to the hypersonic defense mission, and SDA’s responsibilities for supporting missile defense, however, have not yet been publicly defined.”

Dahlgren, Getting on Track, 73. Internal citations omitted.

It is difficult to manage acquisition programs to meet requirements for cost, schedule, and performance. Unfortunately, however, it can be far more difficult to integrate effectively across separate systems to achieve required performance for an enterprise such as NC3. Tensions can arise between acquisition and integration objectives, which are made more acute when separate systems are acquired by separate organizations (as is the case for space-based NC3), and present daunting challenges for achieving nuclear surety. 

Hypersonic and Ballistic Tracking Space Sensor (HBTSS). Image courtesy US Missile Defense Agency. 

Much of the work to integrate various MW/MT/MD efforts will be performed by the ground segment. The largest ground system effort is the USSF’s Future Operationally Resilient Ground Evolution (FORGE), a complex program to develop a new ground system for NG-OPIR that is projected to cost $2.4 billion.53 SSC has divided the FORGE program into various thrusts that include FORGE command and control, Next-Gen Interim Operations, FORGE Mission Data Processing Application Framework, Relay Ground Stations, and E-FORGE. Integration across these various thrusts within FORGE to advance unity of effort and meet nuclear surety requirements will be a significant challenge. An additional challenge relates to Assistant Secretary Calvelli’s space acquisition tenet that calls for delivery of the ground segment before launch of the space segment, a goal that may be difficult for FORGE to meet.54

There are modest programs to modernize elements of the USNDS.55 It should be noted that, as a hosted payload, USNDS does not always enjoy a high priority, and the schedule for its fielding can slip, depending on the priority of its host satellite. Additionally, a former commander of USSTRATCOM has raised concerns about the ability of USNDS data to support NC3 in timely and effective ways.56 Overall, even while modernization efforts are underway, the geopolitical and technical challenges to the system are increasing and will require generation-after-next space-based NC3. 

Conclusion and recommendations

The modernization of space-based NC3 is of vital importance to US national security objectives. While maintaining constant responsibility for enabling the employment of the world’s most capable nuclear arsenal, NC3 must be modernized to meet the significant changes and challenges presented by the evolving geopolitical and technical environment. Adding to the complexity of this modernization effort is an evolution in national security space architectures and their relationship with commercial providers of dual-use space services. The DOD must maintain a focused and sustained commitment as well as adequate resources to meet the range of daunting challenges that are entailed in modernizing space-based NC3. 

As the DOD instantiates CJADC2 programs that are working to integrate sensors and shooters on complex kill webs, the modernization of NC3 systems must continue to meet unique requirements for positive and negative control unlike any other command-and-control system. The recognition of these unique requirements drives special emphasis on understanding deterrence scenarios and objectives, technical capabilities, and potential commercial contributions. 

Based on the preceding analysis, this paper presents the following recommendations: 

  1. The United States should continue to support the modernization of space-based NC3, with specific tailoring that enables adapting to changes in the geopolitical threat environment, harnessing hybrid architectures and the evolution of national security space architectures, and meeting deterrence objectives across a range of increasingly challenging potential scenarios.
    1. Modernization efforts for space-based NC3 systems must adhere to the strict need for nuclear surety at all times, while also exploring areas where technological innovation should be embraced.
    2. LEO satellites supporting NC3 should be hardened against residual radiation effects following a HAND to strengthen deterrence against this type of attack.
    3. More study on the specific deterrence scenarios and objectives for space-based NC3 systems is needed. The variance in scenarios, objectives, and threats (nonkinetic and kinetic) should drive modernization priorities.
    4. More study is needed on the nuclear surety implications for the current exploration of disaggregation as a means to ensure resiliency.
  2. As one of the authors has argued previously, “A whole-of government approach is then needed to assess the commercial viability [and military utility] of those [space-based] services upon which the US government intends to rely, either wholly or in part, and the government must act to improve the commercial viability of these services.”57
    1. The government should act to improve the commercial viability of the services deemed necessary through flexible contracting mechanisms and/or procurement.
    2. The DOD should maintain unity of effort for space-based NC3 acquisitions regardless of whether the specific effector or system is ground-, air-, or sea-based.
    3. The United States should continue supporting and advancing international approaches to strengthen deterrence of attacks on commercial space capabilities and improve protection measures for these systems.
  3. The DOD should recognize the significant challenges and potential incompatibilities it faces in rapidly and simultaneously developing modernized space-based NC3 and fielding an overall hybrid space architecture that is far more resilient.
    1. Integrating systems developed by separate organizations with sometimes divergent priorities into a unified NC3 system-of-systems that meets nuclear surety requirements is a novel challenge for space-based NC3 and will require focused attention to overcome. Additionally, NC3 and CJADC2 systems-of-systems must be distinct, but also integrated for national unity of command and effort.
    2. Acquisition approaches that emphasize speed, use of commercial-off-the-shelf components, and fielding of ground systems before satellite launch are highly appropriate for deploying a resilient hybrid space architecture but may present dangerous incompatibilities with nuclear surety requirements. The DOD must not rush to deploy space-based NC3 that is not well integrated, suffers from avoidable supply chain and cybersecurity vulnerabilities, and contains other weaknesses that hackers and adversaries can exploit during the decades the next generation of space-based NC3 is likely to be in operation.

About the authors

Peter L. Hays is an adjunct professor of space policy and international affairs at George Washington University’s Space Policy Institute, space chair at Marine Corps University, and a senior policy adviser with Falcon Research. He supports the space staff in the Pentagon and has been directly involved in helping to develop and implement major national security space policy and strategy initiatives since 2004. Dr. Hays serves on the Center for Strategic and International Studies Missile Defense Project advisory board, was a term member of the World Economic Forum’s Global Agenda Council on Space Security from 2010 to 2014, and is a member of the editorial board for Space and Defense and Astropolitics. He earned a PhD from the Fletcher School at Tufts University and was an honor graduate of the USAF Academy. Dr. Hays served as an Air Force officer from 1979 to 2004; transported nuclear weapons worldwide as a C-141 pilot; and previously taught international relations, defense policy, and space policy courses at the USAF Academy, School of Advanced Airpower Studies, and National Defense University.

Sarah Mineiro is the founder and CEO of Tanagra Enterprises, a defense, intelligence, space, science, and technology consulting firm. Over her career, Sarah has worked in venture capital-backed private industry and in the executive and legislative branches of government. Previously, she was the senior director of space strategy for Anduril Industries. Sarah was the staff lead for the Strategic Forces Subcommittee for the House Armed Service Committee, where she led the subcommittee’s activities of all Department of Defense and Military Intelligence Program space programs, US nuclear weapons, missile defense, directed energy, and hypersonic systems. Sarah was the senior legislative adviser to Chairman Mac Thornberry. In this role, she was the primary drafter and negotiator of the Space Force and Space Command legislation for the House Republicans. 

The views expressed in this paper are those of the authors alone and do not represent the official position of any US government organization. 

Acknowledgements

The authors would like to acknowledge Robert Soofer and Mark J. Massa for their comments on earlier drafts of this paper. 

The Scowcroft Center for Strategy and Security’s work on nuclear and strategic forces has been made possible by support from our partners, including Los Alamos National Laboratory, Northrop Grumman Corporation, the Norwegian Ministry of Defense, the Swedish Ministry for Foreign Affairs, the United States Department of Defense, the United States Department of Energy, the United States Department of State, as well as general support to the Scowcroft Center. The partners are not responsible for the content of this report, and the Scowcroft Center maintains a strict intellectual independence policy.

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1    Department of Defense, “2022 Nuclear Posture Review,” October 2022, https://media.defense.gov/2022/Oct/27/2003103845/-1/-1/1/2022-NATIONAL-DEFENSE-STRATEGY-NPR-MDR.pdf, 22.
2    Air Force Doctrine Publication 3-72, “Nuclear Operations,” LeMay Center, December 18, 2020, https://www.doctrine.af.mil/Portals/61/documents/AFDP_3-72/3-72-AFDP-NUCLEAR-OPS.pdf, 17. 
3    Nuclear Matters Handbook 2020. 
4    Information provided by Maj. Gen. John Olsen, PhD, Space Force operations lead for CJADC2 and C3BM. For the past three years, General Olsen has served as the lead airborne emergency action officer and an instructor/evaluator on the Looking Glass Airborne Nuclear Command Post.
5    In “Air Force Awards Raytheon $625 Million Contract for Nuclear-Hardened Satcom Terminals,” Sandra Erwin indicates the US Air Force Nuclear Weapons Center awarded this contract to deliver an unspecified number of nuclear-hardened satellite communications force element terminals to connect B-52 and RC-135 aircraft with Advanced Extremely High Frequency (AEHF) military communications satellites. Space News, June 28, 2023, https://spacenews.com/air-force-awards-raytheon-625-million-contract-for-nuclear-hardened-satcom-terminals/.
6    “Air Force Awards Raytheon $625 Million Contract.” In 2020, Raytheon became part of the RTX Corporation.
7    Air Force Fact Sheet, “E-4B,” https://www.af.mil/About-Us/Fact-Sheets/Display/Article/104503/e-4b/; NAVAIR Fact Sheet, “E-6B Mercury,” https://www.navair.navy.mil/product/E-6B-Mercury.
8    NAVAIR Fact Sheet, “E-6B Mercury.”
9    The original plan for SBIRS called for eight satellites; the seventh and eighth satellites were cancelled in 2019 after work began on the next-generation system.
10    Sandra Erwin, “STRATCOM Chief Hyten: ‘I Will Not Support Buying Big Satellites That Make Juicy Targets,’” Space News, November 19, 2017, https://spacenews.com/stratcom-chief-hyten-i-will-not-support-buying-big-satellites-that-make-juicy-targets/.
11    Dwayne A. Day, “Smashing Satellites as Part of the Delta 180 Strategic Defense Initiative Mission,” Space Review, July 17, 2023, https://www.thespacereview.com/article/4622/1; Jayant Sharma, Andrew Wiseman, and George Zollinger, “Improving Space Surveillance with Space-Based Visible Sensor,” MIT Lincoln Laboratory, March 1, 2001, https://apps.dtic.mil/sti/pdfs/ADA400541.pdf; Missile Defense Agency Fact Sheet, “Space Tracking and Surveillance System,” August 23, 2022, https://www.mda.mil/global/documents/pdf/stss.pdf.
12    United States Space Force Fact Sheet, “Advanced Extremely High-Frequency System,” July 2020, https://www.spaceforce.mil/About-Us/Fact-Sheets/Fact-Sheet-Display/Article/2197713/advanced-extremely-high-frequency-system/.
13    United States Space Force Fact Sheet, “Space Based Infrared System,” March 2023, https://www.spaceforce.mil/About-Us/Fact-Sheets/Article/2197746/space-based-infrared-system/; National Nuclear Security Administration, “NNSA delivers enduring space-based nuclear detonation detection capability,” March 22, 2018, https://www.energy.gov/nnsa/articles/nnsa-delivers-enduring-space-based-nuclear-detonation-detection-capability.
14    Department of Defense Office of Inspector General, “Evaluation of the Space-Based Segment of the US Nuclear Detonation Detection System,” September 28, 2018, https://www.dodig.mil/FOIA/FOIA-Reading-Room/Article/2014314/evaluation-of-the-space-based-segment-of-the-us-nuclear-detonation-detection-sy/.
15    Michael J. Neufeld, Von Braun: Dreamer of Space, Engineer of War (New York: Vintage, 2008), is the authoritative assessment of von Braun’s contributions and legacy.
16    See, for example, Brian G. Chow, “Space Arms Control: A Hybrid Approach,” Strategic Studies Quarterly 12, no. 2 (Summer 2018): 107-32; and James Alver, Andrew Garza, and Christopher May, “An Analysis of the Potential Misuse of Active Debris Removal, On-Orbit Servicing, and Rendezvous & Proximity Operations Technologies” (capstone paper, George Washington University, 2019), https://swfound.org/media/206800/misuse_commercial_adr_oos_jul2019.pdf.
17    Some of the earliest and most influential analyses of the relative and ambiguous characteristics of security include John Herz, “Idealist Internationalism and the Security Dilemma,” World Politics 2, no. 2 (January 1950): 157-80; and Arnold Wolfers, “‘National Security’ as an Ambiguous Symbol,” Political Science Quarterly 67, no. 4 (December 1952): 481-502. 
18    Robert Jervis, “Cooperation Under the Security Dilemma,” World Politics 30, no. 2 (January 1978): 167-214. In this seminal article, Jervis applied game theory approaches to scenarios commonly used to analyze causes of war such as Stag Hunt and Prisoner’s Dilemma, positing that two variables are primary determinants of how likely or unlikely it is that states can achieve cooperation: 1) whether offensive or defensive capabilities have the advantage; and 2) whether analysts can distinguish between offensive and defensive capabilities. Applying this framework creates a 2 x 2 matrix in which Jervis labels situations where offense has the advantage, and analysts cannot distinguish between offensive and defensive capabilities as “doubly dangerous” and situations with the opposite conditions as “doubly stable.” Some disagree, but unfortunately, today most analysts perceive that the doubly dangerous situation corresponds most closely to the current characteristics of space. Jervis finds that this situation “is the worst for status-quo states. There is no way to get security without menacing others, and security through defense is terribly difficult to obtain.” 
19    See Brad Townsend, “Strategic Choice and the Orbital Security Dilemma,” Strategic Studies Quarterly 14, no. 1 (Spring 2020): 64-90; and Brad Townsend, Security and Stability in the New Space Age: The Orbital Security Dilemma (Milton Park, UK: Routledge, 2020).
20    Gertner, “What Does the US Space Force Actually Do?” 
21    See, for example, Benjamin Schmitt, “The Sky’s Not the Limit: Space Aid to Ukraine,” Center for European Policy Analysis, May 19, 2022, https://cepa.org/article/the-skys-not-the-limit-space-aid-to-ukraine/; David T. Burbach, “Early Lessons from the Russia-Ukraine War as a Space Conflict,” Atlantic Council, August 30, 2022, https://www.atlanticcouncil.org/content-series/airpower-after-ukraine/early-lessons-from-the-russia-ukraine-war-as-a-space-conflict/; and Jonathan Beale, “Space, the Unseen Frontier in the War in Ukraine,” BBC News, October 5, 2022, https://www.bbc.com/news/technology-63109532.
22    Report of the Committee on the Peaceful Uses of Outer Space, Sixty-Second Session, June 2019, 54-69, https://www.unoosa.org/res/oosadoc/data/documents/2019/a/a7420_0_html/V1906077.pdf; NATO’s decision to consider space an operational domain like land, sea, air, and cyber is helpful, but it added caveats weakening Article 5 obligations for attacks in space: “A decision as to when such attacks would lead to the invocation of Article 5 would be taken by the North Atlantic Council on a case-by-case basis.” See NATO, “NATO’s Overarching Space Policy,” January 17, 2022, https://www.nato.int/cps/en/natohq/official_texts_190862.htm?utm_source=linkedin&utm_medium=nato&utm_campaign=20220117_space; and Secretary of Defense, “Tenets of Responsible Behavior in Space,” July 7, 2021, https://www.spacecom.mil/Newsroom/Publications/Pub-Display/Article/3318236/tenets-of-responsible-behavior-in-space/. On April 18, 2022, Vice President Kamala Harris announced that the United States will no longer conduct destructive tests of DA-ASAT missiles (https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/18/fact-sheet-vice-president-harris-advances-national-security-norms-in-space/). Through October 2023, thirty-seven other countries including Australia, Canada, France, Germany, Japan, New Zealand, South Korea, Switzerland, and the United Kingdom have made similar pledges. On December 7, 2022, 155 countries in the United Nations General Assembly voted in favor of a resolution calling for a halt for this type of ASAT testing, while nine voted against the resolution (including China and Russia) and nine (including India) abstained. Ching Wei Soo, Direct-Ascent Anti-Satellite Missile Tests: State Positions on the Moratorium, UNGA Resolution, and Lessons for the Future, Secure World Foundation, October 2023, https://swfound.org/media/207711/direct-ascent-antisatellite-missile-tests_state-positions-on-the-moratorium-unga-resolution-and-lessons-for-the-future.pdf.
23    For more, see Madelyn Creedon, chair, and Jon Kyl, vice chair, The Final Report of the Congressional Commission on the Strategic Posture of the United States, October 2023, https://armedservices.house.gov/sites/republicans.armedservices.house.gov/files/Strategic-Posture-Committee-Report-Final.pdf.
24    Department of Defense, Military and Security Developments Involving the People’s Republic of China 2023, October 2023, 103-13, https://media.defense.gov/2023/Oct/19/2003323409/-1/-1/1/2023-MILITARY-AND-SECURITY-DEVELOPMENTS-INVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA.PDF.
25    Military and Security Developments Involving China 2023.
26    BBC, “Ukraine War: Could Russia Use Tactical Nuclear Weapons?” September 24, 2022, https://www.bbc.com/news/world-60664169.
27    Nina Tannenwald, “The Bomb in the Background: What the War in Ukraine Has Revealed About Nuclear Weapons,” Foreign Affairs, February 24, 2023, https://www.foreignaffairs.com/ukraine/bomb-background-nuclear-weapons.
28    See, for instance, Matthew Kroenig, A Strategy for Deterring Russian Nuclear De-Escalation Strikes, Atlantic Council, April 24, 2018, https://www.atlanticcouncil.org/in-depth-research-reports/report/a-strategy-for-deterring-russian-de-escalation-strikes/.
29    Military and Security Developments Involving China 2023, 70. In April 2024, the Strategic Support Force was dissolved and split into three independent units: the PLA Aerospace Force, the PLA Cyberspace Force, and the PLA Information Support Force.  Namrata Goswami, “The Reorganization of China’s Space Force: Strategic and Organizational Implications — The rationale behind the new ‘Aerospace Force,’” The Diplomat, May 3, 2024, https://thediplomat.com/2024/05/the-reorganization-of-chinas-space-force-strategic-and-organizational-implications/.
30    Military and Security Developments Involving China 2023, vii.
31    Defense Threat Reduction Agency, Advanced Systems and Concepts Office, “High Altitude Nuclear Detonations (HAND) against Low Earth Orbit Satellites (‘HALEOS’),” April 2001, https://spp.fas.org/military/program/asat/haleos.pdf. No satellites are known to be hardened against these nuclear effects. Estimates on financial damages from General Olsen. For further details about the threat from HAND and a discussion on a potential licensing requirement for commercial LEO satellites to be hardened against residual radiation effects following a HAND, see Peter L. Hays, United States Military Space: Into the Twenty-First Century (Maxwell AFB: Air University Press, 2002), 101-03. National security communications adviser John Kirby told reporters at a White House news conference that Russia “is developing an anti-satellite weapon capability, describing it as a serious threat.” Sandra Erwin, “White House Confirms It Has Intelligence on Russia’s Anti-Satellite Weapon, But Says No Immediate Threat,” Space News, February 15, 2024, https://spacenews.com/white-house-confirms-it-has-intelligence-on-russians-anti-satellite-weapon-but-says-no-immediate-threat. On April 24, 2024, Russia vetoed a UN Security Council resolution that would have reaffirmed its obligation not to station nuclear weapons in space in any manner, as stipulated in Article IV of the OST. Jeff Foust, “Russia vetoes U.N. resolution on nuclear weapons in space,” Space News, April 25, 2024, https://spacenews.com/russia-vetoes-u-n-resolution-on-nuclear-weapons-in-space/.
32    “Military Assessment of Nuclear Deterrence Requirements,” House of Representatives, Committee on Armed Services, HASC Hearing No. 115-11, March 8, 2017, https://www.govinfo.gov/content/pkg/CHRG-115hhrg24683/html/CHRG-115hhrg24683.htm.
33    Yasmin Tadjdeh, “JUST IN: Stratcom Revitalizing Nuclear Command, Control Systems,” National Defense, January 5, 2021, https://www.nationaldefensemagazine.org/articles/2021/1/5/work-underway-for-next-generation-nuclear-command-control-and-communications.
34    Robert Samuel Wilson and Russell Rumbaugh, “Reversal of Nuclear-Conventional Entanglement in Outer Space,” Journal of Strategic Studies 47, no. 1 (September 15, 2023): 3.
35    Masao Dahlgren, Getting on Track: Space and Airborne Sensors for Hypersonic Missile Defense, Center for Strategic and International Studies, December 2023, https://www.csis.org/analysis/getting-track-space-and-airborne-sensors-hypersonic-missile-defense.
36    Department of Defense Fiscal Year (FY) 2024 Budget Estimates, Air Force Justification Book Volume 1, Research, Development, Test & Evaluation, Space Force, March 2023, PE1206855SF, 263-76, https://www.saffm.hq.af.mil/Portals/84/documents/FY24/Research%20and%20Development%20Test%20and%20Evaluation/FY24%20Space%20Force%20Research%20and%20Development%20Test%20and%20Evaluation.pdf?ver=BQWN2ms9pfLNN_gvIz4mQQ%3D%3D.
37    Space Systems Command Media Release, “Evolved Strategic SATCOM Program Uses Innovative Competition to Drive Acquisition of Threat-Focused Software,” May 2, 2023, https://www.ssc.spaceforce.mil/Portals/3/Documents/PRESS%20RELEASES/Evolved%20Strategic%20SATCOM%20Program%20Uses%20Innovative%20Competition%20to%20Drive%20Acquisition%20of%20Threat-Focused%20Software.pdf?ver=9hYpAExEQifvYTYBilFG2g%3D%3D; Department of Defense Instruction 5000.02, “Operation of the Adaptive Acquisition Framework,” June 8, 2022, https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/500002p.PDF.
38    Sandra Erwin, “Space Force Planning $8 Billion Satellite Architecture for Nuclear Command and Control,” Space News, October 25, 2023, https://spacenews.com/space-force-planning-8-billion-satellite-architecture-for-nuclear-command-and-control/.
39    “Evolved Strategic Satellite Communications (ESS) Space Vehicle (SV) Development and Production,” GOVTRIBE, May 4, 2024, https://govtribe.com/opportunity/federal-contract-opportunity/evolved-strategic-satellite-communications-ess-space-vehicle-sv-development-and-production-fa880724rb004; Sandra Erwin, “Space Force Planning $8 Billion Satellite Architecture for Nuclear Command and Control,” Space News, October 25, 2023, https://spacenews.com/space-force-planning-8-billion-satellite-architecture-for-nuclear-command-and-control/.
40    “Evolved Strategic SATCOM Program”; Sandra Erwin, “Lockheed, Raytheon to Develop Ground Systems for Nuclear-Hardened Satellite Communications,” Space News, May 3, 2023, https://spacenews.com/lockheed-raytheon-to-develop-ground-systems-for-nuclear-hardened-satellite-communications/.
41    “Evolved Strategic SATCOM Program.”
42    “Space Policy Review and Strategy on Protection of Satellites,” 9.
43    “Space Policy Review and Strategy on Protection of Satellites,” 19.
44    Department of Defense Fiscal Year (FY) 2024 Budget Estimates.
45    Space Systems Command Media Release, “Next-Generation Overhead Persistent Infrared Program Selects Mission Payload Suppliers,” March 1, 2022, https://www.ssc.spaceforce.mil/Portals/3/Documents/PRESS%20RELEASES/Next-Generation%20Overhead%20Persistent%20Infrared%20Program%20Selects%20Mission%20Payload%20Suppliers%20v4.pdf; Northrop Grumman, “Next Gen OPIR Polar (NGP),” https://www.northropgrumman.com/space/next-gen-polar.
46    Courtney Albon, “Congress Queries Space Force Plan for Fewer Missile Warning Satellites,” Air Force Times, July 12, 2023, https://www.airforcetimes.com/battlefield-tech/space/2023/07/12/congress-queries-space-force-plan-for-fewer-missile-warning-satellites/.
47    Theresa Hitchens, “Space Force Polar-Orbiting Missile Warning Satellites Move Toward Production,” Breaking Defense, May 24, 2023, https://breakingdefense.com/2023/05/space-force-polar-orbiting-missile-warning-sats-move-toward-production/; Courtney Albon, “Northrop Missile-Warning Satellites Pass Early Design Review,” C4ISRNET, May 24, 2023, https://www.c4isrnet.com/battlefield-tech/space/2023/05/24/northrop-missile-warning-satellites-pass-early-design-review/.
48    Space Development Agency, “Who We Are,” https://www.sda.mil/home/who-we-are/.
49    Theresa Hitchens, “Budget roadblock delaying Pentagon satellite program to track hypersonic missiles,” Breaking Defense, March 1, 2022, https://breakingdefense.com/2022/03/budget-roadblock-delaying-pentagon-satellite-program-to-track-hypersonic-missiles/.
50    Space Development Agency, “Tracking,” https://www.sda.mil/tracking/.
51    “Hypersonic and Ballistic Tracking Space Sensor Phase IIb Awards,” MDA Press Release, January 22, 2021, https://www.mda.mil/news/21news0001.html.
52    “Kill chain” is a term commonly used by the DOD to describe the ISR and C3 capabilities and processes needed to find, fix, track, target, engage, and assess the effectiveness of strike operations.
53    Theresa Hitchens, “Space Force Taps 4 Firms to Vie for Missile Warning C2 Prototype,” Breaking Defense, November 9, 2023, https://breakingdefense.com/2023/11/space-force-taps-4-firms-to-vie-for-missile-warning-c2-prototype/.
54    Summer Myatt, “How Frank Calvelli’s 9 Space Acquisition Tenets Aim to Transform Space Procurement,” GovConWire, January 10, 2023, https://www.govconwire.com/2023/01/frank-calvellis-9-space-acquisition-tenets-aim-to-transform-space-procurement/.
55    Modernizations include the Integrated Correlation and Display System and the Space and Atmospheric Burst Reporting System-2 and -3. Space Systems Command Media Release, “Space Systems Command’s Next-Generation Nuclear Detonation Detection System Completes System Requirements Review,” June 8, 2023, https://www.ssc.spaceforce.mil/Portals/3/Documents/PRESS%20RELEASES/Space%20Systems%20Command%E2%80%99s%20Next-Generation%20Nuclear%20Detonation%20Detection%20System%20Completes%20System%20Requirements%20Review.pdf?ver=IOge6OkS_Rtl1saZF-nJLA%3D%3D.
56    Written communication to author.
57    Hays, “Is This the Space Force You’re Looking For?,” 21.

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]]> Turkey’s emerging and disruptive technologies capacity and NATO: Defense policy, prospects, and limitations https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/turkeys-emerging-and-disruptive-technologies-capacity-and-nato-defense-policy-prospects-and-limitations/ Mon, 08 Jul 2024 21:00:00 +0000 https://www.atlanticcouncil.org/?p=777748 An issue brief exploring Turkey's defense technological ecosystem and leveraging its capabilities for the benefit of NATO.

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]]> Introduction

The NATO Parliamentary Assembly’s Science and Technology Committee considers emerging and disruptive technologies (EDTs) capable of transforming future military capabilities and warfare through advanced tech applications. Today, official documents indicate that NATO’s EDT-generation efforts focus on nine areas: artificial intelligence (AI), autonomous systems, quantum technologies, biotechnology and human enhancement technologies, space, hypersonic systems, novel materials and manufacturing, energy and propulsion, and next-generation communications networks.

This brief does not cover all of Turkey’s defense-technological capabilities but aims to outline Turkey’s growing focus on EDTs and high-tech advancements. Some signature programs reflect Turkey’s political-military approach and the trends in defense-technological and industrial policies. These programs hint at Ankara’s future military modernization efforts and smart assets. This paper highlights some of Turkey’s critical defense tech programs, focusing on AI, robotics, directed energy weapons, and future soldier/exoskeleton technologies to illustrate the comprehensive and integrated structure of the Turkish EDT ecosystem.

Emerging and disruptive technologies, the future of war, and NATO

Breakthroughs in EDTs are essential for NATO’s future military strength. They will significantly impact defense economics and help shape NATO’s defense-technological and industrial priorities. These efforts involve not just state policies but also public-private partnerships and transatlantic cooperation for sustainable and comprehensive EDT initiatives.

NATO supports these projects through initiatives like the Defence Innovation Accelerator for the North Atlantic and the NATO-Private Sector Dialogues, which explore collaboration between NATO and private companies on technology and defense.

According to Greg Ulmer, currently president of Lockheed Martin Aeronautics, “the decisive edge in today and tomorrow’s missions will be determined by combining technologies to bring forward new capabilities.” This view is shared by US Defense Secretary Lloyd Austin, demonstrating the importance of AI in Washington’s military modernization efforts to deter adversaries in a future confrontation. There seems to be a consensus in the Western policy community that integrating AI and machine learning into modern battle networks, perhaps the most critical contemporary EDT applications in defense, is essential to succeed in tomorrow’s wars. In an era of increasingly digital and transparent warfare, rapid technological adaptation is key to success.

Smart technologies are proliferating fast, and continuous innovation has become a strategic requirement in today’s geopolitical landscape. AI-augmented precision kill chains, hypersonic weapons within mixed-strike packages, and satellite internet-enabled command and control nodes are already changing warfare. The use of commercial satellite imagery and geospatial intelligence has revolutionized open-source intelligence. Facial recognition algorithms are now used in war crime investigations. Robotic warfare, drone-on-drone engagements, and manned-unmanned teaming are all changing the characteristics of war for better or worse.

Defense economics is also changing. Start-ups are becoming increasingly essential actors in military innovation. According to McKinsey & Company, the number of seed funding rounds in defense and dual-use technology (in the United States) almost doubled between 2011 and 2023, hinting at a rapid proliferation of start-ups in the high-tech defense industry. This trend is fostering new collaborations. NATO is leveraging the strengths of the start-up industry with a $1.1 billion Innovation Fund and is reportedly working with several European tech companies on robotic solutions, AI-driven systems, and semiconductors.

Keeping up with innovation is like boarding a fast-moving train, where getting a good seat ensures a strategic advantage over competitors. By investing in holistic, across-the-spectrum EDT-generation efforts, Turkish decision-makers seem to recognize this imperative.

Great expectations: Turkey in the high-technology battlespace

Turkey has faced challenges with industrial advancements, lagging behind in the Industrial Revolution. For instance, the country’s first main battle tank is still not in service. Despite ambitions to operate its fifth-generation combat aircraft, Kaan, within a decade, Turkey has not ever produced third- or fourth-generation tactical military aircraft. This situation is striking given that Turkey excels in producing and exporting state-of-the-art drones but has struggled with other key conventional military assets.

According to Haluk Bayraktar, CEO of the prominent Turkish unmanned aerial systems manufacturer Baykar, missing out on the Industrial Revolution has slowed Turkey’s military modernization. However, it also pushed the country to leverage digital age technologies, building new strengths in intelligent assets and EDTs.

In recent decades, Turkey’s military-industrial sector has focused heavily on innovation and increasing research and development, driven by a desire for self-sufficiency and operational sovereignty. The country’s National Artificial Intelligence Strategy 2021-2025 outlines these ambitions. Forming the central pillar of the government’s AI policy, the document “focuses on generating value on a global scale with an agile and sustainable AI ecosystem.” The strategy also lays out the strategic pillars of the effort, including strengthening international collaboration, encouraging innovation, and increasing the number of experts working on AI.

Similarly, the 2023-2027 Sectoral Strategy Document of the Turkish Presidency of Defense Industries outlines several focus areas for Turkey’s future EDT efforts. These include quantum computing, nanotechnology, and directed energy weapons. The document also highlights the importance of establishing a sustainable, resilient production and testing infrastructure for advanced aerial platforms and increasing the competitiveness of Turkey’s high-tech defense exports.

Selected military programs

Kemankeş loitering munitions baseline

Turkey’s aerial drone warfare capabilities first gained attention with medium-altitude long-endurance (MALE) and high-altitude long-endurance (HALE) platforms such as the Bayraktar TB-2 MALE drone, Akıncı HALE unmanned aerial vehicle (UAV), and TUSAS’ Anka MALE drone baseline. Recently, Turkey’s has advanced further in this field, developing smart aerial assets such as the Kemankeş family.

The Kemankeş, introduced by Baykar in 2023, is a “mini-intelligent cruise missile” that combines features of loitering munitions and cruise missiles. It can carry a 6-kilogram payload, and operates autonomously with an AI-supported autopilot system, one-hour endurance, and a jet engine. The Kemankeş is designed for both striking targets and conducting intelligence, surveillance, target acquisition, and reconnaissance missions. It can be integrated with other aerial drones, making it a versatile tool in modern warfare.

The Kemankeş system offers advanced datalinks and sensors, providing real-time battle updates while targeting adversaries. The upgraded version, Kemankeş-2, boasts a range of over 200 kilometers and an AI-supported autopilot system for precise, autonomous flight. Baykar announced that Kemankeş-2 passed its system verification tests in June 2024.

Kemankeş-2 can operate day and night, in various weather conditions, and in environments where GPS is jammed. Its AI-supported optical guidance system demonstrates Turkey’s rapid advancements in robotic aerial technology.

Naval and ground robotic warfare capabilities

Russia’s war on Ukraine and the ongoing turmoil in the Red Sea have highlighted the importance of kamikaze naval drones. In the Black Sea, Ukraine has used unmanned surface vehicles (USV) compensate for its lack of conventional naval capabilities. It has successfully eliminated about one-third of the Russian Black Sea Fleet with naval drones and other long-range capabilities such as the Storm Shadow/SCALP-EG air-launched cruise missiles and coastal defense missiles. Similarly, in the Red Sea, Iranian-backed Houthis have employed low-cost kamikaze USVs effective anti-access/area-denial assets, disrupting global maritime trade and limiting Western commercial activities in the region. Some assessments suggest that the United States should consider forming “hedge forces” consisting entirely of unmanned, low-cost systems to counter initial aggression from a peer opponent, such as in a scenario involving China invading Taiwan. This strategy would minimize harm to military personnel and the loss of valuable equipment.

Turkey has one of the largest USV programs within NATO, with about half a dozen ongoing projects. For example, Marlin, produced by the Turkish defense giant Aselsan and Sefine Shipyards, was the first Turkish naval drone to participate in NATO joint exercises, indicating potential for coalition warfare.

Turkey is also advancing its ground warfare capabilities, leveraging its expertise in robotics. Otokar’s Alpar is a recent example of an unmanned ground vehicle (UGV) that can map the battlefield in 2D and 3D, navigate without a global navigation satellite system, identify friend or foe, and has Advanced Driver Assistance Systems, low thermal and acoustic signature, and autonomous patrol capability. It can also serve as a “mother tank” for smaller UGVs, enhancing mission capability. Alpar has been showcased at major international defense exhibitions, including the Eurosatory 2024 event held in Paris in June.

In addition to developing new robotic systems, Turkey is focusing on innovative concepts like Havelsan’s “digital troops,” which integrate manned and unmanned teams to act as force multipliers on the battlefield. These efforts across multiple domains demonstrate Turkey’s vision of becoming a leading player in a “Mad Max”-like battlespace that combines conventional and smart assets.

Laser precision: Turkey’s drive in directed energy weapon projects

In Turkey’s expansion of EDTs, directed energy weapons and laser guns are gaining attention. The prominent Turkish arms maker Roketsan has introduced the Alka Directed Energy Weapon System, which has successfully completed live fire tests. The Alka system combines soft kill and hard kill capabilities, featuring both an electromagnetic jamming system and a laser destruction system.

Another key initiative is Aselsan’s Gökberk Mobile Laser Weapon System, first unveiled at the Turkish defense exhibition IDEF in 2023. Gökberk can search for, detect, and track UAVs using radar and electro-optical sensors, and then intercept these threats with an effective laser weapon. Additionally, Gökberk has soft kill capabilities, using its Kangal jammer subsystem to render UAVs dysfunctional. According to Aselsan, Gökberk can protect land and naval platforms, critical national infrastructure, and border outposts.

Turkish future soldier concepts

Turkey is also advancing future soldier technologies as part of its efforts in EDTs. The concept, pioneered by the United Kingdom within NATO, aims to create a modernized force by 2030. Shifting the focus of warfighting from close to deep battles, the British program seeks to transform the army into a resilient and versatile force that can find and attack enemy targets at a greater distance and with higher accuracy.

Ankara’s efforts in this segment are not new. A few years ago, BITES, a leading defense technology and intelligent systems manufacturer owned by Aselsan, developed the Military Tactical Operation Kit ATOK. Equipped with portable and wearable integrated technology, the solution in question was designed to enhance the situational awareness of Turkish troops in a rapidly changing battlefield and maximize personnel security. In line with the future soldier concept, BITES also produced several solutions based on virtual/augmented reality to provide realistic simulation environments.

Aselsan’s “Military Exoskeleton” is another visionary initiative designed to assist troops during demanding battlefield conditions. The exoskeleton provides over 400 watts of leg support. The support is adaptive and AI-supported, meaning that it understands and responds to the needs of the soldier wearing the smart suit. It has an 8-kilometer operation range on a single charge and transfers the soldier’s weight to the ground during long missions, reducing physical strain and improving combat performance.

The way forward: Opportunities and restraints 

Keeping up with industrial trends in a competitive environment is challenging, and Turkey’s defense industry faces several obstacles that limit its full potential.

First, the Turkish defense industry is monopolized. There are structural gaps in the collaboration between the public and private sectors. Unlike other tech-driven nations like the United States, Turkey’s defense ecosystem is not very friendly to start-ups, with established companies dominating the field.

Second, Turkey has a shortage of skilled human capital, largely due to issues in higher education. According to 2022 OECD data, Turkey’s Program for International Student Assessment test scores fell below the OECD average in mathematics, science, and reading comprehension. In addition, evidence shows that in Turkey, the proportion of bachelor’s, master’s, and doctoral or equivalent graduates in the field of STEM (science, technology, engineering, and mathematics) is among the lowest among OECD and partner countries.

For sustainable and resilient defense innovation, R&D, business, and a well-educated workforce must go hand in hand. A good example is Baykar, whose chief technology lead was educated at the Massachusetts Institute of Technology, one of the United States’ leading engineering universities.

Third, high-technology goods comprise a relatively low share of Turkish exports. Despite a focus on high-tech products, over half of the gross value generated in the Turkish defense industry comes from low- and medium-technology products. In 2022, Turkey’s high-tech exports were approximately $7.5 billion, and in 2023, this figure exceeded $9 billion.

While Turkey’s strategic plans and defense industrial goals are ambitious, the abovementioned challenges could jeopardize its position as a leading EDT producer in the medium and long term. Addressing these issues is crucial not only for enhancing Turkey’s EDT edge but also for meeting NATO’s strategic needs.

About the authors

Can Kasapoğlu is a nonresident senior fellow at Hudson Institute. Follow him on X @ckasapoglu1.

Sine Özkaraşahin is a freelance defense analyst and consultant. Follow her on X @sineozkarasahin.

The Atlantic Council in Turkey, which is in charge of the Turkey program, aims to promote and strengthen transatlantic engagement with the region by providing a high-level forum and pursuing programming to address the most important issues on energy, economics, security, and defense.

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]]> Is Iran an ideological state? https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/is-iran-an-ideological-state/ Mon, 08 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=773092 Mahmood Sariolghalam argues that Islamic fundamentalism did motivate Iran’s international presence in the first decade of the revolution. However, after the death of its founder, Ayatollah Khomeini, the country’s foreign policy now prioritizes policies to guarantee its political survival.

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In a new Scowcroft Middle East Security Initiative issue brief, “Is Iran an ideological state?,” Mahmood Sariolghalam argues that while Islamic fundamentalism did motivate Iran’s international presence in the first decade of the revolution, the Islamic Republic’s motives have transformed. Namely, after the death of its founder, Ayatollah Khomeini, on June 3, 1989, the country’s foreign policy maintains a fundamentalist posture but now prioritizes policies to guarantee its political survival.

From 1989 to the present, Sariolghalam argues, core revolutionary elites have applied ideology and religious symbolism to cloak policies to avoid normalization with the United States, pursue an anti-Israeli struggle to reinvigorate confrontation with Washington, and seek leverage vis-à-vis the United States and Israel by nurturing proxies, an extensive missile industry, and a robust nuclear program.

Regime security, Sariolghalam continues, is the core preoccupation of statecraft in Iran. All other essentials of modern governance—such as economic growth, net-zero policies, infrastructure development, research and development at higher-level institutions, civil society, and entertainment—are either downplayed or considered only insofar as they do not interfere with concerns about survival and security. Realpolitik now drives Iran’s foreign policy.

About the author

Mahmood Sariolghalam

Professor of international relations,
Shahid Beheshti University

Mahmood Sariolghalam is an advisory committee member of the Scowcroft Middle East Security Initiative’s Iran Strategy Project. He specializes in the political economy of development, US-Iranian relations, and Iranian foreign policy and political culture. His current research focuses on the political psychology of authoritarianism and conceptual roots of Iranian foreign policy. He has made 639 presentations in 114 countries over the last 28 years, including at the Brookings Institution, Carnegie, Chatham House, and ASERI, among others.

The Scowcroft Middle East Security Initiative (SMESI) provides policymakers fresh insights into core US national security interests by leveraging its expertise, networks, and on-the-ground programs to develop unique and holistic assessments on the future of the most pressing strategic, political, and security challenges and opportunities in the Middle East. 

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]]> Why the EU needs US liquefied natural gas https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/why-the-eu-needs-us-liquefied-natural-gas/ Mon, 08 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=778026 Europe is facing tough choices as it confronts Russia’s unexpected reentry into European gas markets. In this issue brief, the authors argue that Europe will need gas imports from non-Russian sources such as the United States for many years to come.

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]]> In 2024, the gas market in Europe may seem calm, but the underlying threats are just as great. The continuing war in Ukraine, the Gaza conflict, and deep tensions throughout the Middle East mean the energy security environment is becoming increasingly volatile. 

Europe is facing tough choices as it confronts Russia’s unexpected reentry into European gas markets in the form of steadily increasing deliveries of liquefied natural gas (LNG). A fourteenth round of sanctions adopted in June are designed to help curb these supplies. At the same time, Europe risks gas shortages if there are no alternative LNG supplies on hand. 

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This fraught situation puts pressure on the Biden administration to resume issuing fresh permits for LNG projects intended for export to countries with which the United States does not have a free trade agreement (FTA). Currently, the United States has no FTA with any European country. And although a judge recently ordered the administration to resume permitting, it could appeal the decision, leaving the fate of additional projects in limbo.

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AUTHORS

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John M. Roberts

Nonresident Senior Fellow

Global Energy Center

Energy & Environment

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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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]]> Advancing freedom, defeating authoritarianism: A democracy agenda for 2025-2029 https://www.atlanticcouncil.org/in-depth-research-reports/report/advancing-freedom-defeating-authoritarianism-a-democracy-agenda-for-2025-2029/ Wed, 03 Jul 2024 19:00:00 +0000 https://www.atlanticcouncil.org/?p=771633 This report provides actionable and measurable policy recommendations for the upcoming administration's foreign policy to advance democracy and strengthen the US position in international development.

The post Advancing freedom, defeating authoritarianism: A democracy agenda for 2025-2029 appeared first on Atlantic Council.

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Introduction

The next president of the United States, whether a Democrat or Republican, will enter office in January 2025 confronted by a world where freedom is under threat. This is a central challenge to the United States because American citizens benefit most when the world is free and open. Supporting democracy must therefore feature in the foreign policy agenda of any administration. How should the presidential campaigns think about this challenge, and what should they do about it once in office? What does the data tell us about the nature of today’s challenges and the most cost-effective ways to address them? 

This paper examines the main challenges to democracy and offers nonpartisan policy solutions to them. It starts by surveying the state of democracy globally and articulates why underwriting the expansion of freedom (understood using the Atlantic Council’s Freedom Index definition) is vital to US interests.1 The second section outlines priority challenges and opportunities, from the need to supercharge countering China’s malign influence to shoring up the core institutions of democracy in strategically important countries. The paper concludes with a set of recommendations that the president and US Congress can action to address challenges to US interests.2

I. The freedom landscape: authoritarianism on the back foot?

The security of the United States, democratic partners and allies, and humanity’s future depends significantly on the state of democracy worldwide. Yet, over the past seventeen years, if we look at indices like those published by the Atlantic Council’s Freedom and Prosperity Center, authoritarianism has risen globally, while democracy shows alarming decline in regions of importance to the United States. 

After a nearly two-decade recession, democracy is showing promising signs but faces continued headwinds. Many democracies are experiencing legitimacy crises due to a long-standing failure to deliver adequately for their constituents. This core weakness has made them more vulnerable to authoritarians, disruptive information technologies, external malign attacks, and internal demagogues who now use a proven playbook to weaken democratic governance from the inside out. 

Political freedom, in particular, has witnessed a pervasive decline across all regions without exception.3 Africa, often in the spotlight due to dramatic military coups, has experienced the most recent decline, spanning from 2014 to the present. This decline is primarily attributed to mounting pressures from authoritarian regimes on electoral systems and the erosion of legislative controls over executive powers. 

Europe has been grappling with a decline in political freedom since 2012, regressing to levels akin to those observed in 1996. In Latin America and the Caribbean, the decline started in 2003, exacerbated by diminishing political rights and a collapse of civil liberties beginning in 2016. 

The global trajectory of the rule of law has been on a downward trend since 2012, as authoritarians co-opted and undermined institutions. Nearly every region has faced mounting pressure on the rule of law. Notably, the Middle East and North Africa region has witnessed the most significant decline across most indicators, including security and judicial independence, and a rise in corruption. 

These declines not only challenge US interests abroad but also directly impede prosperity and sustainable development. The global turning point of 2012 has directly impacted prosperity levels. Between 1995 and 2012, prosperity exhibited an average annual increase of 0.4 points. From 2012 onward, this progress has significantly slowed, dwindling to 0.1 points per year. 

But all is not bleak. Despite significant odds, Bernardo Arevalo was inaugurated as president in Guatemala. Elections in Taiwan ushered in a decidedly pro-democratic candidate committed to maintaining the island’s independence from China. Political freedoms have also expanded in Zambia following the electoral defeat of President Edgar Lungu. And Senegal, after a series of democratic setbacks, just elected its youngest president, forty-four-year-old Bassirou Diomaye Faye. 

Citizens are also not standing by. Instead, they are mounting broad-based civil resistance movements to demand change, as in Belarus, or to root out endemic corruption, as in Iraq. Since 2017, roughly one hundred significant civil resistance movements have led to substantial reforms or the removal of thirty governments and leaders.4 Moreover, the number of new civil resistance movements seeking political transitions has grown over the last three decades. 

1. Freedom abroad is essential to US national security at home

Supporting democracy—particularly in strategic locations—is not an altruistic enterprise. We can and should support freedom fighters and strong political institutions because doing so aligns with American values. But the main reason we promote democracy through a combination of diplomacy, investment, and foreign aid is because it is good for the United States.5 The United States is more secure with a world that is free and open. Democracies are more reliable trading partners, less likely to go to war with one another, and less apt to incubate and export transnational crime and terrorism.6

By contrast, authoritarians are unpredictable and can generate instability. Some of the least free states produce the most instability.7 From the Sahel to the Middle East, weak states characterized by predatory elites governing unresponsive institutions have consistently been breeding grounds for terrorist cells that attack American interests, service members, and allies.

Democracy abroad is also better for US businesses. Autocrats often oversee regulatory regimes that are unfavorable (if not hostile) to US businesses. By contrast, countries with trans-parent regulations and processes are more reliable markets for American companies.8 According to the Atlantic Council’s Freedom Index, which ranks countries on a composite score of economic, political, and legal freedom, four of the five top emerging markets for US companies are free (South Korea) or mostly free (Brazil, Mexico, and India).

A foreign policy with democracy support as a key component also positions the United States to compete with China, Russia, and Iran. The Chinese Communist Party (CCP) and Kremlin understand that other countries’ political systems affect their national security and have therefore been widely promoting an authoritarian development and governance model.9 The CCP is working to create a world safe for the communist party—one composed of authoritarian regimes—by exporting surveillance technology, autocratic governance practices, and other repression modalities. The CCP provides training to political parties in the Global South to promote authoritarian solutions to governance challenges. To curry favor with local elites and foster an environment favorable to China’s interests, Beijing co-opts journalists and invests in the media sector to shape reporting.10

The weak regulatory environment and minimal transparency around foreign financing and investments in fragile democracies create conditions for countries to become dependent on China, whether due to unsustainable debt to Chinese state-governed banks or reliance on information communication technologies from Chinese government-linked companies. The consequence of this dependence is an expanding set of countries that will choose China as their primary economic and political partner and side with Beijing against US interests in multilateral institutions.

It is no coincidence that countries that already host—or have reportedly considered welcoming—a Chinese military base on their territory are non-democracies and usually indebted to or otherwise dependent on China. Supporting democratic actors and institutions can help ensure that fewer countries find themselves in situations like Djibouti, Cambodia, and Equatorial Guinea, among others, limiting the number of countries eager to help the People’s Liberation Army expand its global presence.

Russia’s campaigns to undermine free societies also threaten US interests. The Kremlin, while destroying all domestic opposition and independent media, is interfering in elections across the globe and deploying Wagner mercenaries from Syria to the Sahel. Putin’s invasion of Ukraine, if successful, risks incentivizing the Kremlin to attack a NATO ally. A Russian victory could also incentivize China to attack Taiwan.

Beijing and other autocracies are unabashedly trying to create a world safe for autocrats. Authoritarian regimes across the globe are learning from one another and actively cooperating to crush democratic movements at home and rewrite international norms to advance their interests. Their actions present clear, consequential threats to American security interests.

2. Democracy assistance in practice: Tools and proven return on investment

A world made up of a constellation of autocratic regimes is bad for America and good for Xi Jinping and Vladimir Putin. To advance US economic and security interests, American foreign policy must have supporting democratic governance as a central component.

Like deploying warships, employing sanctions, or transferring defensive weapons, using diplomacy and foreign assistance to help allied nations guard themselves against authoritarian incursions are tools the United States uses to advance US national security.11 Democracy assistance can help achieve both security and prosperity. This argument is instrumental, not ideological or normative.

What does American support for democracy look like in practice? It is not nation building or forcing democracy at the tip of a gun, as pundits like to suggest.

Democracy support is assistance the United States provides to protect and strengthen democratic governance abroad. The two main tools are complementary: foreign assistance programs that strengthen the capacity of democratic institutions or actors within and outside government; and US diplomatic engagement that champions local democracy advocates and holds despotic regimes accountable for their actions.12

In addition to coordinated diplomacy and development assistance, the United States enforces human rights criteria for export controls; deploys visa restrictions or financial sanctions to punish and change the behavior of kleptocrats and autocrats; restricts military aid based on human rights standards; and offers economic support for allied countries targeted by China, Russia, and other malign actors.

Democracy assistance can help strengthen institutions to make them more effective and accountable; bolster democracy advocates working to hold corrupt leaders accountable; and advance more transparent regulatory regimes, among other benefits. These changes that democracy promotion can help bring about deter malign states from exerting their influence in a target country or, at a minimum, make it more difficult for them to do so. Robust electoral processes defend against interference in elections and help maintain public confidence in democracy. An independent civil society and media help hold leaders accountable and mitigate against external actors corrupting and ultimately co-opting them. Democracy support helps bolster transparency and counter CCP and Kremlin efforts to capture political and economic elites that, if unchecked, can result not only in reduced political accountability but in policy and commercial decisions in line with China’s or Russia’s interests and contrary to those of Washington and US businesses.

Democracy assistance is effective and shows a strong return on investment for US taxpayer money to advance US interests overseas. Studies show that this investment delivers real results. A study of US democracy promotion programs conducted between the critical post-Cold War period of 1990 and 2003 found that democracy assistance had “clear and consistent impacts” on overall democratization, including civil society, judicial and electoral processes, and media independence.13 And despite the recent global democratic recession from 2012 to 2022, eight countries that were veering toward autocracy bounced back to democracy in 2023. International democracy support and protection was an important factor in securing these gains.14

II. Democracy agenda 2025-2029: Core priorities

The next president’s democracy agenda should focus on four priorities, centered on the main threats to US interests and evidence-based approaches to addressing them.

  • Shore up countries’ resilience to Chinese and Russian malign influence and co-optation. If the United States wins, China loses.15 Plain and simple. This confrontation with China and Russia, of course, has a military component but is more fundamentally ideological. We therefore need to center the democracy agenda on ensuring China fails in the battle of ideas and narratives about the superiority of its system. This stream of work should have two core pillars. First, we need to make sure that China cannot co-opt or otherwise influence local politicians to pass policies/laws or agree to opaque deals that together or apart benefit CCP interests at the expense of that country’s citizens and the United States. This involves strengthening institutions and policies in countries the CCP or Kremlin targets to make these states and political systems more resilient to outside aggression. Second, we need to scale up messaging, internationally and to target countries, on why democracy is superior—based on facts—to the authoritarian model on offer from Beijing and Moscow. This stream of work, as with all democracy promotion, should not center on forcing any model on another country.
  • Focus US democracy assistance on bolstering the core political and institutional elements of democracy and governance (namely, political parties, legislatures, electoral commissions, and other related ministries) and empowering newly elected, reform-minded leaders to deliver. Strong institutions and political party systems promote resilience to Chinese and Russian malign influence. These institutions are also the best bet for ensuring democracy delivers for citizens. Strong institutions set the playing field for robust competition of policy ideas and offer better return on investment than approaches rooted in a specific social agenda. The United States, in deciding which types of democracy support to focus on, has in recent years drifted too far toward helping grow civil society in target countries so these actors can push elected leaders for specific policy solutions. Absent capable officials and institutions to advocate to, however, such groups will be screaming into a void. The United States, in deciding how to allocate finite resources, needs to focus on shoring up political institutions and political parties (the key link between citizens and their government) first and civil society second.
  • Advance a vision for technology advancement grounded in democratic principles and thwart “digital authoritarianism.” Couple this offensive agenda with one that helps partners push back against digital authoritarianism. A proliferation of new technologies has affected nearly every aspect of human existence. The way countries govern is no exception. The United States, first during the Trump administration and to a lesser extent during the Biden White House, worked with other democracies to ensure this proliferation of technologies leads to a “technological ecosystem” globally that is based in “openness, trust and security, and that reinforces democratic principles and human rights.”16 This vision is in stark contrast to the CCP’s vision for technology, one rooted in censorship and centralized control. The next president needs to further advance this vision for technological use (from rules governing the internet to those shaping the rollout of AI) based on freedom and openness. They also need to forcefully push back against Chinese and Russian attempts to the contrary.
  • Revamp how the United States uses diplomacy to advance democracy and recommit to encouraging burden-sharing among allies to support democracy globally. The extant US diplomatic playbook for supporting democracy overseas is shopworn and largely ineffective. Successive administrations resort to the same set of public messages condemning human rights abuses or a fraudulent election, yet with few, if any, consequences attached to these words. The repressive regime targeted by US rhetoric yawns. We need a new template. The same applies for how we use multilateral diplomacy to advance democracy interests. The United States cannot and should not foot the bill for democracy support everywhere. We must ramp up not only coordination with allies—through groupings like the G7—but also agree to a division of labor in select countries.

III. A policy framework for advancing democracy

The sections above establish that expanding freedom is vital to US national security and articulate the four areas our next president should focus on to advance democracy abroad. This section outlines a roadmap for realizing this aim. It includes two sets of recommendations: one centered on changes to the US government bureaucracy necessary to maximize the probability that America can advance democracy overseas; and the second focused on actions to advance the four priorities outlined above.

1. Reforms to the US government

Delivering on priorities requires having the bureaucratic structures in place to carry out policy, develop a strategy to execute said policy, and then deliver the associated goals and objectives through coordinated action overseas. The extant structure of the executive branch has several deficiencies that must be changed to realize the priorities listed above. These recommendations are divided into adjustments necessary to maximize the impact of US democracy promotion efforts specifically and US foreign aid more broadly.

Structural changes specific to democracy promotion

  • Prioritize supporting democracy in foreign policy deliberations. The state of democracy directly influences America’s ability to advance key US foreign policy objectives, whether to enable our companies to invest overseas or to prevent the CCP from co-opting strategically important countries. The United States must therefore place democracy protection and promotion on par with—or close to—other factors key decision-makers consider. Democracy promotion will not, and should not, trump many purely security considerations. Nor will prioritizing democracy promotion mean cutting off collaboration or engagement with less democratic states. The United States will need to engage non-democracies to address pressing security challenges, in particular those that imperil US citizens and American territory.
  • However, if the United States is to succeed in shoring up democracy to compete with our adversaries, then the American government must actively consider implications for democracy in its foreign policy deliberations. Failing to do so, and blindly prioritizing short-term security gains, will feed the vicious cycle we see globally—from the recent string of coups in the Sahel to people seeking to overthrow governments in the Middle East. This approach has fueled grievances undermining democratic governance and produced instability that hurts our interests, rather than sustainably advance our objectives. At a practical level, this should involve elevating the functional offices and bureaus at the State Department and United States Agency for International Development (USAID) that work on democracy issues to ensure they have an influential seat at the policy decision-making table.
  • Draft a US democracy strategy that outlines clear goals and metrics for success. Given how central democracy promotion is to US interests, each administration should be required to develop and deliver to Congress a strategy for doing it effectively. The next president should direct their national security advisor (NSA) to draft a democracy strategy and an executive action that cements this strategy as US policy. The strategy should encompass all relevant agencies and departments, and articulate short- and long-term goals as well as theories of success for realizing these objectives.
  • The strategy should include as its stated end goal a world where democracy is the predominant form of governance because this is the model that best delivers for US interests as well as global prosperity and security. The strategy for realizing this overarching goal should convey regional and country-specific priorities and a theory of the case for achieving these priorities. The president should task their deputy national security advisor with overseeing execution of the strategy and holding involved departments and agencies accountable for results. The strategy should have metrics for success to gauge change in target countries as well as changes, internal to the US government, required to be effective. The strategy must affirm that political change in target countries can take years—not months—and structure its components and objectives accordingly.
  • The president should formalize the strategy in a national security directive (NSD) because doing so codifies the strategy as US policy and therefore carries with it the expectation that relevant components of the federal government will execute the strategy. Every president since Harry Truman has used NSDs to articulate their policies and vision for achieving them. The Trump administration, for instance, issued eighteen directives while the Obama team issued forty-three. Accountability is the key advantage of codifying policy in a national security directive—federal departments and agencies must deliver on the president’s vision.17
  • Fully empower the US Department of State’s Office of Foreign Assistance to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. The Office of Foreign Assistance is charged with ensuring foreign aid allocations and spending is aligned with US foreign policy objectives. In practice, however, USAID and other aid-providing departments exercise too much independence and spend funds on priorities tangentially related to American priorities. The secretary of state should empower the Office of Foreign Assistance to fulfill its mission by mandating oversight of planning and allocation back to its director. This will help make sure that aid generally—and democracy assistance in particular—is used to advance specific foreign policy objectives. Some have called to eliminate this office, in the spirit of streamlining the US government bureaucracy to more efficiently advance US national security. Doing so would be counterproductive to that very aim. We need an empowered central body to coordinate and guide spending, in line with policy aims, not more decentralized decision-making on where and how to use US foreign aid monies.
  • Instead of prioritizing “localization” of US foreign aid—the policy which mandates sending a predetermined amount of foreign assistance to local organizations—focus on maximizing the impact of democracy assistance to achieve results that advance US national security. Foreign aid benefits American citizens by leading to changes in a recipient country—stronger electoral commission or laws, for example. American citizens do not benefit if a specific amount of aid, say 30 percent, goes to local organizations. The next president should pursue increasing host government “self-reliance,” a key element of the Trump administration’s foreign aid agenda, where feasible—for example, in the areas of health or education—but jettison arbitrary requirements for a specific portion of funding to go to local organizations, and instead focus staff time on crafting foreign assistance interventions that deliver. Said interventions can and should include components to increase the capacity of local entities to execute specific types of work. The interventions should also include direct support to movements or organizations that can—through financial and managerial controls—ensure proper use of taxpayer funds. The United States should call for this as part of program design, provided it helps achieve the government’s goal, instead of using a percentage of aid to local organizations as a goal in and of itself. If the next administration wants to retain some focus on “localization,” the United States could leverage philanthropy to meet its percentage targets. Prominent philanthropic entities can use funds as they see fit, as they are not responsible for delivering to the US taxpayer, and therefore can and should aid organizations directly as they see fit.18 By contrast, foreign aid is a statecraft tool used to advance American interests. It is not charity.
  • To maximize return on investment of taxpayer dollars, reduce the US government’s use of contracts (for profit) to fund democracy assistance work overseas and shift this spending to grants (nonprofit). This is another straightforward step the United States can take to reduce waste and maximize the return on every dollar invested. During the Biden administration, USAID has drastically expanded its use of contracts over grants. The result has been more money going to for-profit firms as a fee, and fewer resources being spent overseas to help realize changes that benefit American citizens. Why should the US taxpayer foot the bill for contractor profits instead of having these monies go to advancing American security and economic interests overseas? Contracts can be a useful vehicle for foreign aid spending in very specific instances—for example, to procure a set number of textbooks or building materials. Ordering and delivering these items is straightforward. However, the rigid and costly nature of contracts makes them ill-purposed for implementing democracy and rights programs in highly complex environments that require adaptation and flexibility. The White House should direct USAID to increase its use of grants/cooperative agreements—created with the explicit purpose of offering flexibility that enables results in highly complex and fluid environments—and scale down monies flowing via for-profit contract mechanisms.

2. Advancing the democracy agenda priorities

With the above bureaucratic and policy recommendations in place, the United States should implement the following steps for each of the four priorities comprising our democracy agenda framework. These recommendations and those above are meant to serve as a broad framework to guide decision-making and transition team ideas and policies and are not meant to represent a comprehensive set of solutions.

Shore up countries’ resilience to Chinese and Russian malign influence and co-optation.

Policy recommendations

  • Expand initiatives focused specifically on detecting, preventing, and countering CCP and Kremlin interference. Strong institutions, addressed in priority two below, are an effective source of resilience to foreign malign influence. They are necessary, but unfortunately not sufficient, to guarantee mitigating attempts by Beijing or Moscow to influence political systems of other countries and undermine democracy, and US interests, in the process. The United States must therefore pair institution-strengthening with diplomacy and foreign assistance-supported programming in areas that have proven effective in building democratic resilience to foreign authoritarian influence: (1) supporting independent media that can produce independent reporting on Chinese and Russian influence efforts; (2) people-to-people exchanges where citizens abroad, and in particular those countries in PRC or Kremlin crosshairs, visit the United States to witness first-hand the efficacy of our institutions and benefits of our model; and (3) dialogues between elected officials, from the United States and other nations, to share understanding of foreign influence operations and solutions to address them.
  • Ensure the National Endowment for Democracy (NED) is adequately funded to combat or address the plethora of democracy-related challenges. The NED and its four core institutes are the preeminent US democracy assistance organizations. All are nonprofit entities with low overhead budgets that focus resources on addressing threats to democracy—and US interests—rather than turning a profit. The NED is a mission-oriented enterprise with one goal: to defend freedom and spread democracy. These organizations are the logical partners for on-the-ground work because they have long-standing relationships with local partners and individuals, rooted in trust, and can therefore better deliver results. The current NED budget ($315 million) is not sufficient. Congress should increase or at least maintain NED’s budget, so its leadership can expand work specifically on countering China. Congress can offset this increase to NED’s budget with a commensurate decrease in the budget for humanitarian assistance. The next president will need to prioritize spending, and helping our partners gird themselves against Chinese and Russian incursions to their political systems is more important than distributing aid in the wake of a natural disaster.
  • Congress should pass new legislation (the “Non-Kinetic Competition Act”) to require the White House to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid and diplomacy—to compete with China in select priority countries. Congress, through other legislation, has mandated that the executive branch develop and submit plans for addressing fragility and instability in specified countries. It should do the same for competition with China and Russia. Congress should require that strategies feature support for democracy as a centerpiece.19

Policy recommendations

  • In priority countries, assess the state and capacity of political parties, electoral commissions, legislatures, and related institutions, and focus democracy assistance on shoring up gaps. Country teams can assess these needs and advise on how best to use foreign aid to address them. Diplomats can focus their engagement on pushing host government officials to make good on existing—or start new—reform agendas.
  • In countries experiencing a democratic opening, surge support to the newly elected and reform-minded leader to ensure they can deliver on campaign promises and therefore head off disenchantment with democracy not delivering. The Biden administration has rightfully attempted to address this critical need through its Democracy Delivers Initiative (DDI), which involves the US government mobilizing resources from across US agencies to help selected “countries cement early democratic gains, create space for further reforms, and promote the global progress of democracy.” Moving forward, a key part of DDI or its successor should be to surge support to newly elected leaders to ensure they have the resources to deliver. The county and regional strategies, to be required in the democracy strategy referenced above, should have a focus on supporting countries showing signs of democratization and having experienced a recent opening. US support cannot and should not just mean procurement of resources or material goods. It should include surge support of staff to support on key technical and policy areas for specific ministries. It should also mean changing key US policies— for example, lifting sanctions where warranted—that make it easier for the new government to deliver.
  • Support pro-democracy movements in authoritarian/ closed societies to continue a push for reform and ensure actors are in place to lead once the autocratic government falls. In some contexts, institutions are captured by the ruling authoritarian regime and therefore do not warrant support. In these closed spaces, the United States should focus on supporting nonviolent civil resistance movements that have proven to be vital to advancing democracy and reversing authoritarianism. In closed societies, these movements offer the best bet, and return on US investment, for enabling a democratic opening—and ensuring there are pro-democracy actors present to lead once the authoritarian regime falls or reforms begin. Popular civil resistance movements—using tactics such as strikes, boycotts, protests, and other tactics of noncooperation—are historically one of the most powerful drivers of democracy worldwide. The United States should follow a well-researched playbook for supporting these movements, which includes providing support to movements earlier, particularly in the early organizing phase, and using convening power to bring together movement activists and potential external supporters to discuss coordination of external support. In countries where movements succeed in removing an authoritarian government, we often see movement leaders outmaneuvered by the former regime actors. They lack political skills, not just technical ones, and we can help them succeed through both programming (technical assistance) and policy (public support where it’s helpful, connections with international business, etc.). In countries where kleptocratic capture is the defining feature of governance, efforts to assist democratic activists should prioritize integrity champions.20 Anti-corruption campaigns can galvanize broader collective action oriented toward openness, helping create a window of opportunity for meaningful reform.

Win the race to leverage technology by articulating and then supporting enacting a positive vision for how technology can deliver on democratic principles. Couple this offensive agenda with one that helps partners push back against digital authoritarianism.

Policy recommendations

  • Invest in efforts to foster and sustain a global movement to embrace technology as an advantage rather than a harm for democratic societies. Digitally native democracies empower citizen engagement, improve transparency, strengthen citizen trust, and position democracies to be resilient, responsive, and effective even as new geopolitical threats emerge. Investing in democratic stakeholders that effectively use technology can demonstrate democracy’s ability to evolve, be effective, and better deliver for citizens than authoritarian models of governance. With the rise of AI, this emerging technology can be a positive enabler of democracy, if used with the appropriate safety and regulatory measures in place. Democracies should leverage AI to improve citizen engagement, enhance information accessibility and provision, and service delivery—especially during important political processes— while establishing guardrails to encourage democratic uses of the tool, facilitate prosocial design by AI developers, and ensure no one gets left behind.
  • Boost the support surveillance/censorship circumvention technologies and mainstream these internet freedom technologies into democracy assistance. The values embedded in internet freedom—an open, free, global, interoperable, reliable, and secure internet—are essential infrastructure for democracy, human rights, and governance. Unfortunately, authoritarians are effectively using technology to further their values, principles, and goals. The United States and its partners need to do the same. Funding for the critical technologies and programs that keep democratic actors safe, facilitate access to information, and make democratic organization possible needs to keep up with the threat environment. Internet freedom funding also needs to be mainstreamed into broader democracy assistance.
  • Work with partner nations to strengthen their domestic laws and regulations to improve cybersecurity. Such interventions could support executive branch institutions, judicial institutions, and legislatures, as well as bolster awareness and training within political parties and civil society.21 Subsequent support could be provided to ensure implementation across national and subnational governments. The US House Democracy Partnership, a congressional diplomacy initiative, could leverage its global platform to spotlight and share comparative examples of quality cybersecurity frameworks with allied governments for consideration and adoption.22 The United States should require that the data/information management systems of all partners and implementers meet or exceed minimum standards and requirements for best practices. That might mean, for example, accelerating movement to secure cloud services, and ensuring investment in technology and personnel to match these goals. This could involve an executive order that applies to foreign aid comparable to that on improving the cybersecurity of the United States.23 To address resource and capacity constraints, partners should adopt a risk-based approach which prioritizes the most critical assets and systems.

Revamp how the United States uses diplomacy to advance democracy and recommit to burden-sharing with allies to support democracy overseas.

Policy recommendations

  • Recalibrate the US approach to engaging “hybrid regimes” to stop giving them a pass on repressing freedoms because they might be relevant to other American interests, and start holding them accountable because doing so better advances American objectives. Hybrid regimes are countries like El Salvador and the Philippines that want to be seen as democracies but lack the fundamentals of a democracy. They hold elections, but the playing field is uneven, and the electoral management body often compromised. They have governance institutions, but said bodies often serve the regime’s interests first and those of citizens second. Unfortunately, since these governments hold elections and display other trappings of democracy, some policymakers give them a pass on their democratic track record—especially if the country is tied to other American interests. Giving these regimes a pass is a policy mistake. Hybrid regimes vote less frequently with the United States at the UN and are more prone to instability. The United States must balance collaborating with hybrid regimes, when it is necessary at all, with pushing their rulers to reform and advance democratic progress. To do so, the United States and G7 allies should: (a) make clear they will not welcome leaders chosen through dubious, substandard elections; (b) increase the use of public sanctions, including asset freezes and visa bans, on regimes proven to engage in election fraud/malfeasance; and (c) improve the use of high-level diplomatic engagement, including Cabinet-level delegations and the legitimacy they confer to the recipient country, to incentivize governments to reform and adhere to international democratic best practices.24
  • Establish and make public a framework of consequences the United States will impose on regimes should they repress their people/movements. US statements condemning, for example, a fraudulent election or a government repressing its citizens are necessary and welcome. However, such talk is cheap and rarely (if ever) changes the target regime’s behavior. To make repressive leaders stop abusing their power, the United States and its allies need to pair messages with consequences—and make sure autocrats understand the consequences of their actions in advance, so they mitigate against action in the first place. To further deter authoritarian repression, the United States with G7 allies should develop a tiered framework for imposing costs in response to escalating domestic (and at times international) repression of civil resistance movements. This tiered approach, which the author and colleagues have advanced in a separate publication, would indicate proportional US and allied responses to repression and abuse of power—with lower costs for shutting down a small section of the internet or jailing a single opposition leader (although, to some extent, this depends on who the leader is), and more robust consequences for a regime that authorizes lethal military force against nonviolent demonstrators (e.g., the Syrian government in 2011) or incarcerates and tortures movement participants. For the fully elaborated tiered framework, see Merriman, Quirk, and Jain, Fostering a Fourth Democratic Wave.25 At the highest “tier” of this framework, a regime engaged in widespread jailing or killing of activists—as is occurring now in Nicaragua—would be met, for instance, with deep and broad sanctions; removal from SWIFT, the network banks use to send information; cyberattacks to disrupt the regime’s coercive apparatus; and taking steps, with allies abroad, to apprehend and jail regime authorities should they travel. While undoubtedly difficult to implement such a framework, if followed, it would add bite to America’s diplomatic bark.
  • Work with G7 partners to identity shared democracy advancement priorities and develop plans to pool funding to address them. The G7 offers an already established and proven mechanism for strong democracies to collaborate. Its members command more than 50 percent of global GDP and associated government resources, diplomacy, and foreign aid for advancing democracy and combatting authoritarian aggression. This group, or an expanded version of it (e.g., the D-10), can also work with NATO to ensure its strategic concept conveys the importance of protecting and promoting democracy.
  • Leverage our strongest bilateral partnerships—with the United Kingdom, Germany, Japan, South Korea, and others—by identifying shared priorities and devising plans to advance them. This can include supporting key regional allies to do more to advance democracy in their respective regions. The United States could, for example, help South Korea—which can finance foreign assistance work but does not yet have the infrastructure to execute projects—to identify priorities, ways to fund them, and mechanisms for advancing them.

Conclusion

Strengthening democracy will never trump immediate security concerns. However, failing to strengthen governance, even over the medium term, will lead to a repeat of many security challenges, from coups across Africa leading to unpredictable partnerships to terrorists launching attacks from semi-governed spaces. This paper outlines a measured proposal for supporting democracy in the places that matter most for US interests and in a manner that maximizes return on investment.

About the authors

Fellow

Patrick Quirk

Nonresident Senior Fellow

Freedom and Prosperity Center Scowcroft Center for Strategy and Security

Civil Society Conflict

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False promises: The authoritarian development models of China and Russia

By Joseph Lemoine, Dan Negrea, Patrick Quirk, Lauren Van Metre

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1    Atlantic Council’s Freedom and Prosperity Indexes, available at https://freedom-and-prosperity-indexes.atlanticcouncil.org/.
2    This paper benefited from review by or inputs from several senior-level experts as well as former officials. The author would like to extend his heartfelt thanks
to Robert Destro, professor of law, Catholic University of America and former assistant secretary of state for the Bureau of Democracy, Human Rights, and Labor (DRL) at the US Department of State during the Trump administration; Dan Negrea, senior director of the Atlantic Council’s Freedom and Prosperity Center and former State Department special representative for commercial and business affairs during the Trump administration; Ana Rosa Quintana-Lovett, senior director of policy at the Vandenberg Coalition, and former staff director for Western Hemisphere for House Foreign Affairs Committee Chairman Michael McCaul (R-TX); Bryan Sims, director of peacebuilding, Humanity United; Barbara Smith, vice president for peace programs at the Carter Center and former director, National Security Council, during the Obama administration; Jon Temin, vice president of policy and programs at the Truman Center for National Policy and Truman National Security Project, and former member of the Secretary of State’s Policy Planning Staff, during the Obama Administration; and Miles Yu, senior fellow and director of the China Center at Hudson Institute, and previously the China policy adviser to US Secretary of State Mike Pompeo during the Trump administration.
3    Atlantic Council’s Freedom and Prosperity Indexes, available at https://freedom-and-prosperity-indexes.atlanticcouncil.org/.
4    Carnegie Endowment for International Peace, “Global Protest Tracker,” https://carnegieendowment.org/features/global-protest-tracker.
5    Tess McEnery and Patrick Quirk, “Advancing Democracy Overseas—Not Isolationism—Protects American Interests,” The National Interest, February 23, 2024, https://nationalinterest.org/feature/advancing-democracy-overseas-%E2%80%93-not-isolationism-%E2%80%93-protects-american-interests-209611.
6    V-Dem Institute, Case for Democracy Conference Report, January 2022, https://www.v-dem.net/static/website/files/vdem_casefordemocracy_report.pdf.
7    Patrick Quirk and Owen Myers, Less Freedom, Weaker States, More Conflict: Can That Cycle Be Broken?, Atlantic Council, September 19, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/less-freedom-weaker-states-more-conflict-can-that-cycle-be-broken/.
8    V-Dem, Case for Democracy.
9    Joseph Lemoine, Dan Negrea, Patrick Quirk, and Lauren Van Metre, False Promises: The Authoritarian Development Models of China and Russia, Atlantic Council, January 11, 2024, https://www.atlanticcouncil.org/in-depth-research-reports/report/false-promises-the-authoritarian-development-models-of-china-and- russia/.
10    See, for example, International Republican Institute, “China’s Approach to Influencing Elections and Political Processes to Its Strategic Advantage,” February 15, 2024, https://www.iri.org/resources/chinas-approach-to-influencing-elections-and-political-processes-to-its-strategic-advantage/.
11    Patrick Quirk and Caitlin Dearing Scott, Maximizing US Foreign Aid for Strategic Competition, Atlantic Council, June 29, 2023, https://www.atlanticcouncil.org/ in-depth-research-reports/report/maximizing-us-foreign-aid-for-strategic-competition/.
12    Congressional Research Service, “Democracy and Human Rights in US Foreign Policy: Tools and Considerations for Congress,” January 4, 2024, https://crsreports.congress.gov/product/pdf/R/R47890.
13    Steven E. Finkel, Aníbal Pérez-Liñán, and Mitchell A. Seligson, “The Effects of US Foreign Assistance on Democracy Building, 1990-2003,” World Politics Review, 59, no. 3 (April 2007), p. 46, https://www.jstor.org/stable/40060164.
14    V-Dem Institute, “Democracy Report 2023: Defiance in the Face of Autocratization,” https://www.v-dem.net/documents/29/V-dem_democracyreport2023_ lowres.pdf.
15    Matthew Kroenig and Dan Negrea, We Win, They Lose: Republican Foreign Policy and the New Cold War (Washington, DC: Republic Book Publishers, 2024).
17    For a list of these directives, see the Federation of American Scientists website, https://irp.fas.org/offdocs/nspm/index.html.
18    A good example of this approach is USAID’s Powered by the People Initiative that USAID, in partnership with Humanity United, used to “provide flexible and accessible support that strengthens the agency, resilience, and efficacy of organizers and citizen-led social movements that are advancing human rights, social justice, democracy, and inclusive development around the world.” Humanity United, a philanthropic organization dedicated to cultivating the conditions for enduring peace and freedom, has committed $750,000 over three years toward Power by the People. For more information on this initiative, see: https://www.usaid.gov/news-information/press-releases/oct-16-2023-usaid-announces-45-million-support-efforts-advancing-human-rights-social-justice-democracy-and- inclusive-development#:~:text=PxP%20provides%20flexible%20and%20accessible,inclusive%20development%20around%20the%20world.
19    The strategies should include a clearly defined goal, as well as a theory of the case. The legislation could be modeled on the Global Fragility Act (GFA), which requires the executive to deliver a strategy for preventing violent conflict and promoting stability globally, and ten-year plans for achieving these aims in select priority countries. Unlike the GFA, however, the legislation proposed here need not require the executive to publicly release plans, given the sensitive nature of the content.
20    For a full set of recommendations on supporting nonviolent movements and countering authoritarianism, see Hardy Merriman, Patrick Quirk, and Ash Jain, Fostering a Fourth Democratic Wave: A Playbook for Countering the Authoritarian Threat, Atlantic Council, March 28, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/fostering-a-fourth-democratic-wave-a-playbook-for-countering-the-authoritarian-threat/.
21    International Republican Institute, “Political Parties Playbook: A Guide for Digitizing Party Operations,” January 11, 2023, https://www.iri.org/resources/political-parties-playbook-a-guide-for-digitizing-party-operations/.
22    For more information, see https://housedemocracypartnership.house.gov/about.
24    For an expanded set of these recommendations, see Patrick Quirk and Santiago Stocker, “Dealing with Hybrid Regimes: Pursuing U.S. Interests Without Giving them a Pass on Democracy,” Just Security, May 17, 2023, https://www.justsecurity.org/86604/dealing-with-hybrid-regimes-pursuing-us-interests-without-giving-them-a-pass-on-democracy/.
25     For a compelling take on how to do the same when leaders violate term limits, see Jon Temin, “When Leaders Override Term Limits, Democracy Grinds to a Halt,” Lawfare, October 29, 2020, https://www.lawfaremedia.org/article/when-leaders-override-term-limits-democracy-grinds-halt.

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]]> Caspian contributions to energy security in Europe https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/caspian-contributions-to-energy-security-in-europe/ Wed, 03 Jul 2024 17:44:15 +0000 https://www.atlanticcouncil.org/?p=776562 This issue brief explores the potential for Caspian region fossil fuel developments to meet Europe's energy needs, considering regional factors and challenges.

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]]> This issue brief examines the potential for new fossil fuel developments in the Caspian region to meet Europe’s energy needs. With increased regional interconnectivity, large fossil fuel resources, political support for fossil fuel development, and growth in domestic renewable energy generation, Caspian producers—namely Azerbaijan, Turkmenistan, and Kazakhstan—have the potential to meet this need on the timeline required. To do so, they must act on stated plans to increase natural gas production and tap domestic renewable energy sources. 

This brief also examines the regional factors in Southeast Europe, including gas flows, infrastructure changes, and market demand, which would affect Caspian fossil fuel supplies’ availability in Europe. Georgia, Turkey, Italy, and Southeast and Central Europe stand to directly benefit from Caspian gas via the Southern Gas Corridor. They can also serve as conduits of these supplies further north and west.  

However, economic and geopolitical factors could hinder the rapid production and export of additional supplies from the Caspian region. Raising finance for oil and gas projects has become difficult as international financial institutions and the European Commission seek to reduce fossil fuel investment. Moreover, while proposals on both sides of the Caspian for large-scale hydrogen export projects targeted at European markets are ambitious, the complexity of delivery means they may take years to mature. Azerbaijan’s military actions in Nagorno-Karabakh may also impact European willingness to increase energy reliance on Azerbaijan. By successfully navigating these obstacles, Caspian producers can further contribute to European energy security.

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AUTHOR

Fellow

John M. Roberts

Nonresident Senior Fellow

Global Energy Center

Energy & Environment

Julian Bowden
Senior Visiting Research Fellow
Oxford Institute for Energy Studies

ACKNOWLEDGEMENTS

The authors are on the advisory board of a project to lay a forty-eight-mile connector pipeline between the Petronas-operated Magtymguly field in Turkmenistan and gas-gathering facilities operated by BP in Azerbaijan’s ACG oilfield.

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]]> Doing as the Romans do: Recommendations for the infrastructure development agenda for Italy’s G7 presidency https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/doing-as-the-romans-do-recommendations-for-the-infrastructure-development-agenda-for-italys-g7-presidency/ Tue, 02 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=774988 The West's plans for infrastructure development, if done effectively, could be a strategic, economic, and geopolitical feat. The G7 now must take forward meaningful action to increase coordination and cooperation to turn this ambition into reality.

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]]>
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Table of contents

Introduction
The geopolitics of infrastructure
The economic realities
Coordination of project identification and implementation
Recommendations
Conclusion

Introduction

Infrastructure development is a central component of the West’s global engagement strategy. This effort, if done effectively, could be a strategic, economic, and geopolitical feat. The development of sustainable and secure infrastructure carries the potential to create economic prosperity for countries aspiring to move up the global value chain, support the world’s green transition, provide an alternative to China’s exploitative investments, and strengthen the Western-led order.

The Group of Seven (G7) countries have varying plans for infrastructure development in cooperation with various partners around the globe, with particular focus on the Global South. Launched in 2022, the G7’s Partnership for Global Infrastructure and Investment (PGII) aims to mobilize $600 billion in capital for development projects by 2027.1 In Europe, the European Union’s (EU) Global Gateway will invest 300 billion euros by 2027 in global infrastructure projects on behalf of the bloc.2 Italy’s Mattei Plan, launched in January 2024, brings a direct focus on infrastructure development in Africa.3 Further abroad, the Group of Twenty (G20) partners signed the India-Middle East-Europe Economic Corridor (IMEC) memorandum in 2023, which aims to directly counter China’s Belt and Road Initiative (BRI) and cut down transit time between India and Europe.4

These initiatives are a good start. However, all G7 members face various challenges that could ultimately hamper progress on these initiatives, most notably: geopolitical challenges, limited funds, skittishness from private sector investors, and lack of coordination. For these initiatives to have a lasting impact, the G7 and likeminded partners must closely coordinate to both avoid and overcome these pitfalls.

Some efforts to better coordinate development projects have already begun. Along with its investments and focus on leveraging private capital, the United States led in the creation of the Blue Dot Network, “a multilateral initiative aimed at advancing robust standards for global infrastructure and mobilizing investment for projects in developing countries.”5 In addition, the US-EU Trade and Technology Council (TTC) has launched coordinated connectivity projects between the United States and the EU in third countries including Kenya, Costa Rica, Jamaica, the Philippines, and Tunisia.6

Holding the G7 presidency for 2024, Italy has made infrastructure development and strengthening relations with the Global South, and in particular Africa, central to its priorities. The 2024 G7 Leaders’ Summit in Apulia, Italy, in June 2024 again reaffirmed the group’s commitment to PGII and investments across Africa, with announcements including the creation of a secretariat to coordinate investments and aid information sharing and a greater shared focus on unlocking investment for green infrastructure projects.7

Now, G7 countries must focus on transforming the summit’s conclusions into reality and making real progress on development coordination. This issue brief provides an actionable set of recommendations to advance the G7’s ambitions.8 It examines the geopolitical impetus for infrastructure development, the economic realities of infrastructure, and the state of coordination on project implementation before providing recommendations to take forward for the rest of Italy’s G7 presidency and beyond.

The geopolitics of infrastructure

The G7’s focus on development is rooted in the shared understanding that G7 countries must fundamentally reset relations with the Global South. Historically, countries in the Global South, particularly in Africa, have been on the receiving end of unfair and extractive relationships with the West.

The result has been growing mistrust and disillusionment, and many countries now view China as a better partner than Europe or the United States. A 2022 study conducted by the University of Cambridge noted that around seventy percent of people not living in liberal democracies held positive views of China, and those in the developing world held more favorable views of China than of the United States.9 Another 2023 survey saw China’s approval rating in Africa rise to its highest levels in a decade, with ten-point increases in some countries.10

On infrastructure development specifically, China has outcompeted the West for years. China’s outreach to the Global South has been generally successful, and the BRI has evolved into an established brand. For example, in 2021 China pledged $40 billion over three years to Africa (though this was a reduction from an earlier pledge of $60 billion), and Beijing has out-invested the United States in Africa every year since 2013.11 Though Chinese investments have yet to surpass their pre-pandemic heights, China’s rate of investment is again rising, and Africa was the largest recipient of BRI investment in 2023.12 In part, as a result, Beijing is also poised to overtake Europe’s total trade with Africa by 2030.13

There are downsides to partnering with China, however. Its values-ambivalent approach is not built for sustainability and comes with a well-documented debt trap. For example, Zambia, which had more than 50 percent of its foreign loans from China, went into default and was unable to afford interest payments on loans financing construction projects in the country including ports, mines, and power plants (though China and Zambia have agreed to a restructuring of Zambia’s debt).14 Similarly, in Kenya, the government held back paychecks to its civil-service workforce to save cash to pay foreign loans.15

G7 countries are making progress on closing this partnership gap with China. Leaders at the Apulia Summit reaffirmed their ambition to meet the spending target of $600 billion by 2027, and the summit’s conclusions have a clear focus on infrastructure development, including with an announcement of a secretariat to facilitate the coordination of development projects.16 Leaders made further announcements at a side event where Italy joined the US- and EU-led consortium on projects in the Lobito Corridor in southern Africa, and Western companies like Microsoft and Blackrock pledged more investments across Africa and beyond.17

The summit also saw the participation of countries including Algeria, Brazil, Kenya, and Tunisia, among others—something Prime Minister Georgia Meloni lauded as delivering on a pledge to make outreach to the Global South a cornerstone of Italy’s G7 presidency.18

The summit also highlighted that the West’s values-based approach can be a strategic asset to building sustainable global partnerships. A focus on good governance and environmental and labor standards allows for long-term success and, in turn, economic growth. The G7 recognizes the importance of engaging with Africa specifically, with the 2024 Communiqué positioning the PGII, the Global Gateway, and the Mattei Plan as frameworks to “promote [the West’s] vision of sustainable, resilient, and economically viable infrastructure in Africa underpinned by transparent project selection, procurement, and finance.”19

This is a good start, but there is still room for improvements. Some of the West’s recent outreach has received similar criticisms to previous efforts, for example, failing to consult the very countries these efforts are meant to engage. In particular, African leaders noted Italy failed to consult them before announcing the Mattei Plan.20 Moreover, the West’s tedious approach to infrastructure development can be perceived as an obstacle, not an asset, especially if it is not applied consistently.21

G7 countries should make greater efforts to convene with PGII partners in the region including the private sector, civil society, and government—to sustain debate and discussion about the West’s ambitions and the reasoning behind its values. At the same time, more regular and targeted engagements can, in turn, expose Western public and private financial institutions to the realities of partner markets and address the misconceptions of perceived risks. It’s a win-win for both sides. Where possible, the framing should be adapted to showcase the importance of the long-term sustainability of projects, especially compared to the non-durability of Chinese infrastructure. This engagement will also be a useful tool to address criticisms that Western initiatives are organized without the feedback and involvement of partner countries.

Finally, while competition with China will be a defining element of Western global infrastructure projects, geopolitics cannot eclipse all else. Recipient countries are looking for projects for their benefit to move up the global value chain and to spur domestic growth—not to be a pawn in other parties’ geopolitical rivalries. States can and have the option to accept projects from different sources, including from China. In response, policymakers should be cognizant that countries might be interested in partnering with both China and the West, and should not be forced into a binary, mutually exclusive choice of one or the other.

It will be important, then, for transatlantic policymakers to work out how to both compete against and partner with China. This will be critical specifically in the area of information and communications technology (ICT) development, where using “untrustworthy” vendors has been an area of focus. Policymakers should be clear about where and when non-G7 countries are involved in projects, and in what respects that will not preclude partnership.

The economic realities

Geopolitics may be a key impetus for development initiatives, but policymakers must also contend with economic realities that have long-plagued development projects. Economic stability in recipient countries is important for investments, but that stability is not always a luxury the West can expect. The International Monetary Fund’s regional economic outlook from spring 2024 for sub-Saharan Africa, for example, notes “the fiscal position of many sub-Saharan African countries has deteriorated, a trend exacerbated by repeated shocks and the ensuing demand for fiscal support,” which adds to political and economic uncertainty.22 The cost of borrowing for African states is also four to eight times higher than for Western countries, making raising capital prohibitive.23

The reality is that currencies can collapse and interest rates can rise, but the need and opportunities for investments will remain. The West, therefore, cannot wait to invest in projects until after implementing structural reforms to partner states’ finances and economies.

G7 countries, the United States in particular, have stressed the importance of the private sector to achieve its financing goals. The Apulia Summit placed additional emphasis on the necessity of private-sector capital for the success of PGII. Side events on the PGII have taken place at every G7 summit since the PGII was announced, and since 2023, have prominently featured participation from major investors and companies including Citi, Nokia, Global Infrastructure Partners, Blackrock, and Microsoft—usually with investment announcements in tow.24 Policymakers should appreciate and foster a bottom-up approach to project identification from the private sector and its appetite to invest.

However, leveraging private capital to help fund infrastructure projects comes with its own challenges. Investments into large-scale infrastructure projects are inherently risky, and shaky local markets only add to the unease felt by private-sector investors as currency devaluations risk erasing investments.

G7 members will therefore need to play a greater role, in some form, as guarantors of investments to help reduce the cost of borrowing and alleviate some of the risk. This comes with its own difficulties, as unlocking government-backed funds is not a straightforward process. Certain firms may not be eligible for funding depending on where they are located. And while it makes sense for European taxpayer funds to go to European firms, for instance, multinational firms can become caught up in the bureaucratic web, impeding their involvement with investment projects. Nevertheless, governments must figure out how to play a role here. The European Union, for instance, has a AAA credit rating, and can take on the role of a guarantor for private-sector investment.25 The US International Development Finance Corporation (DFC) has provided political-risk insurance up to $25 million for investments in Ukraine.26 The case of Ukraine is not a one-to-one comparison to investments in the Global South, but offers a useful example to consider. This is not meant to provide a blank check to the private sector for risky investments. However, investment projects cannot wait for long-term structural reforms that will impact geoeconomic changes like foreign-exchange rates. Instead, investors need to work within current economic realities.

Greater efforts are also needed to address change Western misconceptions of African markets and perceived risks that may not truly reflect realities on the ground. The metrics used by the West to measure projects, specifically environmental, social, and governance (ESG) standards, do not always have as strong a foothold in recipient countries, making investment look riskier or undesirable. Balancing the focus to communicate the impetus for these metrics—while maintaining a degree of flexibility and not completely sacrificing all ESG baselines—will be an important needle for policymakers and investors to thread.

Coordination of project identification and implementation 

Shared project standards are an opportunity for greater coordination. The 2023 Hiroshima G7 summit provided a starting point, highlighting forty projects of common interest.27 Italy’s G7 presidency looked to further this effort. As Meloni outlined at the G7 summit side event focusing on the PGII, Italy’s ambition was to create “structured synergies and coordinated activities to maximize efforts and investments” between G7 members’ various projects.28

The 2024 Apulia Summit specifically pledged greater effort at coordination through three prongs: establishing a secretariat “for effective implementation and investment coordination with partners,” supporting investment platforms to “enhance information sharing, transparency, and public policies on investments in Africa,” and working in particular on green investments in Africa.29 These efforts are all good starts, but they remain wide in their ambition and vague in actual substance.

Coordination on project identification should be an early priority for the PGII secretariat. As G7 countries and the private sector will necessarily look to identify more of these projects, it will be useful to have shared criteria for projects to meet quality and sustainability standards. A shared understanding of what projects G7 members are looking to support, and metrics to assess projects, would also help the private sector in more easily identifying projects in which to invest. The Blue Dot Network is a good starting point for this effort, but so far only a few European G7 countries are on its steering committee.

Additionally, coordination between the United States and the EU through the TTC to support connectivity projects provides another useful starting point for this effort. Established in 2021, the TTC has become the backbone of this US administration’s efforts to strengthen its relationship with Brussels. Despite its initially limited scope, it has morphed into a clearinghouse for discussions not only on transatlantic trade and technology coordination, but also on sanctions against Russia and support for projects in third countries to support internet connectivity.30 Supporting connectivity projects at the TTC is useful, but it is limited to smaller projects. Taking coordination from the TTC to the G7 level would allow participation and coordination with countries like the United Kingdom and Japan.

In terms of project selection and implementation, the G7 must also ensure money is available for maintenance, and enough staff is available to follow-up and to make projects sustainable. Ongoing efforts must leverage available funding not just to start projects, but to fund them through their full cycle, and staff them at a level that supports medium- to long-term maintenance. Often, this will include building relationships with on-the-ground in-country partners, and then training and subsequently employing local civilians to shoulder these responsibilities. It is simply not feasible for European, US, Japanese, British, or Canadian project managers to shoulder this burden. In this respect, it is equally important to get buy-in from national and local governments in recipient countries. Locals with knowledge about projects, communities, and factors on the ground will be critical to the maintenance and durability of such projects. The G7 conclusions rightly noted the importance of working with local partners. Now, a secretariat should take forward that effort in earnest.

Maintenance also means investing in skills. This is just as important for implementation and maintenance as investing in technology or brick-and-mortar buildings. Project identification must not look past the funds and time needed to train partners on the ground. For G7 members it will be important, especially on projects in which the United States and EU are involved, to standardize, de-duplicate, or divide training efforts.

Recommendations

At the 2024 Apulia summit, G7 countries made some progress on global infrastructure development in the context of the PGII. Implementation must now follow pronouncements. Italy should lead through the rest of its G7 presidency to see that real progress is made and to ensure this remains a priority in forthcoming summits (much like the role Japan played on artificial intelligence), and each G7 member must also work to meet its national commitments. To make greater coordination a reality, the G7 should undertake the following recommendations.

  • Expand the Blue Dot Network Steering Committee. The European Union and/or all EU member states that are part of the G7—Italy, Germany, and France—should join the Blue Dot Network. The Blue Dot Network’s steering committee is currently composed of Australia, Japan, Spain, Switzerland, Turkey, the United Kingdom, and the United States (Canada, Czechia, and Peru are network members and do not contribute funds).31 All G7 members, and the EU, should become members of the steering committee. European membership in the Blue Dot Network should not be limited just to G7 EU members, and the EU could take on a role representing all EU member states.
  • Invest in the PGII secretariat and commit to the adequate staffing of development institutions. A PGII secretariat can serve as an important hub for coordination, but it must be staffed adequately. G7 countries should assign national-level envoys to the secretariat, or at least fold them into the offices responsible, such as IMEC. Much of the work to take forward the agreements at the G7 will also fall to domestic institutions and development finance institutions. However, staffing and financing shortages have limited their effectiveness. G7 members should pledge a benchmark for spending on development financing.
  • Establish regular convenings in or with partner countries. G7 members should commit to hosting regular meetings with partners and their private sectors, civil societies, and governments. The Hiroshima G7 meeting highlighting the PGII was a good start, but the initiative should now be further developed with a partner-first mindset. G7 member officials should host annual meetings in partner countries to make the case for the West’s efforts. This would signal a departure from the West’s historically paternalistic approach to engagements with African partners, and the Global South generally. Outreach and consistent engagement at the ambassadorial level would also be useful.
  • Identify which third countries can take part in which projects. Currently, there is no clear framework for which third countries can take part in specific development projects or what limits exist to partnering with third countries, including those like China. Where issues like human rights and national security come into play, G7 countries may differ in their strategies for engaging with third countries. At the same time, there should be clearer frameworks for private companies and governments in terms of in which projects each can take part.
  • Build in long-term maintenance and implementation of projects at the development stage. Projects should begin with the end in mind. If there is no way to measure success or to educate and employ local populations, these projects will turn into basic assistance with no longevity. G7 countries should agree that investment projects under the PGII umbrella should mandate a long-term implementation and maintenance plan with substantial involvement and buy-in from the partner country. Countries want economic success and want to move up the global value chain; they don’t want to be seen as mere development recipients. It is up to the G7 to ensure such upward movement happens.
  • Map and publish all PGII-related projects. The PGII secretariat should map out all investments under the PGII umbrella, along with projects of interest. This could serve as a clearing house, especially for the private sector to identify opportunities for investment. This would also create a strong public relations tools showcasing the West’s impact and investment footprint. This effort could also be utilized to facilitate the submission of new investment projects by the private sector and potentially lead to consolidated funding for joint investments promoted or pursued by G7 members.

Conclusion

Giorgia Meloni called the dialogue around the PGII “one of the most significant achievements of the G7” to deliver “concrete action” to Africa and the Global South.32 The G7 has made progress, but such a conclusion is premature. The G7 is well on its way to turning its ideas and visions for new partnerships with the Global South into action. Putting the resources and people behind those visions will ensure that they come to life.

About the authors

James Batchik is an associate director at the Atlantic Council’s Europe Center, where he supports programming on the European Union, the United Kingdom, Germany, Italy, and the center’s transatlantic digital and tech portfolio.

Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center. Her research focuses on European security, NATO, and the transatlantic relationship.

Nick O’Connell is the deputy director for public sector partnerships at the Atlantic Council. He also contributes regularly to the Atlantic Council’s Italy project, a collaboration between the Europe Center and Middle East Programs.

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1    “President Biden and G7 Leaders Formally Launch the Partnership for Global Infrastructure and Investment,” White House, June 26, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/26/fact-sheet-president-biden-and-g7-leaders-formally-launch-the-partnership-for-global-infrastructure-and-investment/.
2    “Global Gateway: Up to €300 Billion for the European Union’s Strategy to Boost Sustainable Links around the World,” European Commission, December 1, 2021, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6433.
3    Alissa Pavia, “Italy’s Mediterranean Pivot: What’s Driving Meloni’s Ambitious Plan with Africa,” Atlantic Council, February 5, 2024, https://www.atlanticcouncil.org/blogs/new-atlanticist/italys-mediterranean-pivot-whats-driving-melonis-ambitious-plan-with-africa/.
4    “World Leaders Launch a Landmark India-Middle East-Europe Economic Corridor,” White House, September 9, 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/09/09/fact-sheet-world-leaders-launch-a-landmark-india-middle-east-europe-economic-corridor.
5    “Blue Dot Network,” US Department of State, last visited May 29, 2024, https://www.state.gov/blue-dot-network/.
6    “U.S.-EU Joint Statement of the Trade and Technology Council,” White House, April 5, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/04/05/u-s-eu-joint-statement-of-the-trade-and-technology-council-3/.
7    “G7 Apulia Leaders’ Communiqué,” G7 Italia, June 14, 2024, https://www.g7italy.it/wp-content/uploads/Apulia-G7-Leaders-Communique.pdf.
8    This issue brief has been adapted from a policy memo drafted following a private workshop hosted by the Atlantic Council’s Europe Center, in partnership with Citi and the Centro Study Americani, in April 2024 in Rome to discuss G7 coordination on infrastructure development projects. This workshop convened government officials, private-sector representatives, and policy experts from Italy, Egypt, Nigeria, Brussels, and the United States to discuss how policymakers can align investment and development plans.
9    Roberto Stefan Foa, et al., “A World Divided: Russia, China and the West,” Bennett Institute for Public Policy, University of Cambridge, October 2022, 2, https://www.repository.cam.ac.uk/handle/1810/342901.
10    Benedict Vigers, “U.S. Loses Soft Power Edge in Africa,” Gallup, April 26, 2024, https://news.gallup.com/poll/644222/loses-soft-power-edge-africa.aspx.
11    David Pilling and Kathrin Hille, “China Cuts Finance Pledge to Africa amid Growing Debt Concerns,” Financial Times, November 30, 2021, https://www.ft.com/content/b7bd253a-766d-41b0-923e-9f6701176916; “Chinese FDI in Africa Data Overview,” China Africa Research Initiative, 2024, https://www.sais-cari.org/chinese-investment-in-africa.
12    Christoph Nedopil Wang, “China Belt Road Initiative BRI Investment Report 2023,” Griffith Asia Institute at Griffith University (Brisbane) and Green Finance & Development Center at FISF Fudan University (Shanghai), February 2024, https://greenfdc.org/wp-content/uploads/2024/02/Nedopil-2024_China-BRI-Investment-Report-2023.pdf.
13    “A New Horizon for Africa-China Relations: Why Co-Operation Will Be Essential,” Economist Intelligence Unit, 2022, 2, https://www.eiu.com/n/campaigns/a-new-horizon-for-africa-china-relations/.
14    Joseph Cotterill, “Zambia says it has signed debt restructuring deal with China and India,” Financial Times, February 24, 2024, https://www.ft.com/content/5d97562f-b7a0-430b-a9e0-beb695a54f27.
15    Bernard Condon, “China’s Loans Pushing World’s Poorest Countries to Brink of Collapse,” Associated Press, May 18, 2023, https://apnews.com/article/china-debt-banking-loans-financial-developing-countries-collapse-8df6f9fac3e1e758d0e6d8d5dfbd3ed6.
16    “G7 Apulia Leaders’ Communiqué.”
17    “Partnership for Global Infrastructure and Investment at the G7 Summit,” White House, June 13, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/06/13/fact-sheet-partnership-for-global-infrastructure-and-investment-at-the-g7-summit-2/.
18    “Press conference of the Italian G7 Presidency,” G7 Summit, 2024, https://www.youtube.com/watch?v=q13U7uHMzU0; Federica Pascale, “Global South to Be at the Core of next Year’s G7 Summit in Italy,” Euracrtiv, May 22, 2023, https://www.euractiv.com/section/politics/news/global-south-to-be-at-the-core-of-next-years-g7-summit-in-italy/.
19    “G7 Apulia Leaders’ Communiqué.”
20    Nosmot Gbadamosi, “Italy’s Energy Deal Faces Backlash in Africa,” Foreign Policy, February 7, 2024, https://foreignpolicy.com/2024/02/07/italys-energy-deal-faces-backlash-in-africa/.
21    See, for example, criticism regarding the EU’s memorandum of understanding signed with Rwanda in February 2024 on the supply of critical raw materials. Despite the EU’s stated focus on ESG standards in the agreement, Rwanda is noted to have been benefitting from exporting materials trafficked from neighboring countries mired by conflict. Lorraine Mallinder, “‘Blood Minerals’: What Are the Hidden Costs of the EU-Rwanda Supply Deal?” Al Jazeera, May 2, 2024, https://www.aljazeera.com/features/2024/5/2/blood-minerals-what-are-the-hidden-costs-of-the-eu-rwanda-supply-deal.
22    “Regional Economic Outlook. Sub-Saharan Africa: A Tepid and Pricey Recovery,” International Monetary Fund, April 2024, https://www.imf.org/en/Publications/REO/SSA/Issues/2024/04/19/regional-economic-outlook-for-sub-saharan-africa-april-2024.
23    A World of Debt: A Growing Burden to Global Prosperity,” UN Global Crisis Response Group, July 2023, https://unctad.org/publication/world-of-debt#.
24    “Partnership for Global Infrastructure and Investment at the G7 Summit;” “Partnership for Global Infrastructure and Investment at the G7 Summit,” White House, May 20, 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/20/fact-sheet-partnership-for-global-infrastructure-and-investment-at-the-g7-summit/.
26    Adva Saldinger, “US DFC Looks to Protect Risky Investments, Even in Ukraine,” Devex, April 9, 2024, https://www.devex.com/news/devex-invested-us-dfc-looks-to-protect-risky-investments-even-in-ukraine-107424.
27    “Factsheet on the G7 Partnership for Global Infrastructure and Investment,” Ministry of Foreign Affairs of Japan, May 2023, https://www.mofa.go.jp/files/100506918.pdf.
28    “Side Event on the G7 Partnership for Global Infrastructure and Investment,” 2024 G7 Summit, June 13, 2024, https://www.youtube.com/watch?v=y3Po7AZ8Vf0.
29    “G7 Apulia Leaders’ Communiqué.”
30    Frances Burwell, “In This Year of Elections, the US-EU Trade and Technology Council Should Get Strategic,” Atlantic Council, March 26, 2024, https://www.atlanticcouncil.org/blogs/new-atlanticist/in-this-year-of-elections-the-us-eu-trade-and-technology-council-should-get-strategic/.
31    “The Blue Dot Network Begins Global Certification Framework for Quality Infrastructure, Hosted by the OECD,” Organisation for Economic Co-operation and Development, April 9, 2024, https://www.oecd.org/newsroom/the-blue-dot-network-begins-global-certification-framework-for-quality-infrastructure-hosted-by-the-oecd.htm.
32    “Press conference of the Italian G7 Presidency.”

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]]> Strengthening Taiwan’s resiliency https://www.atlanticcouncil.org/in-depth-research-reports/report/strengthening-taiwans-resiliency/ Tue, 02 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=776535 Resilience is a nation’s ability to understand, address, respond to, and recover from any type of national security risk. Given the scale of risk Taiwan faces from mainland China, domestic resilience should be front and center in Taiwan’s national security strategy, encompassing areas such as cybersecurity, energy security, and defense resilience.

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Introduction

This report recommends actions for the new leadership of Taiwan to take to enhance its societal resilience against Chinese aggression in the context of both “gray zone” conflict and wartime attacks. The report focuses on establishing a comprehensive security strategy and analyzes three key areas particularly important for effective resilience: enhancing cybersecurity for critical infrastructures; improving energy security; and accelerating defense transformation.

The new administration of Lai Ching-te faces both existing resilience challenges and the potential for significantly greater problems if the People’s Republic of China (PRC) pursues expanded gray zone activities or if actual conflict occurs.1 The ongoing challenges include substantial disinformation campaigns, cyberattacks, military incursions, and periodic economic coercion. Potential future challenges could involve expansion of one or more of these ongoing Chinese activities. In the context of a more contested environment such as a quarantine,2 blockade, or a kinetic conflict, Chinese actions could seek to cause leadership failures and loss of social cohesion; undertake cyberattacks to target critical infrastructures; generate energy shortages; and seek to defeat Taiwan militarily before the United States could provide effective support. The potential for such harms substantially increases the importance of resilient responses by Taiwan.

The report recommends four major sets of actions to enhance Taiwan’s resilience:

  1. Establish a comprehensive security strategy that engages government, the private sector, and individuals in cooperative efforts to ensure all facets of resilience including:
    1. Risk analyses and priority requirements.
    2. Organization of data relevant to responding to challenges from the PRC.
    3. Development of expertise in key areas required for response.
    4. Provision of governmental leadership and activation of the whole nation as part of a comprehensive approach.
  2. Enhance cybersecurity by establishing:
    1. Off-island, cloud-based capabilities to duplicate governmental and other critical functions.
    2. Working arrangements with high-end, private-sector cybersecurity providers.
    3. A surge capability of cybersecurity experts.
    4. Regular engagement with US Cyber Command’s Hunt Forward program.
    5. Alternatives to undersea cables through low-earth orbit (LEO) communications satellites.
  3. Bolster energy security resilience by:
    1. Rationalizing—that is, increasing—energy prices, especially for electricity.
    2. Supporting indigenous supply, including nuclear energy.
    3. Prioritizing energy needs.
    4. Dispersing and hardening energy storage facilities.
    5. Preparing comprehensive rationing plans for energy.
  4. Enhance defense resilience by:
    1. Continuing the trend of higher defense spending to at least 3 percent of gross domestic product (GDP).
    2. Leveraging Taiwan’s strength in high tech manufacturing and shipbuilding to accelerate the development of a Ukraine-style, public-private “capability accelerator”3 for emerging technologies.
    3. Fielding low-cost, high-effectiveness capabilities including unmanned surface vessels, unmanned aerial vehicles, and naval mines.
    4. Incorporating training in emerging technologies and unconventional tactics for conscripts and reserves.
    5. Investing in East Coast port infrastructure as counterblockade strongholds.
    6. Raising the All-out Defense Mobilization Agency (ADMA) to the national level and implementing a larger civil defense force that fully integrates civilian agencies and local governments.

Establish a comprehensive security strategy

Resilience is not a new theme in Taiwan. Former President Tsai Ing-wen, who completed two terms in office on May 20, entitled her 2022 National Day Address “Island of Resilience,”4 and similarly identified resilience as a key factor for Taiwan in her two subsequent National Day addresses.5 “The work of making the Republic of China (Taiwan) a more resilient country is now our most important national development priority,” she stated in that 2022 speech, in which she articulated four key areas of  resilience: economy and industry, social safety net, free and democratic government system, and national defense. What is left undone, however, is aligning these and other resilience elements into a comprehensive security strategy similar to those undertaken by Finland6 and Sweden,7 which utilize a whole-of society approach to enhance resilience.

Resilience is a nation’s ability to understand, address, respond to, and recover from any type of national security risk. Given the scale of risk Taiwan faces from China, domestic resilience should be front and center in Taiwan’s national security strategy.8 Comparable comprehensive national security approaches, such as the Finnish model, aim to foster and enable an engaged national ecosystem of partners, each with a clear understanding of their roles and responsibilities. Finland’s model is instructive, underscoring the importance of engagement by the entire society:

  • The Security Strategy for Society lays out the general principles governing preparedness in Finnish society. The preparedness is based on the principle of comprehensive security in which the vital functions of society are jointly safeguarded by the authorities, business operators, organisations and citizens.9

Comprehensive security thus is far more than just government activities:

  • Comprehensive security has evolved into a cooperation model in which actors share and analyse security information, prepare joint plans, as well as train and work together. The cooperation model covers all relevant actors, from citizens to the authorities. The cooperation is based on statutory tasks, cooperation agreements and the Security Strategy for Society.10

The Finnish strategy identifies seven “vital functions” as key areas: leadership; international and European Union activities; defense capability; internal security; economy, infrastructure, and security of supply; functional capacity of the population and services; and psychological resilience.11

Taiwan has taken a variety of actions to enhance resilience including the establishment in 2022 of the All-out Defense Mobilization Agency.12 That agency has a useful but limited scope with its mandate of “comprehensive management of ‘planning for mobilization, management, service, civil defense, [and] building reserve capacity.’ ”13 But while defense is important (and further discussed below), as the Finnish and Swedish strategies underscore, Taiwan should expand its approach to resilience to include the full spectrum of governmental, private sector, and individual tasks—and the necessary cooperative efforts to make them most effective.

President Lai’s recent election ushered in an unprecedented third consecutive term for the Democratic Progressive Party.14 This outcome not only provides continuity in the agenda set by the island’s duly elected leader, but also presents an opportunity to sharpen the focus areas for resilience. As Taiwan transitions to a Lai presidency, the challenge of shoring up the island’s resilience should be at the forefront.

As a valuable starting point for establishing such an expanded resilience strategy, the Lai government should undertake extensive consultations with both Finland and Sweden—which could be facilitated as necessary by the United States. Taiwan should also seek to engage with the Hybrid Center of Excellence, based in Finland, which is an “autonomous, network-based international organization countering hybrid threats.”15

The discussion below describes several important elements of a comprehensive resilience strategy, and it will be a crucial task for the Lai administration to expand Taiwan’s current efforts to the full scope of such an approach. Resilience is a team game with the whole of society playing a role. But only Taiwan’s central government can act as the team captain, setting expectations, establishing priorities, formulating and communicating national strategy, and coordinating activities. Only leaders in national-level government can oversee the critical work of developing institutional effectiveness in key areas of risk management and resilience.

As a starting point, Taiwan should undertake a comprehensive audit now to uncover any gaps in the country’s ability to understand, respond to, and recover from both the chronic risks it currently faces and any more acute manifestations of PRC aggression in the future. Taiwan’s government should examine the following areas to pursue greater resilience:

  1. Activating the whole nation: Working with the private sector and local government, and communicating to households are essential to develop a truly comprehensive approach to Taiwan’s resilience.
  2. Understanding risk: Developing a set of scenarios that will help prioritize activities across government and beyond. Prioritizing is critical where resources are limited—as is identifying areas of cross-cutting work that can help to reduce risk in multiple scenarios.
  3. Building data capacity: Laying a foundation for data exploitation needs will be critical for Taiwan, which will need this capacity both ahead of and during any crisis response. Preparing for and providing this capacity is not just the preserve of government, as commercially available and industry data sources will provide critical insights. Planning to access, receive, store, and process this data needs to start early, as the foundations for technical infrastructure, capabilities, data-sharing policies, and data expertise in government all require time and cannot just be activated on the cusp of crisis. Part of this work entails developing scenarios to help analysts map out gaps in information sources (intelligence, open source, commercial, and from allies) that Taiwan will likely need in each circumstance to build situational awareness. Ahead of and during crisis, risk assessment and effective decision-making will be highly dependent on the availability, quality, and usability of intelligence, information, and data.
  4. Expanding its network of professional skills and resources: Assessing the range of skills and the levels of resourcing needed in government to manage a long-term crisis posture should start well ahead of any crisis. It would be helpful to look now at the gaps in key areas of professional expertise: analysts, data experts, crisis-response professionals, and operational planners will all be needed in larger numbers to sustain an effective response. Taiwan will also need professionally administered and well-exercised crisis facilities, resilient technical infrastructure, and business continuity approaches in place.
  5. Preparedness and planning: Thinking through potential impacts of crisis scenarios in advance and working up potential policy and operational responses will bolster the quality of adaptability, which is an essential component of resilience. The process of exercising and refining plans is also helpful to build the professional connections and networks that will be activated during a live response.

Working with countries that are already developing vanguard resilience capabilities could help Taiwan quickly establish a workable model. For example, the United Kingdom’s National Situation Centre16—built in less than a year during the COVID-19 pandemic—is a model of developing access to critical data in peacetime and lessons learned from previous crisis scenarios about the practical challenges a nation could face in a variety of scenarios. Many commercial providers offer competent ways of displaying data insights on dashboards, and while this is helpful, it is only part of what can be achieved.

As a model for its broader resilience requirements, Taiwan will have the benefit of its existing efforts including in the counterdisinformation arena, where it has programs as effective as any in the world, despite the fact that Taiwan consistently faces the world’s highest volume of targeted disinformation campaigns.17 The saturation of PRC information manipulation across Taiwan’s traditional and social media platforms is strategically designed to undermine social cohesion, erode trust in government institutions, and soften resistance to Beijing’s forced unification agenda, while sowing doubts about America’s commitment to peace and stability in the region. 

Taiwan has developed a multifaceted strategy to combat this onslaught, eschewing heavy-handed censorship in favor of promoting free speech and empowering civil society. This approach serves as a beacon for other democracies, demonstrating how to effectively counter disinformation through rapid-response mechanisms, independent fact-checking, along with widespread media literacy initiatives. Collaborative efforts such as the Taiwan FactCheck Center, Cofacts, and MyGoPen have proven instrumental in swiftly identifying and debunking false rumors, notably during the closely watched presidential election on January 13.18

Taiwan’s Minister of Digital Affairs (MoDA) attributes the island’s success in combating this “infodemic” to its sophisticated civil-sector efforts, which avoids reliance on reactive takedowns of malicious content akin to a game of whack-a-mole. Much like its handling of the pandemic—where Taiwan achieved one of the world’s lowest COVID-19 fatality rates without resorting to draconian lockdowns—it has demonstrated resilience and innovation in the digital sphere.19

Taiwan’s response to disinformation demonstrates that it is well-positioned to establish a comprehensive approach to societal resilience. The discussion below describes several important elements of a comprehensive resilience strategy, but it will be a crucial task for the Lai administration to expand Taiwan’s current efforts to the full scope of such an approach.

Cybersecurity and critical infrastructure resilience

Cyber risks to critical infrastructures

Like all advanced economies, Taiwan depends on its critical infrastructures. Critical infrastructures have been described as “sectors whose assets, systems, and networks, whether physical or virtual, are considered so vital . . .  that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety.”20 Since several critical infrastructures are interlinked, it is important in evaluating resilience to “capture cross-cutting risks and associated dependencies that may have cascading impacts within and across sectors.”21 Among those interlinked critical infrastructures are energy, communications, transportation, and water. Each of these are critical to society as a whole and each are dependent on digital technology for their operations.

In Taiwan, the Administration for Cyber Security has identified critical infrastructures “by their feature types into the following eight fields: energy, water resource, telecommunications, transportation, banking and finance, emergency aid and hospitals, central and local governments, and high-tech parks.”22 It is worth underscoring that several of Taiwan’s critical infrastructures, such as the electric grid23 and the water system,24 are significantly centralized or have other notable vulnerabilities such as the dependency on undersea cables for international communications25 that increase the potential consequences from a successful cyberattack.

The Taiwan government has fully recognized the significant risks from cyberattacks. As described by Taiwan’s Administration for Cyber Security, “Due to Taiwan’s unique political and economic situation, the country faces not only a complex global cyber security environment but also severe cyber security threats, making the continuous implementation and improvement of cyber security measures a necessity.”26

The number of cyberattacks against Taiwan is notable.27 Published estimates range from five million cyberattacks per day against Taiwanese government agencies28 to the detection of 15,000 cyberattacks per second, including attempted intrusions, in Taiwan during the first half of 2023.29

The attacks often focus on key societal infrastructures. A recent Voice of America report noted that just prior to the January 2024 elections:

  • Most of the attacks appeared to focus on government offices, police departments, and financial institutions, with the attackers focused on internal communications, police reports, bank statements and insurance information.30

Google researchers have likewise described the cyber threat to key critical infrastructures, revealing that it is “tracking close to 100 hacking groups out of China [and that these] malicious groups are attacking a wide spectrum of organizations, including the government, private industry players and defense organizations.”31

The attacks themselves are often relatively sophisticated. Trellix, a cybersecurity firm, described multiple techniques utilized by attackers that “focused on defense evasion, discovery, and command and control . . . to subvert system defenses to gather information about accounts, systems, and networks.” Among them are “living-off-the-land” techniques, which allow attackers to maintain their intrusions over time with smaller chances of detection.32

While no one can say with certainty what actions the PRC would take in the context of a blockade of or outright conflict with Taiwan, the United States is clear-eyed about the potential for attacks on its own critical infrastructures if engaged in conflict with China. The February 2023 Annual Threat Assessment of the US Intelligence Community notes the likelihood of such PRC cyberattacks in that context:

  • If Beijing feared that a major conflict with the United States were imminent, it almost certainly would consider undertaking aggressive cyber operations against U.S. homeland critical infrastructure and military assets worldwide . . .  China almost certainly is capable of launching cyber attacks that could disrupt critical infrastructure services within the United States, including against oil and gas pipelines, and rail systems.33

The ongoing Russian cyberattacks against Ukraine in the Russia-Ukraine war further underscore the reality of critical infrastructures as a target in a conflict. It seems reasonable to assume that comparable actions (and perhaps even more) would be undertaken against Taiwan in the event of a blockade or kinetic conflict. “Probable targets,” according to James A. Lewis, would include critical infrastructures such as electrical power facilities, information and communications systems, and pipelines.34

Actions to enhance Taiwan’s cyber resilience

Taiwan can enhance its cyber resilience through its own actions and in collaborative activities with private-sector companies and with the United States. While cyberattacks can be highly disruptive, one of the important lessons of the Ukraine-Russia conflict is that the effects on operations can be mitigated, as described in a CyberScoop analysis that underscores a shift in expectations:

  • The war has inspired a defensive effort that government officials and technology executives describe as unprecedented—challenging the adage in cybersecurity that if you give a well-resourced attacker enough time, they will pretty much always succeed. The relative success of the defensive effort in Ukraine is beginning to change the calculation about what a robust cyber defense might look like going forward.35

According to the analysis, the critical element for such success has been significant multinational and public-private collaboration:

  • This high level of defense capability is a consequence of a combination of Ukraine’s own effectiveness, significant support from other nations including the United States and the United Kingdom, and a key role for private sector companies.
  • The defensive cyber strategy in Ukraine has been an international effort, bringing together some of the biggest technology companies in the world such as Google and Microsoft, Western allies such as the U.S. and Britain and social media giants such as Meta who have worked together against Russia’s digital aggression.36

Actions by Taiwan

Taiwan should utilize the Ukraine model of cyber resilience—backed in part by private-sector companies—and take comparable actions to enhance its cybersecurity. Taiwan has a substantial existing cybersecurity framework on which to build such mitigating actions. Since 2022, the Ministry of Digital Affairs, through its Administration for Cyber Security, is responsible for “implementing cyber security management and defense mechanisms for national critical infrastructures” including “evaluating and auditing cyber security works at government agencies and public entities.”37 Utilizing that framework, Taiwan should undertake the following four actions that would significantly enhance the island’s cybersecurity resilience.

First, Taiwan should utilize cloud-based capabilities to establish a duplicative set of cyber-enabled governmental functions outside of Taiwan. Ukraine undertook such actions, thereby rendering Russian cyberattacks in Ukraine unable to disrupt ongoing governmental activities. Taiwan’s Ministry of Digital Affairs has been evaluating the use of public clouds including the possibility of  “digital embassies” abroad to hold data.38 Taiwan should organize such actions with key cloud providers such as Amazon Web Services, which provided support to Ukraine.39 The United States should work with Taiwan and appropriate cloud providers to help effectuate such a result.

Second, Taiwan should establish arrangements with private-sector cybersecurity providers to undertake defensive operations against PRC cyberattacks in the context of a blockade or kinetic conflict. As noted above, such private-sector actions have been instrumental to Ukraine, and would similarly be invaluable for Taiwan. The United States should also help facilitate such private-sector defensive cyber operations for Taiwan.

Third, Taiwan should organize a surge capability of individual cybersecurity experts who can be called upon to complement governmental resources. Both Estonia and the United Kingdom have very effective cyber-reserve approaches, and Taiwan should engage with each country, seeking lessons learned as part of establishing its own reserve corps.

Fourth, Taiwan needs to accelerate its low-earth orbit satellite communications program. The Ministry of Digital Affairs’ two-year, US$18 million plan to strengthen the resilience of government communications entails building more than 700 satellite receiver stations. The impetus: ships from mainland China have repeatedly severed submarine internet cables in what Taiwan perceived as “a trial of methods” that the PRC could use to prepare for a military invasion.40

The existing program involves satellites as well as ground-based receivers. The Taiwan Space Agency disclosed its plan for a “dedicated” LEO satellite communications project in late 2022,41 as a public-private partnership: 

  • Distinct from traditional government programs, this groundbreaking project is structured as a privately operated venture, wherein the Taiwanese government would retain a substantial minority ownership. . . . This project intends to enhance the Taiwan Space Agency’s initial proposal for two government-built LEO satellites by evolving it into a “2+4” configuration. This will involve constructing four additional satellites through collaborative efforts between the public and private sectors.42

Actions with the United States

In accord with the Taiwan Relations Act,43 and as a matter of long-standing policy, the United States strongly supports Taiwan’s defensive capabilities including for cybersecurity. The Integrated Country Strategy of the American Institute in Taiwan (essentially the unofficial US embassy) specifically provides that “bolster[ing] Taiwan’s cybersecurity resilience” is one of the United States’ strategic priorities for the island.44 To support that objective, the United States can enhance Taiwan cybersecurity through cooperative defensive activities.

First, US Cyber Command regularly supports the network resilience of allied countries and partners through its “Hunt Forward” operations, which are “strictly defensive” joint ventures, undertaken following an invitation from the ally or partner, to “observe and detect malicious cyber activity” on these networks, together searching out “vulnerabilities, malware, and adversary presence.”45

While Taiwan has not been specifically identified as a Hunt Forward participant, Anne Neuberger, who is the US deputy national security advisor for cyber and emerging technology, said at a Politico Tech Summit in 2023 that in the event of a major cyberattack on Taiwan, the United States would “send its best teams to help hunt down the attackers, the same approach typically used to help global allies in cyberspace.”46 She described the typical approach as:

  • Putting our best teams to hunt on their most sensitive networks to help identify any current intrusions and to help remediate and make those networks as strong as possible.”47

Neuberger also highlighted US work with Taiwan to carry out military tabletop games and exercises to prepare for potential cyberattack.48

More recently, the National Defense Authorization Act (NDAA) for Fiscal Year 2024 explicitly authorized the Defense Department to cooperate on:

  • Defensive military cybersecurity activities with the military forces of Taiwan to (1) defend military networks, infrastructure, and systems; (2) counter malicious cyber activity that has compromised such military networks, infrastructure, and systems; (3) leverage United States commercial and military cybersecurity technology and services to harden and defend such military networks, infrastructure, and systems; and (4) conduct combined cybersecurity training activities and exercises.49

Going forward, those authorities authorize not only Hunt Forward actions but also actions to  leverage commercial and military technology to harden such networks (which would seem to resolve any export control issues) and to conduct combined training and exercises, all of which underscores clear congressional approval for enhanced cybersecurity activities with Taiwan.50

Second, the United States should undertake to enhance Taiwan’s communications resilience by making available access to US commercial and military LEO networks. The important role of the commercial provider Starlink in assuring communications in the context of the Ukraine-Russia war is well-known.51 Starlink’s parent company, SpaceX, is, however, controlled by Elon Musk, whose Tesla company has major investments in China. That linkage has raised the question of whether Taiwan could rely on any commercial arrangements it might make on its own with Starlink—particularly since Starlink did impose some limitations on Ukraine’s use of the network.52 However, as previously described by one of the authors of this report, the US government has sway on such matters:

  • The Defense Production Act authorizes the [US] government to require the prioritized provision of services—which would include services from space companies—and exempts any company receiving such an order from liabilities such as inability to support other customers.53

Accordingly, the US should rely on this authority to organize appropriate arrangements with Starlink—and other space companies that provide like capabilities—to ensure access that would support Taiwan communications. One way to do this would be to incorporate appropriate terms into the commercial augmentation space reserve (CASR) program arrangements that US Space Force is currently negotiating with civil space providers,54 as part of the Department of Defense’s overall commercial space strategy.55

Additionally, the DOD is developing its own LEO capability through a variety of constellations being put in place by Space Force.56 Pursuant to the recent NDAA authorization noted above, DOD should work with the Taiwan military to ensure that those constellations will be available to support Taiwan as necessary.

Longer term, the United States should also undertake to enhance the resilience of Taiwan’s undersea cables. As previously proposed by one of the authors, the United States should lead in establishing an international undersea infrastructure protection corps. It should:

  • Combine governmental and private activities to support the resilience of undersea cables and pipelines. Membership should include the United States, allied nations with undersea maritime capabilities, and key private-sector cable and pipeline companies.57

Such an activity would include focus on cybersecurity for undersea cable networks, hardening and other protection for cable landing points, and capabilities and resources to ensure expeditious repair of cables as needed.58 To be sure, getting such an activity up and running will necessarily be a multiyear effort. However, Taiwan’s vulnerability underscores the importance of beginning promptly and working as expeditiously as possible.

Cybersecurity recommendations for Taiwan

  • Utilize cloud-based capabilities to establish a duplicative set of cyber-enabled governmental functions outside of Taiwan.
  • Establish arrangements with private-sector cybersecurity providers to undertake defensive operations against PRC cyberattacks.
  • Organize a surge capability of individual cybersecurity experts who can be called upon to complement governmental resources.
  • Accelerate the low-earth orbit satellite communications program.
  • Actively engage with Cyber Command’s Hunt Forward activities.
  • Enhance Taiwan’s communications resilience by making available access to US commercial and military LEO networks.
  • Undertake on a longer-term basis enhanced resilience of Taiwan’s undersea cables.

Energy

As part of its efforts to enhance resilience, Taiwan must mitigate its energy vulnerabilities, as its reliance on maritime imports for about 97 percent59 of its energy needs creates acute risks. To lessen its dependency on maritime imports and strengthen its resiliency in the face of potential PRC coercion, Taiwan should curb energy and electricity demand, bolster indigenous supply, overhaul its inventory management, and prepare rationing plans. A resilient energy security approach would credibly signal to the PRC that Taiwan could hold out for long durations without maritime resupply.

Curbing demand by rationalizing prices 

Taiwan’s ultra-low electricity prices are a security risk (and a black eye for its climate targets). Reliance on seaborne energy shipments presents straightforward security problems, and Taiwan’s low electricity prices subsidize consumption that is being met by imports of hydrocarbons, especially coal. The new Lai administration should make haste prudently, increasing electricity prices more frequently and significantly, without exceeding the limits of the politically possible.

Taiwan’s electricity price quandary is illustrated by Taipower, the state-owned monopoly utility. In 2022 and 2023, Taipower lost 227.2 billion New Taiwan dollars (NTD) and 198.5 billion NTD, respectively, as its per kilowatt hour cost of electricity sold substantially exceeded per unit prices.60 Taipower’s prices failed to offset the steep rise in electricity input costs amid Russia’s invasion of Ukraine and the post-COVID-19 unsnarling of supply chains.

Taiwan’s electricity costs remain too low, diminishing the island’s resiliency, although policymakers have now taken some steps in light of the problem. The Ministry of Economic Affairs’ latest electricity price review, in March 2024, raised average prices by about 11 percent, with the new tariff reaching about 3.4518 NTD, or approximately $0.11 USD/kWh.61 This rationalization of prices, while welcome, is insufficient. In the United States, the rolling twelve-month ending price in January 2024 for all sectors totaled $0.127/kWh.62 Taiwan’s heavily subsidized electricity consumers therefore enjoy a discount in excess of 13 percent compared to their US counterparts, despite US access to low-cost, abundant, and indigenously produced energy.

Taiwan’s heavily subsidized electricity prices incentivize maritime imports, especially coal. Astonishingly, Taiwan was the world’s largest per capita user of coal generation for electricity in 2022, higher than even Australia, a major coal exporter.

Taiwan’s low electricity prices and use of coal expose the island to PRC economic coercion. Taiwan’s dependency on imported coal heightens its vulnerability in the summer, when the island’s electricity-generation needs peak. Concerningly, Taiwan has already experienced electricity shortfalls in summer peacetime conditions, including a wave of outages63 between July and August 2022. With the island’s future summer cooling needs set to rise even further due to climate change and hotter temperatures, Taiwan’s electricity needs pose a vulnerability that the PRC may attempt to exploit.

Curbing Taiwan’s electricity demand during summer months is critical, necessitating a rise in prices. While this reduction is a principal energy security challenge, the island must also do more to secure supply, especially for nuclear energy.

Supply: Support indigenous production

Taiwan’s resiliency will be strengthened by producing as much indigenous energy as possible, especially during the critical summer months. Taiwan, which has virtually no hydrocarbon resources, can therefore indigenously produce only four different forms of energy at scale: nuclear energy, offshore wind, onshore wind, and solar. Taiwan should pursue each of these indigenous energy sources. Taiwan should apply “carrots” by strengthening incentives and payments for indigenous production. At the same time, applying the “stick” of higher prices to energy consumption, especially for energy imports, would bolster the island’s resiliency.

Taiwan’s renewable resources are significant and often economically viable, but they cannot secure adequate levels of resiliency by themselves. Taiwan’s wind speeds slow in the summer,64 limiting onshore and offshore wind’s effectiveness in bolstering energy security. Additionally, Taiwan’s stringent localization requirements for offshore appropriately minimize PRC components and sensors in Taiwan’s offshore wind turbines, but also raise the costs of this technology. Taiwan’s solar potential65 is also limited66 by cloudy skies, frequent rainfall, and land scarcity.

Accordingly, nuclear energy is the most viable way for Taiwan to address its summer electricity needs without turning to maritime imports. While Taiwan’s nuclear reactors must acquire fuel from abroad, this fuel can be used for approximately eighteen to twenty-four months.67 Taiwan should maintain its existing nuclear energy capacity; restart retired capacity as soon as politically and technically feasible; and seek new, incremental capacity over time.68

Unpacking Taiwan’s storage complexities: Dispersal and hardening is critical

To cope with various contingencies, including the possibility of a prolonged summertime blockade, Taiwan should increase its stockpiles of energy, disperse inventory around the island, and harden facilities.

While Taiwan’s ability to hold out against a blockade involves by many factors, energy inventories are a critical element. Taiwan’s electricity reserves are limited: it reported fifty-six days of supply of coal inventories in February 2023,69 and aims to raise its natural gas inventories from eleven days to more than twenty days by 2030.70 These inventory levels should be expanded, in part because “days of supply” fail to encapsulate uncertainty. Demand fluctuates depending on temperature and other variables, while Taiwan’s access to energy storage inventories faces the risk of sabotage and, in certain scenarios, kinetic strikes.

Taiwan’s management of petroleum reserves is a matter of great importance, given the use of these fuels, especially diesel, for military matters. Taiwan’s Energy Administration, in the Ministry of Economic Affairs, reported in April 2024 that its total oil inventories stood at 167 days of supply.71 This topline figure presents an overly optimistic portrait of Taiwan’s petroleum security, however. For instance, Taiwan’s government-controlled inventories in April 202472 included 2.6 million kiloliters of crude oil and refined products; private stocks added another 6.5 million kiloliters. Accordingly, Taiwan reports forty-seven days of supply from government stockpiles, with an additional 120 days from private inventories.73 Given that domestic sales and consumption equated to about 54,200 kiloliters per day from prior comparable periods,74 Taiwan calculated it had about 167 days of supply.

There may, however, be insufficient monitoring of private inventories. Marek Jestrab observed:

  • A concerning—and possibly significant—loophole exists in these laws, where the criteria and computation formulas for the actual on-hand security stockpiles will be determined by the central competent authority, and are not required to be disclosed. This presents the opportunity for energy that is loaded onboard merchant shipping while in transit to Taiwan to count toward these figures.75

While Taiwan should ensure that stockpiles are actually on the island, and not at sea, it also needs to carefully examine the inventory split between crude oil and crude products, such as diesel, gasoline, jet fuel, etc. Additionally, Taiwan’s policymakers should not expect to rely on its crude inventories, which only have a latent potential: crude oil cannot be used until it is refined into a crude product. Therefore, if the PRC disrupted Taiwan’s refineries via cyber or even kinetic means, Taiwan would not be able to access the totality of its crude oil reserves.

Taiwan’s military requirements for fuel would likely surge during a confrontation or conflict with the PRC, reducing the “days of supply.” Since Taiwan’s military vehicles largely run on diesel, the island should pay careful attention to this product.

Taiwan should disperse and harden its energy assets, especially diesel storage, as concentrated objects would present inviting targets for the PRC. Beijing is studying Russia’s invasion of Ukraine closely and will not fail to notice that Moscow attacked about 30 percent of Ukrainian infrastructure in a single day.76 As one author witnessed during his recent visit to Kyiv, Ukraine’s dispersal of electricity assets is achieving a reasonable degree of success. Indeed, Russia’s more recent campaign77 attacking large-scale thermal and hydroelectric power plants illustrates the utility of dispersed energy infrastructure. Like Ukraine, Taiwan should disperse and harden its energy storage inventories to the maximal feasible extent.

Rationing plans

While both Taiwan’s electricity supply and demand will be very hard to predict in a state of emergency, rationing plans must be considered—especially for the island’s manufacturing and semiconductor industries.

Taiwan’s economy is uniquely78 tied to electricity-intensive manufacturing, as industrial consumers accounted for more than 55 percent of Taiwan’s electricity consumption in 2023.79 Most of these industrial producers (such as chipmaker Taiwan Semiconductor Manufacturing Company) service export markets—not Taiwan. While the PRC might attempt to disrupt the island’s energy and electricity supply via cyber and kinetic means, Taiwan’s electricity consumption would fall dramatically during a crisis if Taiwan’s industries were forced to shut down. Although the closure of Taiwan’s industry would prove economically ruinous, it would also make the island’s electricity and energy issues much more manageable. Adding an additional layer of complication, many of Taiwan’s most valuable exports – such as chips – are shipped via civilian airliners, not on seaborne vessels, and would consequently be more difficult to interdict in circumstances short of war.80 Taiwan should prepare rationing plans for a variety of contingencies, adapting to a range of scenarios, including a quarantine, siege, or even kinetic conflict. Taiwan must be ready. 

Energy recommendations for Taiwan 

  • Gradually raise electricity and energy prices, communicating that price hikes will persist and require significant adjustments over the medium term.
  • Expand the frequency of electricity price reviews from twice a year to a quarterly basis. More frequent price adjustments will allow smaller incremental increases while also enabling Taiwan to respond more quickly to potential contingencies.
  • Expand fiscal support for indigenous forms of energy. Demand-side management programs could include virtual power plants, building efficiency measures, two-way air conditioning units, and more. On the supply side, Taiwan should incentivize indigenous energy production, including nuclear energy, onshore wind, offshore wind, and solar.
  • Extend the life of Taiwan’s nuclear energy power plants and consider expanding capacity. Nuclear energy is not only Taiwan’s best option for meeting its summer generation needs but also extremely safe and reliable. In the event of a conflict, the PRC is extremely unlikely to launch highly escalatory and provocative attacks against nuclear facilities on territory it seeks to occupy.
  • Bolster domestic energy supplies and decarbonization objectives including by considering easing localization requirements for offshore wind projects—while ensuring that PRC components and sensors are not incorporated.
  • Disperse and, where possible, harden energy and electricity assets and volumes across the island for both military and civil defense needs.
  • Examine potential alternatives to diesel, as diesel inventories can begin to degrade after several weeks, including “long-duration diesel” solutions that, while more polluting, could extend the shelf life of its inventories, enhancing the durability of Taiwan’s military and civil defense efforts.
  • Deepen liquified natural gas (LNG) ties with the United States. Contracting with US LNG producers would moderately bolster Taiwan’s energy security, as the PRC would be more reluctant to interdict US cargoes than vessels from other nations.
  • Conduct comprehensive studies into energy contingency planning, examining how energy and electricity would be prioritized and rationed during various scenarios.

Food and water resiliency

Taiwan’s food supply needs will be significant in the event of a contingency, but pale in comparison to its energy and water requirements. Taiwan’s water security is a serious concern, as it is already suffering from water access issues in noncrisis periods. Taiwan should prioritize scarce land for electricity generation, especially onshore wind and solar, which are much less water-intensive than coal and natural gas generation. Repurposing farmland for renewables would ease Taiwan’s electricity and water needs in peacetime and during any crisis.

Taiwan’s food security challenges are serious, but manageable. The island’s self-sufficiency ratio for food stands at about 40 percent, after rising somewhat in recent years. Unlike energy, however, Taiwan can both store food, especially rice, and replenish these inventories. Meals ready to eat (MREs) can store for more than eighteen months.

Additionally, the island would likely be able to resupply itself aerially in all situations short of conflict. The PRC might well be extremely reluctant to shoot down a civilian aircraft resupplying Taiwan with food. The PRC’s shootdown of a civilian aircraft would damage external perceptions of the PRC, and strengthen global support for sanctions. While there can be no certainty, the PRC’s self-interest in managing perceptions of a confrontation would increase the likelihood of the safe transit of aerial and perhaps even maritime food deliveries to the island.

Taiwan’s water access problems are serious. Water shortages have manifested even in peacetime, as Taiwan experienced a severe drought in 2021. During a contingency with the PRC, Beijing might attempt to exploit this vulnerability.

Luckily, Taiwan’s water resiliency can be strengthened by tackling agricultural consumption and, wherever politically and technically feasible, repurposing farmland for energy generation. From 2013 to 2022, 71 percent of Taiwan’s water consumption was attributable to agriculture. Meanwhile, Taiwan’s industries comprised only 10 percent of demand during that period, with domestic (i.e., residential and commercial) consumption accounting for the remainder. Taiwan’s water needs are growing, due to “thirsty” industrial customers, but the agricultural sector is primarily responsible for the majority of the island’s consumption, although consumption and supply sources vary across the island.

Taiwan’s policymakers recognize its water problems and have begun raising water prices,  especially for heavy users. Taiwan should continue to encourage efficiency by gradually but perceptibly increasing water prices. Concomitantly, it should further reduce demand by repurposing water-intensive farmland for electricity generation, when feasible. Repurposing farmland will undoubtedly prove politically difficult, but it will also improve Taiwan’s water and electricity resiliency.

Food and water security recommendations 

  • Prioritize energy and water security needs over food production.
  • Secure and disperse inventories of foodstuffs, such as MREs, medicines, and water, along with water purification tablets.
  • Bolster the island’s cold storage supply chains and overall foodstuff inventories.
  • Plan and work with partners to stage food supply if a Berlin airlift-style operation becomes necessary.
  • Continue to encourage water conservation by increasing water prices gradually but steadily.
  • Ensure redundancy of water supplies and systems, especially in the more populous northern part of the island.
  • Ensure that drinking water and sanitation systems can operate continuously, after accounting for any electricity needs.
Gustavo F. Ferreira and J. A. Critelli, “Taiwan’s Food Resiliency—or Not—in a Conflict with China,” US Army War College Quarterly: Parameters 53, no. 2 (2023), doi:10.55540/0031-1723.3222; Joseph Webster, “Does Taiwan’s Massive Reliance on Energy Imports Put Its Security at Risk?,” New Atlanticist, Atlantic Council blog, July 7, 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/does-taiwans-massive-reliance-on-energy-imports-put-its-security-at-risk/; Amy Chang Chien, Mike Ives, and Billy H. C. Kwok,  “Taiwan Prays for Rain and Scrambles to Save Water,” New York Times, May 28, 2021, https://www.nytimes.com/2021/05/28/world/asia/taiwan-drought.html; “Water Resources Utilization,” Ministry of Economic Affairs (MOEA), Water Resources Agency, 2022, https://eng.wra.gov.tw/cp.aspx?n=5154&dn=5155; Meng-hsuan Yang, “Why Did Formosa Plastics Build Its Own Desalination Facility?,” CommonWealth Magazine, May 31, 2023, https://english.cw.com.tw/article/article.action?id=3440; and Chao Li-yen and Ko Lin, “Taiwan State-Owned Utility Evaluates Water Price Adjustments,” Focus Taiwan, January 26, 2024, https://focustaiwan.tw/society/202401260017#:~:text=As%20of%20Aug.
The Berlin airlift of 1948 and 1949 demonstrates the power of aerial food replenishment logistics in an uncontested environment. From June 26, 1948, to September 30, 1949, Allied forces delivered more than 2.3 million tons of food, fuel, and supplies to West Berlin in over 278,000 airdrops. While Taiwan’s population of more than twenty-three million is significantly larger than West Berlin’s population of 2.5 million, the world civilian air cargo fleet has expanded dramatically over the past seventy-five years. In all situations short of conflict, Taiwan would be able to restock food from the air. For more on the Berlin airlift, see Katie Lange, “The Berlin Airlift: What It Was, Its Importance in the Cold War,” DOD News, June 24, 2022, https://www.defense.gov/News/Feature-Stories/Story/Article/3072635/the-berlin-airlift-what-it-was-its-importance-in-the-cold-war/.

Enhancing defense resilience

Ever since Beijing leveraged then-Speaker Nancy Pelosi’s August 2022 visit to Taiwan as an excuse to launch large-scale joint blockade military exercises, pundits have labeled the residual military situation around Taiwan as a “new normal.” Yet there is really nothing normal about a permanent presence of People’s Liberation Army (PLA) Navy warships menacingly surrounding the island along its twenty-four nautical mile contiguous zone, and nothing usual about increasing numbers of manned and unmanned military aircraft crossing the tacit median line in the Taiwan Strait—a line that held significance for seven decades as a symbol of cross-strait stability. Nor should it be viewed as normal that a steady stream of high-altitude surveillance balloons—which are suspected of collecting military intelligence—violate Taiwan’s airspace.81 Some have better described this “new normal” as a strategy akin to an anaconda noticeably tightening its grip around the island, drawing close enough to reduce warning time and provocative enough to raise the risk of inadvertent clashes. In other words, the PRC has unilaterally dialed up a military cost-imposition campaign meant to chip away at peace and stability across the Taiwan Strait, wear down Taiwan’s military, and erode confidence and social cohesion in Taiwan society. 

Russia’s full-scale invasion of Ukraine in 2022 was an additional wake-up call for the citizens of Taiwan, following mainland China’s 2019 crackdown on Hong Kong freedoms, heightening recognition of the risks presented by the PRC and, in particular, that the long-standing status quo in cross-strait relations is no longer acceptable to Beijing. Taiwan thus finds itself in the unenviable position of simultaneously countering PLA gray zone intrusions and cognitive warfare—what NATO calls affecting attitudes and behaviors to gain advantage82—while beefing itself up militarily to deter the growing threat of a blockade or assault.

With this backdrop, Taipei authorities have since embarked on long-overdue reforms in defense affairs, marked by several developments aimed at bolstering the island democracy’s military capabilities and readiness in the face of growing threats from Beijing.

First, Taiwan’s overall defense spending has undergone seven consecutive year-on-year increases, reaching 2.5 percent of gross domestic product.83 While this is commendable, Taiwan’s defense requirements are very substantial, and its budget in US dollars is only $19.1 billion.84 Accordingly, it will be important for Taiwan to continue the trend of higher defense spending to at least 3 percent of GDP both to bolster Taiwan’s military capabilities and as a deterrent signal to Beijing—and also to garner international community recognition that Taiwan is serious about its own defense. A key element will be to ensure that Taiwan has sufficient stocks of ammunition and other weapons capabilities to fight effectively until the United States could fully engage and in the event of a longer war. One area that deserves a high degree of attention is defense against ballistic and cruise missiles and unmanned vehicles. Especially in light of the recent coalition success in defeating such Iranian attacks against Israel, planning should be undertaken to assure comparable success for Taiwan against PRC attacks. Adding mobile, short-range air defenses to the high-priority list of military investments for Taiwan—such as the highly mobile National Advanced Surface-to-Air Missile System (NASAMS)85—will make it harder for the PLA to find and destroy Taiwan defenses, especially if combined with passive means for target detection and missile guidance.

Second, the new president can kick-start an enhanced approach to defense by embracing full integration of public-private innovation and adopting Ukraine’s model of grass-roots innovation for defense, which has served it well through a decade of war against a much larger Russia. Recognizing that innovation is itself a form of resilience, Taiwan can draw valuable lessons from Ukraine, particularly in leveraging private-sector expertise. By implementing what some Ukrainian defense experts term a “capability accelerator” to integrate emerging technologies into mission-focused capabilities, Taiwan can enhance its resilience and swiftly adapt to evolving security challenges, including rapidly fielding a high volume of unmanned systems to achieve distributed surveillance, redundant command and control, and higher survivability.86 This comprehensive approach, which recognizes the private sector as the greatest source of innovation in today’s complex security environment, holds significant potential for enhancing Taiwan’s defense capabilities through the utilization of disruptive technologies. The island’s overall resilience would significantly benefit by drawing the private sector in as a direct stakeholder in national defense matters. 

Ukraine’s grass-roots model of defense innovation, spearheaded by volunteers, nongovernment organizations, and international partners, is a worthy and timely model for Taiwan. Ukraine’s approach has yielded significant advancements in drone warfare, as well as sophisticated capabilities like the Delta battlefield management system—a user-friendly cloud-based situational awareness tool that provides real-time information on enemy and friendly forces through the integration of data from sources such as drones, satellites, and even civilian reports.87 This collaborative model, reliant on cooperation between civilian developers and military end users, has propelled Ukraine’s military technological revolution by integrating intelligence and surveillance tasks, while enhancing decision-making and kill-chain target acquisition. Taiwan will benefit from a comparable approach.

Third, as suggested above, Taiwan should focus a large portion of its defense budget on low-cost, highly effective systems. In terms of force structure, it appears that Taiwan has settled on a design that blends large legacy platforms of a twentieth-century military with the introduction of more survivable and distributable low-end asymmetric capabilities. The latter are best exemplified by Taiwan’s indigenously produced Ta Chiang-class of high-speed, guided-missile corvettes (PGG) and Min Jiang-class fast mine laying boats (FMLB).88 But much more must be done to bolster Taiwan’s overall defense capabilities by focusing on less expensive, but nonetheless highly effective systems.

In Ukraine’s battle against Russian Federation invaders, drones have provided Ukrainian forces with important tactical capabilities by enabling them to gather intelligence, monitor enemy movements, and conduct precision strikes on high-value targets. Taiwan can comparably utilize low-cost UAVs to establish mesh networks that connect devices for intelligence, surveillance, and reconnaissance and for targeting that would be invaluable in countering a PRC amphibious assault. Lessons from Ukraine further highlight the importance of having the right mix of drone types and capabilities in substantial stockpiles, capable of a variety of missions. Notably, Ukrainian officials have called for the production of more than one million domestically produced drones in 2024.89 Then-President Tsai’s formation of a civilian-led “drone national team” program is a commendable step in this direction and underscores the power of collaborative innovation in joint efforts between  users.90 Encouraging cooperation between Taiwan drone makers and US private industry will accelerate the development of a combat-ready unmanned systems fleet with sufficient range, endurance, and payload to enhance situational awareness and battlefield effects. 

Concurrent with those efforts utilizing unmanned systems, Taiwan should bolster its naval mining capabilities as a strategic measure against PRC aggression. Naval mines represent one of the most cost-effective and immediately impactful layers of defense.91 In this regard, Taiwan’s new Min Jiang class of FMLB represents the right type of investments in capabilities which could prove pivotal in thwarting potential invasion attempts.

Even more significantly for a Taiwan audience, Ukraine broke a blockade of its Black Sea ports using a combination of naval drones and coastal defense missiles—and repelled the once-mighty Russian Black Sea Fleet—all without a traditional navy of its own.92 Faced with clear intent by a PLA Navy practicing daily to isolate the island, the time is past due for Taiwanese authorities to hone their own counterblockade skills including a heavy reliance on unmanned surface vehicles. 

Taiwan should also make rapid investments in port infrastructure and defenses along Taiwan’s eastern seaboard in places such as Su’ao and Hualien harbors, which can serve as deepwater ports that are accessible, strategic, antiblockade strongpoints, and where any conceivable PLA blockade would be at its weakest and most vulnerable point logistically. Su’ao harbor, as a potential future homeport for Taiwan’s new indigenous Hai Kun-class diesel submarines, could also serve a dual purpose as an experimentation and development zone for public-private collaboration on unmanned-systems employment and operations. Infrastructure investments in East Coast ports could enhance the island’s ability to attain emergency resupply of energy, food, humanitarian supplies, and munitions under all conditions, broadening options for international community aid and complicating PLA efforts.

Fourth, every new capability needs trained operators who are empowered to employ and engage.  This year Taiwan began implementation of a new, one-year conscript training system for male adults born after January 1, 2005 (up from a wholly inadequate four months of conscription in the past decade).93 Taiwan’s “all-out defense” plan realigns into a frontline main battle force consisting of all-volunteer career military personnel, backed up by a standing garrison force composed mainly of conscripted military personnel guarding infrastructure, along with a civil defense system integrated with local governments and private-sector resources. Upon mobilization, there would also be a reserve force to supplement the main battle and garrison forces. 

According to details laid out in its 2023 National Defense Report, Taiwan’s revamped one-year conscript system and reorganized reserve mobilization system place significant emphasis on traditional military combat skills, such as rifle marksmanship and operation of mortars.94 However, in response to evolving security challenges and the changing nature of warfare, Taiwan’s military should incorporate greater training in emerging technologies and unconventional tactics, along with decentralized command and control, especially in the areas of drone warfare, where unmanned aerial vehicles and surface vessels play a crucial role in reconnaissance, surveillance, and targeted strikes. By integrating drone warfare training into the conscript system as well as in annual reserve call-up training, Taiwan can better prepare its military personnel to adapt to modern battlefield environments and effectively counter emerging threats.

Integrating drone operations into military operations down to the conscript and reservist level offers a cost-effective means to enhance battlefield situational awareness and operational capabilities, and also has the added benefit of enhancing the attractiveness and value of a mandatory conscription system emerging from years of low morale and characterized by Taiwan’s outgoing president as “insufficient” and “full of outmoded training.”95 Recognizing the imperative to modernize military training to face up to a rapidly expanding PLA threat, Taiwan’s military force realignment plan came with a promise to “include training in the use of Stinger missiles, Javelin missiles, Kestrel rockets, drones, and other new types of weapons . . . in accordance with mission requirements to meet the needs of modern warfare.”96 Looking at the example of Ukraine, where drones have been utilized, underscores the importance of incorporating drone warfare training into its asymmetric strategy.

The Taiwan Enhanced Resilience Act “prioritize[d] realistic training” by the United States, with Taiwan authorizing “an enduring rotational United States military presence that assists Taiwan in maintaining force readiness.”97 There have been numerous reports of US special forces in Taiwan,98 and those forces could provide training in tactical air control, dynamic targeting, urban warfare, and comparable capabilities.99 Likewise, parts of an Army Security Force Assistance Brigade could do similar work on a rotational basis, on- or off-island.

To facilitate a comprehensive and integrated approach to defense planning and preparedness between the military, government agencies, and civilian organizations, Taiwan has also established the All-out Defense Mobilization Agency, which (as noted above) is a centralized body subordinate to the Ministry of National Defense that is tasked with coordinating efforts across various sectors, down to the local level, to enhance national defense readiness. That agency would be significantly more effective if raised to the national level with a broadened mandate as part of a comprehensive approach.

The Taiwanese leadership also should consider elevating their efforts to create a large-scale civil defense force, offering practical skills training which would appeal to Taiwanese willing to dedicate time and effort toward defense of their communities and localities. These skills could include emergency medical training, casualty evacuation, additive manufacturing, drone flying, and open-source intelligence. Private, nonprofit civil defense organizations such as Taiwan’s Kuma Academy hold widespread appeal to citizens seeking to enhance basic preparedness skills.100 With a curriculum that covers topics ranging from basic first aid to cognitive warfare, Kuma Academy’s popular classes typically sell out within minutes of going online. According to a recent survey of domestic Taiwan opinions sponsored by Spirit of America, “When facing external threats, 75.3% of the people agree that Taiwanese citizens have an obligation to defend Taiwan.”101 A well-trained civil defense force and other whole-of-society resilience measures provide an additional layer of defense and enhance social cohesion to better deny Beijing’s ultimate political objective of subjugating the will of the people.

Defense resilience recommendations for Taiwan

  • Raise defense spending to at least 3 percent of GDP.
  • Adopt Ukraine’s model of grass-roots innovation in defense.
  • Focus a large portion of its defense budget on low-cost, highly effective systems including unmanned vehicles and naval mines.
  • Incorporate greater training in emerging technologies and unconventional tactics for conscripts and reserves.
  • Invest in East Coast port infrastructure as counterblockade strongholds.
  • Elevate the All-out Defense Mobilization Agency to the national level and implement a larger civil defense force that fully integrates civilian agencies and local governments.

Conclusion

On April 3, 2024, Taiwan was struck by the strongest earthquake in twenty-five years. In the face of this magnitude 7.4 quake, Taiwan’s response highlights the effectiveness of robust investment in stricter building codes, earthquake alert systems, and resilience policies, resulting in minimal casualties and low infrastructure damage.102 Taiwan’s precarious position on the seismically vulnerable Ring of Fire, a belt of volcanoes around the Pacific Ocean, mirrors its vulnerability under constant threat of military and gray zone aggression from a mainland China seeking seismic changes in geopolitical power. Drawing from its success in preparing for and mitigating the impact of natural disasters, Taiwan can apply a similarly proactive approach in its defense preparedness. Safeguarding Taiwan’s sovereignty and security requires investments in a comprehensive security strategy for resilience across society—including cybersecurity for critical infrastructures, bolstering energy security, and enhanced defense resilience. Such an approach would provide Taiwan the greatest likelihood of deterring or, if necessary, defeating PRC aggression including through blockade or kinetic conflict. 

About the authors

Franklin D. Kramer is a distinguished fellow at the Atlantic Council and a member of its board. He is a former US assistant secretary of defense for international security affairs.

Philip Yu is a nonresident senior fellow in the Indo-Pacific Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security, and a retired US Navy rear admiral. 

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, a nonresident senior fellow in the Indo-Pacific Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security, and editor of the independent China-Russia Report.

Elizabeth “Beth” Sizeland is a nonresident senior fellow at the Scowcroft Strategy Initiative of the Atlantic Council’s Scowcroft Center for Strategy and Security. Earlier, she served in the United Kingdom’s government including as deputy national security adviser and as adviser to the UK prime minister on intelligence, security, and resilience issues.

This analysis reflects the personal opinions of the authors.

Acknowledgments

The authors would like to thank the following individuals for their helpful comments and feedback: Amber Lin, Elsie Hung, Kwangyin Liu, and Alison O’Neil.

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1    “The gray zone describes a set of activities that occur between peace (or cooperation) and war (or armed conflict),” writes Clementine Starling. “A multitude of activities fall into this murky in-between—from nefarious economic activities, influence operations, and cyberattacks to mercenary operations, assassinations, and disinformation campaigns. Generally, gray-zone activities are considered gradualist campaigns by state and non-state actors that combine non-military and quasi-military tools and fall below the threshold of armed conflict. They aim to thwart, destabilize, weaken, or attack an adversary, and they are often tailored toward the vulnerabilities of the target state. While gray-zone activities are nothing new, the onset of new technologies has provided states with more tools to operate and avoid clear categorization, attribution, and detection—all of which complicates the United States’ and its allies’ ability to respond.” Starling, “Today’s Wars Are Fought in the ‘Gray Zone.’ Here’s Everything You Need to Know About it,” Atlantic Council, February 23, 2022, https://www.atlanticcouncil.org/blogs/new-atlanticist/todays-wars-are-fought-in-the-gray-zone-heres-everything-you-need-to-know-about-it/.
2    In a quarantine of Taiwan, Beijing would interdict shipments but allow some supplies—potentially food and medicine—to pass through unimpeded. This measure would enable the PRC to assert greater sovereignty over Taiwan without formally committing to either a war or a blockade.
3    Mykhaylo Lopatin, “Bind Ukraine’s Military-Technology Revolution to Rapid Capability Development,” War on the Rocks, January 23, 2024, https://warontherocks.com/2024/01/bind-ukraines-military-technology-revolution-to-rapid-capability-development/.
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5    “Full Text of President Tsai Ing-Wen’s National Day Address,” Focus Taiwan website, Central News Agency of Taiwan, October 10, 2023, https://focustaiwan.tw/politics/202310100004; and “President Tsai Delivers 2024 New Year’s Address,” Office of the President, Taiwan, January 1, 2024, https://english.president.gov.tw/NEWS/6662.
6    Finnish Security Committee, Security Strategy for Society: Government Resolution, Ministry of Defense, November 2, 2017, https://turvallisuuskomitea.fi/wp-content/uploads/2018/04/YTS_2017_english.pdf.
7    “Swedish Defence Commission Submits Total Defence Report,” Ministry of Defense, December 19, 2023, https://www.government.se/articles/2023/12/swedish-defence-commission-submits-total-defence-report/.
8    Pursuing a professional and structured approach to resilience against Chinese aggression will also have a “halo” effect, building approaches and expertise that will support effective work on other areas of national security risk.
9    Finnish Security Committee, Security Strategy for Society.
10    Finnish Security Committee, Security Strategy for Society.
11    Finnish Security Committee, Security Strategy for Society.
12    “All-out Defense Mobilization Agency,” agency website, n.d., https://aodm.mnd.gov.tw/aodm-en/indexE.aspx.
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14    The party does face, however, the governance challenges that come with a hung parliament.
15    Hybrid CoE,” European Centre of Excellence for Countering Hybrid Threats, n.d., https://www.hybridcoe.fi/.
16    Lucy Fisher, “First Glimpse Inside UK’s New White House-Style Crisis Situation Centre,” Telegraph, December 14, 2021, https://www.telegraph.co.uk/news/2021/12/14/first-glimpse-inside-uks-new-white-house-style-crisis-situation/.
17    A. Rauchfleisch et al., “Taiwan’s Public Discourse About Disinformation: The Role of Journalism, Academia, and Politics,” Journalism Practice 17, no. 10 (2023): 2197–2217, https://doi.org/10.1080/17512786.2022.2110928.
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22    Taiwan Administration for Cyber Security, “Cyber Security Defense of Critical Infrastructure: Operations,” Ministry of Digital Affairs, February 21, 2023, https://moda.gov.tw/en/ACS/operations/ciip/650.
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24    Taiwan Water Corporation provides most of the water in Taiwan. See Taiwan Water Corporation, https://www.water.gov.tw/en.
25    Wen Lii, “After Chinese Vessels Cut Matsu Internet Cables, Taiwan Seeks to Improve Its Communications Resilience,” Opinion, Diplomat, April 15, 2023, https://thediplomat.com/2023/04/after-chinese-vessels-cut-matsu-internet-cables-taiwan-shows-its-communications-resilience/.
26    “About Us: History,” Administration for Cyber Security, MoDA, n.d., https://moda.gov.tw/en/ACS/aboutus/history/608. Note: US government analyses likewise underscore the significant number of attacks. As described by the US International Trade Administration (ITA), “Taiwan faces a disproportionately high number of cyberattacks, receiving as many as 30 million attacks per month in 2022.” See “Taiwan—Country Commercial Guide,” US ITA, last published January 10, 2024, https://www.trade.gov/country-commercial-guides/taiwan-cybersecurity.
27    Statistics are not entirely consistent, and attempted intrusions are sometimes counted as attacks.
28    “Taiwanese Gov’t Facing 5M Cyber Attacks per Day,” CyberTalk, Check Point Software Technologies, accessed May 2, 2024, https://www.cybertalk.org/taiwanese-govt-facing-5m-cyber-attacks-per-day/. Other private-sector companies’ analyses have reached comparable conclusions.
29    Huang Tzu-ti, “Taiwan Hit by 15,000 Cyberattacks per Second in First Half of 2023,” Taiwan News, August 17, 2023, https://www.taiwannews.com.tw/news/4973448.
30    Jeff Seldin, “Cyber Attacks Spike Suddenly prior to Taiwan’s Election,” Voice of America, February 13, 2024, https://www.voanews.com/a/cyber-attacks-spike-suddenly-prior-to-taiwan-s-election-/7485386.html.
31    Gagandeep Kaur, “Is China Waging a Cyber War with Taiwan?,” CSO Online, December 1, 2023, https://www.csoonline.com/article/1250513/is-china-waging-a-cyber-war-with-taiwan.html#:~:text=Nation%2Dstate%20hacking%20groups%20based.
32    Anne A wrote that “attackers are likely to employ living off-the-land techniques to gather policing, banking, and political information to achieve their goals. They also likely simultaneously and stealthily evaded security detections from remote endpoints.”See An, “Cyberattack on Democracy: Escalating Cyber Threats Immediately Ahead of Taiwan’s 2024 Presidential Election,” Trellix, February 13, 2024, https://www.trellix.com/blogs/research/cyberattack-on-democracy-escalating-cyber-threats-immediately-ahead-of-taiwan-2024-presidential-election/. Separately, a Microsoft Threat Intelligence blog said: “Microsoft has identified a nation-state activity group tracked as Flax Typhoon, based in China, that is targeting dozens of organizations in Taiwan with the likely intention of performing espionage. Flax Typhoon gains and maintains long-term access to Taiwanese organizations’ networks with minimal use of malware, relying on tools built into the operating system, along with some normally benign software to quietly remain in these networks.” See “Flax Typhoon Using Legitimate Software to Quietly Access Taiwanese Organizations,” Microsoft Threat Intelligence blog, August 24, 2023, https://www.microsoft.com/en-us/security/blog/2023/08/24/flax-typhoon-using-legitimate-software-to-quietly-access-taiwanese-organizations/.
33    Office of the Director of National Intelligence, Annual Threat Assessment of the US Intelligence Community, February 6, 2023, 10, https://www.dni.gov/files/ODNI/documents/assessments/ATA-2023-Unclassified-Report.pdf.
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36    Groll and Vicens, “A Year After Russia’s Invasion.”
37    “About Us: History,” Administration for Cyber Security.
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42    Gil Baram, “Securing Taiwan’s Satellite Infrastructure against China’s Reach,” Lawfare, November 14, 2023, https://www.lawfaremedia.org/article/securing-taiwan-s-satellite-infrastructure-against-china-s-reach.
43    Taiwan Relations Act, US Pub. L. No. 96-8, 93 Stat. 14 (1979), https://www.congress.gov/96/statute/STATUTE-93/STATUTE-93-Pg14.pdf.
44    “Integrated Country Strategy,” American Institute in Taiwan, 2022, https://www.state.gov/wp-content/uploads/2022/05/ICS_EAP_Taiwan_Public.pdf.
45    Franklin D. Kramer, The Sixth Domain: The Role of the Private Sector in Warfare, Atlantic Council, October 16, 2023, 13, https://www.atlanticcouncil.org/wp-content/uploads/2023/10/The-sixth-domain-The-role-of-the-private-sector-in-warfare-Oct16.pdf.
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47    Gedeon, “Taiwan Is Bracing.”
48    Gedeon, “Taiwan Is Bracing.”
49    National Defense Authorization Act for Fiscal Year 2024, Pub. L. No. 118-31, 137 Stat. 136 (2023), Sec. 1518, https://www.congress.gov/bill/118th-congress/house-bill/2670/text.
50    National Defense Authorization Act for Fiscal Year 2024.
51    According to a report by Emma Schroeder and Sean Dack, “Starlink’s performance in the Ukraine conflict demonstrated its high value for wartime satellite communications: Starlink, a network of low-orbit satellites working in constellations operated by SpaceX, relies on satellite receivers no larger than a backpack that are easily installed and transported. Because Russian targeting of cellular towers made communications coverage unreliable . . . the government ‘made a decision to use satellite communication for such emergencies’ from American companies like SpaceX. Starlink has proven more resilient than any other alternatives throughout the war. Due to the low orbit of Starlink satellites, they can broadcast to their receivers at relatively higher power than satellites in higher orbits. There has been little reporting on successful Russian efforts to jam Starlink transmissions.” See Schroeder and Dack, A Parallel Terrain: Public-Private Defense of the Ukrainian Information Environment, Atlantic Council, February 2023, 14, https://www.atlanticcouncil.org/wp-content/uploads/2023/02/A-Parallel-Terrain.pdf.
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53    Kramer, The Sixth Domain.
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57    Kramer, The Sixth Domain.
58    Kramer, The Sixth Domain.
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63    Lauly Li and Cheng Ting-Feng, “Taiwan’s Frequent Blackouts Expose Vulnerability of Tech Economy,” Nikkei Asia, August 30, 2022, https://asia.nikkei.com/Business/Technology/Taiwan-s-frequent-blackouts-expose-vulnerability-of-tech-economy.
64    Xi Deng et al., “Offshore Wind Power in China: A Potential Solution to Electricity Transformation and Carbon Neutrality,” Fundamental Research, 2022, https://doi.org/10.1016/j.fmre.2022.11.008.
65    “Global Solar Atlas,” World Bank Group, ESMAP, and Solar GIS, 2024, CC BY 4.0, https://globalsolaratlas.info/map?c=24.176825.
66    Julian Spector, “Taiwan’s Rapid Renewables Push Has Created a Bustling Battery Market,” Canary Media, April 6, 2023, https://www.canarymedia.com/articles/energy-storage/taiwans-rapid-renewables-push-has-created-a-bustling-battery-market.
67    “U.S. Nuclear Plant Outages Increased in September After Remaining Low during Summer,” Today in Energy, US EIA, October 18, 2015, https://www.eia.gov/todayinenergy/detail.php?id=37252#:~:text=Nuclear%20power%20plants%20typically%20refuel.
68    For a more detailed discussion of Taiwan’s indigenous supply, see Joseph Webster, “Does Taiwan’s Massive Reliance on Energy Imports Put Its Security at Risk?,” New Atlanticist, Atlantic Council blog, July 7, 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/does-taiwans-massive-reliance-on-energy-imports-put-its-security-at-risk/.
69    “The Current Situation and Future of [the] Country’s Energy Supply and Reserves (立法院),” Seventh Session of the Tenth Legislative Yuan, Sixth Plenary Meeting of the Economic Committee, accessed May 7, 2024, https://ppg.ly.gov.tw/ppg/SittingAttachment/download/2023030989/02291301002301567002.pdf.
70    Jeanny Kao and Yimou Lee, “Taiwan to Boost Energy Inventories amid China Threat,” ed. Gerry Doyle, Reuters, October 23, 2022, https://www.reuters.com/business/energy/taiwan-boost-energy-inventories-amid-china-threat-2022-10-24/.
71    Energy Administration, “Domestic Oil Reserves Monthly Data (國內石油安全存量月資料),” Ministry of Economic Affairs, accessed May 6, 2024, https://www.moeaea.gov.tw/ecw/populace/content/wfrmStatistics.aspx?type=4&menu_id=1302.
72    Energy Administration, Ministry of Economic Affairs.
73    Energy Administration, Ministry of Economic Affairs.
74    Energy Administration, Ministry of Economic Affairs.
75    Marek Jestrab, “A Maritime Blockade of Taiwan by the People’s Republic of China: A Strategy to Defeat Fear and Coercion,” Atlantic Council Strategy Paper, December 12, 2023, https://www.atlanticcouncil.org/content-series/atlantic-council-strategy-paper-series/a-maritime-blockade-of-taiwan-by-the-peoples-republic-of-china-a-strategy-to-defeat-fear-and-coercion/.
76    Kathleen Magramo et al., “October 11, 2022 Russia-Ukraine News,” CNN, October 11, 2022, https://edition.cnn.com/europe/live-news/russia-ukraine-war-news-10-11-22/index.html.
77    Tom Balforth, “Major Russian Air Strikes Destroy Kyiv Power Plant, Damage Other Stations,” Reuters, November 2024, https://www.reuters.com/world/europe/russian-missile-strike-targets-cities-across-ukraine-2024-04-11/#:~:text=KYIV%2C%20April%2011%20(Reuters),runs%20low%20on%20air%20defences.
78    Global Taiwan Institute, “Taiwan’s Electrical Grid and the Need for Greater System Resilience,” June 14, 2023, https://globaltaiwan.org/2023/06/taiwans-electrical-grid-and-the-need-for-greater-system-resilience/.
79    “3-04 Electricity Consumption (3-04 電力消費),” Taiwan Energy Statistics Monthly Report (能源統計月報), accessed May 6, 2024, https://www.esist.org.tw/newest/monthly?tab=%E9%9B%BB%E5%8A%9B.
80    Alperovitch, D. (2024, June 6). A Chinese economic blockade of Taiwan would fail or launch a war. War on the Rocks. https://warontherocks.com/2024/06/a-chinese-economic-blockade-of-taiwan-would-fail-or-launch-a-war/
81    “The Ministry of National Defense Issues a Press Release Explaining Reports That ‘Airborne Balloons by the CCP Had Continuously Flown over Taiwan,’ ” Taiwan Ministry of National Defense, January 6, 2024,  https://www.mnd.gov.tw/english/Publish.aspx?title=News%20Channel&SelectStyle=Defense%20News%20&p=82479.
83    “Taiwan Announces an Increased Defense Budget for 2024,” Global Taiwan Institute, September 20, 2023, https://globaltaiwan.org/2023/09/taiwan-announces-an-increased-defense-budget-for-2024/.
84    Yu Nakamura, “Taiwan Allots Record Defense Budget for 2024 to Meet China Threat,” Nikkei Asia, August 24, 2023, https://asia.nikkei.com/Politics/Defense/Taiwan-allots-record-defense-budget-for-2024-to-meet-China-threat.
85    “NASAMS: National Advanced Surface-to-Air Missile System,” Raytheon, accessed May 12, 2024, https://www.rtx.com/raytheon/what-we-do/integrated-air-and-missile-defense/nasams.
86    Lopatin, “Bind Ukraine’s Military-Technology Revolution.”
87    Grace Jones, Janet Egan, and Eric Rosenbach, “Advancing in Adversity: Ukraine’s Battlefield Technologies and Lessons for the U.S.,” Policy Brief, Belfer Center for Science and International Affairs, Harvard Kennedy School, July 31, 2023, https://www.belfercenter.org/publication/advancing-adversity-ukraines-battlefield-technologies-and-lessons-us.
88    For more information, see, e.g., Peter Suciu, “Future of Taiwan’s Navy: Inside the Tuo Chiang-Class Missile Corvettes,” National Interest, March 27, 2024,  https://nationalinterest.org/blog/buzz/future-taiwans-navy-inside-tuo-chiang-class-missile-corvettes-210269; and Xavier Vavasseur, “Taiwan Launches 1st Mine Laying Ship for ROC Navy,” Naval News, August 5, 2020, https://www.navalnews.com/naval-news/2020/08/taiwan-launches-1st-mine-laying-ship-for-roc-navy/.
89    Mykola Bielieskov, “Outgunned Ukraine Bets on Drones as Russian Invasion Enters Third Year,” Ukraine Alert, Atlantic Council blog, February 20, 2024, https://www.atlanticcouncil.org/blogs/ukrainealert/outgunned-ukraine-bets-on-drones-as-russian-invasion-enters-third-year/.
90    Yimou Lee, James Pomfret, and David Lague, “Inspired by Ukraine War, Taiwan Launches Drone Blitz to Counter China,” Reuters, July 21, 2023, https://www.reuters.com/investigates/special-report/us-china-tech-taiwan/.
91    Franklin D. Kramer and Lt. Col. Matthew R. Crouch, Transformative Priorities for National Defense, Scowcroft Center for Strategy and Security, Atlantic Council, 2021, https://www.atlanticcouncil.org/wp-content/uploads/2021/06/Transformative-Priorities-Report-2021.pdf.
92    Peter Dickinson, “Ukraine’s Black Sea Success Exposes Folly of West’s ‘Don’t Escalate’ Mantra,” Ukraine Alert, Atlantic Council, January 22, 2024, https://www.atlanticcouncil.org/blogs/ukrainealert/ukraines-black-sea-success-provides-a-blueprint-for-victory-over-putin/.
93    Ministry of National Defense, ROC National Security Defense Report 2023, https://www.mnd.gov.tw/newupload/ndr/112/112ndreng.pdf.
94    Ministry of National Defense, ROC National Security Defense Report 2023.
95    “President Tsai Announces Military Force Realignment Plan,” Office of the President, December 27, 2022,  https://english.president.gov.tw/NEWS/6417.
96    “President Tsai Announces Military Force Realignment Plan.”
97    International Military Education and Training Cooperation with Taiwan, 22 U.S.C. § 3353 (2022), https://www.law.cornell.edu/uscode/text/22/3353.
98    Guy D. McCardl, “US Army Special Forces to Be Deployed on Taiwanese Island Six Miles from Mainland China,” SOFREP, March 8, 2024, https://sofrep.com/news/us-army-special-forces-to-be-deployed-on-taiwanese-island-six-miles-from-mainland-china/.
99    “Taiwan Defense Issues for Congress,” Congressional Research Service, CRS Report R48044, updated May 10, 2024, https://crsreports.congress.gov/product/pdf/R/R48044.
100    Jordyn Haime, “NGOs Try to Bridge Taiwan’s Civil Defense Gap,” China Project, August 4, 2023, https://thechinaproject.com/2023/08/04/ngos-try-to-bridge-taiwans-civil-defense-gap/.
101    Spirit of America, Taiwan Civic Engagement Survey, January 2024.
102    Amy Hawkins and Chi Hui Lin, “‘As Well Prepared as They Could Be’: How Taiwan Kept Death Toll Low in Massive Earthquake,” Observer, April 7, 2024, https://www.theguardian.com/world/2024/apr/07/as-well-prepared-as-they-could-be-how-taiwan-kept-death-toll-low-in-massive-earthquake.

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]]> From greenfield projects to green supply chains: Critical minerals in Africa as an investment challenge https://www.atlanticcouncil.org/in-depth-research-reports/report/from-greenfield-projects-to-green-supply-chains-critical-minerals-in-africa-as-an-investment-challenge/ Mon, 01 Jul 2024 16:00:00 +0000 https://www.atlanticcouncil.org/?p=776494 This report provides a snapshot of Africa’s mineral wealth and mining industries, draws out the similarities between the mining and infrastructure investment attraction challenges, describes the competitive landscape African nations find themselves in, and makes innovative recommendations—namely to the US government—to rapidly accelerate investment in sustainable mining industries in African markets.

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Africa is central to the global energy transition. The necessary resources for a low-carbon economy are abundant in Africa, with the continent possessing 30 percent of the world’s known mineral reserves—many of which are critical for the manufacturing of batteries, solar panels, wind turbines, and other clean energy technologies. Africa’s untapped potential is greater yet, with research suggesting that the continent holds 85 percent of manganese reserves, 80 percent of platinum and chromium reserves, 47 percent of cobalt reserves, and 21 percent of graphite reserves, much of which is unexplored or underexplored. Demand for these resources is also on the rise, expected to more than double between now and 2030.

While Africa is rich in minerals and strategically located, it risks losing out on a historic investment opportunity. The infrastructure investment problems that have hindered non-Chinese capital flows into African markets for decades are front and center as investors and governments assess the strategic role the continent could and should play in the global shift to cleaner energy sources. While infrastructure investment has shown growth in recent decades, a significant financing gap persists, estimated to be around $100 billion each and every year.

To counterbalance China’s dominance in battery supply chains, the United States must leverage its strengths in technology, education, and capital markets. Initiatives such as Prosper Africa need to be dynamically scaled and optimized to provide meaningful support, ensuring that US investors can more easily and rapidly navigate the complex landscape of Washington.

With this urgency in mind, this report provides a snapshot of Africa’s mineral wealth and the state of mining industries, draws out the similarities between the mining and infrastructure investment attraction challenges, describes the competitive landscape African nations find themselves in, and makes innovative recommendations—namely to the US government—to rapidly accelerate investment in sustainable mining industries in African markets.

This report is the first in a series on the critical minerals sector in Africa, and is part of the Africa Center’s Critical Mineral Task Force.

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]]> Executing distributed operations in an increasingly contested maritime environment https://www.atlanticcouncil.org/in-depth-research-reports/report/executing-distributed-operations-in-an-increasingly-contested-maritime-environment/ Mon, 01 Jul 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=776148 As the United States looks ahead to increased maritime competition in the Indo-Pacific and elsewhere, the US Navy needs to implement the right plans and capabilities. “Distributed maritime operations” is the warfighting concept at the heart of the Navy’s planning for current and future operations. How well is it poised for executing it?

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Distributed Maritime Operations (DMO) is the US Navy’s service warfighting concept. However, the concept suffers from a wide variety of interpretations across the service and needs more specificity regarding on what warfighting approaches it is concentrating. While the concept describes mass fires and decision advantage as core themes, DMO lacks sufficient coherence and concrete focus to effectively guide the Navy’s development.

DMO is a departure from how the Navy traditionally operates. In past decades, the Navy would pull forces into concentrated formations for high-end threats, or disaggregate formations into independent assets for low-end threats. Distribution in DMO describes spreading warships outward and more broadly, but still having them act with unity of purpose, and primarily with a high-end warfighting focus. DMO is a fleet-level warfighting concept, centered on a higher level of command across a broader geographic expanse compared to the strike group-centric operating norms of recent decades.

The desire to distribute naval forces is part defensive reaction and part offensive evolution. Defensively, distribution aims to improve survivability by imposing more friction on the targeting process that precedes strikes. China fields a significant array of sensors and anti-ship firepower, and distribution attempts to prevent that sensing from culminating in decisive strikes. Distribution is an asymmetric approach for circumventing an adversary’s sensing and firepower by employing nontraditional schemes of maneuver and force posturing. Offensively, distribution better postures US forces to harness new anti-ship capabilities that are emerging across the joint force. All services are now procuring long-range anti-ship missiles and introducing newfound anti-ship firepower into a broad swath of untapped force structure, including surface warships, submarines, bombers, and land-based forces. This will level the playing field against China in key respects and provide the joint force with new options for mass fires.

Deception is a natural partner to distribution by targeting decision-making. Deception operations and capabilities should form a cornerstone of the DMO approach. These capabilities can include unmanned systems and decoy missiles that help overload adversary sensing. Deception can help compensate for force generation challenges by inflating the number of contacts that appear to be confronting an adversary. These capabilities are much more affordable than the platforms they replicate, and they can be broadly distributed across existing force structure.

Distributed forces may still be commanded by heavily centralized command structures. The Navy should consider distributing its command elements by having more expeditionary and afloat Maritime Operation Centers (MOCs). It can also better distribute command by enabling platforms with considerable command-and-control (C2) capability to take on certain command functions when networks are contested. Aerial platforms such as E-2s, F-35s, and P-8s are especially strong candidates for taking on the key role of backup joint fires integrators.

The Navy’s ability to investigate and implement DMO is heavily contingent upon the service’s system of operational learning. This system needs reform to better translate the concept into concrete updates to tactical development programs, as well as warfighter training and education. This system also needs to be reformed so the warfighting development of the Navy’s siloed communities can be deliberately integrated into fleet-level approaches under the overarching framework of DMO. The Navy’s MOCs should be specifically targeted with an intensive wargaming curriculum and additional staffing to markedly increase their warfighting skill in the near term.

About the author

Dmitry Filipoff is the director of online content of the Center for International Maritime Security (CIMSEC) and an associate research analyst in the Operational Warfighting Division of the Center for Naval Analyses (CNA). He is the author of the Fighting DMO and How the Fleet Forgot to Fight series. He is coauthor of Learning to Win: Using Operational Innovation to Regain the Advantage at Sea against China.

acknowledgements

The Atlantic Council is grateful to Fincantieri, MBDA, and Thales for their generous sponsorship of this paper.

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]]> Los Angeles and California: Environmental policy as a catalyst for cleantech ecosystems  https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/los-angeles-and-california-environmental-policy-as-a-catalyst-for-cleantech-ecosystems/ Fri, 28 Jun 2024 20:43:10 +0000 https://www.atlanticcouncil.org/?p=776548 California and Los Angeles have addressed climate change through innovative policymaking and technology, but face challenges which could undermine their success as leaders in tech and climate innovation.

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]]> California and one of its most important tech-innovation ecosystems, Los Angeles, have combatted climate change and other environmental problems through innovation in both policymaking and technological invention and scaling. This paper first examines environmental and climate policymaking at the state level, actions that have been designed, in part, to spur tech-based innovation in California. Then it shifts its analytical focus to Los Angeles, one of the most important tech-innovation ecosystems in the state, especially when it comes to environmental technologies. Finally, this paper assesses the significant risks to California’s model and asks whether its tech ecosystems can transition to a fully decarbonized economy despite these risks. 

Although California’s story is mostly one of success, both the state of California and the city of Los Angeles face several significant challenges that could undermine their longstanding formulas. First, California’s economy is at some risk of losing its luster given its longstanding reputation as a high-cost state for workers and business. Second, California’s monumental plans to combat climate change—including the massive expansion of wind and solar infrastructure—are at odds with other elements of the state’s environmental legacy, such as habitat conservation. Third, climate change itself might derail decarbonization as extreme weather worsens, threatening communities, business, and the power grid. California’s continued success as a global technology and climate innovator depends on its ability to mitigate these risks.  

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AUTHOR

Staff

Peter Engelke

Senior Fellow, Scowcroft Strategy Initiative

Global Energy Center Scowcroft Center for Strategy and Security

Technology & Innovation Europe & Eurasia

ACKNOWLEDGEMENTS

The Atlantic Council would like to thank Chevron for supporting our work on this project.

The author thanks Danielle Miller, Frank Willey, and Daniel Hel- meci for their research assistance.

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]]> Accelerating the energy transition in the Eastern Caribbean https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/accelerating-the-energy-transition-in-the-eastern-caribbean/ Fri, 28 Jun 2024 16:00:00 +0000 https://www.atlanticcouncil.org/?p=771816 Countries in the Eastern Caribbean are among the world’s most energy insecure nations. These countries grapple with high electricity costs that undercut economic competitiveness and growth, are heavily dependent on petroleum products, and are uniquely vulnerable to the effects of climate change.

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Table of contents

Introduction

Countries in the Eastern Caribbean1 are among the world’s most energy insecure nations. These countries grapple with high electricity costs that undercut economic competitiveness and growth, are heavily dependent on petroleum products, and are uniquely vulnerable to the effects of climate change. At the same time, a World Bank designation as middle- or high-income economies significantly limits access to concessional financing. The result is a slow transition to renewable energy power generation, including attracting commercial interest for the relevant infrastructure and unbundling utility systems that often stymie regulatory changes and curtail needed investments in the energy sector.

The time may be ripe for accelerating the pace of the transition in the Eastern Caribbean. A broad consensus exists among regional governments, the business community, and multilateral partners to further usher in a transition to renewable energy, given the unique vulnerabilities facing Eastern Caribbean countries. Meanwhile, countries in the Southern Caribbean (Guyana, Trinidad and Tobago, and Suriname) are leaning into their hydrocarbon reserves as they balance their own energy transition, while other countries are either attracting commercial interest or are far along in their renewable energy development relative to the Eastern Caribbean. Though there is an abundance of solar and wind power potential in the Eastern Caribbean—along with significant geothermal reserves in Dominica, Saint Vincent and the Grenadines, and Saint Kitts and Nevis—countries in this region are faced with defining how a realistic, affordable, and just energy transition can take place and unlocking new private sector and multilateral resources.

The Atlantic Council’s Caribbean Initiative engaged in a series of consultations with the Caribbean Energy Working Group (CEWG), whose members identified two main constraints to the region’s transition: the top-down vertically integrated nature of state-owned utility systems; and limited access to low-cost financing and credit to governments and clean energy developers. While recognizing that an energy transition requires a holistic approach, CEWG members propose that the starting points must be addressing utility constraints and access to finance to ensure a reliable and resilient energy system transformation that is sustainable and affordable for consumers, governments, and the private sector in the Eastern Caribbean. An energy transition in the Eastern Caribbean must ensure reliable power to combat price volatility for consumers while energy infrastructure should be resilient to the effects of climate change, hurricanes and strong tropical storms, and rising temperatures.

The CEWG brings together up to fifteen policy and technical experts from across the Caribbean, and was first convened in 2023 by the Atlantic Council. This publication builds off the CEWG’s first report, “A roadmap for the Caribbean’s energy transition,” which was published last year and outlined a five-step process that governments, developers, and regional partners can undertake to facilitate an energy transition in the Caribbean. The five-step process includes: conducting energy modeling and analysis; modernizing energy grids; diversifying utility structures; creating bankable projects; and scaling project investment to national and subregional levels. This publication focuses on applying steps three and four of the roadmap.

The CEWG met as part of two roundtable discussions, followed by five one-on-one consultation sessions across the group to identify barriers and solutions to accelerating a reliable and resilient energy transition in the Eastern Caribbean. This publication serves as a complement to existing initiatives and projects dedicated to facilitating an energy transition, with the aim of raising additional awareness of the reality and the urgency of the moment for the world’s most vulnerable countries.

Severe consequences for energy insecurity

Countries in the Eastern Caribbean are open facing, small market economies, vulnerable to ebbs and flows of the global financial system. The region’s import dependence means that supply chain constraints and rising global interest rates have a disproportionate effect on these economies. For example, when Russia’s war in Ukraine stemmed the flow of fertilizer to agriculture commodity exporters, food inflation in the Eastern Caribbean skyrocketed and remained high even as prices eventually declined in industrialized nations.2 And although the price of renewable energy, such as solar photovoltaic (PV) power, has declined dramatically over the past decade, capital and investment in this sector naturally gravitated to the bigger economies in the Global North.

Climate change wreaks havoc across Caribbean islands that do not have the available climate-resilient infrastructure to withstand strong wind speeds and heavy rainfall. September 19, 2022. REUTERS/Ricardo Rojas

Stronger storms, more outages
Climate change is a significant driver of the energy transition in the Eastern Caribbean. Hurricanes and strong tropical storms cause flash flooding and high wind speeds that damage energy infrastructure. Global warming, as a result of increasing greenhouse gas emissions (GHG), is fueling stronger and more frequent tropical storms. The result is lost power for days and weeks, as was the case in 2017 when Hurricane Irma hit Antigua and Bermuda, damaging transmission lines and generators. Similarity, in 2019, Hurricane Dorian caused widespread power outages in Dominica.3

The makeup of these economies has resulted in Eastern Caribbean countries paying some of the highest electricity prices in the Americas, including double and sometimes triple of what the average consumer pays in the United States ($0.109 per 1 kilowatt-hour (KW/h).4 On average, consumer costs in Antigua and Barbuda ($0.367 per 1 KW/h) and Saint Kitts and Nevis ($0.333 per 1 KW/h) rank on the higher end of the spectrum, with Saint Vincent and the Grenadines ($0.185 per 1 KW/h) on the lower end, and the rest of the countries falling in between. These high costs coincide with an import dependence on petroleum products, with Antigua and Barbuda (100 percent), Dominica (92 percent), Grenada (93 percent), Saint Lucia (98 percent), Saint Kitts and Nevis (87 percent), and Saint Vincent and the Grenadines (95 percent) all relying on fossil fuels to satisfy almost all of their energy demand.5 The cost of these imports account for almost 7 percent of the subregion’s gross domestic product, cutting into public expenditure needed to invest in climate adaptation projects and social sectors such as education and health services.6

High electricity prices and energy imports undercut the competitiveness of key economic sectors in the Eastern Caribbean—notably the hospitality sector—and limit the purchasing power of consumers. According to the Inter-American Development Bank, six of the countries prioritized in this publication rank in the global top ten of tourism-dependent economies.7 The tourism industry accounts for a significant share of energy demand in these countries, increasing the prices for hotel rooms due to high usage of air conditioning and lighting.8 Given that the tourism industry is an economic driver, high energy costs can make industries uncompetitive vis-à-vis other tourist hubs in the region such as Jamaica and the Dominican Republic. Beyond the tourism sector, more than a quarter of energy demand in the Eastern Caribbean is for residential use.9 High power bills can take up a large share of household income and decrease the purchasing power of individuals, leaving them unable to spend money on local products and services, like food and transportation, which help to stimulate economic growth.

Despite the challenges facing the Eastern Caribbean, bright spots exist. Renewable energy, such as solar, wind, and geothermal reserves, are abundant. Across the region, the sun shines more than 200 days annually,10 has an estimated potential of almost 70 gigawatts of available offshore wind (excluding Dominica), and (excluding Antigua and Barbuda) houses an estimated 6,290 megawatts (MW) of available geothermal reserves.11 But this potential has not been tapped. Current installed capacity of renewable energy (as a percentage) stands at: Antigua (4 percent), Dominica (25 percent including hydroelectric power), Grenada (4 percent), Saint Lucia (3 percent), Saint Kitts and Nevis (5 percent), and Saint Vincent and the Grenadines (17 percent including hydroelectric).

Geothermal development is a high priority in the Eastern Caribbean
Dominica has an estimated 1,390 MW of geothermal potential. The country’s small population and energy grid had not provided adequate incentive to develop that capacity, due to the high capital costs of exploring its geothermal reserves at scale- until recently. Commitment by the government in 2023 to develop its reserves and support this year from the World Bank have helped the country begin developing its geothermal potential. The World Bank is financing a new project at $38.5 million to support drilling of new geothermal wells and helping construct new transmission lines and substations to connect the future geothermal plants to consumers. Meanwhile, St. Kitts and Nevis is consistently looking for new partners to support its own geothermal ambitions for close to a decade, with a total project cost estimated at US $505 million. A mixture of bilateral and multilateral financing will be needed to bring this project closed to Dominica’s stage.12

Energy-transition barriers

The utility systems in the Eastern Caribbean are state-owned entities—excluding Saint Lucia, which has a public-private model—tasked with providing power to citizens. Tax revenues are used by governments to invest in critical and social services. These are top-down systems in vertically integrated structures, meaning that they single-handedly operate the generation, transmission, and distribution of power. This model can stifle innovation and competition, leaving customers without alternative choices and increasing the cost of electricity. Further, it means that introducing new clean energy technologies, when possible, must be financed and implemented by the utility, which is often devoid of the needed capital and technical assistance to act. Therefore, incorporating renewable energies into this model can be expensive—particularly since these technologies have high upfront costs. It is both a political and economic challenge that clean energy is not necessarily cheap energy.

However, unbundling utility systems is not a straightforward solution and not all state-owned entities are necessarily bad. Breaking these systems apart might divide consumer bases and may not lower the cost of electricity given the small size of Eastern Caribbean countries’ populations. Instead, as discussed below, the best-case scenario is to introduce innovation into the utility system, such as diversifying the utility structure across generation, distribution, and transmission by using public-private models. Maintaining an intact customer base is critical for utilities to keep the costs low for consumers while ensuring that utilities and the private-sector entities are still turning a profit. This does not mean that breaking up systems is the sole way to ensure low prices for renewable energy generation. Some markets, particularly in micro economies like in the Eastern Caribbean, might be too small to introduce competition and keep prices affordable. There is no one-size-fits-all solution, as changes in utility structures need to adapt to and be contextualized for each individual country.

Changing the business model of the utilities can help to create more incentives to incorporating renewable energy generation by factoring in the social cost externalities (the associated costs of fossil fuels on the broader public and society) of depending on fossil fuels as a realistic price comparison. Current models determine the price of electricity based on the cost of petroleum imports. But the emissions of fossil fuels—not just carbon dioxide but also other toxins that cause respiratory illnesses—increase cancer risks and, generally, overall poor health. The future healthcare costs for the consumer and the burden on governments to invest in adequate healthcare infrastructure are typically not added to the total cost of importing fossil fuels. If a full cost analysis and reformed business model are developed, then the price of importing fossil fuels might be higher than renewable power generation.

Utility-scale solar PV is a low-cost renewable energy option in the Eastern Caribbean, but it requires significant planning and project design work due to the unique landscapes of each country—all of which are costly. October 26, 2017. REUTERS/Alvin Baez

Commercial developers fund projects initially on their own before seeking to make projects bankable by obtaining loans that are backed by cash flow. Projects in the Eastern Caribbean take a long time to develop, given financing challenges due to unclear regulations and permitting, and a lack of investment-grade utility systems to guarantee payments under negotiated power purchasing agreements. Due to the long period of development, investors and governments look to derisk their projects by seeking full grants or convertible loan grants to help them clear these hurdles.

Commercial renewable energy projects also suffer from limited access to low cost and concessionary finance and capital. As discussed, state-owned utilities and governments are responsible for financing new renewable energy projects. These countries do not have the fiscal space or national budgets to self-finance these projects, leaving them to seek loans and grants from multilateral development banks (MDBs) and bilateral lenders. However, the World Bank classifies Eastern Caribbean countries as middle- and high-income economies, disqualifying them from accessing low-cost loans from the World Bank and those that also use this classification, such as the US Development Finance Corporation. This also applies to the business community and energy developers who need access to financing during the pre-project phase (prefeasibility studies, production of design drawings, and environmental social and impact assessments, among others).

Applying the CEWG roadmap

Addressing utility constraints and unlocking new access to finance and capital both are needed, but a well thought-out process that takes the context and nuances of each country into account is needed. To the international community, these countries are bound by their similarities (e.g., population and market size, and geographic location). Realistically, there are enough differences between them that suggest that no solution to the region’s energy transition challenges can be a one-size-fits-all approach. Each country’s context will determine how the below solutions are applied, from unbundling utility structures to attracting finance and capital based on renewable energy. While each country needs a transition that is contextualized to its own reality, technical assistance and transmission upgrades are at the core of the energy transition. Policy action and financial resources are both required, and Caribbean governments and regional institutions will need the assistance of partners like the US Trade and Development Agency and the Inter-American Development Bank (IDB) to deploy the assistance throughout the transition process.

Based on the small consumer bases and state-owned nature of utility systems in the Eastern Caribbean, unbundling utilities might not actually lower electricity costs. Instead, the structure of the utility might be reformed to a public-private partnership (PPP) model that also accounts for price comparisons between fossil fuel imports with social cost externalities attached to a transition to renewable energies. In essence, PPPs are a collaborative model that leverages the strengths of both the public and private sectors, which can help accelerate the deployment of renewable energy infrastructure while ensuring cost-effectiveness and financing sustainability. For example, needed transmission upgrades can be undertaken by governments to help absorb costs and prevent them from being passed to consumers. And the private sector can take responsibility for generation projects, driving down costs and improving competitiveness. Governments and utilities are still able to benefit from the revenue to use for public-sector investments while private-sector entities can streamline innovation in the energy sector, helping to attract more commercial interest.

Renewable energy projects, like offshore wind, have high upfront costs and require significant technical assistance to design, build, and implement. September 4, 2023. REUTERS/Tom Little

Designing PPP models will be complex. Each country and its utility or utilities are unique. The challenge will be designing the appropriate model. Here, entities such as the IDB should work with the Caribbean Development Bank (CDB), and use input from private-sector companies in the region, to design a PPP model for utility structures. The IDB houses the experience and expertise in designing PPP models, and through its new One Caribbean program is already building a project preparation facility that can incorporate PPP designs into its model.13 The challenge is that Eastern Caribbean countries are not members of the IDB, though they are borrowing member countries of the CDB. In the past, the CDB and the IDB have worked together to streamline assistance to and analysis for the Eastern Caribbean. The same can be done here, with the added benefit of the CDB already understanding the nuances of each of the countries in the subregion.

However, designing and implementing a PPP model requires political will and government support. Governments might not be anxious to adopt renewables if the cost of the electricity does not lower prices—affecting key political constituents—and if accelerating an energy transition comes with increased public debt through high-interest loans. Simply put, a transition is only possible if governments are given assurances and feel comfortable that incorporating renewables will not affect their standing with their constituents, meaning that entities like the IDB, CDB, and partners, such as the United States, will have to secure government support before an energy transition can take place.

As utility systems are able to reform their models to ensure that renewable energy projects are affordable for governments and consumers, support to countries and investors is needed to finance projects through the project pipeline. As discussed in the CEWG’s first report, the projects in the Caribbean tend to fall in the “valley of death,” due to project delays ranging from limited site access to an inability to secure additional financing. Key to moving projects through the pipeline is to derisk them and ensure their bankability. Two steps are needed. First, Caribbean countries need access to the expertise and capacity to conduct feasibility studies, environmental social and impact assessments, and design power purchase agreements, among other things. Second, Eastern Caribbean countries need access to investment vehicles that prioritize grants or low-cost loans for the upfront costs of renewable energy projects. Entities like IDB Invest have pockets of financing that allows the institution to inject equity into projects, but the pool of funds is small relative to what is available for other countries or subregions in Latin America.

This is where regional partners like the United States and existing regional programs like the CARICOM Development Fund (CDF) and the Bridgetown Initiative14 should be utilized. The United States government, through the International Development Finance Corporation (DFC), should take advantage of the current DFC reauthorization process to create a carve out for clean energy projects in the region. The scale of investment is minimal compared to other DFC-financed projects and would have outsized effects in the small markets and grids in the Eastern Caribbean. This would take an act of the US Congress—particularly for a middle-income country exception—but there is precedent and increasing appetite to prioritize energy security in the Caribbean. Further, the United States should encourage the IDB and the CDB to work with the CDF and the Bridgetown Initiative to create a project pipeline (with attached equity investments available) to attract large-scale financing and grants from global donors. Capital and finance around the world are available if regional partners and entities are able to build mechanisms that streamline funding to energy projects in the Eastern Caribbean and build a project pipeline to attract commercial investors.

A global call to action

An energy transition in the Eastern Caribbean requires political will, regional coordination, and consistent technical assistance. Relative to the cost of the global energy transition, the needed capital in the Eastern Caribbean is minimal. But the tides are changing in the region, as more political actors and financial institutions are thinking creatively of how to accelerate an energy transition. Still, human capital and capacity limitations stifle the region’s ability to undertake this process alone. Partner governments like the United States and Canada have committed to the region’s energy security in the past few years, but these two countries do not have the funding or domestic political will to direct their attention consistently to the Eastern Caribbean. Addressing the climate crisis and facilitating a global energy transition is increasing in urgency each day, meaning that more actors across governments, international bodies, the business community, and foundations are unlocking new forms of support. Tapping into these resources will be critical. Regional governments and their partners need to continue raising the profile of the Eastern Caribbean and using regional and global platforms, from the Group of Twenty to the UN General Assembly to the COP29 climate talks in November to ensure that these countries are not left behind.

Acknowledgments

The Atlantic Council thanks board member Melanie Chen for her financial support of this publication and the corresponding working group. A thank you also goes to the CEWG members who joined the numerous one-on-one consultations and roundtables that informed this publication, including co-chairs David Goldwyn and Eugene Tiah. A special thank you goes to Jason Marczak, vice president and senior director of the Adrienne Arsht Latin America Center, which houses the Caribbean Initiative, for his guidance and comments throughout the working group and during the drafting of this publication. Maite Gonzalez Latorre managed the production flow of this publication.

About the author

Staff

Wazim Mowla

Associate Director & Fellow, Caribbean Initiative

Adrienne Arsht Latin America Center

Caribbean China

Wazim Mowla is the associate director and fellow of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center. He leads the development and execution of the initiative’s programming, including the Financial Inclusion Task Force, the US-Caribbean Partnership to Address the Climate Crisis (PACC) 2030 Working Group, and the Caribbean Energy Working Group. Since joining the Council, Mowla has co-authored major publications on the strategic importance of sending US COVID-19 vaccines to the Caribbean, strategies to address financial derisking, and how the United States can advance new policies to support climate and energy resilience.

About the Caribbean Energy Working Group Co-chairs

David Goldwyn is president of Goldwyn Global Strategies, LLC (GGS), an international energy advisory consultancy, and chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group. He is a globally recognized thought leader, educator, and policy innovator in energy security and extractive-industry transparency.

Eugene Tiah is a senior business executive with in-depth knowledge and more than forty years of experience in the oil and gas business within the United States and the Caribbean region. He is also the president and CEO of the Caribbean Energy Chamber.

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1    Eastern Caribbean refers to Antigua and Barbuda, Dominica, Grenada, Saint Lucia, Saint Kitts and Nevis, and Saint Vincent and the Grenadines.
2    Diego Arias, Melissa Brown, and Eva Hasiner, “The Worrying Phenomenon of Food Insecurity in the Caribbean,” World Bank, January 3, 2024, https://blogs.worldbank.org/en/latinamerica/food-insecurity-caribbean.
3    Source: “Several Communities without Electricity Due to Passage of TS Dorian,” Dominica News Online, August 27, 2019, https://dominicanewsonline.com/news/homepage/news/several-communities-without-electricity-due-to-passage-of-ts-dorian/.
4    “The Price of Electricity per KWh in 230 Countries,” Cable.co.uk, accessed May 1, 2024, https://www.cable.co.uk/energy/worldwide-pricing/.
6    Anastasia Moloney, “Pandemic Derails Caribbean Islands’ Bid for Greener, Cheaper Energy,” Reuters, May 11, 2021, https://www.reuters.com/article/caribbean-energy-coronavirus/pandemic-derails-caribbean-islands-bid-for-greener-cheaper-energy-idUSL8N2MY64F/.
7    David Rosenblatt and Henry Mooney, “Caribbean Region Quarterly Bulletin: The Pandemic Saga Continues,” Inter-American Development Bank, accessed May 1, 2024, https://flagships.iadb.org/en/caribbean-region-quarterly-bulletin-2020-q2/the-pandemic-saga-continues.
8    Pepukaye Bardouille, “A Roadmap for Scaling Up Renewable Energy in Island Nations: Three Success Factors for the Eastern Caribbean’s Transition from Fossil Fuels,” NextBillion, June 22, 2022,  https://nextbillion.net/roadmap-scaling-up-renewable-energy-island-nations-eastern-caribbean-transition-from-fossil-fuels/.
9    Goldwyn, Tiah, and Mowla, “A Roadmap.”
10    Martin Vogt, “The Caribbean’s Untapped Renewable Energy Potential,” Renewable Energy World, February 6, 2019, https://www.renewableenergyworld.com/storage/the-caribbeans-untapped-renewable-energy-potential/#gref.
11    Goldwyn, Tiah, and Mowla, “A Roadmap.”
12    Source: “Dominica Commits to Transformative Geothermal Project Funding,”Carib Daily News, September 8, 2023, https://caribdaily.news/article/968edae7-da4d-4864-b2a6-e4d114b1766d; “The World Bank Supports Clean Energy Generation in Dominica,” Press Release, World Bank, January 26, 2024, https://www.worldbank.org/en/news/press-release/2024/01/26/world-bank-supports-clean-energy-generation-dominica; and Eulana Weekes, “SKN Holds Further Geothermal Discussions with Saudi Fund for Development,” Caribbean Electric Utility Services Corporation, February 20, 2024, https://carilec.org/skn-holds-further-geothermal-discussions-with-saudi-fund-for-development/.
13    “IDB Group Launches One Caribbean Regional Program,” Loop News, March 11, 2024, https://caribbean.loopnews.com/content/idb-group-launches-one-caribbean-regional-program-4.
14    N.K Ezeobele, “Bridgetown Initiative: Rethinking Sustainable Economic Growth for the Developing World,” Business Council for Sustainable Energy, July 14, 2023, https://bcse.org/bridgetown-initiative-rethinking-sustainable-economic-growth-developing-world/#:~:text=The%20Bridgetown%20Initiative%20signifies%20a,climate%20action%20and%20infrastructure%20gaps.

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]]> Electrification of the road transport sector in Europe and the case of Italy https://www.atlanticcouncil.org/in-depth-research-reports/report/electrification-of-the-road-transport-sector-in-europe-and-the-case-of-italy/ Thu, 27 Jun 2024 20:00:00 +0000 https://www.atlanticcouncil.org/?p=775013 A report exploring the the European Union and Italy's ongoing progress in electrifying the transport sector in pursuit of broader decarbonization goals.

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Executive summary

The European Union (EU) has increasingly raised its climate ambition, especially since the launch of the European Green Deal in 2019, which set a target of climate neutrality by 2050. The bloc’s achievement demands a contribution from all sectors: power, industry, buildings, and transport. The latter is sizable, accounting for almost a quarter of the total emissions of the twenty-seven EU members (EU-27) in 2021—with road transport responsible for more than 75 percent of the transport sector’s total emissions given its reliance on fossil fuels. Additional policies and measures are required since the sector’s emissions have substantially increased since 1990, unlike the other sectors.

While EVs are gaining relevance and are set to become an increasingly important factor in decarbonization, policymakers will need to address critical issues, especially relating to enabling infrastructure (i.e., charging stations) to have a sustainable and smooth transition. Italy, one of the largest car markets in Europe, has much to do to decarbonize road transport. It has developed alternative fuels, but electricity still accounts for less than 0.3 percent of vehicle fuels. It has set ambitious EV targets to achieve by 2030: 6.6 million cars including 4.3 million BEVs.

This article explores Europe’s rising ambition in electrifying this sector and the political and market drivers at work; presents the case of Italy, including its national objectives, trends, and challenges in the transition; and provides a summary of takeaways and policy recommendations to further support the electrification of the road transport sector, especially in Italy.

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Pier Paolo Raimondi is a researcher in the Energy, Climate and Resources Program at the Istituto Affari Internazionali (IAI) in Rome. His main research topics are related to energy markets, energy policy, energy geopolitics, and geoeconomics. He also is a PhD student in institutions and politics at the Catholic University of Milan. He holds a master of international relations and a bachelor degree in political science from the University of Milan.

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]]> Production diplomacy for deterrence, readiness, and resilience in the Indo-Pacific https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/production-diplomacy-for-deterrence-readiness-and-resilience-in-the-indo-pacific/ Thu, 27 Jun 2024 16:42:13 +0000 https://www.atlanticcouncil.org/?p=776159 Production diplomacy provides opportunities to protect supply chains, strengthen alliances and partnerships, enhance deterrence, and build defense readiness, though it is not without risks and challenges.

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Executive summary

Production diplomacy integrates the defense industrial bases (DIB) of allies and partners by protecting supply chains, strengthening alliances and partnerships, enhancing deterrence, and building defense readiness, though it is not without risks and challenges. In order to meet growing challenges of an evolving geostrategic environment including facing multiple adversaries simultaneously, the United States should rapidly develop and implement new production diplomacy initiatives in the Indo-Pacific.

The term production diplomacy was coined by Under Secretary of Defense for Acquisition and Sustainment William A. LaPlante, and subsequently defined in the National Defense Industrial Strategy as a strategy to protect DIB supply chain. It can additionally support national security objectives in the Indo-Pacific geostrategic environment.

Production diplomacy plays a key role in deepening and broadening integration among allies and partners, while enhancing resilience and building stockpiles and surge capacity. The application of production diplomacy also comes with risks and challenges, including difficulties creating sustainable industry environments, unintended technology transfer to adversaries, and domestic political environments.

While production diplomacy will not apply in every case, when applied creatively under the right circumstances, it has the potential to enhance US, allied, and partner national security. This creativity can include both coproducing and assembling forward, as well as multilateral coproduction to create win-win-win outcomes.

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]]> Migration dynamics in the Atlantic basin: Case studies from Morocco and Nigeria https://www.atlanticcouncil.org/in-depth-research-reports/report/migration-dynamics-in-the-atlantic-basin-case-studies-from-morocco-and-nigeria/ Thu, 27 Jun 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=775063 This report seeks to provide valuable insights into the ongoing discourse on African migration trends in the global context.

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]]> A global strategy to secure UAS supply chains https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/a-global-strategy-to-secure-uas-supply-chains/ Tue, 25 Jun 2024 21:09:37 +0000 https://www.atlanticcouncil.org/?p=763606 China exercises substantial control over the commercial drone market, which poses a security challenge for the United States and its allies and partners. What strategy will help the United States and its allies and partners counter China’s drone-market dominance?

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]]> Foreword: A US strategy for UAVs

The United States has long been one of the world’s leading innovators, allowing it to rapidly adopt emerging technology to strengthen US national defense. This has been especially true in the field of aviation. From the first powered flight at Kitty Hawk to twenty-first-century strategic competition, the United States has made the maintenance of air superiority a major priority.

Today, however, the People’s Republic of China has built a near-insurmountable lead in the development and use of small, unmanned aerial vehicles (UAVs). Benefiting from the Chinese Communist Party’s (CCP) unfair trading practices, Chinese companies have come to dominate the global UAV market, which was valued at $31 billion in 2023.

Chinese dominance of the global UAV industry poses a number of national security challenges for the United States. On the battlefield, drones play a crucial role in intelligence, surveillance, and reconnaissance (ISR), and in conducting strikes. Chinese leadership in UAVs provides the People’s Liberation Army (PLA) with potential battlefield advantages.

At home, these devices provide critical support to law-enforcement agencies and a variety of government departments, in everything from undertaking infrastructure inspections to fulfilling vital roles in scientific research. Chinese commercial drones operating in the United States and allied countries, therefore, provide the PLA with a potential source of intelligence about personal data and critical infrastructure that can be used to identify and exploit vulnerabilities in US and allied homelands.

Finally, Chinese UAVs raise human rights concerns, as Chinese drone companies surveil Chinese citizens and assist the CCP in its mistreatment of its Muslim Uyghur minority.

Washington has begun to wake up to the challenges presented by China’s dominance of the global UAV market. Federal agencies and some states have banned the use of Chinese drones. The federal government has enacted tariffs. Recognizing UAVs’ potential benefit to defense and deterrence, the Department of Defense created the Replicator initiative, a flagship effort to promote the development and fielding of autonomous systems. Congress has also introduced legislation with new measures to protect the US market from Chinese drones and to promote the production of US-made drones.

These are good initial steps, but, to date, they have been piecemeal in nature and lack an overarching strategic framework.

This issue brief proposes a comprehensive three-part “protect-promote-align” strategy for the United States and its allies to secure their national security interests in the global UAV market. It argues that the United States and its allies should introduce new restrictions on the use of Chinese drones in their markets. They should promote the development of alternative drone manufacturers in the United States and trusted allies. Finally, they should align their policies to advance a whole-of-free-world approach to the global drone competition.

If adopted, the strategy proposed here will go a long way toward ensuring that the United States and its allies can remain secure at home, deter their adversaries, and benefit from an emerging technology that is likely to play a critical role in twenty-first-century defense.






Deborah Lee James
Atlantic Council Board Director
Former Secretary of the Air Force

Executive summary

The United States has been the world’s innovation leader since the time of Thomas Edison, and this innovation edge has provided the United States and its allies with enormous economic, military, and geopolitical benefits. China, however, aims to usurp the US position as the world’s leader in the most important technologies of the twenty-first century, including artificial intelligence (AI), quantum computing, hypersonic missiles, and unmanned aerial systems (UAS), commonly known as drones. Using a variety of unfair trade practices, including massive intellectual-property theft, China has closed the gap, and even maintains the lead, in some of these critical technologies, including UAS.

While the United States has preserved its edge in large military drones, China dominates the market for smaller and commercially available drones with dual-use civilian and military applications. China controls 90 percent of the drone market in the United States and 80 percent globally.

China’s supremacy in the commercial UAS market creates a number of national security threats for the United States and its allies. First, Chinese drones operating in the United States and its democratic allies create an intelligence vulnerability, as these drones scoop up sensitive data that can be transferred back to Beijing for a variety of national security purposes, including aiding the Chinese People’s Liberation Army (PLA) in targeting critical infrastructure for cyber and kinetic military attacks.

Second, China’s drone-manufacturing prowess provides a military edge. Russia’s war in Ukraine demonstrates that inexpensive commercial drones will be critical to intelligence, surveillance, reconnaissance, and strike in twenty-first-century warfare.

Third, and related, the free world has a supply-chain vulnerability problem, as it is dependent on an autocratic adversary for access to UAS for both civilian and military purposes, creating dangerous dependencies that China could exploit in crisis or peacetime. States increasingly utilize “drone diplomacy” to gain influence abroad. The act of selling a drone can be used to “extract concessions, exert influence, counter rivals, and strengthen military ties.” China’s artificially low prices for UAS, achieved through state subsidies, crowd out the development of a homegrown domestic drone industry in the United States and among US allies.

Fourth, Chinese-built drones threaten democratic values and human rights, as the Chinese Communist Party (CCP) and other autocracies employ Chinese drones for surveilling their populations, including in the CCP’s genocide of the Uyghur minority.

To address these challenges, the United States and its allies need a new strategy to protect against the threats posed by Chinese drones, strengthen their position in the international UAS market, and assert global leadership in this key twenty-first-century technology. To help the United States and its allies win the new tech race, the Scowcroft Center previously published a three-part “promote, protect, and coordinate” strategy. This paper updates that framework, and applies it to the issue of dual-use drones.

First, the United States and its allies should protect their countries from the national security threat posed by Chinese-made drones by prohibiting their use in sensitive areas, such as by the government and in critical infrastructure.

Specific recommendations include the following.

  • The US Congress should pass the Countering CCP Drones Act and the Drone Infrastructure Inspection Grant (DIIG) Act.
  • The US Congress should pass legislation to make US state-level bans effective and actionable by offering federal-government support for their implementation, including through targeted grant programs accelerating the transition to secure and capable systems.
  • The US State Department should, in light of increasing global restrictions on People’s Republic of China (PRC)-made drones, launch an initiative to educate allies and partners on the risks associated with those systems, and support secure and capable alternatives.
  • The US State Department should encourage allies and partners to enact tariffs and sanctions on PRC-made UAS to counter China’s unfair trade practices.

Second, the United States and its allies should promote domestic drone manufacturing to provide a secure alternative to PRC-made drones.

Specific recommendations include the following.

  • The US federal government should provide targeted grants to accelerate the transition to secure drones in the government and critical-infrastructure sectors, and should consider funding to expand domestic drone manufacturing.
  • The US State Department should encourage allied governments to do the same, providing reasonable funding measures to accelerate the transition to secure US and allied solutions.
  • The US Congress and the Department of Defense (DOD) should ensure that the Replicator initiative has the proper funding and support to achieve the ambitious goals laid out in the program.
  • The US Departments of State and Defense should encourage key allies to adopt their own versions of the Replicator initiative to ensure the free world has UAS in mass necessary to deter and defeat aggression.
  • The US Congress should pass legislation, using a public-private partnership framework, to stimulate investment in research and development of autonomous drones, and scale existing UAS-manufacturing capabilities in the United States.

Third, and finally, the United States should align with its allies and partners to forge a coherent free-world approach to the setting of policies, regulations, and norms regarding commercial UAS.

Specific recommendations include the following.

  • The US State Department should elevate drones in technology and commercial diplomacy, starting by designating an individual to lead allied cooperation on drone policies, manufacturing, and supply-chain security.
  • The United States and its allies should work with existing multilateral frameworks including the US-EU Trade and Technology Council (TTC), Group of Seven (G7), Group of Twenty (G20), Quad, Department of Commerce, and World Trade Organization (WTO) to develop regulations and norms for the responsible use of drones and autonomous systems.
  • The United States should leverage NATO and AUKUS Pillar II to improve defense coordination related to UAS.

Pursuing this strategy now will help the United States and its allies maintain their innovation edge and prevail in a new era of strategic competition against revisionist autocracies.

The threat posed by China’s dominance of the global unmanned aerial vehicle (UAV) industry

In 2023, the global UAS market was worth more than $30 billion, a number projected to increase to more than $55 billion by 2030. The market is dominated by firms based in China, with DJI controlling 80 percent of the commercial market within the United States and as much as 70 percent of the global market, and Autel, another PRC manufacturer, controlling 7 percent globally. As of 2021, estimates put Autel’s US market share at 15 percent. In comparison, Skydio, perhaps the most prominent US-based company, had only a 3 percent share of the global market, the same as Parrot, a French-based entity.

Commercial drone brand market share by country of origin

DroneAnalyst’s 2021 Drone Market Sector Report includes data from a survey of drone industry stakeholders in over 100 countries on the percentage of all new commercial drone purchases. The graph examines the percentage each company has of the global market share and sorts by the headquarter location of each company. DroneAnalyst

In 2020, 90 percent of UAS operated by US public-safety agencies were manufactured by DJI, though this number has since fallen due to a series of state and local bans. In Florida, before a recent ban was enacted, more than 1,800 of 3,000 UAS registered by the government and police departments were manufactured by DJI and Autel. However, in some states, DJI and Autel still hold a disproportionate market share among public-sector entities. In New Jersey, more than 500 of the 550 UAS registered by the state and local police departments were made by DJI or Autel.

US allies continue to rely heavily on PRC-made drones. In the United Kingdom (UK), for example, 230 out of the 337 drones operated by police forces across the country are DJI products. In Australia, a report revealed that federal agencies owned several thousand DJI drones, although the Australian military had grounded its systems and other agencies had begun to move away from them as well.

The global-market dominance of DJI and Autel has been supported by two national CCP policies, Made in China 2025 and Military-Civil Fusion, which are supported in part by industrial and corporate theft of foreign technology. The PRC has never been a market economy. Instead, it relies on a noncompetitive system of trade, bolstered by subsidies and other unfair practices.

Made in China 2025 was announced in 2015 and seeks to boost China’s manufacturing competitiveness across a variety of industries. The plan focuses on ten different sectors, including the development of UAS. Across each sector, the PRC aims to increase China’s domestic manufacturing capacity to have 70 percent of the core components and materials produced in China by 2025. To achieve this goal, the PRC uses a variety of tactics, such as creating financial and tax incentives to convince foreign-based firms to shift manufacturing and research and development (R&D) operations to China, intellectual-property theft, predatory procurement policies, and financing state-owned enterprises in their acquisitions of overseas companies.

Military-Civil Fusion (MCF) is central to Xi Jinping’s plan to allow China to modernize its military by 2035 and ensure that the PLA becomes “world-class” by 2049. At its core, MCF is a strategy that aims to break down barriers between commercial R&D and military products, allowing the PLA to rapidly identify, adopt, scale up, and leverage commercial technologies that also have a military application, such as UAS. The MCF system also encourages linkages between the state and dozens of private companies that can contribute to military projects and help meet procurement needs, including companies that develop unmanned systems. To achieve the goals of MCF, the PRC uses both licit and illicit means, including exploiting global academic exchanges, investment in foreign companies, forced military transfer, and, in some cases, blatant theft.

As a result of these strategies, DJI and Autel can sell their UAS at below-market cost to the United States and allied countries, a process known as dumping. A 2017 investigation by the US Department of Homeland Security found that, in 2015, DJI slashed its prices by 70 percent, leading to a problem highlighted in 2019 by then Under Secretary of Defense for Acquisition and Sustainment Ellen Lord, who said, “We don’t have much of a UAS industrial base because DJI dumped so many low-price quadcopters on the market, and we then became dependent on them.” DJI has even clearer linkages to the CCP than just state support for illegal trade practices. A 2022 Washington Post investigation found four different CCP-owned or operated investment vehicles invested in DJI.

The US government recognizes the threat posed by PRC-made drones. In 2021, the Department of Defense released a statement indicating that DJI systems pose potential threats to national security. In 2022, the department identified DJI as a Chinese military company operating in the United States. Similarly, the Treasury Department added DJI to the Chinese Military-Industrial Complex (CMIC) companies list, which prevents US citizens from investing in or trading their stock, should DJI attempt to build a public company.

PRC-made UAS pose four direct national security concerns. The first concern relates to Chinese intelligence collection in the United States. In early 2024, the Cybersecurity and Infrastructure Security Agency (CISA) and the Federal Bureau of Investigation (FBI) released an alert that stated, “The use of Chinese-manufactured UAS in critical infrastructure operations risks exposing sensitive information to PRC authorities, jeopardizing U.S. national security, economic security, and public health and safety.” These concerns represented by the joint CISA-FBI alert are compounded by China’s 2017 National Intelligence Law, which mandates that private companies work with the PRC’s intelligence services. Article 14 of the law states, “State intelligence work organs, when legally carrying forth intelligence work, may demand that concerned organs, organizations, or citizens provide needed support, assistance, and cooperation.” In practice, this may include Chinese drone companies sharing sensitive flight data, the personal information of users, geolocation data, images, and video collected in the United States with the CCP. The transfer of such information to the CCP would allow Beijing to identify and exploit US vulnerabilities and facilitate the sabotage, disruption, or destruction of US critical infrastructure in times of crisis or conflict. Indeed, in 2017, US Immigration and Customs Enforcement determined that DJI was likely providing information about critical US infrastructure sites to the PRC, which the PRC then used to target specific assets. At the strategic level, FBI Director Christopher Wray warns that the Chinese security services present a “broad and unrelenting threat” to US critical infrastructure and are prepared to “wreak havoc.” PRC-made UAS have also been located in restricted airspace, including over Washington, DC. This is despite DJI claiming to have geofencing restrictions, which, in theory, limit where its UAS can operate.

The second concern relates to military effectiveness. The war in Ukraine is a testbed for new military technologies, and small commercial UAS have been a game changer in the conflict. They allow troops on the ground to conduct more accurate, real-time intelligence, surveillance, and reconnaissance (ISR) of adversary positions and troop movements, and to facilitate more effective fires. They have also proven to be an effective and economical strike option, as UAS can destroy much more expensive platforms by crashing into them or dropping inexpensive bombs. Indeed, Chinese drones are making Vladimir Putin’s war machine more lethal. As of March 2023, the PRC had sold more than $12 million in UAS and parts to Russia. The consistent supply of UAS has allowed Russia access to a cheap and plentiful way to carry out ISR and targeted attacks. DJI and Autel are the number one and two brands, respectively, that China exports to Russia. To maintain deterrence in Europe and the Indo-Pacific, the United States and its allies will need the ability to develop trusted drones, at scale, for military purposes and to counter adversaries’ drones. Recent news from China makes that reality more important. Last year, China enacted export controls on small commercial drones for the first time. Those controls threaten to choke Ukraine’s primary source of drones without affecting supplies to Russia. That development highlights the criticality of the United States and its allies developing alternative sources of supply.

An Autel Robotics Dragonfish Pro drone, with an 18-mile range, is displayed during CES 2022 at the Las Vegas Convention Center in Las Vegas, Nevada, U.S. January 5, 2022. REUTERS/Steve Marcus

A third concern relates to secure supply chains. In recent years, the United States and its allies have recognized they are economically vulnerable due to dependence on autocratic rivals—China and Russia—for critical supplies, including semiconductors, critical minerals, energy, and much else. As demonstrated by the recent Chinese efforts to strangle Ukraine’s source of supply, the PRC has the ability to restrict US and allied access to UAS, potentially limiting their access in wartime. Similarly, drone customers not subject to federal or state prohibitions on Chinese drones, such as commercial entities, remain vulnerable to the PRC’s ability to restrict their access to UAS for civil purposes in peacetime.

The fourth and final concern relates to human rights. China commits gross human rights violations, including genocide against its Uyghur minority population. Under the Uyghur Human Rights Act of 2020, Washington committed to sanctioning companies that participate in atrocities against the Uyghurs. The US Treasury Department stated, “SZ DJI has provided drones to the Xinjiang Public Security Bureau, which are used to surveil Uyghurs in Xinjiang. The Xinjiang Public Security Bureau was previously designated in July 2020, pursuant to the Global Magnitsky Human Rights Accountability Act for connection to human rights abuses in Xinjiang.” DJI has already been added to the Commerce Department’s entity list, which restricts the ability of US companies to sell technology and component parts to DJI. DJI’s complicity in the human rights violations against the Uyghurs is indicative of the CCP’s support of authoritarianism globally. China and its authoritarian partners increasingly use UAS to suppress democracy and human rights globally. Countering DJI and other PRC UAS companies is critical to limiting the reach of autocrats and supporting democracy globally.

Ongoing efforts to counter PRC-made drones

The United States and its allies have already undertaken some efforts to challenge the dominance of Chinese UAS. At the federal level, the Donald Trump administration banned the sale of US technology to DJI without a license. The Department of Defense, Department of Homeland Security (DHS), and Department of the Interior stopped using Chinese drones in 2018, 2019, and 2020, respectively. Congress codified the Pentagon’s ban in 2019. The 2022 National Defense Authorization Act (NDAA) expanded those restrictions to prohibit DOD from buying UAS or components from Russia, Iran, and North Korea. This law was further expanded to ban defense contractors from using UAS and components manufactured in the PRC, Russia, Iran, and North Korea in execution of their DOD contracts starting in 2023. The American Security Drone Act, passed in the 2024 NDAA, bans federal government entities from buying and operating UAS from designated adversarial nations, including China, and prohibits the use of federal funds to purchase or operate these drones starting in December 2025.

At the state level, Arkansas, Florida, Hawaii, Mississippi, Nevada, Texas, Tennessee, and Utah have restricted the use of PRC-made UAS by state agencies, local agencies, or both. Those restrictions generally mirror federal laws, protecting government agencies from insecure products connected to adversarial nations. This first phase of state action focused on government end-user restrictions, but a second phase—focused on providing grants to accelerate the transition away from insecure drones—is under way. In 2023 Florida enacted a $25-million grant program to help local agencies reduce their dependency on insecure drones. In 2024, legislators in several states proposed similar grant programs.

There are additional efforts under way in the US Congress. Representatives Elise Stefanik and Mike Gallagher introduced the Countering CCP Drones Act to amend the Secure and Trusted Communications Networks Act of 2019. Their bill would add DJI to the list of equipment banned from operating on US telecommunications infrastructure, potentially impacting DJI’s ability to place new products on the market. The bill would not affect existing DJI drones.

In an effort to better equip the United States with UAS for military purposes, the DOD recently announced the Replicator initiative, which aims to directly counter PRC dominance in the domain of attritable autonomous systems. Replicator was motivated, in part, by the recognition that the PRC has a scale advantage, which allows Beijing to rapidly manufacture and field weapons systems, including attritable autonomous systems. With Replicator, DOD aims to deploy thousands of autonomous systems. Open questions remain as to what systems will be selected for Replicator, how the initiative will be funded, and how many systems will be procured. To be decisive in a near-peer conflict, Replicator will likely need to purchase tens of thousands of various systems to be used across all domains. For example, the UK-based Royal United Services Institute estimates that Ukraine is losing ten thousand drones per month in its fight against Russia, providing insight into the scale of the total number of UAS. To complement Replicator and make all-domain attritable autonomous systems decisive in near-peer conflict, the DOD should consider stockpiling drones. The stockpiling of these systems would be a hedge against supply-chain interruptions in times of conflict, and would allow for the quick delivery of drones to theaters of conflict as these systems are rapidly expended on the battlefield.

US allies have also started to act. In 2022, Lithuania banned the purchase of technology from countries deemed “untrustworthy” for applications in defense and security, including PRC-made UAS. India has gone further, banning both Chinese-made drones and their component parts. Australia’s military services and border force have grounded DJI drones, and other agencies appear to be transitioning to secure systems. In Japan, the coast guard stopped using DJI drones in 2020 due to cybersecurity concerns.

While the above actions are a good start, the United States and its allies need a whole-of-free-world strategic framework to mitigate the threat posed by PRC-made drones.

A free-world strategy for securing UAV supply chains

The United States and its allies should adopt a comprehensive strategy to address the threat posed by Chinese-made drones. The goal should be to reduce or eliminate the national security threats that come from an overreliance on PRC-made drones, and to develop an alternative drone market in trusted countries. To achieve these goals, the United States and its allies should pursue a three-part “protect, promote, and align” strategy.

1. Protect the United States and its allies from the national security threat posed by PRC-made drones.

The first element of a strategy for securing UAV supply chains is to protect US and allied markets from PRC-made drones that threaten national security or that violate international trade laws and norms. This begins by pursuing a hard decoupling from Chinese-made drones in areas of sensitive national security concern. The regulation of UAS can be modeled after the “small yard, high fence” approach that the United States is taking to the regulation of other critical technologies, such as semiconductors.

In the United States, the American Security Drone Act is a good first step, but it is insufficient to fully address the problem. In addition, Congress should pass the Countering CCP Drones Act to prohibit Chinese drones from operating on Federal Communications Commission (FCC) infrastructure, just as the United States did for Chinese telecommunication companies Huawei and ZTE. As identified by CISA and the FBI, the continued operation of Chinese UAS on US infrastructure raises the risk that the PRC will gain access to sensitive information and could use that information to conduct espionage on vulnerabilities in US critical infrastructure and public-safety response footprint, and to stage potential cyberattacks. Volt Typhoon, a recently disclosed Chinese threat activity discovered penetrating US critical infrastructure to prepare for future attacks, illustrates the stark nature of the threat. Currently, the American Security Drone Act would only ban DJI, but this should be amended to include all PRC-made drones, including those made by Autel.

Reasonable restrictions on PRC-made drones should be extended to state and local governments. Currently, the diverse range of legislation at the state and local levels has created a piecemeal approach that is confusing and leaves loopholes. Furthermore, the ban on Chinese drones operating in the United States should include the US private sector operating in sensitive national security areas, such as inspecting critical-infrastructure sites.

Next, the State Department should work with US allies and partners and encourage them to pass similar legislation restricting Chinese drones in sensitive sectors and to cooperate on common drone policies going forward. US global defense readiness and ability to project power in key regions could be compromised if China is able to gather sensitive intelligence and targeting information through drones operating in key allied countries. The United States and its allies already discuss critical and emerging technology cooperation through various forums, such as the US-EU Trade and Technology Council. The State Department should elevate drone cooperation as a key agenda item for discussion and cooperation in these forums. Additionally, the State Department should designate an individual who has the mandate to lead diplomatic efforts on drone cooperation.

In addition, the United States and its allies should seek coordinated tariffs and other countervailing measures to offset China’s unfair trade practices and level the playing field. The United States should maintain, if not increase, its 25-percent tariff on Chinese-made drones. There will, of course, be a cost to these measures, but they can be partially offset by the recommendations in the following “promote” element of the strategy. Should the United States increase tariffs on Chinese-made drones, the corresponding increased tariff revenue could be used to fund various grant programs to help existing Chinese drone customers—such as law-enforcement agencies—transition to US or allied drones.

When considering tariffs, it is critical to counter tariff evasion. In March 2024, bipartisan members of Congress wrote to the Joe Biden administration raising serious concerns that Chinese drone makers are evading the 25-percent tariffs by transshipping drones through Malaysia. The letter said, “[A]fter exporting virtually zero drones to the United States and being home to no major domestic drone manufacturers prior to 2022, Malaysia’s drone exports to the United States jumped inexplicably to 242,000 units that year.” In “the first eleven months of 2023 the United States imported more than 565,000 drones from Malaysia.” It is critically important to tackle transshipment, and to apply equivalent tariffs to—or categorical bans on—companies and products found to be complicit.

As part of this strategy to secure drone supply chains, the United States must be wary of efforts by DJI and other Chinese drone companies to avoid US sanctions. The New York Times reported earlier this year, for example, about a Texas-based company that licenses its drone designs from DJI and sources much of its parts from China. Legislative initiatives by Congress and other efforts by federal regulators to curb dependence on Chinese drones need to eliminate loopholes that would enable Chinese companies to evade punitive measures by distributing their products through US-based companies.

In preparation for a possible crisis or conflict with China, Washington and its allies should also be prepared to enact wide-reaching sanctions against Chinese companies critical for China’s military and intelligence activities, including DJI and Autel.1 Washington must also be prepared to sanction companies involved in the overall procurement process for UAS, something that the Treasury Department has done in targeting companies that support Iran’s UAV industry. A response to the PRC in a time of crisis would also include enacting retaliatory export restrictions of US technology to China. To best prepare for these potential impacts, the Sanctions Economic Analysis Unit, established within the Department of the Treasury, should undertake research to understand the possible “collateral damage of sanctions before they’re imposed, and after they’ve been put in place to see if they should be adjusted.” A quick and easy win in this space would be adding Autel to the Department of Defense’s 1260H list, the Commerce Department’s entity list, and the Treasury Department’s Chinese Military-Industrial Complex Companies List, joining DJI. Additionally, the United States must work to develop robust and durable secure supply chains for all components of UAS, including through the development of a domestic industrial base.

To guide engagement with its allies, the United States should leverage the recently established Office of the Special Envoy for Critical and Emerging Technology (S/TECH). The S/TECH should make secure supply chains for drones a priority, along with other measures such as coordinating restrictions and safeguards against Chinese drones. Additionally, the DOD should elevate UAS as a priority agenda item for all bilateral and multilateral technology engagements carried out by US diplomats with allies and partners.

Taken together, these steps will offer significant protection for the United States and its allies from the threat of Chinese-made UAS.

U.S Secretary of State Antony Blinken, accompanied by the U.S. Ambassador to Nigeria Mary Beth Leonard, walks past a Zipline drone while touring an Innovation Exhibition at Innov8 Hub in Abuja, Nigeria November 19, 2021. Andrew Harnik/Pool via REUTERS

2. Promote the development of a robust drone-manufacturing capability in the United States and allied countries to provide a secure alternative to PRC-made drones.

The second major element of the strategy is to promote the development of a robust drone-manufacturing capability in the United States and allied countries. As outlined above, drones are critical for many purposes, and Chinese-made systems dominate all drone markets. As the United States and allied countries successfully de-risk from Chinese-made drones, they will need to replace this supply with drones produced by trusted sources.

Some of the steps identified in the “protect” element of the strategy will also stimulate domestic US and allied production. A selective ban on Chinese drones will naturally increase demand for drones produced elsewhere. Stiffer tariffs on Chinese-made drones will help to level the playing field and make non-PRC-made drones more competitive in the market.

To ensure these bans can be effectively enacted while being minimally disruptive, the federal government should provide funding incentives to facilitate the transition away from PRC-made UAS. As noted earlier, Florida’s ban on PRC-made UAS left local bodies, including fire departments and law-enforcement agencies, scrambling to find funding for alternatives. The provision of federal funds can help overcome the financial burden of buying alternatives to PRC UAS. The DIIG Act, for example, promises to provide funding for state and local agencies to purchase UAS for infrastructure inspections. Federal funding should be conditional, and only available to states that fully ban PRC-made UAS. For example, states that only ban DJI and not Autel, or that fail to ban the use of PRC-made UAS by contractors, would not be eligible for this funding.

The State Department should share these efforts, such as the DIIG Act, with allied countries and encourage the adoption of similar measures by allied governments. Its network of allies is the cornerstone of US national security. Therefore, the United States must encourage its allies to adopt similar policies that promote their own security as well.

In addition, the Pentagon’s Replicator initiative should be harnessed to stimulate a major leap forward in the development and deployment of US autonomous systems. In the short timeframe of 18–24 months, Replicator can help modernize the DOD’s warfighting capabilities and produce thousands of new drones. The US Congress and the DOD should prioritize significant, enduring funding for the Replicator initiative.

The efforts initially achieved through Replicator can be boosted by utilizing the Office of Strategic Capital (OSC). Established in 2022, OSC identifies critical technologies for the DOD and partners with private capital and other agencies to create investment vehicles. Given Replicator’s priority status for the department, the development of the autonomous UAS industry should be a prioritized area for OSC. However, OSC funding is designed to target small companies that would not be able to produce systems at scale in order to contribute to Replicator. Instead, OSC should consider boosting small, innovative companies that are in the UAS supply chain and help enable the critical domestic industrial base of advanced components for current and future UAS systems. By designating UAS as a priority area for OSC, the Department of Defense can help create a strong domestic manufacturing base for this technology.

There is potential for OSC funding to play an important role in strengthening the domestic UAS industry, with the White House requesting $144 million for the office in 2025. In addition to fully meeting the White House’s request for OSC funding, Congress should continue funding other accelerators and offices that strengthen the development of companies across the DOD’s fourteen critical technology areas.

In order to meet any potential funding gaps, the DOD should be prepared to provide additional funding for investment in small UAV systems outside of OSC, including by increasing related funding to the relevant task forces working inside of the Army, Navy, and Air Force. Furthermore, Congress should authorize additional funding for the Defense Production Act that will allow the Department of Defense to further invest in the defense industrial base, including the development of asymmetric capabilities such as the small drones that have played a critical role in Ukraine’s battlefield success.

The US Departments of State and Defense can encourage key allies to adopt their own versions of the Replicator program to ensure the free world has UAS in mass that will be necessary to deter and defeat aggression in the twenty-first century. Additionally, the Department of Defense should consider the potential to invite other allies and partners into the Replicator program, or establish a multinational, allied Replicator initiative. In doing so, the department would scale the allied drone industry, create interoperability among combined allied forces, and strengthen allied deterrence against great-power adversaries.

DOD is already working to integrate UAS and autonomous systems more broadly into its operations. The US Navy’s Task Force 59 aims to better integrate emerging technologies into warfighting, and is currently focused on robotics and autonomous systems. Task Force 59 operates a variety of uncrewed vehicles, including submersible and surface-level ships, alongside UAS.

The Air Force operates Task Force 99.2 Based in Qatar, it has developed a 3D-printed UAV, dubbed the “kestrel,” which can be produced for $2,500 and can carry a payload of up to three kilograms.

The efforts of Task Forces 59 and 99 are a solid start, but they have been challenged by institutional hurdles and a lack of funding. Similar concerns have been raised about the ability of the private sector to meet the government’s demand for Replicator. Any successful long-term strategy in this area will require close coordination between the private and public sectors. Replicator offers a good starting point, allowing the DOD to establish trust with the defense-technology industry, break free from the antiquated Cold War procurement process, and establish the new defense industrial base required for twenty-first-century security.

Beyond Replicator, Congress should pass legislation modeled on the CHIPS and Science Act to produce autonomous unmanned aerial vehicles. Recognizing a similar challenge related to domestic semiconductor manufacturing, Congress passed the CHIPS and Science Act in 2022. The act provides billions of dollars in incentives for the research, development, and manufacturing of semiconductors. It has already stimulated the construction of new semiconductor-fabrication facilities in the United States. Similarly, the United States should provide a variety of incentives, including tax credits and investments, for the research, development, and manufacturing of autonomous vehicles. Stimulating US manufacture of autonomous vehicles will make drones available for DOD procurement, while also allowing US-made UAS to be sold globally for commercial applications.

Creating an equivalent piece of legislation for the manufacturing of UAS would have one major difference compared to the CHIPS Act—the price would be significantly lower. A manufacturing facility for the production of semiconductor chips costs a minimum of $10 billion while taking at least five years to build. Compare that to the US drone manufacturer Skydio, which raised $230 million in additional funding in 2023, part of which paid for the construction of a new UAV-manufacturing facility within the United States that expanded its production capacity ten times. For a fraction of the $54-billion CHIPS Act, the United States can successfully develop and support a variety of domestic UAV-manufacturing operations.

US allies and partners have taken note of the CHIPS Act and passed their own legislation to advance in this space. For example, the European Union enacted the European Chips Act into law in September 2023. As the US encouraged allies to invest in CHIPS, it can encourage key allies to stimulate domestic drone manufacturing in their countries.

Coordinating these actions will require a whole-of-free-world approach, among the White House, the Department of Defense, the Department of State, the Department of Commerce, and US allies and partners. To achieve these ambitious goals, the president should consider designating an individual within the State Department’s S/TECH office. This individual would be responsible for coordinating this slate of policy proposals, similar to how the White House coordinator for CHIPS implementation operates. The special envoy should set a date for achieving the above benchmarks to ensure accountability.

Taken together, these actions can help create an industrial base in the United States and allied countries to provide a secure supply for UAS.

3. Align with allies and partners to forge a coherent free-world approach to the setting of policies, regulations, and norms regarding commercial UAS.

The third major element of the strategy is to forge a coherent free-world approach to the setting of policies, regulations, and norms regarding commercial UAS. Among the United States’ greatest strengths in its competition with China is its network of allies and partners. Combined, the United States and its allies possess nearly 60 percent of global gross domestic product (GDP) and, when they work together, they retain a preponderance of power to shape global outcomes.

The G7, the G20, and the Quad are all multilateral groupings in which the United States has galvanized allies and partners alike to develop a series of secure supply chains for semiconductors. It should do the same with UAS.

The Scowcroft Center has previously argued that the United States and its allies should establish a new Democratic Technology Alliance to coordinate the free world’s approach on emerging technology, including UAS. Short of this, the United States and its allies should work through existing bilateral and multilateral channels.

The United States should continue to work with its allies to develop regulations and norms for the responsible use of new technology, including UAS, through bodies such as the US-EU TTC, NATO, G7, G20, and WTO. The United States would be well served to develop polices in coordination with its allies and partners through these forums. Doing so will help ensure a coordinated approach going forward. The United States should also raise concerns in these bodies about China’s unfair and illegal behavior. Though the WTO lacks teeth when coming after China, raising concerns about its behavior and trade disputes at the WTO can help build evidence of a pattern of unfair actions. The development of clear norms would help to demonstrate that the free world is not taking punitive measures against China or seeking to hold China down. Rather, it is taking prudent actions to protect itself from China’s unfair and threatening practices. If China were to reform its practices and its economic system, it could be welcomed back into US and allied markets.

Concurrently, the Department of Commerce and its International Trade Administration should play a central role in developing a trusted ecosystem—both in the United States and with its allies and partners—to secure critical components to strengthen domestic UAS manufacturing while promoting US-made drones around the world.

In addition, the United States should leverage the new trilateral defense pact, AUKUS. AUKUS Pillar II brings together Australia, the United Kingdom, and the United States to improve defense coordination across critical-technology areas, including artificial intelligence and autonomy, innovation, and information sharing. The Pentagon should work with AUKUS partners to prioritize the development of advanced UAS.

Moreover, Washington should work with allies and partners to develop a secure supply chain for UAV components and manufacturing. DOD has already cleared two drones produced by Parrot, a French UAV manufacturer, as secure and reliable through its Blue UAS program. This will allow for the manufacturing of component parts through final assembly to take place in trusted countries.

NATO offers other opportunities for Washington to coordinate with allies on emerging technologies. The NATO Defence Innovation Accelerator for the North Atlantic (DIANA) is a venue for Alliance members to coordinate on the development of emerging technologies, bringing together researchers, industry, and government. In 2023, DIANA announced the first three areas in which it aims to encourage the development of dual-use technologies. One of these domains, sensing and surveillance, is a logical avenue for the allied development of UAS. Indeed, DIANA has already accepted a Czech UAV manufacturer into the program. Here, the United States should utilize DIANA as a means to further cooperation on UAS and enable reciprocal development and manufacturing relationships across Europe, creating the basis of a dual-use drone industry.

In addition, the United States should work with its allies to secure the key UAS component supply chain, including batteries and battery cells. Part of the solution concerns mineral access. Amid a global transition to low-carbon energy sources, China’s strong position in the global lithium market and Russia’s robust nickel-mining capacity present challenges to US efforts to secure access to minerals needed for batteries. As several colleagues in the Atlantic Council’s Global Energy Center have argued, one option to address these challenges is supporting research, development, and capacity building for alternative battery chemistries. This includes leveraging public capital from US and allied governments and using tax incentives to encourage diversification of battery inputs. In 2021, the Department of Energy announced that innovations related to advanced batteries, which were developed via taxpayer dollars through Department of Energy (DOE) funding, would need to be “substantially” manufactured in the United States. In 2023, as a result of the Bipartisan Infrastructure Law, DOE announced $3.5 billion “to boost domestic production of advanced batteries and battery materials nationwide.” At the same time, the federal government, as well state and local governments, will need to muster the political will to allow domestic mining and refining of these minerals to ensure truly secure access to batteries. Once regulatory red tape is reduced, private capital necessary for the development of this domestic capability will enter the battery market. This sort of public-private engagement is an important part of shoring up the US battery supply chain and mitigating vulnerabilities vis-à-vis China.

Taken together, these steps will help to ensure a successful and coordinated free-world approach to UAS.

Conclusion

This paper recommended a protect-promote-align strategy to help the United States and its allies secure a trusted UAS industry to compete against China. China’s dominance of the dual-use UAS sector presents an unacceptable national security risk to the United States and its allies. Following this strategy will allow the United States and its allies to counter the unfair CCP practices that have led to China’s ill-begotten dominance of the global UAS market. A dedicated strategy, one that limits the use of PRC-made UAS, creates incentives for domestic UAS production, aligns the United States and its likeminded allies, and will allow the free world to retain its innovation edge over the CCP and better position itself for victory in a new era of strategic competition.

About the authors

Matthew Kroenig is vice president and senior director of the Atlantic Council’s Scowcroft Center for Strategy and Security. In these roles, he manages the Scowcroft Center’s nonpartisan team of more than thirty resident staff and oversees the Council’s extensive network of nonresident fellows. His own research focuses on US national security strategy, strategic competition with China and Russia, and strategic deterrence and weapons nonproliferation.

Imran Bayoumi is an associate director with the Scowcroft Strategy Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security. He supports the Center’s work on foresight and strategy development, focusing on emerging technologies, conflict, and climate security. In addition, Bayoumi contributes to the development of the Center’s annual “Global Foresight” publication.   

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1    For an in-depth examination of what potential sanctions targeting the PRC will look like across a wide range of sectors see: Charlie Vest and Agatha Kratz, “Sanctioning China in a Taiwan Crisis: Scenarios and Risks,” Atlantic Council, June 21, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/sanctioning-china-in-a-taiwan-crisis-scenarios-and-risks/.
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]]> The path to prosperity: The 2024 Freedom and Prosperity Indexes https://www.atlanticcouncil.org/in-depth-research-reports/report/the-path-to-prosperity-the-2024-freedom-and-prosperity-indexes/ Tue, 25 Jun 2024 15:00:00 +0000 https://www.atlanticcouncil.org/?p=774712 In this “year of election,” freedom continues to decline globally. Political rights, judicial independence, and checks and balances are eroding. Prosperity growth has slowed, particularly in developing countries. The data underscores a strong link between freedom and prosperity, highlighting the need for data-driven policy reforms.

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Executive summary

We are living in turbulent times, and 2024 is without doubt a crucial year. A total of sixty-four countries and almost half of the population of the world will hold national elections this year. Their results will determine the future path for freedom and prosperity in years to come. This report presents the annual update of our indexes, which portray a clear picture of the situation of the world during this decisive year. Moreover, a detailed analysis of the trends of freedom, prosperity, and their respective components during the last decade uncovers several striking facts that can help us understand how we got to this critical juncture.

Freedom at a global level has been stagnant in the last decade, and we document that this is the outcome of two opposing forces: declining political freedom and increasing economic freedom. The former is by far the most worrisome trend in recent years. Our political subindex clearly shows that this process started way before the COVID-19 pandemic, and is still ongoing today, several years after. Overall, the political subindex scores of two-thirds of the countries of the world have decreased since 2013, including a vast majority of countries with well-established democracies in Western Europe and North America.

Analyzing the components of the political subindex, we find that the erosion of political institutions is due to a significant weakening of the safeguards and guarantees that ensure contestation and control of power. Political rights, especially freedom of expression and information, and legislative constraints on the executive, have suffered major declines across the world in the last decade. The widespread wave of disinformation and election interference is deeply troubling. It represents not just an attack on democracy, but a fraudulent attempt to subvert the electoral process. Once in power, if governments succeed in limiting the ability of civil society and other institutions to hold them accountable, they pave the way for a slide into outright autocracy.

While the legal subindex has shown a slight decline since 2013, it’s noteworthy that the components most closely linked to the core principles of liberal democracy, such as clarity of the law and independent justice, have seen the steepest declines. This fact can only reinforce the perception of a major regression in the system of checks and balances that characterizes free societies.

The bright side of freedom measurement in the last decade is driven by freer economic environments across the globe. A total of 130 countries, out of the 164 covered by the indexes, have improved their economic subindex score. Moreover, this positive tendency is predominantly driven by a prominent improvement of the component measuring women’s economic opportunities, which has risen in virtually all the countries of the world. Furthermore, it is encouraging to notice that some of the worst performers in gender equality in terms of economic affairs, such as some Gulf monarchies, have improved substantially. Globally, economic freedom improvements, including mild but widespread increases in trade and investment freedom, as well as property rights’ protection, have acted as a counterweight to the negative evolution of political freedom.

The Prosperity Index reveals the remarkable effects of the pandemic in several of its components—health, income, and education—which jointly produced a halt in the strong improvement of the previous decades. As of today, the global prosperity scores have yet to reach their pre-2019 levels. Nonetheless, this fact does not seem to be solely attributable to the devastating consequences of the pandemic, given two additional circumstances we document in this report.

On the one hand, the component measuring the treatment received by minorities has worsened consistently since 2013, a trend we connect with the deterioration of the political environment and institutions. On the other, the index shows that the share of countries experiencing prosperity growth rates exceeding the Organisation for Economic Co-operation and Development (OECD) average has been substantially lower since 2013, compared to the previous decade. This means that from 1995 to 2013, developing countries were improving their prosperity faster than wealthy countries. This convergence process has clearly slowed down and fewer countries are progressing as quickly, with significant repercussions for millions of citizens in the world’s least developed areas.

The descriptive trends documented above raise the fundamental question of whether there is a clear link between the evolution of freedom and that of prosperity. Unfortunately, the unprecedented effects of the pandemic on prosperity make it hard to assess the effects of the stagnation of freedom in the last decade. Nonetheless, the ample time coverage of the Freedom and Prosperity Indexes allows us to analyze the relation between both indexes with a long-term perspective. We provide several pieces of evidence, reaching a consistent result: freedom is closely associated with prosperity.

Higher scores in our Prosperity Index are highly correlated with prosperity (0.71). Moreover, when we look at changes in both indexes, we obtain again a very substantial association (0.49). When we compare the third of countries with the highest freedom improvement since 1995 to the less-improved third, we find that prosperity growth has been 50 percent higher in the former group.

Having shown the close long-term relation between freedom and prosperity, we delve into a related question: Do reforms toward freer institutions produce immediate effects on prosperity, or are their fruits only visible after a long time? Our results, based on local linear projections, lean toward the latter. A significant positive shock to the Freedom Index (i.e., the top 20 percent of yearly changes), generates an instantaneous effect on prosperity that is rather small (0.11 points in the year of the shock). Nonetheless, the cumulative effect extends during the following two decades, and is estimated to be seven times higher after twenty years. Conversely, a negative shock produces a 0.13-point drop in prosperity on the year of the impact, but again the cumulative effect in the next two decades is substantially higher, reaching 0.56 points.

The facts and analysis provided in this report are only a small example of the significant capabilities and usefulness of the Freedom and Prosperity Indexes for academic and policy-oriented research. We firmly believe that unbiased, rigorous, data-driven research and policy implementation is the surest path to advance freedom and generate sustained prosperity across the world. Therefore, we encourage scholars and public officials to use the indexes to further explore the mechanisms and interaction between freedom and prosperity, as well as their components, in specific countries, regions, or periods of time.

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]]> A Global South with Chinese characteristics https://www.atlanticcouncil.org/in-depth-research-reports/report/a-global-south-with-chinese-characteristics/ Thu, 13 Jun 2024 14:54:13 +0000 https://www.atlanticcouncil.org/?p=771570 The Chinese Ministry of Commerce has sponsored training programs overseas on trade, information security technologies, and more. Beijing uses these training programs to make a case for its authoritarian capitalism. Is it working?

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Table of contents

Introduction

At the peak of China’s economic growth toward the end of the 2010s, Beijing began to advocate for an alternative model of governance that prioritizes economic development and rejects the centrality of the protection of individual rights and “Western” democratic processes. At the heart of this new push to legitimize authoritarian governance was the example of China’s own remarkably rapid economic development under Chinese Communist Party (CCP) leadership and an implicit assertion that such successful growth legitimizes not only China’s own autocratic system, but also other non-democratic political systems. The global implications of this development have grown clearer as Beijing has embarked on a steadily expanding mission to promote its political system alongside its economic success in countries across the Global South.

As early as 1985, Chinese leader Deng Xiaoping explained, in plain language, that the Chinese political system would resist changes despite economic integration with the world. He told the Tanzanian president at the time, “Our reform is an experiment not only in China but also internationally, and we believe it will be successful. If we are successful, it can provide some experience for developing countries.”1 In 2017, a new Chinese leader, Xi Jinping, repeated this sentiment using similar language.

The path, the theory, the system, and the culture of socialism with Chinese characteristics have kept developing, blazing a new trail for other developing countries to achieve modernization. It offers a new option for other countries and nations who want to speed up their development while preserving their independence; and it offers Chinese wisdom and a Chinese approach to solving the problems facing mankind.”

Source: “Full Text of Xi Jinping’s Report at 19th CPC National Congress,” Xinhua, November 4, 2017, https://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm.

The People’s Republic of China (PRC) has long pursued foreign acceptance of Chinese political narratives and encouraged their adoption to further China’s interests.2 However, China typically does not need to cajole countries into accepting its messaging about successful development. Many developing country leaders, having witnessed the Chinese “economic miracle” in which it developed at a remarkable pace after first opening its economy to the world in the late 1970s, take seriously China’s narrative about the benefits of a more authoritarian system and are willing to consider the calculated risk of experimenting with what Beijing is offering. Even as China’s economic growth has slowed significantly and its political system has grown more repressive under Xi, the number of countries welcoming Chinese governance lessons continues to grow, enhancing Beijing’s global influence. This has significant implications for the future of democracy, the protection of individual rights, and the nature of the global order.

Training future authoritarians

One of the most direct ways that Beijing promotes authoritarian governance is through training programs for foreign government officials on Chinese governance practices. This report investigates a new dataset of Chinese government files on such trainings, uncovering how Beijing uses these sessions to directly promote ideas and practices that marry economics and politics to make a case for its authoritarian capitalism model. Beyond encouraging sympathy for Chinese narratives among officials across the Global South, the programs also provide practical assistance for host countries to fast-track adaptation of Chinese practices. The sessions also appear to serve intelligence-collection purposes by requiring each participant to submit reports detailing their prior exchanges and engagements with other foreign countries on specific training subjects. This report outlines the content Beijing teaches officials in various developing countries and the anticipated benefits to Beijing from these programs. It also explains how these initiatives fit into China’s broader ambitions to undermine the liberal democratic norms that currently underpin the global order.

The author obtained 1,691 files from the Chinese Ministry of Commerce (MOFCOM) containing descriptions of 795 governmental training programs delivered (presumably online) in 2021 and 2022 during the pandemic. Each program description contains a title indicating the subject of training; the name of the Chinese entity subcontracted to deliver the training; the timing and language of instruction; invited countries and regions; group size; the professional background and demographic requirements for trainees; and training program objectives. Additionally, each description included an outline of the training content, including names of instructors and contact information for subcontracted entities.

In 1981, Beijing began delivering training programs, first branded as foreign assistance, in coordination with the United Nations Development Program (UNDP) as part of an effort to provide aid and basic skills to developing countries.3 In 1998, the Chinese government broke away from that cooperation arrangement and began offering its own centrally planned training programs directly to governmental officials from countries across the Global South. Beijing reportedly hosted 120,000 trainees from the Global South between 1981 and 2009, with 4,000 programs across twenty fixed areas. With initial success, the programs expanded from their original objective and the number of trainees increased in the next decade, with 49,148 trainees in 1,951 programs between 2010 and 2012, and more than 200,000 trainees in around 7,000 programs between 2013 and 2018.4

Evidence in the newly obtained 2021 and 2022 files indicates that the objectives of Chinese governmental training programs for foreign officials have changed significantly. Trainings are no longer foreign assistance programs with primarily humanitarian assistance aims, but clearly serve to directly inject narratives that marry authoritarian governance with economic development—in other words, to promote an autocratic approach to governance.

According to a cross reference of public releases, the current protocol of governmental training programs involves receiving foreign officials sent to mainland China in accordance with bilateral agreements.5 These training programs focus on specific areas, and are centrally planned by the Chinese government with designated regional quotas.6 A review of these ”specific areas“ also shows that these programs differ from trainings on humanitarian aid, foreign assistance, and basic skills that Beijing delivered in cooperation with UNDP in the 1980s and 1990s. Rather, the trainings offer authoritarian principles in areas such as law enforcement, journalism, legal issues, space technologies, and many other topics. Given that in China, law enforcement is designed to protect the state and the Party rather than the people, journalism is prescribed to create national unity rather than act as a check against the system, and the law is intended to protect the regime rather than its citizenry, these training programs naturally offer foreign officials different lessons than they would receive from democratic countries.

According to the files obtained, the Chinese embassy in a country identified for training typically is notified roughly three months before a training program is expected to be hosted, and the relevant desk at the Chinese embassy is tasked with selecting and inviting targeted individuals in the host country. For example, the Chinese Ministry of Public Security attaché at the embassy would be responsible for inviting local law-enforcement representatives to join programs organized by the Chinese Ministry of Public Security. At least eleven Chinese government ministries and Party departments have delivered training programs to foreign government officials in the past three years, including the Ministry of Commerce, Ministry of Foreign Affairs, Ministry of Science and Technology, Ministry of Industry and Information Technology, Ministry of Justice, Ministry of Ecology and Environment, Ministry of Culture and Tourism, National Health Commission, Ministry of Emergency Management, International Liaison Department, and Ministry of Public Security.7 According to the files, within each of these Chinese ministries and departments, an “international cooperation and exchange” office then coordinates to subcontract the delivery of the training program to a hosting entity, often with a quasi-civilian Chinese entity with extensive ties to the government. The MOFCOM files show that the 795 training programs were subcontracted to 111 hosting entities in 2021 and 2022.

Given the vast number of Chinese ministries and departments found to have provided trainings to foreign government officials in the past few years, it is reasonable to conclude that these programs were not paused during the pandemic but simply moved to an online format. A review of the 795 descriptions shows that 21,123 individuals participated in online training programs that were provided by MOFCOM in 2021 and 2022. These programs were centered on lectures and included relevant virtual site visits. They ranged from one to 60 days in length: 42 percent of all programs were between twelve and fourteen days, and 34 percent were between 19 and 21 days. Program size was between 15 and 60 participants, and 68 percent of the programs were designed for 25 participants. Based on the training description, nearly all the programs targeted developing countries.

Because this research dataset was limited to program-description files from the MOFCOM, there remain obvious blind spots to understanding the full scope and depth of Chinese governance-export training programs for foreign governmental officials. However, precisely because the dataset here concerns those trainings delivered by the MOFCOM, examination of the files permits unique insights into how the PRC marries economics and politics in its trainings, revealing that Chinese economic achievements are used to support authoritarian ideals.

This report maps the governance practices Beijing is promoting in countries across the Global South. It does not attempt to examine the effectiveness of these efforts, which is outside the scope of this project. Follow-on research endeavors involving local experts will be necessary for exploration of individual governments’ receptivity to PRC narratives and practices, which is likely determined by a mix of local interests and political contexts.

Party governance as the root of all success

Chinese training programs focused specifically on governance practices have traditionally been implemented by the International Liaison Department (ILD), an agency under the Central Committee of the CCP whose core function is party-to-party diplomacy. In its political engagement with other countries’ political parties, the ILD has long conducted training sessions on Chinese governance to promote CCP ideology, with the stated intent to conduct “state governance experience exchange [治国理政经验交流].” Initially such trainings were held exclusively between the CCP and countries with one-party rule or corresponding Leninist party structures, such as Vietnam.8 This is no longer the case. The ILD training sessions have expanded to include sessions in non-communist and non-authoritarian countries. At the same time, other entities in the Chinese government have begun conducting their own “state governance experience exchanges.” In the late 2000s, similar language on “state governance experience exchange” began to surface in foreign policy documents describing engagements with developing regions and countries, including Latin America in 2008, Kazakhstan in 2009, Laos and Myanmar in 2010, and Mongolia in 2011,9 demonstrating the expanded reach of Chinese governance training sessions.

Since then, each training, no matter the subject, has contained language on CCP ideology and organization and related contributions to the PRC’s achievements in that subject area. In this way, authoritarian governance choices are being promoted even in the most niche of subject areas.

Even programs on seemingly innocuous topics like beekeeping, bamboo forestry, meteorology, or low-carbon development all begin by briefing participants about the Chinese reform and guiding management principles raised at the latest plenary sessions of the Party committee. The programs highlight where successful tactics for poverty alleviation or pandemic management originated, and then relate these principles to the technical subject areas being covered. This approach is employed to maintain consistency of narrative delivery to a variety of audiences. In the program descriptions obtained, targeted foreign government officials range from the highest political level to the technocratic level, and from senior-level directorships to junior staff members of departments working on political affairs, the economy, education, agriculture, science, and more.

According to a review of the 795 training descriptions obtained in the course of this research project, MOFCOM trainings cover a vast variety of topics, including trade-related areas such as port management, international application of BeiDou (the Chinese global navigation satellite system), and blockchain and information security technologies. However, despite MOFCOM’s remit, it also provides training on topics that do not seem immediately related to trade, such as the role of think tanks for implementing the Belt and Road Initiative, national policy on ethnic minorities, new-media affairs, population management and development, university management, governance practices for presidential advisers, urban governance, social security and welfare, and smart cities.10

For the purpose of this research, the 795 training programs were reviewed and categorized into six groups based on their reported activities as outlined in the files. The following group labels were created by the author.

1. Clearly authoritarian: The first group describes training programs which include explicit lessons on PRC practices that are widely regarded in liberal democracies as direct infringements on personal freedom. This includes PRC endorsement of non-democratic regime practices in political, government, and legal affairs, including administrative control over the media, information, and population.

File: Seminar on national governance for presidential advisers of developing countries
File: Seminar on planning capability of safe city for Africa countries

2. Potentially authoritarian: These training programs contain lessons on PRC practices which have, in some cases, infringed on personal freedom or indirectly aided infringement of personal freedoms and individual rights. This includes, for example, training on dual-purpose technologies that could be exploited to access individuals’ data in ways that expand state surveillance and control over citizens’ personal lives.

File: Seminar on new media for Belt and Road countries

3. Infrastructure and resource access: These training programs are centered on setting standards and imparting industrial technical skills for various aspects of infrastructure and resource extraction, which may further PRC access to critical resources. This includes, for example, renewable energy application, mechanization of the agricultural sector, and technologies in mining, copper processing, and biotechnology.

File: Marine geologic survey and coastal protection training class

Intelligence value of the trainings

As detailed in the files, the majority of these training programs, no matter the category, require participants to submit a report prior to the training. The trainings, therefore, provide a reliable intelligence benefit to the Chinese government. Even if an audience does not engage with the program content or demonstrate receptivity to party ideologies and narratives, the reports submitted by participants contain potentially valuable information that Beijing routinely receives en masse. Foreign officials are asked to write about current developments in their country related to the training subject, their country’s current cooperation and partnership with other countries on that subject, and potential ideas for collaboration with the PRC on that subject.

Beyond obtaining immediate, updated, and accurate intelligence from foreign government officials, this approach enables Beijing to assess their future willingness to cooperate on that subject. Specifically, the process directly identifies the scope of potential areas of cooperation from leading experts and officials in charge, prepares the way for potential informal discussion about future cooperation, and, most importantly, identifies individuals who are willing to facilitate and build long-lasting relations with China. With this in mind, this research effort focused on trainings aimed at expanding China’s footprint in the Global South’s infrastructure, resources, information operations, and security domains.

4. Information operation access: These training programs are centered on activities that might further PRC access for its information operations, such as programs on Chinese culture and Mandarin-language promotion for foreign officials.

File: Seminar on inviting heads of foreign volunteer organizations to China

5. Security access: The fifth group involves and describes training programs centered on activities that may further PRC access to the sensitive security infrastructure of a foreign country, such as programs on aviation emergency, satellite imagery, and geochemical mapping.

File: Seminar on blockchain and information security technology for developing countries
File: Seminar on port management for Central and Eastern European countries

6. Others: The sixth group includes all other training programs that do not fit into the above categories, such as pest control, climate change, soybean production, tourism development, and preschool-education sector capacity building.

Among the 795 training courses offered by MOFCOM between 2021 and 2022, about 25 percent of the programs were categorized as clearly authoritarian, 10 percent as potentially authoritarian, 22 percent as related to infrastructure and resource access, five percent as related to security access, two percent as information-operation access, and 35 percent as “others.”

Based on this categorization, the research then focused on examining files of training programs that were not categorized as clearly authoritarian or potentially authoritarian. This revealed the extent to which Beijing used potentially authoritarian means to influence governance choices by injecting narratives that marry authoritarianism with various successes related to the economy. It further demonstrates that PRC training programs that appear to be focused on trade, infrastructure, and other nominally non-political topics are also efforts to promote China’s governance model.

The following are just two examples out of the hundreds of files in which the same pattern can be observed. In one file entitled “Seminar on international application of BeiDou and remote sensing,” and in another, “Seminar on port management for Central and Eastern European countries,” the training content specifies ten and fifteen sub-categories, respectively. At least two or three sub-categories are completely unrelated to the training subject, instead focusing on China’s reform and opening-up process, poverty-alleviation programs, and management of the COVID-19 pandemic, highlighting the success of China’s particular governance model in handling these challenges. The training programs consistently and repeatedly remind trainees across the Global South that all of China’s achievements are attributed to its political choices and authoritarian governance practices.

File: Seminar on port management for Central and Eastern European countries
File: Seminar on international application on Beidou and remote sensing

Despite the lack of access to the exact lecture materials used in these programs, a review of the list of instructors yields insights into the kind of narratives the lecturers delivered to foreign governments. For example, Dr. Ding Yifan (丁一凡) was one of six instructors for the 13-day training on port management. A researcher at the state-backed Development Research Center of the State Council, Ding has written in support of internationalizing China’s currency to bypass “Western control” over financial mechanisms and setting up overseas Chinese economic zones to relocate parts of Chinese production to developing countries before commodities are finalized for export to Europe and North America, ensuring China’s stake in the global supply chain and embedding Chinese assets abroad.11 These are positions commonly held by many Chinese academics and experts.

Ding, however, also has a more distinctive track record as an advocate for China’s authoritarian system. For example, in a lengthy 2017 online lecture titled “Advantages of the Chinese system of governance” (“中国的制度优势”)12, Ding explicitly explained that the Chinese economic miracle is a result of “a good democratic system of socialist governance with Chinese characteristics, our democracy is the real democracy” (“是因为中国特色社会主义民主制度好，我们的民主是真正的民主”) and that “sometimes people don’t know how their own society should develop, and they need to be guided by strong leaders to show the way.”( “有时候民众并不知道他们希望社会朝哪个方向发展，需要强有力的领导人去指明方向.”) Ding’s online lecture details flaws in voting-based democratic systems, pointing to the constant change of governments and party politics as inefficient and a waste of resources. Ding makes the case that one-party authoritarian politics is the only feasible system for China: “We are a multi-ethnic, multi-cultural country. If we have multi-party politics, then our country will break apart and fall into civil war, destroying all we have built.” (中国是一个多民族、多文化国家，如果实行多党政治，那么，一定会四分五裂，陷入严重的内战，毁掉我们建国以来所做的一切努力.) Ding has also fueled disinformation against Japan and the United States, claiming Japan dared “to release nuclear-contaminated water because it has the backing of the United States” (日本胆敢排核污水底气在于背后老板是美国人) when Tokyo released wastewater from the Fukushima nuclear plant that was hit by a tsunami in 2011 after receiving approval to do so from the International Atomic Energy Agency.“13

Global implications and recommendations

The findings catalogued in this report underscore that the PRC is engaged in a concerted effort to promote authoritarian governance across the developing world, using its own economic success as the primary argument for why countries need not adopt “Western” democratic practices to achieve their development goals. This is occurring across Chinese training programs in Global South countries, regardless of the often-unrelated subjects purportedly addressed. While Beijing often suggests that countries should pursue approaches specific to their own local contexts, rather than adopting the Chinese model completely, PRC trainings clearly highlight aspects of its authoritarian model as central to the blueprint of successful development that others can emulate.

China is likely to continue expanding training efforts to promote autocratic governance. Numerous training programs currently conducted in China for foreign government officials are already being moved to countries across the Global South, with new Chinese institutions set up to deliver programs that are both longer term and more sophisticated. In 2022, a Chinese political leadership school was opened in Tanzania, delivering the same type of governance training program outlined above that marries authoritarianism with economic success.14 If successful, this kind of setup is likely to be recreated elsewhere. For example, Luban Workshops were introduced in 2016 as a vocational equivalent of the Confucius Institutes and there are now 27 workshops worldwide, an increase from 18 in 2021.15 Where Confucius Institutes are state-sponsored centers teaching Chinese language and culture, Luban Workshops are state-sponsored classrooms teaching Chinese industrial skills and standards. Given the findings in this report, it is reasonable to assume these workshops will weave lessons on the benefits of China’s authoritarian model into vocational classes.

Beijing’s growing drive to promote its model appears unaffected by the marked slowdown in China’s economic growth and the well documented structural challenges facing China’s economy, many of which are a result of an authoritarian system under the CCP that increasingly prioritizes political control and absolute security over unleashing the power of market innovation and consumer demand.16 In other words, the very example at the heart of China’s promotion of authoritarian governance—its own remarkable development since the late 1970s into the world’s second largest economy—may be falling apart.

Many developing countries, however, are not attuned to the mounting challenges China is facing and still value the lessons of the country’s success under authoritarian rule, presenting ample opportunities for the PRC to expand and deepen its training programs across the Global South. The potential implications of these continued efforts are significant and wide ranging.

First, more countries may entertain and potentially adopt authoritarian governance practices shared by Beijing as they seek the potential benefits of economic engagement with China. More research is needed to determine the ultimate impact of China’s governance trainings abroad on recipient countries’ political practices. However, foreign leaders already routinely accept and endorse Beijing’s perspective on Chinese domestic issues and international positions in the hopes of maintaining or increasing Chinese investment and contributions to their nation’s domestic development.17 As China’s combined economic and political influence mounts, more countries dependent on China will likely welcome its lessons and may even sacrifice their own immediate interests in return for the long-term promises that Beijing offers. In some cases, China’s success in “elite capture”—the extensive corruption of a country’s key political and business leaders, resulting in their serving China’s interests above those of their own citizens—will likely contribute to local officials’ willingness to welcome Chinese trainings. The elite capture dynamic may also increase the likelihood that lessons learned in these trainings will be incorporated into their country’s governance practices.

Second, China’s clear propaganda effort through these trainings will combine with the CCP’s broader effort to shape narratives in countries around the world regarding China’s successes and the benefits of engagement with the PRC to advance Beijing’s preferred messaging. Beijing is engaged in a global propaganda effort to “tell China’s story well,”18 as Xi has put it, and counter decades of perceived dominance of the global information space by the United States and other developed democracies, including regarding the legitimacy of non-democratic governance systems such as its own. Included in this endeavor are efforts to train and cultivate local journalists to write positive stories about China, insert official Chinese propaganda in local media outlets, deliver tailored disinformation regarding the United States and the failings of democratic governance19, and deploy United Front groups20 to co-opt local elites.21 Across these efforts, Beijing’s messaging consistently underscores its development successes while ignoring inconvenient statistics about China’s more recent economic downturn, reinforcing the notion that countries in the Global South might benefit from following China’s developmental path.

Third, China’s expanding promotion of authoritarian practices may foster greater ideological and political polarization globally as democracy’s presumed status as the ideal form of government is thrown into greater doubt. Even if most countries exposed to CCP trainings do not adopt a wholesale authoritarian approach to governance, the selective adoption of aspects of China’s system will mean that more countries choose not to align with the United States and other democracies on a range of policy choices that will shape global governance and connectivity. For example, a number of countries have been inspired to adopt aspects of China’s top-down regulatory policies on the internet.22 This dynamic is complicating efforts to maintain a more united approach to internet management, potentially fragmenting the internet into competing technospheres. More fundamentally, potential PRC success in encouraging more sympathetic views of autocratic methods—and critical views of democracy—across the Global South would gradually undermine the ability of the United States and other democracies to credibly speak of a common future and interests among countries bonded by democratic values and aspirations.

The first step in addressing these dynamics is to recognize the extent of the problem, conducting further studies such as this one on the nature of various PRC efforts to promote its model and then, most critically, determining the actual impact of these efforts in increasing developing countries’ acceptance, adaptation, and implementation of authoritarian governance practices.

Local interests, political context, and feasibility of adaptation are all reasonable major factors that determine whether a government will ultimately import authoritarian practices and narratives. Only once the effectiveness of various PRC activities has been determined should significant effort be directed at developing tailored measures to counter them, thereby avoiding unnecessary expenditure of very limited resources on addressing the large and expanding number of CCP efforts across countries.

Even as such studies are undertaken, the United States and other democracies should increase efforts to address the relative paucity of knowledge and objective information about China and its approach to governance at home in the majority of developing countries. This lack of reliable, home-grown information on China is perhaps the PRC’s greatest asset in its efforts to promote its authoritarian model because it allows Beijing to set the dominant narrative in many countries regarding China’s rapid economic development and the role of its governance system in that achievement.

As noted, in PRC training programs, foreign government officials are fed disproportionally positive economic stories about China in an environment where Beijing is able to censor as it pleases, creating an illusion of near perfect implementation. This bolsters the strong impressions still held by many across the Global South about the Chinese economic miracle from decades ago and the discourse around authoritarian performance legitimacy.23 It is essential that more developing countries have access to objective information on current realities in China, including the country’s economic downturn, particularly given concurrent PRC efforts to shape media ecosystems and narratives on China and leverage coopted elites.24

Relatedly, it is necessary to assist countries across the Global South in cultivating and promoting authoritative expertise on China, to ensure that local voices are offering objective analysis of China’s domestic affairs, governance practices, and engagement abroad. This local expertise is also critical for broadening public and elite understanding of PRC policies and affairs that is not accessible through simply translating Chinese government documents that may be unintelligible to the uninformed. For decades, the Chinese government has tried to influence the development of authoritative foreign voices on PRC affairs, relying on PRC-educated China experts as elite proxies to distribute its narratives, set agendas, and influence foreign policymakers and the public alike. In the Global South, Beijing often controls who can study and develop an authoritative voice on PRC affairs by monopolizing the means to visit and research China, study Chinese language, and access research materials through PRC institutions.

One crucial step toward addressing this problem in the medium to long term is fostering more opportunities for independent research on PRC issues, providing alternatives to PRC-sponsored education. Countries with vast non-PRC-sponsored expertise on China should expand their global outreach, including programs for students from countries across the Global South who may wish to undertake professional Chinese studies outside of the PRC. Such independent expertise is essential to fostering objective discussions on China and competing perspectives that allow the public and their leaders to make informed judgments about the kind of Chinese success they want to replicate.

Lastly, at the basic level, countries across the Global South must be encouraged to create a debriefing process for all returning officials who take part in a PRC training program to determine and catalog the level of effort to shape perceptions and decision-making in different policy areas, including regarding authoritarian governance practices, as well as the extent to which related reporting serves China’s intelligence collection efforts.

China’s promotion of authoritarian governance and undermining of support for democratic practices and principles is likely to increase across the Global South, with Beijing further scaling up the type of trainings documented in this report. This effort is integral to the PRC’s drive to transform a global order currently predicated on the centrality of democracy and individual rights to one more “values-agnostic” and thus suited to China’s rise under authoritarian CCP rule. To counter this effort, countries across the Global South should be encouraged to make independent, informed decisions about their own development path, with access to objective information about China’s political system, domestic affairs, and economic trajectory. Despite democracy’s evident flaws, it remains the system of governance overwhelmingly preferred by publics around the world.25 Beijing’s revisionist efforts to popularize autocracy will fail if citizens in the Global South have the freedom and information to determine the sort of government under which they want to live.

About the author

Fellow

Niva Yau

Nonresident Fellow

Global China Hub

Africa Central Asia

Acknowledgement

The author thanks Rana Siu Inboden and other participants at a May 2024 workshop Understanding China’s Authoritarian Projection: Training and Normative Propaganda with Other States, organized by the Robert Strauss Center for International Security and Law at the University of Texas at Austin, for feedback and review of an earlier draft.

Dataset of Chinese government files

These are 14 training program description files from the full dataset of 795, with personal identifying information removed, but remaining available upon requests for research purposes. The English-language text following the Chinese text is entirely written by the program description planner, not the author, and may consist of broken translation. We are currently planning to release all 795 of the remaining training program descriptions and the other administrative files related to their logistics.

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1    Deng Xiaoping, “Two Evaluations of China’s Reforms, Originally Published on August 21, 1985,” Qiushi Magazine, July 31, 2019, http://www.qstheory.cn/books/2019-07/31/c_1119485398_45.htm.
2    For example, see China’s promotion of the notion of the “Asian way” or the Belt and Road Initiative, China’s signature global infrastructure initiative. The “Asian way” is a narrative Beijing has used since the early 2010s in its communication with Southeast Asian countries over territorial disputes. Beijing created this approach, one supposedly resting on “Asian values” of “consultation,” “consensus,” “inclusive,” “peace,” “harmony,” and “equality,” to rival discourses that call for strict accordance with international law. For more, see: Hoang Thi Ha, “Building peace in Asia: It’s not the “Asian Way,”” FULCRUM, July 29, 2022, https://fulcrum.sg/building-peace-in-asia-its-not-the-asian-way/.
3    “China’s External Assistance,” State Council Information Office of the People’s Republic of China, April 21, 2011, http://www.scio.gov.cn/ztk/xwfb/31/8/Document/899558/899558_3.htm.
4    “China’s External Assistance (2014),” State Council Information Office of the People’s Republic of China, July 10, 2014, https://www.gov.cn/zhengce/2014-07/10/content_2715467.htm; “New Era of China’s International Development Cooperation,” State Council Information Office of the People’s Republic of China, January 10, 2021, https://www.gov.cn/zhengce/2021-01/10/content_5578617.htm.
5    Bilateral agreements include one in 2011 with Indonesia on disaster risk management, one in 2012 with the United Arab Emirates on law enforcement, and one in 2014 with Brazil on space technologies. “Joint Communique between the Government of the People’s Republic of China and the Government of the Republic of Indonesia on Further Strengthening Strategic Partnership,” Ministry of Foreign Affairs of the People’s Republic of China, April 29, 2011, https://www.mfa.gov.cn/web/zyxw/201104/t20110430_313055.shtml; “Joint Statement between the People’s Republic of China and the United Arab Emirates on the Establishment of Strategic Partnership,” Ministry of Foreign Affairs of the People’s Republic of China, January 18, 2012, https://www.mfa.gov.cn/web/gjhdq_676201/gj_676203/yz_676205/1206_676234/1207_676246/201201/t20120118_7968517.shtml; “Joint Statement between China and Brazil on Further Deepening the China-Brazil Comprehensive Strategic Partnership,” Ministry of Foreign Affairs of the People’s Republic of China, July 18, 2014, https://www.mfa.gov.cn/web/ziliao_674904/1179_674909/201407/t20140718_9868425.shtml.
6    For example, 1,000 spaces were granted to officials from Latin America between 2014–2019; two thousand were granted to foreign government officials within the Shanghai Cooperation Organization between 2015–2017. “Xi Jinping Attended the China-Latin American and Caribbean Leaders’ Meeting and Delivered a Keynote Speech,” Ministry of Foreign Affairs of the People’s Republic of China, July 18, 2014, https://www.mfa.gov.cn/web/wjb_673085/zzjg_673183/ldmzs_673663/dqzz_673667/zglgtlt_685863/xgxw_685869/201407/t20140718_10411920.shtml; “Xi Jinping’s Speech at the 14th Meeting of the Council of Heads of State of the Shanghai Cooperation Organization,” Ministry of Foreign Affairs of the People’s Republic of China, September 12, 2014, https://www.mfa.gov.cn/web/gjhdq_676201/gjhdqzz_681964/sgwyh_682446/zyjh_682456/201409/t20140912_9384686.shtml.
7    “Ministry of Foreign Affairs Lancang-Mekong Cooperation Foreign Assistance Aviation Training Program Inauguration Ceremony,” Civil Aviation Flight University of China, October 13, 2021, https://icd.cafuc.edu.cn/info/1021/1116.htm; “The First International Science and Technology Project Management Talent Training Class Was Successfully Held in Hainan,” Ministry of Science and Technology of the People’s Republic of China, October 12, 2023, https://www.most.gov.cn/kjbgz/202310/t20231012_188449.html;
“‘Lancang-Mekong Countries Digital Economy International Cooperation Training Course’ Was Held in Beijing,” Huaxin Institute, November 22, 2022, https://huaxin.phei.com.cn/news/321.html; “Insert the Concept of Integrity throughout the Entire Process of Jointly Building the ‘Belt and Road,’” Ministry of Justice of the People’s Republic of China, October 24, 2023, https://www.moj.gov.cn/pub/sfbgw/jgsz/gjjwzsfbjjz/zyzsfbjjzyw/202310/t20231024_488285.html; “Addressing Climate Change Risks and Protecting the Marine Environment! This International Training Course Was Held in Qingdao,” People’s Daily, November 29, 2023, https://dzrb.dzng.com/articleContent/31_1222850.html; “The Opening Ceremony of the 2021 Cambodian Chinese Tour Guide Training Course Will Be Held Online,” Ministry of Culture and Tourism of the People’s Republic of China, November 4, 2021, https://www.mct.gov.cn/whzx/whyw/202111/t20211104_928774.html; “The ‘Belt and Road’ National Training Course on Key Technologies and Policy Formulation for Chronic Disease Prevention and Control Was Successfully Held,” International Health Exchange and Cooperation Center of the National Health Commission of the People’s Republic of China, September 19, 2023, http://www.ihecc.org.cn/news.html?_=1694574683221; “The Ministry of Emergency Management and the International Civil Defense Organization Hosted a Comprehensive Training Course on Emergency Management in Beijing,” Ministry of Emergency Management of the People’s Republic of China, July 25, 2023, https://www.mem.gov.cn/xw/yjglbgzdt/202307/t20230725_457236.shtml; “Training Course for Local Friendly People in Mongolia Successfully Concluded,” Lanzhou University of Technology, December 28, 2023, https://gjy.lut.edu.cn/info/1180/4178.html; “The 2023 Tajikistan Seminar on Combating Cybercrime Was Successfully Held in Our Institute,” Shanghai Institute of Science and Technology Management, December 28, 2023, https://www.sistm.edu.cn/info/10000.html.
8    “Jiang Zemin and Le Kha Phieu Held Talks,” Guangming Daily, February 26, 1999, https://www.gmw.cn/01gmrb/1999-02/26/GB/17979%5EGM1-2609.HTM.
9    “China’s Policy Paper on Latin America and the Caribbean,” Ministry of Foreign Affairs of the People’s Republic of China, November 5, 2008,
https://www.mfa.gov.cn/web/wjb_673085/zfxxgk_674865/gknrlb/tywj/zcwj/200811/t20081105_7949867.shtml;
“Hu Jintao Held Talks with Kazakhstan President Nazarbayev,”, Ministry of Foreign Affairs of the People’s Republic of China, April 16, 2009. https://www.mfa.gov.cn/web/gjhdq_676201/gj_676203/yz_676205/1206_676500/xgxw_676506/200904/t20090416_7978778.shtml; “Xi Jinping Held Talks with Lao Vice President Bounnhang,” Ministry of Foreign Affairs of the People’s Republic of China, June 16, 2010, https://www.mfa.gov.cn/web/zyxw/201006/t20100616_308470.shtml;
“Chairman Wu Bangguo Meets with Chairman of the National Peace and Development Council of Myanmar Than Shwe,” Embassy of the People’s Republic of China in the Republic of the Union of Myanmar, September 22, 2010, http://mm.china-embassy.gov.cn/sgxw/2010news/201009/t20100922_1779679.htm; “Wu Bangguo Meets with Mongolian Prime Minister Batbold,” Ministry of Foreign Affairs of the People’s Republic of China, June 15, 2011, https://www.mfa.gov.cn/web/gjhdq_676201/gj_676203/yz_676205/1206_676740/xgxw_676746/201106/t20110615_9299059.shtml.
10    Smart cities use digital technology to collect data to facilitate the management of public goods delivery. In China, smart cities are developed and guided by authoritarian principles and has the potential to enhance control and monitoring of the Chinese population.
11    “Ding Yifan: Promoting RMB Internationalization Will Help Ensure Financial Security,” Xinhua, Janurary 20, 2023,
http://www.news.cn/world/2023-01/20/c_1211720561.htm; “Ding Yifan: ‘One Belt, One Road’ Adds Momentum to Developing Countries,” Economic Daily, October 26, 2020,
http://www.china.com.cn/opinion/think/2020-10/26/content_76844794.htm.
12    “丁一凡：中国的制度优势” 71cn, January 16, 2017, http://www.71.cn/2017/0116/930687_9.shtml.
13    The science behind the Fukushima waste water release,” BBC, August 26, 2023, https://www.bbc.com/news/world-asia-66610977#:~:text=Japan%20is%20releasing%20the%20waste,take%20at%20least%2030%20years; “China nuclear plants released tritium above Fukushima level in 2022, document shows,” Japan Today, March 10, 2024, https://japantoday.com/category/politics/china%27s-nuclear-plants-released-tritium-above-fukushima-level-in-2022.
“Translation Result Ding Yifan: Japan Dares to Discharge Nuclear Sewage Because the Boss behind It Is an American,” Global Times, August 31, 2023, https://news.hebei.com.cn/system/2023/08/31/101202041.shtml.
14    “Enter the Nyerere Leadership Academy,” People’s Daily, December 20, 2023, http://www.people.com.cn/n1/2023/1220/c32306-40142820.html.
15    “Director Luo Zhaohui Accepted China Daily’s ‘Committee Says,’” China International Development Cooperation Agency, March 7, 2024, http://www.cidca.gov.cn/2024-03/07/c_1130086359.htm; Niva Yau and Dirk van der Kley, “China’s Global Network of Vocational Colleges to Train the World,” Diplomat, November 11, 2021, https://thediplomat.com/2021/11/chinas-global-network-of-vocational-colleges-to-train-the-world/.
16    Daniel H. Rosen and Logan Wright, “China’s Economic Collision Course,” Foreign Affairs, March 27, 2024,
https://www.foreignaffairs.com/china/chinas-economic-collision-course.
17    When US Speaker of the House Nancy Pelosi visited Taipei in August 2022, following condemnation by Chinese officials, Chinese embassies around the world released public statements and Chinese ambassadors wrote opinion pieces about the visit wherever they could. This prompted many countries to release public statements reassuring Beijing and reaffirming their positions on Taiwan. Beijing orchestrated similar reactions ahead of the boycott of the Beijing Winter Olympics. See: Anouk Wear, “China’s Universal Periodic Review Tracks Its Influence at the UN,” Jamestown Foundation, January 19, 2024, https://jamestown.org/program/chinas-universal-periodic-review-tracks-its-influence-at-the-un/; “The Costs of International Advocacy China’s Interference in United Nations Human Rights Mechanisms,” Human Rights Watch, September 5, 2017, https://www.hrw.org/report/2017/09/05/costs-international-advocacy/chinas-interference-united-nations-human-rights.
18    James T. Areddy, “New ways to Tell China’s Story,” The Wall Street Journal, October 23, 2022, https://www.wsj.com/livecoverage/china-xi-jinping-communist-party-congress/card/new-ways-to-tell-china-s-story-JXt9XFnnegpB7yzmhFNT.
19    Donie O’Sullivan, Curt Devine, and Allison Gordon, “China is using the world’s largest known online disinformation operation to harass Americans, a CNN review finds,” CNN, November 13, 2023, https://www.cnn.com/2023/11/13/us/china-online-disinformation-invs/index.html.
20    Those affiliated with the United Front Work Department of the Central Committee of the CCP are tasked with engaging foreign individuals and organizations to achieve and maintain Beijing’s objectives.
21    For examples of overseas activities of the United Front Work Department, see: “How the People’s Republic of China Seeks to Reshape the Global Information Environment,” US Department of State, September, 2023, https://www.state.gov/wp-content/uploads/2023/09/HOW-THE-PEOPLES-REPUBLIC-OF-CHINA-SEEKS-TO-RESHAPE-THE-GLOBAL-INFORMATION-ENVIRONMENT_Final.pdf; Alexander Bowe, “China’s Overseas United Front Work Background and Implications for the United States,” U.S.-China Economic and Security Review Commission, August 24, 2018. For Ministry of State Security overseas conduct, see: “Nepali Security Authorities Identify a Chinese Intelligence Agency Official Involved in Anti-MCC Propaganda,” Khabarhub, November 12, 2021, https://english.khabarhub.com/2021/12/219645/.
22    “Thailand Tilts Towards Chinese-Style Internet Controls,” Bangkok Post, April 15, 2019, https://www.bangkokpost.com/thailand/general/1661912/thailand-tilts-towards-chinese-style-internet-controls; “New Year, New Repression: Vietnam Imposes Draconian ‘China-like’ Cybersecurity Law,” South China Morning Post, January 1, 2019, https://www.scmp.com/news/asia/southeast-asia/article/2180263/new-year-new-repression-vietnam-imposes-draconian-china.
23    The author lived and worked in Central Asia on issues related to the PRC between 2018 and 2023. Additionally, the author has previously taken research trips to Malaysia, Thailand, Indonesia, India, Sri Lanka, Georgia, and Columbia to learn about local and regional PRC-related issues from local experts.
24    “Countering China’s Information Manipulation in the Indo-Pacific and Kazakhstan,” International Republican Institute, June 27, 2023, https://www.iri.org/resources/countering-chinas-information-manipulation-in-the-indo-pacific-and-kazakhstan/.
25    “Democracy Remains Popular but People Worldwide are Questioning its Performance,” Gallup International Association, April 6, 2024, https://www.gallup-international.com/survey-results-and-news/survey-result/democracy-remains-popular-but-people-worldwide-are-questioning-its-performance.

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]]> Intentionally vague: How Saudi Arabia and Egypt abuse legal systems to suppress online speech https://www.atlanticcouncil.org/in-depth-research-reports/report/intentionally-vague-how-saudi-arabia-and-egypt-abuse-legal-systems-to-suppress-online-speech/ Wed, 12 Jun 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=771211 Egypt and Saudi Arabia are weaponizing vaguely written domestic media, cybercrime, and counterterrorism laws to target and suppress dissent, opposition, and vulnerable groups.

The post Intentionally vague: How Saudi Arabia and Egypt abuse legal systems to suppress online speech appeared first on Atlantic Council.

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Egypt and Saudi Arabia are weaponizing vaguely written domestic media, cybercrime, and counterterrorism laws to target and suppress dissent, opposition, and vulnerable groups. Political leaders in Egypt and Saudi Arabia often claim that their countries’ judicial systems enjoy independence and a lack of interference, a narrative intended to distance the states from the real and overzealous targeting and prosecution of critics. Such claims can be debunked and dismissed, as the Egyptian and Saudi governments have had direct involvement in establishing and implementing laws that are utilized to target journalists and human rights defenders.

Egypt and Saudi Arabia were selected as case studies for this report because of their status as among the most frequently documented offenders in the region when it comes to exploiting ambiguously written laws to target and prosecute journalists, critics, activists, human rights defenders, and even apolitical citizens. The two countries have consolidated power domestically, permitting them to utilize and bend their domestic legal systems to exert control over the online information space. Punishments for those targeted can involve draconian prison sentences, travel bans, and fines, which result in a chilling effect that consequently stifles online speech and activities, preventing citizens from discussing political, social, and economic issues.

Both Egypt and Saudi Arabia enacted media, cybercrime, and counterterrorism laws with ambiguous language and unclear definitions of legal terms, allowing for flexible interpretations of phrases such as “false information,” “morality,” or “family values and principles.” The laws in both countries also loosely define critical terms like “terrorism,” thereby facilitating expansive interpretations of what constitutes a terrorist crime. Further, anti-terror laws now include articles that connect the “dissemination of false information” with terrorist acts. This vague and elastic legal language has enabled the Egyptian and Saudi regimes to prosecute peaceful citizens on arbitrary grounds, sometimes handing out long prison sentences or even death sentences, undermining respect for the rule of law in the two countries.

This report explores the development of media, cybercrime, and counterterrorism laws in both countries, and demonstrates through case studies how Saudi Arabia and Egypt weaponize the laws to prosecute opposition figures and control narratives online. This report examines the relationship between criminal charges tied to one’s professional activities or online speech and how those charges can trigger online smear campaigns and harassment. In cases that involve women, gender-based violence is often used to harm a woman’s reputation. Though a direct correlation between judicial charges and online harassment cannot be ascertained, these case studies suggest that dissidents are likely to face online harm following legal persecution, even after they are released.

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The post Intentionally vague: How Saudi Arabia and Egypt abuse legal systems to suppress online speech appeared first on Atlantic Council.

]]> The missing piece: Political parties are critical to democracy in Africa https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/the-missing-piece-political-parties-are-critical-to-democracy-in-africa/ Tue, 11 Jun 2024 19:00:00 +0000 https://www.atlanticcouncil.org/?p=771330 As many as seventeen countries in Africa will head to the polls in 2024. This piece analyzes the state of political parties in Sub-Saharan Africa, using Freedom and Prosperity Indexes data to show why multiparty systems are key to democratic strength.

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This paper is the first in the Freedom and Prosperity Center’s “State of the Parties” series analyzing the strength of multi-party systems in different regions of the world.

In 2024, as many as seventeen countries across Africa, with a total population of nearly 300 million people, will hold national elections. These electoral processes are consequential because whether they are free, fair, and transparent will help determine if the troubling trend in several countries across the continent of democratic regression, military coups, or political instability worsens—or ebbs and begins to reverse, as was recently demonstrated in Senegal.

The stakes are clearly high in these contests, which will occur in the so-called year of elections wherein more than four billion people globally are eligible to cast ballots. While the elections are important to Africa’s democratic trajectory, they are not single-handedly determinative of it.

Strong and institutionalized political parties are also key to the future of democracy on the continent; however, policymakers have not afforded this key institution much attention or associated resources. For example, the US’s national security strategy for Sub-Saharan Africa does not reference strengthening political parties despite the document’s emphasis on democracy promotion. Further, the Biden administration’s Summits for Democracy—the third of which took place in March 2024—have not included commitments from participating governments (the United States included) to strengthen political parties.

Robust political parties inform whether a political system delivers for citizens, provide a key link between citizens and their government, and foster measurable resilience against democratic erosion. For these and other reasons, therefore, political parties as a core institution of democracy will help chart the continent’s future, both in terms of freedom and prosperity.

This piece analyzes the state of political parties in sub-Saharan Africa and uses Atlantic Council Freedom and Prosperity Indexes data and other sources to show why parties are essential to democratic progress. It examines this argument through four case studies and concludes with a path forward for re-centering democracy assistance work in Africa to shore up this critical component.

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]]> Friend-sourcing military procurement: Technology acquisition as security cooperation https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/friend-sourcing-military-procurement/ Tue, 11 Jun 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=767060 Jim Hasik reviews the nine cases of US "friend-sourcing" of major military systems and finds they brought good quality, speed, and economy.

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Table of contents

Introduction

In the United States, the military procurement bureaucracy tends to sponsor development of new technologies to fill requirements. The bureaucracy also largely seeks domestic sources for all new charismatic military megafauna: aircraft, ships, ground vehicles, and missile systems. Security “cooperation” in US policy and practice is largely a one-way process, neglecting the benefit of learning and sourcing from other countries. However, Russia’s invasion of Ukraine, and China’s concomitant threats from India to Korea, point to the need for coordinating the industrial capabilities of allies. As the United States faces simultaneous competition with two revisionist, nuclear-armed, major-power rivals, not to mention a challenging budgetary and fiscal environment, the additional research and development (R&D) costs assumed by the Department of Defense through its disregard of foreign suppliers, while never ideal, are no longer tenable.

Law, regulation, and policy can conspire against good economic thinking, though with clear exemptions. The Department of Defense Authorization Act for 1983 prohibited the construction of naval vessels in foreign shipyards, unless the president first informs Congress of a national security need otherwise (10 U.S.C. §§ 7309–7310). The Buy American Act of 1933 demands preference for domestic manufactures in federal procurement, though this is waived for imports from dozens of allied countries through reciprocal agreements (41 U.S.C. §§ 8301–8305). Note, though, that these laws say nothing of where products are designed, merely where they are manufactured. Further, the Federal Acquisition Streamlining Act of 1994 mandates a “preference for commercial products . . . to the maximum extent practical,” with “market research . . . before developing new specifications for a procurement” (10 U.S.C. § 3453). Official policy periodically reemphasizes this mandate for off-the-shelf procurement.1

An aerial view of the Pentagon, Washington, DC, May 15, 2023. DoD photo by US Air Force Staff Sgt. John Wright.

Much of the procurement bureaucracy in the Defense Department seems not to understand the exemptions and the mandates for off-the-shelf procurement of military capabilities. In contrast, the US Special Operations Command, imbued with its own procurement authority, has been far more open to procuring military systems off the shelf, and then heavily customizing them against specific military needs. The US Coast Guard, housed under the Department of Homeland Security, has also long preferred off-the-shelf solutions, often of foreign design and even manufacture—and with much less customization. Indeed, decades of procurement debacles and the economics of international commerce indicate that broad domestic preference is wrongheaded. At least three reasons point to the need for broader sources of supply:

  • Quality: With military off-the-shelf solutions, many of the qualities are observable, from performance in testing to actual use in battle. In developmental programs, quality is not so observable ex ante, and may disappoint ex post. Global procurement invites buyers to find the best equipment available anywhere, and often from countries with competitive advantages in particular industries.
  • Urgency: Off-the-shelf solutions may be sought as interim solutions to immediate military problems. If not restrained by production capacities or bottlenecks, they will arrive presently. What is purchased immediately may then suffice for anticipated problems, becoming enduring solutions, if the political and technological conditions do not too greatly change in the long run. In contrast, technological development requires greater lead time, delaying fielding.
  • Economy: Off-the-shelf solutions may come at lower upfront prices, if the development costs are spread among multiple national customers, or otherwise already amortized. With domestic development, the cost is disproportionately borne by the sponsoring government, and this roughly averages 20 percent of the life-cycle cost of more advanced systems. Spending on R&D competes with spending on procurement, but, in fielding capabilities, the measure of merit is procurement. Simultaneously, when immediate needs are adequately filled by off-the-shelf procurements, monies can be husbanded for developing systems targeted at more challenging, long-range problems. Later, the wider supply base for the off-the-shelf system, which should remain largely interoperable with foreign versions, will contribute to lower sustainment costs.

Because autarky is illusory, greater “friend-sourcing” can provide US forces with quick access to proven, economical solutions, while maintaining the option for domestic production when that is strategically desirable.2 Informal consortia of allied buyers could then naturally divide responsibilities for development and production, through an emergent but controlled market process. Allowing US forces more opportunities to acquire military technologies abroad would then restructure security cooperation as a two-way process, with the avid participation of friendly countries. As Ukrainian President Volodymyr Zelenskyy recently described Kyiv’s emerging military-industrial cooperation with the United States, “Ukraine does not want to depend only on partners. Ukraine aims to and really can become a donor of security for all our neighbors once it can guarantee its own safety.”3 Access to that sort of battled-hardened experience is part of the return on US assistance.

Research questions

Historical case studies can provide tangible evidence as to how well friend-sourcing approaches have fared in the recent past. The results can demonstrate whether actual procurements should more closely follow this course of action, already supported by law, policy, and economic theory. This study then poses two important and timely research questions. In the United States, since the end of the Cold War, how has the procurement of off-the-shelf systems developed for allied militaries:

  • Affected the quality, availability, and cost of national military capabilities?
  • Affected the long-term market for national, military-industrial R&D?

Methodology

To answer these questions, this paper seeks to identify all recent cases of off-the-shelf military procurements in the United States, subject to some boundaries. The set is limited to major end systems—aircraft, ships, ground vehicles, and missile systems—because the international trade in subsystems among friendly countries is already much more liberal. Also, the set includes only those US procurements undertaken since the end of the Cold War because global security dynamics changed radically at that point. Note that this excludes from consideration, for example, the US Army’s procurement of its Austrian-designed Family of Medium Tactical Vehicles, and the US Marine Corps’ procurement of LAV-25 armored vehicles, as these both began in the 1980s.

This paper further restricts the set to systems already in use by US forces, so that a firm decision for adoption, and some record of operation, can be observed. The study includes, however, customizations of off-the-shelf systems, as most countries have needs for subsystems (radios, racks, left- or right-hand drive, etc.) specific to their own military services, and modest customization is common in the international arms trade.

After review of histories and the author’s consultations with a wide set of experts on US military procurement, this paper identifies only nine cases—two missile systems, four aircraft, one ship, and two armored vehicles—in this set (see Appendix 1 for a summary):

  • The RGM-184A Naval Strike Missile (NSM)
  • The Norwegian Advanced Surface-to-Air Missile System (NASAMS)
  • The UH-72A Lakota helicopter
  • The MH-139A Grey Wolf helicopter
  • The HC-144 Ocean Sentry maritime patrol aircraft
  • The C-27J Joint Cargo Aircraft
  • The Sentinel-class Fast-Response Cutter
  • The RG-31 mine-protected vehicle
  • The Stryker LAV III Interim Armored Vehicle

Neither the author nor the Atlantic Council intends to endorse or oppose the specific platforms mentioned or the procurement choices made. Rather, the following section outlines how these systems were procured and what advantages the acquiring service derived from the purchase. The following assessment section gathers lessons from the case studies in aggregate to inform how the Department of Defense should consider friend-sourcing more military procurement.

Historical cases of successful US military friend-sourcing

The RGM-184A NSM is a 400 kilogram, jet-powered, sea-skimming, anti-ship cruise missile. In September 2014, seeking a lightweight but lethal anti-ship missile for its littoral combat ships (LCSs), the US Navy test-fired Kongsberg’s NSM from the USS Coronado. In 2015, the Navy undertook a competitive procurement to equip its LCSs. Kongsberg and Raytheon announced a teaming arrangement to bring the Norwegian missile to the United States.4 Boeing initially offered an extended-range RGM-84 Harpoon, and Lockheed Martin a surface-launched version of its AGM-158C Long-Range Anti-Ship Missile. The latter two firms, however, withdrew their entries in 2017. In May 2018, the Navy selected the NSM for its Independence-class LCSs, its Freedom-class LCSs, and its Constellation-class frigates. The Marine Corps subsequently selected the NSM to equip its new land-based, mobile anti-ship missile batteries, with two NSMs mounted on each robotic Joint Light Tactical Vehicle (see below), deemed the Navy-Marine Expeditionary Ship Interdiction System (NMESIS).

The USS Gabrielle Giffords (LCS 10) launches a Naval Strike Missile (NSM) during an exercise. Photo by Chief Petty Officer Shannon Renfroe, US Navy.

The missiles are mostly built in Norway, as they have been in production there since 2007, and they cost “slightly less than the Raytheon Tomahawk Block IV cruise missile.”5 In a press release, Raytheon noted that undertaking final assembly and testing of an already operational missile “saves the United States billions of dollars in development costs and creates new high-tech jobs in this country.”6 More labor, at possibly higher cost, would be required in the United States if production were fully domesticated, and Kongsberg and Raytheon have discussed a second production line to deliver yet more missiles.7 Navigation is provided by satellite, inertial, and terrain contour matching; terminal guidance relies on imaging infrared and a target-image database. With the latter technologies, the NSM is designed to strike specific, vulnerable points on an enemy ship, and detonate with its void-sensing fuse at the point of maximum damage. A single missile can thus render even a large warship hors de combat.

The NSM was initially developed by and for Norway. Missiles for mobile coastal defense batteries were quickly sold to Poland. Since then, the NSM has been adopted as well by Australia, Belgium, Canada, Indonesia, Latvia, the Netherlands, Malaysia, Romania, Spain, and the United Kingdom. In summary, with the NSM, the Navy and Marine Corps obtained one of the best anti-ship missiles in the world, from a running production line, and at a cost below that of its best alternative in inventory. The US Navy and Air Force have continued to fund development of other, longer-range cruise missiles.

Norwegian Advanced Surface-to-Air Missile System

The NASAMS (pronounced NAY-sams) is a ground-based, anti-aircraft missile system. NASAMS was developed in the 1990s by Kongsberg and Hughes Aircraft to replace the Nike Hercules batteries of the Royal Norwegian Air Force. (Raytheon acquired Hughes Aircraft in 1997.) NASAMS integrates Raytheon’s MPQ-36A Sentinel trailer-mounted radar and AIM-120 Advanced Medium-Range Air-to-Air Missile (AMRAAM) with Kongsberg’s launcher and battle-management system. In an apparently sole-source deal, the US Army procured several launchers for the medium-range air defense of Washington, DC, in 2005, and they have served in that role ever since, at a variety of locations in Virginia, the District of Columbia, and Maryland.8 The NASAMS case is remarkable in that the Norwegian-US team integrated two off-the-shelf components from a US manufacturer into its system before providing that system as an off-the-shelf product back to the US military.

US High Mobility Artillery Rocket Systems (HIMARS) and Norwegian National Advanced Surface-to-Air Missile System (NASAMS) units counter a simulated threat at sea together. Courtesy Photo, US Naval Forces Europe-Africa/US Sixth Fleet.

The United States was the third user of NASAMS, after Norway and Spain. NASAMS is now in service with thirteen countries, including Australia, Chile, Finland, Hungary, Indonesia, Lithuania, the Netherlands, and Oman.“9 In 2022 and 2023, the United States, Norway, Lithuania, and Canada all provided NASAMS units to Ukraine.10 The Canadian purchase is notable because Canada itself had no ground-based air defenses; the Canadian federal government simply identified a cost-effective and already-available system to send.11

In summary, with the NASAMS, the US Army obtained a medium-range air defense system that remains at the forefront of air defense against the most challenging (Russian) threats, from a running production line, and at a cost that global customers still willingly pay. The US Army and Navy have continued to fund several other families of medium- and long-range air defense missiles.

UH-72A (EC145) Lakota utility helicopter

The EC145 is a twin-turboshaft, utility helicopter capable of carrying nine passengers. In its Light Utility Helicopter program of 2005, the US Army sought a proven helicopter for logistical and medical missions within the United States. In its request for proposals (RFP), the Army specifically sought only off-the-shelf aircraft, and received such offers from Bell, AgustaWestland (now Leonardo), and Eurocopter (now Airbus Helicopters). In June 2006, the Army selected a version of Eurocopter’s EC145, and designated it the UH-72A Lakota. The EC145 first flew in 1999 and was itself developed from the MBB/Kawasaki BK 117, which had first flown in 1979.

All UH-72s have been assembled at Airbus’s factory in Columbus, Mississippi. The program has experienced no significant delays. The UH-72 was competitively sourced, and the Army has been sufficiently satisfied with its performance and cost-effectiveness that the service has purchased 481 of the aircraft. Along the way, the Army awarded Airbus further orders under the original contract to fully recapitalize its fleet of training helicopters.12 The Army’s Lakota was subsequently upgraded into the UH-72B, as Airbus continued to develop its EC145 into the H145M.13

A new UH-72A Lakota Light Utility Helicopters at Hohenfel Army Airfield. Photo by Sgt. 1st Class JMRC PAO, Joint Multinational Readiness Center.

Military versions of the EC145 have also been in service with the military forces of thirteen other countries: Albania, Belgium, Bolivia, Cyprus, Ecuador, France, Germany, Hungary, Kazakhstan, Luxembourg, Serbia, Thailand, and the Cayman Islands. The US Army has several times rebuffed suggestions that the domestic-service helicopters could be deployed overseas, asserting that adding armor and decoys would be uneconomical. However, in December 2023, Airbus and the German Defense Ministry announced a deal for at least sixty-two H145Ms, configured as either commando transports or missile-firing anti-tank helicopters.14 In this way, the case provides an example of a US military service overestimating its need for technological development when an off-the-shelf product would suffice.

In summary, with the EC145, the US Army obtained a proven helicopter in wide military service around the world, relatively quickly, and at a price that won a competitive tender. The US Army continued to fund rotorcraft development, though more notably of tilt-rotor aircraft through its Future Long-Range Assault Aircraft program.

MH-139A (AW139) Grey Wolf helicopter

The AW139 is a twin-turboshaft, utility helicopter capable of carrying up to fifteen passengers.

In the late 1960s, Bell Helicopter developed its UH-1 Huey helicopter, a workhorse of the Vietnam War, into the twin-engine UH-1N Twin Huey, to meet a requirement of the Royal Canadian Air Force.15 The US Air Force began buying Twin Hueys in 1970, for a variety of utility functions. About forty-five years later, the USAF was ready to replace them, seeking up to eighty-four aircraft for passenger transport and other utility functions. The aircraft had two particularly important roles: flying commandos to any missile silos in Wyoming, Montana, and North Dakota that might come under attack, and evacuating government officials from Washington, DC should the capital city again come under attack.16 The USAF initially planned a sole-source award to Lockheed Martin’s Sikorsky for UH-60s. Under the Economy Act of 1932 (31 U.S.C. § 1535), an agency can select a system already in service with another branch of government in lieu of a competitive procurement. Congressional objections soon scuttled that idea, whether to provide others an opportunity to bid or simply because the UH-60 might not have been the best-value solution.17 In September 2016, the USAF released a request for information (RFI) from industry, and in December, a draft RFP.18

A MH-139A Grey Wolf’s successful live hoist test. Photo by Samuel King Jr. 96th Test Wing Public Affairs.

The Air Force asked for a proven helicopter, and in response, five companies or teams offered four types of aircraft. Sikorsky offered its HH-60U Pave Hawk, already in service with the USAF. Sierra Nevada offered to rebuild existing, out-of-service US Army UH-60As to a -60U configuration. Airbus offered its UH-72A, already (see above) in service with the US Army. Textron’s Bell Aircraft offered its UH-1Y, already in service with the US Marine Corps, which was developed in the 1990s under a perhaps questionable sole-source contract.19 Leonardo teamed with Boeing to offer a military version of the Italian company’s AW139. That aircraft had been developed initially by Agusta (later AgustaWestland, now Leonardo) and Bell in the late 1990s, though Agusta bought Bell’s interest in the program in 2005.

The Air Force rejected the Airbus and Bell offerings outright as too small and short-ranged for the missile security mission. In September 2018, the service chose the AW139. At the announcement, Air Force Secretary Heather Wilson told the assembled that “strong competition drove down costs for the program, resulting in $1.7 billion in savings to the taxpayer.”20 In this instance, the Federal Acquisition Streamlining Act beat the Economy Act at economy. At first delivery, in December 2019, the service named it the MH-139A Grey Wolf.21 Flight testing started in 2020, but did not conclude for several years. Leonardo and Boeing agreed to some requested modifications, and the aircraft had some unexpected difficulties with FAA certification.22 Low-rate production started in Philadelphia in March 2023.“23 The Grey Wolves are today built on the north side of Philadelphia, where Leonardo has been building AW139s since 2007, and they are then customized on the south side of Philadelphia, by Boeing.

Prior to the Air Force’s purchase, AW139s were flying with at least three air services in the United States: the New Jersey State Police (since 2012), the Maryland State Police (2012), and the Los Angeles City Fire Department (2013). Miami-Dade Fire Rescue joined that group in 2020. Air forces or other public flying services in twenty-four other countries also operate AW139s.

In summary, with the AW139, the US Air Force obtained a proven helicopter in wide military service around the world, with a two-year delay, though at a price that won a competitive tender. The Air Force had not spent significant sums previously on rotorcraft development, and, with relatively few requirements for rotary-wing aircraft, the service has not since.

HC-144 (CN-235) Ocean Sentry maritime patrol aircraft

The CN-235 is a twin-turboprop, fixed-wing cargo aircraft capable of carrying fifty-one passengers or thirty-five paratroopers. In May 2003, the US Coast Guard selected the CN-235-300M maritime patrol aircraft from the European Aeronautic Defence and Space Company (EADS) as part of its “Deepwater” program to recapitalize much of its aircraft and ship fleets.“24 In February 2004, Deepwater contractor Lockheed Martin ordered the first two aircraft from EADS on the Coast Guard’s behalf.25 The service had specifically requested a proven, off-the-shelf aircraft to replace its HU-25 Guardian jets, Dassault Falcon 20s similarly purchased off the shelf in the early 1980s and originally developed in the early 1960s. The CN-235 was developed, starting in 1980, by a joint venture of Spain’s Construcciones Aeronáuticas SA (CASA, then part of EADS, now Airbus) and Industri Pesawat Terbang Nusantara (IPTN, now Indonesian Aerospace). The first flight was in 1983, and production began in 1986.

Deliveries to the USCG proceeded slowly, with the availability of funding. The first unit arrived in December 2006, and the eighteenth in October 2014, at which point the Coast Guard retired its last HU-25. The aircraft were largely built in Spain but fitted out with equipment specific to the Coast Guard at EADS’s facility in Mobile, Alabama. The USCG had initially intended to procure thirty-six, but the availability of surplus C-27Js (see the next case study) led the service to reduce its plan by half. By September 2017, the Coast Guard’s HC-144 fleet had flown for one hundred thousand hours—more than that of any country with CN235s besides France and South Korea. At that point, more than two hundred CN-235s were flying in more than twenty-four countries.26

An HC-144A Ocean Sentry medium-range surveillance aircraft arrives at Coast Guard Air Station Washington. Photo by Chief Petty Officer Sarah Foster, US Coast Guard District 5.

The US Air Force also flies a few CN-235s within its Special Operations Command.27 Notably, Air Force Special Operations also flies twenty Dornier 328 twin-engine turboprops, termed C-146A Wolfhounds; and a few CN212 Aviocars from CASA, termed C-41As.28

In summary, with the CN-235, the US Coast Guard obtained a proven turboprop aircraft in wide military service around the world, at the pace it desired, and at an ongoing total cost that the service continues to support. The Coast Guard has generally not spent significant sums on aircraft development, and specifically not multiengine, fixed-wing aircraft development, preferring off-the-shelf purchases.

C-27J Joint Cargo Aircraft

The C-27J Spartan is a twin-turboprop, fixed-wing cargo aircraft capable of carrying sixty passengers or forty-six paratroopers.

In the early 2000s, the US Army and the US Air Force individually were seeking ideas for twin-engine turboprop transport aircraft. The Army sought to replace its C-23 Sherpas, C-12 Hurons, and C-26 Metroliners with a common fleet. The USAF sought to supplement its C-130s with a smaller aircraft capable of flying from shorter fields, particularly in Iraq and Afghanistan. In March 2006, Under Secretary of Defense Ken Krieg instructed the two services to combine all these requirements into plans for a single airplane, the JCA.29

Lockheed Martin offered a shortened version of its four-engine C-130. In August 2006, the Army (which was managing the program for the Air Force as well) eliminated that aircraft from the program. CASA, teamed with Raytheon, offered its C-295 aircraft, a larger derivative of the CN-235, developed in the 1990s. Alenia, teamed with L3 Communications, offered its C-27J Spartan. The latter had begun development in 1996 as an improvement of the Aeritalia (later Alenia, later Leonardo) G.222. The USAF had purchased ten G.222s in 1990, designating them C-27As. The C-27J would feature more powerful engines and the glass cockpit of the C-130J, which explains the choice of modifying letter. The first flight was in September 1999, and the Italian air force ordered twelve that November.“30

A C-27J aircraft lands in North Dakota. Courtesy Photo, North Dakota National Guard Public Affairs.

In June 2007, the US Army and US Air Force jointly chose the C-27J as the JCA.31 The Army planned to buy seventy-five for the National Guard, and the Air Force seventy for both the Air National Guard and its component of Special Operations Command. The Army soon found the aircraft very useful for relieving the workload of its Chinook heavy helicopter fleet.32 The Air Force, however, was never enthused about splitting the mission with the Army, and questions of the economy of the arrangement persisted.33 In 2009, Defense Secretary Robert Gates decided to transfer all the aircraft to the Air Force. In 2012, Defense Secretary Leon Panetta decided just to retire the entire fleet, as the United States reefed back its enthusiasm for counterinsurgency. Over the next two years, fourteen of the surplus aircraft were provided to the US Coast Guard, and another seven went back to the Army for its Special Operations Aviation branch.34

Prior to the US order, the C-27J had been ordered by Italy, Greece, Bulgaria, and Lithuania. Australia, Chad, Kenya, Mexico, Peru, Romania, Slovakia, Slovenia, and Zambia ordered aircraft subsequently.35

In summary, with the C-27J, the US Army and Air Force initially obtained a proven turboprop aircraft in wide military service around the world, relatively quickly, and at a competitive price that they were willing to pay. Those aircraft continue to fly for the United States, just with different services or branches than initially intended. That is more a matter of changing requirements than the quality, availability, or cost of the aircraft. Regarding development funding, the US Air Force has only once spent a large sum on new multiengine fixed-wing aircraft since the C-17 Globemaster III program in the 1990s. Its recent orders for KC-46 Pegasus aerial refueling aircraft included development funds, but under the fixed-price deal, Boeing (the contractor) would eventually come to assume most of that cost through repeated overruns.

Sentinel-class (Damen Stan 4708) fast response cutter

The Damen Stan 4708 is a 42 meter patrol ship designed for a variety of naval and maritime constabulary missions.

In March 2007, the US Coast Guard terminated its contract with Lockheed Martin and Northrop Grumman to modify its 110-foot Island-class cutters with a 13 foot midship hull extension, intended to produce a more capable ship with an extended service life. The Island-class ships had been built in the 1980s by Bollinger Shipyards of Louisiana to an off-the-shelf design of the 1960s by Britain’s Vosper Thornycroft, which had been sold to several other naval forces, including those of Qatar, Abu Dhabi, and Singapore.36 The concept was reasonable in principle, as hull plugs are not uncommon in naval architecture and shipbuilding. The problem was that the Island-class ships were already proving susceptible to late-in-life hull cracking, but neither the service nor the contractors were fully forthcoming with one another about the difficulties. After taking delivery of eight of the rebuilt ships, the Coast Guard terminated the program, and indeed withdrew the eight from service.37

In September 2008, the USCG awarded a contract, after an open competition, to Bollinger to build a replacement class of “fast response cutters.” The Coast Guard had expressly requested an off-the-shelf solution, with at least two vessels from the parent design in patrol boat service for one year, or one vessel in patrol boat service for at least six years. Bollinger brought a design based on the Damen Stan (“Standard”) 4708 patrol vessel, by Damen Shipyards of the Netherlands. With options, the fixed-price contract called for twenty-four to thirty-six cutters. The first, USCGC Bernard C. Webber was launched in April 2011 and commissioned in April 2012. The Coast Guard was sufficiently pleased with the cost and quality that the service now has fifty-four in service, and another eleven in sea trials, under construction, or planned. Bollinger’s work has been noticed, bringing forth suggestions that the US Navy could also purchase 4708s to replace its Cyclone-class patrol boats, and perhaps for other uses.38

The Coast Guard Cutter Bernard C. Webber is the Coast Guard’s first Sentinel-class Fast Response Cutter. Courtesy Photo, US Coast Guard Atlantic Area.

Three ships of the design had entered service in 2004 and 2005 in South Africa as the Lilian Ngoyi class of environmental inshore patrol vessels. In its explanation of the decision, the Coast Guard described Damen as an “internationally recognized ship designer with more than 30 shipyards and related companies worldwide [and] 4,000 vessels in service since [it was] founded in 1929.”39 The 4708 was itself a development of the Damen Stan 4207, which has served in the navies, coast guards, or maritime constabularies of Albania, the Bahamas, Barbados, Bulgaria, Canada, Honduras, Jamaica, Mexico, the Netherlands, Nicaragua, the United Kingdom, Venezuela, and Vietnam.

In summary, with the Sentinel class, the US Coast Guard obtained a proven patrol ship whose preceding designs were in wide military service around the world, and at a price that led to procurement of scores more. The first ship was not available for forty-three months after contract signing, which is neither particularly fast nor slow by historical US standards. By avoiding much development spending with the Damen Stan 4708, the USCG saved those funds for its next-larger class of cutters in the Deepwater recapitalization program, of a wholly new design: the Heritage-class offshore patrol cutter.

RG-31 Charger (Nyala) mine-resistant armored vehicle

The RG-31 Nyala is a four-wheeled, all-wheel-drive, armored troop carrier, specifically designed for resistance to land mines. In 1996, the US Army purchased a few RG-31 mine-protected vehicles to equip its land-mine disposal squads on peacekeeping duty in Bosnia. Later described as a “rolling bank vault” of a troop carrier, the RG-31 had been developed in South Africa from the Mamba, an earlier mine-protected troop carrier that was built on a Unimog truck chassis and powered by a Mercedes-Benz six-cylinder diesel.40 The “Bush Wars” of the 1970s and 1980s had culminated by the 1994 election that marked the end of apartheid, but part of the legacy was a remarkable industrial capability for developing armored vehicles. However, through a series of licensing arrangements and corporate mergers, the marketing rights for the RG-series vehicles in North America resided with GDLS-Canada. The vehicles were thus built in South Africa, but fitted out in Ontario, at the same plant that produced Strykers (see below).41

By the middle of 2003, the US-led coalition’s occupation of Iraq had elicited attacks by insurgents with leftover land mines and more improvised explosive devices (IEDs). Eager to get into the market of supplying the bomb squads, General Dynamics Land Systems looked globally in 2003 for an off-the-shelf solution and remembered its license for the RG series of vehicles.42 The US Army then ordered a small number of additional RG-31s. Service on the ground in Iraq created impressions of quality. In an urgent request to Quantico in 2003, the 1st Marine Brigade in Anbar Province requested one thousand mine-protected armored vehicles “similar to the South African RG-31, Casspir, or Mamba.”43

In June 2004, General John Abizaid, the commander of US Central Command, which oversaw all military operations in both Iraq and Afghanistan, sent a message to the Joint Chiefs of Staff explaining his situation and requesting help. His most poignant statement was that “IEDs are my No. 1 threat. I want a full court press on IEDs . . . a Manhattan-like Project.” In November 2004, the Army ordered a further fifteen RG-31s. The vehicles were priced well below $1 million each—far below the price of a Stryker or Bradley troop carrier. The Army’s enthusiasm grew in February 2005, when the service entered into a $78 million contract for another 148 RG-31s from Canadian Commercial Corporation, the national armaments marketing firm, on behalf of GDLS. In that contract, the armored trucks were oddly termed “ground effect vehicles,” and the Army’s official nickname would be Charger. Deliveries took some time, as the supply line stretched almost the length of the Atlantic Ocean. Deliveries were scheduled to continue, however, through December 2006.44

Soldiers connect L-Rod Bar Armor to an RG-31 Mine Resistant Ambush Protected vehicle at Kandahar Airfield, Afghanistan. Photo by Staff Sgt. Stephen Schester, 16th Mobile Public Affairs Detachment.

The first fatality in an RG-31 did not occur until May 2006. Early on, the US armed forces also ordered vehicles from Force Protection Industries of South Carolina. These were not off the shelf, but rather, had been developed domestically with technology licensed from the South African government. Eventually, the Army and the Marine Corps ordered over one thousand RG-31s, and thousands of other vehicles termed MRAPs—Mine-Resistant, Ambush-Protected vehicles—from multiple domestic producers.

In 2005, the Army and the Marines began work on an ambitious project for the Joint Light Tactical Vehicle (JTLV)—a vehicle only slightly larger than a Humvee, but with the protection of an MRAP. Developing the JLTV would ultimately require ten years, and full-rate production would not begin until 2019. During this time, US troops were protected from land mines by MRAPs, including RG-31s, and the origins of all that work reside in South Africa.

In summary, with the RG-31, the US Army obtained an armored vehicle long proven against land mines, relatively quickly, and at a price far below that of its other troop-carrying armored vehicles. While procuring the RG-31, and afterward, the US Army and Marine Corps would spend large sums developing the JLTV.

Stryker Light Armored Vehicle III

The LAV III is an eight-wheeled, all-wheel-drive, armored troop carrier, designed for higher road speeds and lighter weight than comparable tracked vehicles.

In June 1999, less than a week after assuming office, US Army Chief of Staff General Eric Shinseki signaled his intention to restructure much of the service.45 The immediate impetus came from the Army’s difficulty over the preceding several months with deploying its Task Force Hawk, of attack helicopters and accompanying ground troops, from Germany to Albania for the Kosovo War. As analysts at RAND later described the problem, the Army needed to “expand ground force options to improve joint synergies.”46 As Shinseki would more clearly say, its light forces were too light for fighting opponents with heavy weaponry, and its heavy forces too heavy for strategic mobility.47 Neither bookend of capability had properly contributed to the overall war-fighting effort.

In October 1999, Shinseki described a plan to rebuild the Army around motorized formations equipped with wheeled armored vehicles small enough to fit on C-130 Hercules transport aircraft.48 In February 2000, General Motors (GM) Canada and GDLS announced that they would together enter the pending competition with a version of the Canadian LAV III, itself a development of the Piranha series of armored vehicles, first developed in the early 1970s by the Swiss firm MOWAG (Motorwagenfabrik AG). Back in 1983, the US Marine Corps had procured a version of the Piranha I, armed with a 25 millimeter (mm) cannon, for reconnaissance and screening duties.

GM Canada held the license from MOWAG to build the vehicles in London, Ontario. The Army would later also receive offers from United Defense LP (UDLP) for a combination of remanufactured M113A2 tracked troop carriers and M8 medium tanks, from ST Engineering for Bionix tracked troop carriers, and another from GD for six-wheeled, Austrian-designed Pandur armored vehicles. Neither UDLP nor ST Engineering seem to have taken account of Shinseki’s strong and openly stated preference for wheels, though UDLP did suggest that a split purchase could include its tracked tank.

In March 2000, the Army reequipped the 3rd Infantry Brigade of the 2nd Infantry Division—a heavy brigade with Abrams tanks and Bradley fighting vehicles—at Fort Lewis, Washington, with LAV IIIs borrowed from the Canadian Army, and a variety of other vehicles under consideration.49 In April 2000, the Army released an RFP for the Interim Armored Vehicle (IAV). The program was so named because almost simultaneously, the Army launched its Future Combat Systems (FCS) program to reequip all its heavy brigades (and eventually the “interim” brigades as well) with a common fleet of medium-weight vehicles of entirely new design. In March 2002, the Army selected a team of Boeing and SAIC to oversee development of the fourteen different vehicular and aerial systems, manned and unmanned, within the FCS.50

In November 2000, after reviewing the four more-of-less off-the-shelf proposals, the Army awarded GM and GD a contract for 2,131 vehicles, in a variety of variants of the LAV III, to equip six brigades by 2008. Shinseki had wanted the first vehicles by the end of 2001, but at contract award, that schedule was clearly infeasible.51 The US Army’s order was far larger than any yet received, and the US vehicle required a significant redesign from the Canadian standard, with more armor (resistant to 14.5 mm armor-penetrating rounds) but less firepower (a remote 12.7 mm machine gun rather than a manned 25 mm turret). Thus, the first new-production Strykers to equip further brigades would not arrive until 2003. In those numbers, the price was considered reasonable, at roughly $1.42 million each. This considerably exceeded the procurement price of the M113 alternative, but the Stryker’s life-cycle costs were expected to be lower.52

A US Army Soldier drives an Interim Armored Vehicle Stryker out of a C-17 Globemaster III. Photo by Senior Airman Tryphena Mayhugh, 62nd Airlift Wing Public Affairs.

In November 2003, the 3rd Brigade from Fort Lewis deployed to Iraq with Strykers. Also that year, GD consolidated the design-and-production arrangement by buying both GM Defense Canada and MOWAG. The next year, Shinseki’s successor as chief of staff, General Peter Schoomaker, became similarly enthused about the Stryker. In seeking what he called an “infantry-centric army,” in which troops were not defined by their means of conveyance to the battlefield, he specifically noted that Stryker brigades brought twice as many dismounts to the field as brigades equipped with Abrams and Bradleys.53 The Strykers were also performing well in combat. Through early 2004 in Iraq, they had survived attacks from at least fifty-five IEDs, twenty-four RPGs, and a 500 pound car bomb without a single fatality.

On the other hand, the Army’s effort to field a version of the Stryker with a 105 mm assault gun did not fare as well. The service purchased enough to equip each of eventually eight Stryker brigades with twelve guns, but retired all the vehicles in 2022. Then again, the Army’s goal of “Future Combat Systems” as survivable as Abrams tanks but somehow fitting on C-130 aircraft did not survive past 2005.54 Development continued for several years, but without tangible progress. In April 2009, Defense Secretary Robert Gates canceled most of the FCS program, which had not produced any operational vehicles, despite $19 billion in spending and six years of effort.55

Because the vehicles were considered an interim solution, the Army initially chose to forego developing its own maintenance depot for Strykers, and to instead rely substantially on GDLS through an arrangement the US military calls contractor logistics support (CLS). The Army’s reliance on CLS was, in retrospect, a costly one, but it did subsequently facilitate modifying the vehicles for greater survivability, after battlefield lessons in Iraq and Afghanistan.56 After the FCS program was clearly terminated, the Army began assuming more of the maintenance burden organically.

While only the US Army employs its customized Stryker series, LAV IIIs have been procured to equip land forces in Canada, Chile, Colombia, New Zealand, and Saudi Arabia. Piranha IIIs have been procured to equip land forces in Belgium, Botswana, Brazil, Denmark, Moldova, Ireland, Romania, Spain, Sweden, and Switzerland. In 2011, GDLS began producing an upgraded version, the LAV 6, for the Canadian Army and the Saudi National Guard. In 2019, GDLS began building a development of the LAV 6, the Armoured Combat Support Vehicle (ACSV), to replace the Canadian Army’s M113s and LAV IIs. In 2022 and 2023, the United States sent surplus Strykers to Ukraine, and Canada sent new ACSVs.57 In November 2023, the United States offered a coproduction deal to build Strykers, including air-defense variants, in India for the Indian Army.58

In summary, with the LAV III, the US Army obtained an armored vehicle in wide service around the world, though somewhat more slowly than hoped, and at a price and life-cycle cost deemed acceptable. The Army’s heavy reliance on contractor logistics support was, in retrospect, a costly decision, but one which centralized management of upgrades at an important juncture. The Army spent a modest sum on development of the LAV IIIs, which required customization for its particular preferences. However, this was a small fraction of the funds spent developing the Future Combat Systems, the later and then-cancelled Ground Combat Vehicle, and the current effort with the Optionally Manned Fighting Vehicle. None of these programs have delivered vehicles to the field, but Strykers continue to serve.

Assessment

systems were procured starting between 2003 and 2008, during the comparatively free-trading George W. Bush administration, for which military-industrial cooperation with allies was a priority. Two of the systems were adopted in 2018, during the comparatively protectionist Trump administration. Plans for accepting off-the-shelf concepts for those two requirements, however, got their start during the preceding Obama administration. While the US Air Force’s twenty-year drama of aerial tanker procurements from Boeing—and not Airbus—does provide a counterpoint, all the military services but the Space Force have smoothly adopted at least one major system of foreign design. The summary record of these procurements has been largely positive.

Buying foreign military hardware off the shelf has generally brought the US military proven systems of lasting quality.

In the first seven cases described, the US Army, Navy, Marine Corps, Air Force, and Coast Guard bought off-the-shelf systems to provide enduring capabilities, in lieu of developing new systems, and all seven are still in US service. The Army bought the RG-31 to provide a present capability, while also funding (with the Marine Corps) the development of enduring capabilities, culminating in that of the Joint Light Tactical Vehicle. For years along the way, the RG-31 provided very valuable protection to US troops against land mines. The Army similarly bought the Stryker LAV III to provide an interim capability, but it never succeeded in developing an enduring replacement. The Stryker thus continues in the Army’s force structure and inventory more than twenty years on. As the Army’s first program manager for Stryker recently put it, “The Army likes the vehicle, and still likes the vehicle”—for if it did not, it would not persist in service.59

Note also that the Defense Department would not have entrusted the air defense of the federal capital to NASAMS for eighteen years if it had meaningful questions about its capabilities.

This finding in evidence comports with the logic of the market. Off-the-shelf products generally feature observable quality. Indeed, if one is trying to sell an important system to the Americans, it is wise to bring a quality product. Any US military service is an important customer to whom a sale conveys great reputation.

Buying foreign military hardware off the shelf has mostly fulfilled US military needs comparatively quickly.

The RG-31 was procured in an emergency and was available in small quantities within months. The NASAMS was not quite procured in an emergency, but its immediate availability was appreciated, with fresh memories of the aerial attack on the Pentagon in 2001. The NSM was sought urgently, in that the rising threat from the Chinese navy could not be adequately opposed with the US Navy’s existing anti-ship missiles. The Stryker (or any interim armored vehicle) was sought quickly, because the Army chief of staff was embarrassed by his service’s failure to contribute during the Kosovo War. Its service in Iraq was impressive, but only because it was available three years after contract award. That proved adequate under the circumstances, but General Shinseki initially had much quicker delivery in mind.

In all the other cases, the driving motivation for an off-the-shelf procurement was either economy or assured quality. This does not mean that speed was wholly unimportant. The MH-139A arrived after a flight-testing delay of a few years, and the Sentinel-class cutters also did not arrive quickly. In none of those cases, however, did the procuring service experience operationally damaging delays.

This finding also comports with the logic of the market. Off-the-shelf products generally can be provided more quickly, sometimes because the production process is running, and always because significant product development lead time is not required.

Buying foreign military hardware off the shelf has generally brought the US military cost-competitive matériel.

Three of the cases were not fully competitive procurements. The NSM was chosen as the Navy’s next anti-ship missile after Boeing and Lockheed Martin withdrew from the competition, apparently because neither could quite offer the combination of capabilities the Navy sought in a ship-killing missile for a small ship. The case of the NASAMS seems to have been a sole-source procurement, without a record of a competition. The case of the RG-31 was similarly a sole-source emergency purchase.

The remaining six cases were all competitive procurements, which indicates that foreign-designed systems have repeatedly delivered value for money to the US armed forces.

This finding further comports to the logic of the market. Any US military service is a customer with great buying power. As noted above, concluding the sale reinforces the seller’s reputation, which can be leveraged for many years in pursuing other sales. For these two reasons, offerers have strong incentives to bring good deals to American buyers.

Buying foreign military hardware off the shelf has had no strong effect on US capacity for military-industrial R&D.

The nine off-the-shelf procurements neatly fall into five industries. None have seen a strong effect from this pattern of spending.

  • In the two cases of missile manufacturing, the United States purchased two different missile systems, the NSM and NASAMS, from the same original designer, Kongsberg of Norway. On both projects, Kongsberg has cooperated with one of the US national champions in guided missiles, Raytheon Technologies. Over that time of the ongoing procurement, the US Defense Department has spent many more billions on missile development, for both offensive and defensive missions.
  • In two cases of rotorcraft manufacturing, the Army bought hundreds of EC145s, and the Air Force is planning to buy scores of AW139s. The Army could have paid a contractor to design a wholly new aircraft for utility and training purposes, but the marginal advantage in an industry with a slow cycle of technological development could not be cost effective. The Air Force’s requirements may have been somewhat more demanding, but a new design for a fleet of less than one hundred helicopters would be similarly foolish.
  • In two cases of fixed-wing transport aircraft manufacturing, the Coast Guard, the Army, and the Air Force took delivery of just eighteen CN-235s and twenty-one C-27Js. Developing new aircraft for small fleets would be a very bad use of money. The special operations commands of the US services understand this well, and thus sources most of their aircraft from existing designs.
  • In the one case of shipbuilding, the Coast Guard’s off-the-shelf purchase of the 300 ton Sentinel-class cutter freed up money for the development of the 3000 ton Heritage-class cutter—a much larger project. Additionally, none of this spending by the Coast Guard seems to have affected the Navy’s spending on ship design and development.
  • In two cases of armored vehicle manufacturing—those of the RG-31 and the Stryker—the Army did continue to spend large sums on follow-on systems: the JLTV and the FCS.

Recommendations

Since the end of the Cold War, the US armed forces have quite successfully taken into service nine major, off-the-shelf systems of foreign design. Again, this is good because a preference for the already available for federal procurement is federal law. Most of these products have been manufactured in the United States, and all have been serviced there. This is reasonable because the United States has huge industrial capacity and some strategic interest in domestic servicing. More pointedly, this technology transfer has effectively constituted security assistance from allies—a valuable concept too often overlooked by military policymakers.

Formulating a strategic framework

The federal government can better avail itself of the advantages in quality, speed, and economy offered by allies’ proven solutions, by adopting a two-part analytical framework for considering their procurement.

Consider the global extent of the market

Seven of the nine systems in this study were widely adopted by military forces around the world before a US military service purchased them. In all other cases, the procuring services had long lists of satisfied customers to consult for insights into the equipment. For future procurements, if the needs of the service do not genuinely exceed the global state-of-the art, the best design should be sought from any friendly source. As several of these cases demonstrate, for large production runs, production can be brought to the United States, if desired.

Measure the technological speed of the industry

Seven of the systems in this study represented modest technological developments. Only the naval strike missile constituted a great advancement over preceding options on the market. In all other cases, the procuring services were purchasing systems from industries with modest cycle speeds of technological development. Four of the procurements were from industries with substantially commercial underlying technologies and observably slow paces of change: helicopters and multiengine fixed-wing aircraft. If firms around the world are investing over the long-term for gradual technological progress, then a program to develop a wholly new system is duplicative.

Educating the procurement bureaucracy

Despite the logic, the procurement bureaucracy—outside US Special Operations Command and the Coast Guard—may remain disinclined to seek proven solutions, and especially those of foreign provenance. In the short run, this puts the onus of securing best value on the political leadership of the military departments and defense agencies. For better quality, speed, and economy, these leaders must meet military desires for novel equipment with demands for frank justification and global market research. This approach fits within the civil-military model of military innovation, which holds that beneficial change most often comes when “statesmen intervene in military service doctrinal development, preferably with the assistance of maverick officers from within the service.”60

This last point addresses a longer-term approach. In the apparatus of any administrative state, career bureaucrats greatly outnumber appointees.61 Even if they are economically minded, the politicians cannot oversee everything. The “positive arbitrariness” of their occasional intervention can produce useful results, but it is also no way to build enduring institutional capacity.62 Officials beyond the mavericks need further schooling in the mandate for and economy of buying military systems off the shelf. This means education in the market research techniques of routinely surveying global markets for military off-the-shelf solutions that can inform processes for developing requirements for new procurements. In theory, educational opportunities exist through the Defense Acquisition University, the Eisenhower School of the National Defense University, and the military acquisition elective courses at the various other war colleges.

The benefits could be far-reaching. Procuring what others have already developed can permit the military to focus its R&D funds on its most challenging problems. Then, when war comes, procuring agencies and industrial enterprises will better understand, as organizations, how to put others’ designs into production here to meet the immediate needs of mobilization.

Acknowledgments

The Atlantic Council is grateful to Airbus for its generous sponsorship of this paper.

About the author

James Hasik is a political economist studying innovation, industry, and international security. Since September 2001, Hasik has been advising industries and ministries on their issues of strategy, planning, and policy. His work aims to inform investors, industrialists, technologists, and policymakers on how to effect, economically, a secure future.

Appendix 1

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1    See, for example, Frank Kendall et al., Business Systems Requirements and Acquisition, Department of Defense Instruction 5000.75, Change 2, January 24, 2020, 5, https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/500075p.PDF?ver=2020-01-24-132012-177.
2    Steven Grundman and James Hasik, “Innovation Before Scale: A Better Business Model for Transnational Armaments Cooperation,” RUSI Journal 161, no. 5, December 2016, https://www.tandfonline.com/doi/abs/10.1080/03071847.2016.1253366?journalCode=rusi20.
3    “Kyiv Does Not Want to Rely Solely on Allied Military Aid, Says Ukraine’s Zelensky,” Straits Times, December 7, 2023, https://www.straitstimes.com/world/europe/kyiv-does-not-want-to-rely-solely-on-allied-military-aid-zelenskiy.
4    Sam LaGrone, “Raytheon and Kongsberg Team to Pitch Stealthy Norwegian Strike Missile for LCS,” USNI News, US Naval Institute, April 9, 2015, https://news.usni.org/2015/04/09/raytheon-and-kongsberg-team-to-pitch-stealthy-norwegian-strike-missile-for-lcs.
5    Sam LaGrone, “Raytheon Awarded LCS Over-the-Horizon Anti-Surface Weapon Contract; Deal Could Be Worth $848M,” USNI News, May 31, 2018, https://news.usni.org/2018/05/31/raytheon-awarded-lcs-horizon-anti-surface-weapon-contract-deal-worth-848m.
6    Comment by Taylor W. Lawrence, president of Raytheon Missile Systems, in “US Navy Selects Naval Strike Missile as New, Over-the-Horizon Weapon: Raytheon, Kongsberg Will Partner to Deliver Advanced Missile,” press release, Raytheon on PR Newswire, June 1, 2018, https://raytheon.mediaroom.com/2018-06-01-US-Navy-selects-Naval-Strike-Missile-as-new-over-the-horizon-weapon.
7    Megan Eckstein, “Kongsberg, Raytheon Ready to Keep Up as Naval Strike Missile Demand Grows,” Defense News, October 27, 2021, https://www.defensenews.com/naval/2021/10/27/kongsberg-raytheon-ready-to-keep-up-as-naval-strike-missile-demand-grows/.
8    Andrew Feikert, “National Advanced Surface-to-Air Missile System,” Congressional Research Service, IF12230, December 1, 2022, https://crsreports.congress.gov/product/pdf/IF/IF12230; and Tyler Rogoway, “America’s Capitol Is Guarded By Norwegian Surface-to-Air Missiles,” Jalopnik, April 3, 2014, https://jalopnik.com/americas-capitol-is-guarded-by-norwegian-surface-to-ai-1556894733.
9    Lithuania Acquires More NASAMS Air Defense from Kongsberg,” press release, Kongsberg, December 14, 2023, https://www.forecastinternational.com/emarket/eabstract.cfm?recno=294263.
10    Joe Gould, “US to Send Ukraine Advanced NASAMS Air Defense Weapons in $820 Million Package,” Defense News, July 1, 2022, https://www.defensenews.com/pentagon/2022/07/01/us-to-send-ukraine-advanced-nasams-air-defense-weapons-in-820-million-package/; and “Norway Donates Additional Air Defence Systems to Ukraine,”  Norwegian government, December 13, 2023, https://www.regjeringen.no/en/aktuelt/noreg-donerer-meir-luftvern-til-ukraina/id3018411/.
11    David Pugliese, “Canadian Military Eyes New Ground-Based Air Defence System at a Cost of $1 Billion,” Ottawa Citizen, May 2, 2022, https://ottawacitizen.com/news/national/defence-watch/canadian-military-eyes-new-ground-based-air-defence-system-at-a-cost-of-1-billion.
12    Gareth Jennings, “US Army Retires ‘Creek’ Training Helo,” Jane’s, February 19, 2021, https://www.janes.com/defence-news/news-detail/us-army-retires-creek-training-helo.
13    Jen Judson, “Airbus Unveils B-model Lakota Helos to Enter US Army Fleet Next Year,” Defense News, August 28, 2020, https://www.defensenews.com/land/2020/08/28/airbus-unveils-b-model-lakotas-will-enter-us-army-fleet-in-2021/.
14    Sebastian Sprenger, “Germany Spends $2.3 billion on Airbus Light Attack Helicopters,” Defense News, December 14, 2023, https://www.defensenews.com/global/europe/2023/12/14/germany-spends-23-billion-on-airbus-light-attack-helicopters/; and “Airbus Helicopters and German Armed Forces Sign Largest H145M Contract,” press release, Airbus Helicopters, via Defense-Aerospace.com, December 14, 2023, https://www.defense-aerospace.com/germany-orders-up-to-82-airbus-h145m-armed-helicopters/
15    Garrett Reim, “Retrospective: How the UH-1 ‘Huey’ Changed Modern Warfare,” Flight Global, December 12, 2018, https://www.flightglobal.com/helicopters/retrospective-how-the-uh-1-huey-changed-modern-warfare/130259.article; and José Gabriel Pugliese, “El Bell 212 en la Fuerza Aérea,” Aerospacio (official magazine of Argentina’s air force), October 28, 2008.
16    Joseph Trevithick, “Dark Horse Contender Boeing Snags Air Force Deal to Replace Aging UH-1N Hueys with MH-139,” War Zone, September 24, 2018, https://www.twz.com/23803/dark-horse-contender-boeing-snags-air-force-deal-to-replace-aging-uh-1n-hueys-with-mh-139.
17    Colin Clark, “Dozen Lawmakers Object to Sole-Source UH-1N Replacement,” Breaking Defense, April 18, 2016, https://breakingdefense.com/2016/04/slow-down-air-force-dozen-lawmakers-object-to-sole-source-uh-1n-replacement/.
18    Tyler Rogoway, “USAF Asks for Bids to Finally Replace Its Antique UH-1N Hueys,” War Zone, December 3, 2016,
https://www.twz.com/6318/usaf-asks-for-bids-to-finally-replace-its-antique-uh-1n-hueys.
19    Ryan E. Von Rembow, “The UH-1Y Was a Mistake: An Argument for the MH-60S,” Marine Corps Gazette 99, no. 1, January 2015, https://www.mca-marines.org/wp-content/uploads/2018/12/Gazette-January-2015.pdf.
20    Brian W. Everstine, “The Grey Wolf Arrives,” Air & Space Forces, March 1, 2020, https://www.airandspaceforces.com/article/the-grey-wolf-arrives/
21    Valerie Insinna, “The Air Force Picks a Winner for its Huey Replacement Helicopter Contract,” Defense News, September 24, 2018, https://www.defensenews.com/breaking-news/2018/09/24/the-air-force-picks-a-winner-for-its-huey-replacement-helicopter-contract/; and Insinna, “The US Air Force’s UH-1N Huey Replacement Helicopter Has a New Name,” Defense News, December 19, 2019, https://www.defensenews.com/air/2019/12/19/the-air-forces-uh-1n-huey-replacement-helicopter-got-a-new-name-today/.
22    Stefano D’Urso, “MH-139 Grey Wolf Finally Enters Developmental Testing,” Aviationist, August 28, 2022, https://theaviationist.com/2022/08/28/mh-139-enters-developmental-testing/.
23    US Air Force Decision Commences Low Rate Production of Boeing/Leonardo MH-139 Grey Wolf,” press release, Leonardo, March 9, 2023, https://www.leonardo.com/documents/15646808/24917778/ComLDO_Boeing_Leonardo_MH-139A_MilestoneC_09_03_2023_ENG.pdf?t=1678369973868
24    US Coast Guard Acquires EADS CASA CN-235,” EADS press release, May 12, 2003.
25    “Lockheed Martin Selects EADS CASA CN-235-300M for U.S. Coast Guard’s Deepwater Maritime Patrol Aircraft Solution,” press release, Lockheed Martin, February 18, 2004, https://investors.lockheedmartin.com/news-releases/news-release-details/lockheed-martin-selects-eads-casa-cn-235-300m-us-coast-guards.
26    Lawrence Specker, “Airbus, Coast Guard Celebrate 100,000 Hours in the Air,” Alabama Media Group’s AL.com, September 22, 2017, https://www.al.com/news/mobile/2017/09/airbus_coast_guard_celebrate_1.html.
27    Joseph Trevithick, “Shadowy USAF Spy Plane Spotted Over Seattle Reportedly Reappears Over Syria,” War Zone, June 30, 2019, https://www.twz.com/17511/shadowy-usaf-spy-plane-spotted-over-seattle-reportedly-reappears-over-eastern-syria; and “C-146A Wolfhound,” fact sheet, US Air Force, March 2021, https://www.af.mil/About-Us/Fact-Sheets/Display/Article/467729/c-146a-wolfhound/.
28    Joseph Trevithick, “Shedding Some Light on the Pentagon’s Most Shadowy Aviation Units,” War Zone, July 3, 2020, https://www.twz.com/8125/shedding-some-light-on-the-pentagons-most-shadowy-aviation-units.
29    John T. Bennett, Jen DiMascio, and Ashley Roque, “Wanted: A Bona-Fide ‘Bug Smasher,’” Inside the Air Force 17, no. 12 (2006): 8-10
30    C-27J Conducts Successful First Flight,” Defense Daily, September 29, 1999; and Andy Nativi, “Italian Order Launches C-27J,” Flight Global, November 17, 1999.
31    Gayle S. Putrick, “C-27J Tapped for Joint Cargo Aircraft,” Air Force Times, June 13, 2007.
32    Philip Ewing, “Far from DC Battles, C-27 Gets Glowing Reviews,” DoD Buzz, April 24, 2012, https://web.archive.org/web/20120427214404/http:/www.dodbuzz.com/2012/04/24/far-from-dc-battles-c-27-gets-glowing-reviews/.
33    Sandra I. Erwin, “Military Services Competing for Future Airlift Missions,” National Defense, November 2005, https://www.nationaldefensemagazine.org/articles/2005/10/31/2005november-military-services-competing-for-future-airlift-missions.
34    Aaron Mehta, “US SOCOM to Get 7 C-27Js from USAF,” Defense News, November 1, 2013, https://archive.ph/20131101201655/http:/www.defensenews.com/article/20131101/DEFREG02/311010012#selection-857.0-867.16; and Jon Hemmerdinger, “US Coast Guard to Acquire USAF’s remaining C-27J Spartans,” Flight Global, January 6, 2014, https://www.flightglobal.com/us-coast-guard-to-acquire-usafs-remaining-c-27j-spartans/112099.article.
35    Craig Hoyle, “Bulgaria Accepts Its Last C-27J Transport,” Flight Global, March 31, 2011; and Hoyle, “Romania Accepts First C-27J Spartans,” Flight Global, December 4, 2011.
36    Frank N. McCarthy, “The Coast Guard’s New Island in the Drug War,” Proceedings of the United States Naval Institute, February 1986.
37    Trevor L. Brown, Matthew Potoski, and David M. Van Slake, Complex Contracting: Government Purchasing in the Wake of the US Coast Guard’s Deepwater Program (Cambridge, UK: Cambridge University Press, 2013), 173–179.
38    Collin Fox, “Two Birds with One Stone: A New Patrol Craft and Unmanned Surface Vessel,” Proceedings of the United States Naval Institute, February 2019, https://www.usni.org/magazines/proceedings/2019/february/two-birds-one-stone-new-patrol-craft-and-unmanned-surface.
39    “Sentinel Class Patrol Boat Media Round Table,” briefing by Rear Admiral Gary T. Blore, Assistant Commandant for Acquisition, and Captain Richard Murphy, Sentinel-Class Project Manager, September 30, 2008, https://web.archive.org/web/20090220012354/http:/uscg.mil/acquisition/newsroom/pdf/sentinelmediabrief.pdf.
40    John Carlson, “For Iowans on Streets of Iraq, War ‘Never Gets Routine,’” Des Moines Register, October 2, 2005.
41    This discussion follows James Hasik, Securing the MRAP: Lessons Learned in Marketing and Military Procurement (College Station: Texas A&M University Press, 2021), chapter 3.
42    Author’s telephone interview with Chris Chambers, former chairman of the board, BAE Systems Land Systems South Africa, September 23, 2015.
43    Ronald Heflin, “Universal Need Statement, Hardened Engineer Vehicle,” mimeograph provided by Mike Aldrich of Force Protection Industries. The request was undated, but the approval by Marine Forces Pacific was dated December 12, 2003.
44    E. B. Boyd and Brian L. Frank, “A New Front: Can the Pentagon Do Business with Silicon Valley?” California Sunday Magazine, October 2015.
45    Erin Q. Winograd, “Intent Letter Says Heavy Forces Are Too Heavy: Shinseki Hints at Restructuring, Aggressive Changes for the Army,” Inside the Army 11, no. 25 (1999), http://www.jstor.org/stable/43984647.
46    John Gordon IV, Bruce Nardulli, and Walker L. Perry, “The Operational Challenges of Task Force Hawk,” Joint Force Quarterly, no. 29, Autumn/Winter 2001–2002, 57, https://ndupress.ndu.edu/portals/68/Documents/jfq/jfq-29.pdf.
47    Gordon, Nardulli, and Perry, “The Operational Challenges of Task Force Hawk,” 57.
48    Catherine MacRae, “Service Wants to Be Lighter, Faster, More Lethal: Army Chief of Staff’s ‘Vision’ Is Focused on Medium-Weight Force,” Inside the Pentagon 15, no. 41 (1999), http://www.jstor.org/stable/43995956.
49    Kim Burger, “Brigade Combat Team Has Trained Mostly on LAVs: Soldiers Give Praise for Wheeled, Tracked Vehicles at Ft. Lewis,” Inside the Army 12, no. 39 (2000): 1, 11–12, http://www.jstor.org/stable/43985049; and “Rigorous Training Expected to Increase Comfort Level: Brigade Team Soldiers Give Up Tanks, Firepower with ‘Hard Feelings,’” Inside the Army 12, no. 39 (2000): 1, 8–10, http://www.jstor.org/stable/43985046
50    Andrew Feickert, The Army’s Future Combat System (FCS): Background and Issues for Congress, Congressional Research Service, RL32888, November 30, 2009, https://crsreports.congress.gov/product/pdf/RL/RL32888/20.
51    Steven Lee Myers, “Army’s Armored Vehicles Are Already Behind Schedule,” New York Times, November 18, 2000, https://www.nytimes.com/2000/11/18/us/army-s-armored-vehicles-are-already-behind-schedule.html.
52    William M. Solis et al., Military Transformation: Army’s Evaluation of Stryker and M-113A3 Infantry Carrier Vehicles Provided Sufficient Data for Statutorily Mandated Comparison, GAO-03-671, US Government Accounting Office, May 2003, https://www.gao.gov/assets/gao-03-671.pdf.
53    James Kitfield, “Army Chief Struggles to Transform Service during War,” Government Executive, October 29, 2004, https://www.govexec.com/federal-news/2004/10/army-chief-struggles-to-transform-service-during-war/17929/; and Grace Jean, “Army Transformation Modeled After Stryker Units, National Defense, October 2005, https://www.nationaldefensemagazine.org/articles/2005/10/1/2005october–army-transformation-modeled-after-stryker-units.
54    Sandra Erwin, “For Army’s Future Combat Vehicles, Flying by C-130 No Longer Required,” National Defense, November 2005, https://www.nationaldefensemagazine.org/articles/2005/10/31/2005november-for-armys-future-combat-vehicles-flying-by-c130-no-longer-required.
55    See Army Strong: Equipped, Trained and Ready: Final Report of the 2010 Army Acquisition Review, Department of the Army, June 2011, 163, https://breakingdefense.com/wp-content/uploads/sites/3/2011/07/213465.pdf.
56    E-mail message to the author from Christopher Cardine, former program manager for the US Army and executive for General Dynamics Land Systems, April 2, 2024.
57    David Akin, “As NATO Summit Ends, Canada Promises More Military Aid to Ukraine,” Global News (Canada), June 30, 2022, https://globalnews.ca/news/8958186/canada-military-aid-ukraine/.
58    Inder Singh Bisht, “US to Co-Produce Stryker Armored Vehicle with India,” Defence Post, November 13, 2023, https://www.thedefensepost.com/2023/11/13/us-produce-stryker-india/?expand_article=1; and Manjeet Negi, “US Offers India Air Defence Version of Stryker Armoured Fighting Vehicles,” India Today, November 30, 2023, https://www.indiatoday.in/india/story/us-offers-air-defence-system-equipped-stryker-infantry-combat-vehicles-to-india-2469243-2023-11-30.
59    Author’s interview with Donald Schenk, retired brigadier general, US Army, December 12, 2023.
60    Adam Grissom, “The Future of Military Innovation Studies,” Journal of Strategic Studies 29, no. 5 (2006); and citing Barry R. Posen, The Sources of Military Doctrine: France, Britain, and Germany between the World Wars (Ithaca, NY: Cornell University Press, 1984), 222–36.
61    Dave Oliver and Anand Toprani, American Defense Reform: Lessons from Failure and Success in Navy History (Washington, DC: Georgetown University Press, 2022).
62    Douglas Bland, “Foreword,” xviii, in Alan Williams, Reinventing Canadian Defence Procurement: A View from the Inside (Montreal: McGill-Queen’s University Press, 2006).

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]]> Digital services for e-government: opportunities for a future 2.5 billion African demographic market https://www.atlanticcouncil.org/in-depth-research-reports/report/digital-services-for-e-government-opportunities-for-a-future-2-5-billion-african-demographic-market/ Fri, 07 Jun 2024 15:55:46 +0000 https://www.atlanticcouncil.org/?p=760495 This report highlights the potential for growth in African markets through e-governance and the importance having strong policies and frameworks in place to secure data.

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In partnership with Africa Development Solutions (ADS) Group, the Africa Center released a report on “Digital services for e-government: Opportunities for a future 2.5 billion African demographic market” by Atlantic Council, GeoTech Nonresident Senior Fellow, Nii Simmonds.  

This report argues that e-government solutions have the potential to revolutionize service delivery across the African continent. E-government services refers to the process of providing technology-enabled public services. With Africa’s population projected to reach 2.5 billion people by 2050, nearly one-quarter of the world’s population, countries like Egypt, Ethiopia, Nigeria, Kenya, and the Democratic Republic of Congo will need to strengthen their government and infrastructure to manage the administration of critical services.  As the middle class continues to expand, so will the demand for access to everyday services such as healthcare, renewing a driver’s license, and filing tax returns. 

This report highlights the potential for growth in African markets through e-governance and the importance having strong policies and frameworks in place to secure data. Additionally, the report offers case studies on Estonia, Canada, and India, three countries that have made tremendous commitment to bridging the gap between citizens and government through digital service delivery. With key recommendations for institutions ranging from African governments and regional bodies to DFIs and private sector companies, it is clear that each have an important role to play in the digitization of public services in Africa.  

About the author

Nii Simmonds is a nonresident senior fellow at the Atlantic Council’s GeoTech Center and an expert in emerging and frontier markets having held top leadership positions in corporate finance, entrepreneurial ecosystems, supply chains, and research commercialization.

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]]> Reconstructing Ukraine at war: The journey to prosperity starts now https://www.atlanticcouncil.org/in-depth-research-reports/report/reconstructing-ukraine-at-war-the-journey-to-prosperity-starts-now/ Fri, 07 Jun 2024 12:30:00 +0000 https://www.atlanticcouncil.org/?p=770793 Rebuilding the Ukrainian economy after Russia's full-scale invasion will be a monumental task. Reconstruction can’t wait for peace and must be a well-coordinated, inclusive process.

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TABLE OF CONTENTS

Introduction
Section 1: Summary of damages and the economic and financial situation
Section 2: First steps toward building a reconstruction strategy
Section 3: Steps to create a reconstruction-friendly ecosystem
Section 4: The best opportunities for each economic sector
Summary of recommendations
Conclusion

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After Berlin: Tangible strategies for reconstruction following the 2024 Ukraine Recovery Conference

Please join the Atlantic Council’s GeoEconomics, Global Energy, and Eurasia Centers for the launch of their new report, Reconstructing Ukraine at war: The journey to prosperity starts now.
Economy & Business Energy & Environment Europe & Eurasia Geopolitics & Energy Security

Introduction

Rebuilding the Ukrainian economy after years of war will be a monumental task that the country’s allies and partners know they must assist. Helping Ukraine to prosper should be just as big a priority for those who believe Ukraine’s victory is key to preventing further Russian aggression and sending a cautionary message to other autocrats around the world. While rarely dismissed out of hand, the reconstruction is intuitively seen by many in the West as secondary to the need to help Ukraine fight back against aggression. This is understandable, but neglects how reviving the Ukrainian economy—and the government’s cash flow—also helps the war effort through additional funds, resources, and motivation.

The Ukrainian government is staffed by clever, innovative experts capable of expressing a clear vision of how to reach prosperity. But when the Atlantic Council’s Global Energy Center and GeoEconomics Center embarked on a weeklong research trip in February 2024 to meet them, Kyiv faced cash-flow problems and high uncertainty over future macrofinancial assistance, especially from the United States.

The situation has since improved, not least thanks to the US supplemental spending law that includes $10 billion of budgetary support—but it’s imperative that the West does not create doubts about its support for Ukraine again in 2025. The macrofinancial assistance meant to keep Ukraine’s government functioning cannot finance the recovery as well. In addition to central government funds, a myriad of Western grants and loans need to be tied to individual projects. The innovative systems designed to implement this are up and running but not always used to their full potential.

This report provides a snapshot of the economic, societal, and energy-security situation on the ground, capturing key challenges and opportunities for supporting Ukraine’s survival and building a more prosperous future. It also explores how the country can meaningfully contribute to Europe’s economic growth and strategic autonomy at large through innovation, energy security, decarbonization, and diversified supply chains. While the situation is changing daily, these key takeaways will remain pertinent to reconstruction discussions for the foreseeable future.

Our research is based on more than thirty meetings in Kyiv in February 2024. These included meetings with the most senior levels of the ministries in charge of reconstruction, influential think tanks, Western embassies, legislators in the Rada, journalists, and business leaders. These meetings were conducted under the Chatham House Rule. Our trip was followed by additional visits to Ukraine by the Atlantic Council Eurasia Center in February and March. With further research and follow-up discussions with experts, we have summarized our analysis in this recommendations-focused Atlantic Council report.

Section 1: Summary of damages and the economic and financial situation

Taking stock of unexpected wins and measuring sobering losses

Moscow’s relentless assault has caused immeasurable humanitarian suffering and damage to Ukraine’s infrastructure and natural environment. Since the Russian Federation’s 2022 invasion of Ukraine, more than 14.6 million Ukrainians, or a third or more of the population, have fled their homes at some point during the war, according to the International Organization for Migration (part of the United Nations system); 6.5 million refugees fled Ukraine, and 3.7 million are still displaced within the country. By February 2024, at least thirty-one thousand Ukrainian troops and tens of thousands of civilians have died for reasons related to the war. And while the Ukrainian army succeeded in pushing the Russian aggressor far back in 2022, physical damage is by no means limited to the front line. As of February 2024, 156,000 square kilometers (km) in liberated territories and along the active front have been contaminated with mines, which were rarely used before this full-scale invasion. The June 2023 destruction of the Kakhovka dam caused $14 billion in damage and loss, submerged at least 620 square km of territory under Ukrainian control, and damaged ecosystems even further afield. Russia’s air campaigns continue to target the whole country, undermining both the economic recovery and morale.

Targeting energy infrastructure has been one of Russia’s most pernicious and persistent tactics to cause harm to millions at once and multiply the cost of reconstruction. With over $10 billion in damage to date, these attacks have hindered access to basic human necessities, such as potable water and heating. The international donor community has consistently helped Ukraine with repairing the damage, which was mostly focused on energy generation capacity and transmission in the winter of 2022 and 2023. Thanks to robust international support and the courage and dedication of energy-sector employees, Ukraine survived these horrific months, restoring over 2.2 gigawatts (GW) of installed capacities. Unfortunately, worse was on the horizon. The Kremlin escalated its critical infrastructure destruction starting in March 2024 by bombing Ukraine’s biggest thermal power plants: the heart of generating capacity for the largest population hubs. Delays in military support hamstrung Kyiv’s high-precision defense capabilities, leaving million-dollar power plants exposed to Russia’s hybrid attacks. During the spring of 2024, Ukraine lost 9 GW of generation capacity, which is equivalent to 22 million photovoltaic (PV) panels, or power for 7 million households.

This leaves Ukraine with expensive solutions and a tough journey ahead. The country is left to purchase electricity imports from European neighbors, which are more costly than what it could have produced at home and leads to higher fees due to the oversubscribed transmission capacity. It costs around $0.20 per kilowatt-hour to produce electricity in Ukraine. Households paid a fraction of this after subsidies, which are being incrementally reduced in an effort to bring in additional funding to repair the damages, resulting in $0.107 per kilowatt-hour cost to consumers until April 30, 2025. At the same time, Ukraine and its allies are racing to secure gas turbines for energy generation and balancing needs, as well as parts to repair power plants. Cities are already experiencing blackouts, which will be more frequent when the heat-driven peak summer demand overloads the grids. Ukraine will need a mix of budgetary support, equipment transfers, and technical assistance to survive this winter, which promises to be the most challenging since the full-scale invasion.

Domestic energy availability in Ukraine: 2022-2024

Power plants destroyed in Ukraine as of April 2024

Source: Available data collected by DiXi Group through the following references; Atlantic Council mapping:

Efforts to quantify overall damages systematically are important in the pursuit of justice. The Register of Damage Caused by the Aggression of the Russian Federation against Ukraine (RD4U) will be a source of information. Established through a Council of Europe resolution, the register receives, processes, and records claims filed by individuals, entities, and the Ukraine government for damage, loss, and injury from wrongful Russian aggression against Ukraine. (Forty-three nations and the European Union have joined the Register.) A compensation mechanism is yet to be established, but the register is an essential step in the process of pursuing compensation from Russia. The catalog should aid in ensuring that compensation is provided to the right individuals and broader communities. Citizens can now make entries via the Diia app, the main platform for Ukrainian government services.

Three rounds of Rapid Damage and Need Assessments (RDNA) already provide evidence of the mounting toll of the war. The World Bank, the government of Ukraine, the European Commission, and the United Nations coordinate to provide a reliable tally of “total costs” imposed on the Ukrainian economy by Russia’s aggression, with the latest citing direct damage to buildings and infrastructure of up to $152 billion and an estimated recovery and reconstruction cost surpassing $486 billion—“approximately 2.8 times the estimated nominal GDP of Ukraine for 2023.” It is noteworthy that these include the direct cost of destroyed or damaged physical assets and infrastructure—which started increasing significantly as Russia has targeted energy infrastructure—and also economic losses from lost activity and increases in the number of citizens needing assistance. The estimated restoration cost does cause some double-counting alongside the accounting for destroyed physical assets. However, this does not mean the bar for funding the reconstruction is low. The RDNAs integrate the loss of domestic production and increasing dependence on state handouts, which have both reduced revenues and increased liabilities for the government.

Meanwhile, Ukraine has developed a digital platform to track reconstruction projects in the nation: the Digital Restoration EcoSystem for Accountable Management (DREAM). The platform can help the government and international financial institutions (IFIs) differentiate between large-scale reconstruction projects that are long-term endeavors and short-term urgent repairs, and then orient appropriately. In this regard, DREAM is a rare combination of polyvalence and transparency. Developed in tandem with Ukrainian civil society and with support from USAID and UK Aid Direct, the DREAM platform was launched in 2023 by the Ministry for Restoration (formerly the ministry for infrastructure). DREAM is both a “digital route” for and a “window” into projects repairing or replacing infrastructure damaged by the war. Citizens, firms, and municipalities can submit evidence of damage, receive provisional approval, submit invoices, and receive compensation straight to their bank accounts. The platform is transparent down to every individual project. By mapping their density by region, we can see that restoration projects cover most of the territory controlled by the Ukrainian government, whereas new construction projects remain focused on larger cities.

Status of rehabilitation projects logged in the DREAM portal

Data as of April 2024

Source: Dream.ua data and Atlantic Council mapping.

The large percentage of pending or unfinished projects may be due to improper documentation of requests and, in part, a legacy of the cash-flow issues Ukraine faced earlier this year, and has since improved following Japan’s earlier-than-planned donations, EU “bridge financing” (discussed below), Canadian assistance, and passage of a long-planned $61 billion US aid package. Incomplete or poorly prepared applications also account for some of the backlog: Local governments often input projects to ensure they’re noticed but lack the expertise to perfect their write-ups. Still, it is also noteworthy that projects can still be approved without working through DREAM. Direct commissions of large projects can still, as far as we know, bypass DREAM as well. Of the four major lending institutions, only the European Investment Bank (EIB) is using the system. The Cabinet of Ministers of Ukraine had resolved in 2022 to make the use of the platform mandatory but the relevant law has not yet been adopted.

Finally, the work of civil society in connecting funders, firms, and communities in need remains important. The Kyiv School of Economics’ Recovery Lab and former Deputy Foreign Minister Lana Zerkal, who serves on the Coordinating Committee of the Ukraine Facility Platform, among others, are advancing this work.

The state of Ukraine’s economy and finances

Despite the onslaught of aggression and destruction, Ukraine’s economy is growing: 5 percent in 2023 and, based on the International Monetary Fund’s (IMF) forecasts, another 3 percent in 2024. But this comes after a 29.1 percent drop in 2022 and a large loss in the workforce in 2022 due to the mobilization, but 4.5 million Ukrainians have returned home since then. Still, the IMF does not expect the economy to reach its prewar level of production until 2029, and that relies on an assumption of the war ending in the next year. It would also be wrong to think the domestic economy is truly growing. It is adapting to wartime conditions and new firms are being created, but the amount of budget assistance, recovery funding, and humanitarian aid being sent into the country is the dominant factor.

The resumption of shipping from ports provides a bright spot in terms of exports. Despite environmental damage, a perilous sea route, and protests by EU farmers at overland points of entry, Ukraine’s exports of grain and oilseed products are recovering, reaching a wartime high in February 2024—but have not yet reached preinvasion levels.

Firms with a presence in Ukraine have continued to invest. This is partly in repairs and upkeep, but they are also expanding into new fields to shore up their own supply chains or respond to demand. International firms with an established presence in Ukraine have found demand for their products increasing, especially without Russian competitors and with domestic production capacity damaged. The crucial problem is that greenfield investment (i.e., projects starting from the ground up) has been close to zero.

The following chart compares the different components of the national accounts in constant prices. Three clear phenomena are at play: a significant expansion of government spending, irregular gross capital formation as investment slows and firms run down inventories, and increasing reliance on imports. The overall size of the economy is still noticeably smaller—even in the much-depreciated hryvnia. Were data in the chart in current US dollars, the shrinking of the economy would be even more noticeable.

Ukraine national accounts, constant prices

Government revenue has been volatile, though adaptation to wartime conditions and the knock-on effects of inflation have allowed for an impressive recovery. Excluding grants, government revenues fell to $36 billion in 2022, a 32 percent drop from $53 billion in 2021—but recovered sharply in 2023 to $46 billion and are forecast by the Ministry of Finance to fall slightly to $43 billion this year.

The challenge is that the government is expected to fund the war effort while paying pensions, keeping services running, and contributing to repairs and replacements made necessary by war damage. The 2024 budget forecasts $82.3 billion in expenditures, over half of which will go to the war effort and domestic security. In the budget, spending on repairs and reconstruction will fall under the categories of interbudgetary transfers and economic activity, which make up less than 10 percent, but are not exclusively devoted to these goals, putting the ceiling for centrally organized spending on restoration at less than $8 billion. The numbers in Kyiv’s budget reflect only what goes through the Ministry of Finance, so do not include contributions in-kind or directly to the local governments.

Ukraine already faces a large foreign-currency debt burden which it is trying to honor. For now, an agreed holiday on interest payments and war uncertainty preclude it from borrowing more on international markets. So the budgetary deficit has to be filled with a combination of international assistance (both grants and loans) and domestic bonds. Since the beginning of the full-scale invasion, $25 billion in domestic bonds have been purchased; the Ukrainian government would rather not have to rely on bonds too much as domestic savings are finite and the financial system also needs liquidity. Ukraine received $42.5 billion in external financing last year and is on track to receive about $38.6 billion in financial assistance in 2024.

Kyiv has tried to stick to certain principles to remind donors that it is treating their support with care. Its tax revenues cover defense spending, excluding donated equipment and other logistical and intelligence support. Grants and loans from friendly governments and IFIs cover the rest of the government’s liabilities. Kyiv also likes to remind supporters that it is engaging heavily with its bondholders ahead of the end of the debt holiday, which is currently set to end in August 2024. Negotiations with a consortium of Eurobond holders are currently revolving around a resumption of regular payments in exchange for forgiveness of an unspecified chunk, whereas governments that have lent to Ukraine have agreed to holidays lasting until 2027. This is a delicate negotiation for Kyiv, which has avoided falling into “default” status thus far but may do so this year even if bondholders agree to a haircut. The government also has managed to satisfy the IMF that its fiscal consolidation efforts are genuine, as the National Revenue Increase Strategy, published in late 2023, unlocked an $880 million tranche of IMF loans, with an additional $2.2 billion expected in June.

The National Bank of Ukraine (NBU) deserves credit for stabilizing and running a fully functioning financial system, even at the very start of the full-scale invasion. High interest rates and strict controls have prevented capital flight and allowed exchange rates to stabilize following a planned devaluation in July 2022, which reflects lower growth potential and higher dependence on imports. On the other hand, remittances and charity donations—in addition to Western aid—have helped to keep hard currency flowing into Ukraine and prevent a balance-of-payments crisis. The NBU has managed to recover and even surpass the reserve position it had before February 2022. To encourage investments, the NBU has recently announced the relaxation of controls on the payment of dividends to foreign investors and the repayment of foreign currency loans, albeit under a monthly cap.

The goal of this first section was to show the extent of the damage to the Ukrainian economy and that, even with national resilience and competent management, Russian efforts to inflict further devastation continue and the economy still relies absolutely on external support. In the next section, we will look at how this external support is being organized and how this can be improved, both to accommodate bigger strategic decisions alongside day-to-day spending and to demonstrate to Russia that Kyiv won’t run out of money.

Section 2: First steps toward building a reconstruction strategy

Building a reliable flow of money

Ukrainians and the international donor community must be unified around the vision for and the approach to Ukraine’s reconstruction to ensure efficient resource utilization and impactful collaboration. Given the destruction of significant parts of its energy system, industrial base, and housing stock, the country will have to balance urgent basic humanitarian needs with large-scale economic transformation.

First and foremost, Ukraine needs financial and military assistance to be as reliable as possible for at least the next five years to demonstrate long-term resolve to its people and to the Russian leadership. Such steadiness would also provide a more predictable environment for investors, whose decisions to bet on Ukraine’s future will accomplish part of the reconstruction aims and reduce dependence on outside support. Postponements and delays, on the other hand, risk entrenching population displacement and investor reticence.

UK Foreign Secretary David Cameron recently promised that the United Kingdom would give £3 billion a year “for as long as it takes.” Other governments should consider communicating on their commitments in as simple and clear a way, though the political consensus on supporting Ukraine isn’t always as clear as it is in the UK, where the Labour Party has also pledged “ironclad” support for Ukraine in its battle against Russia. Other countries such as Canada, Spain, and Belgium have done the same on military aid, albeit with lower financial commitments.

Passed in early 2024, the European Union’s €50 billion Ukraine Facility is meant as an integrated strategy. The best-publicized part, pillar one, covers €17 billion in grants and €33 billion of loans from 2024 through 2027. The first disbursement—€4.5 billion of “bridge financing”—was sent on March 1. The facility’s innovation comes with pillars two and three. Pillar two provides derisking mechanisms for investors via a “Ukraine Guarantee” of €6.97 billion covering risks for loans and other credit instruments offered by IFIs such as the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). Pillar three offers technical assistance to help Ukraine converge with EU rules and prepare for accession. The facility also is remarkable for including minimum targets of green projects and tasking the EIB with working with subsovereign entities like regions and municipalities.

Other governments have made an extra effort at decisive moments to help Ukraine. G7 finance ministers’ meetings are the main venue for where Kyiv’s macro financial assistance needs are discussed. For example, as Ukraine’s cash flow problems mounted early this year amid a delay in US assistance and the impact of farmers’ and truckers’ protests on Ukraine’s exports, Japan was able to accelerate a donation of just under half a billion dollars to February, allowing Kyiv to pay teachers’ and other civil servants’ salaries in March and April. This was coordinated through the G7. Canada also sent two billion Canadian dollars through a concessional loan in March, the same day that the third review of the IMF program was completed.

Recovery funding now benefits from its own coordinating body, the Multi-agency Donor Coordination Platform. Launched in January 2023, the body is supported by a Brussels- and Kyiv-based Secretariat. The permanent members of the Steering Committee are Ukraine, the EU, the United States, and the other Group of Seven countries. In February 2024, the roster expanded to include the Republic of Korea, Netherlands, Norway, and Sweden as temporary members, who either have contributed or are committed to contributing at least 0.1 percent of their country’s 2022 GDP and at least $1 billion. Six EU members have observer status: Denmark, Estonia, Latvia, Lithuania, Poland, and Spain. IFIs participate in the meetings. 

Already, the Multi-agency Donor Coordination Platform is becoming more prominent. The most recent meeting took place in Kyiv and the US deputy national security advisor for international economics, Daleep Singh—one of the architects of the Russian sanctions regime—made the trip.

The expansion of participants in this coordinating body isn’t sufficient to secure the volume of assistance that Ukraine needs. At its current level of intensity, the war entails an active front that has to be manned, with frequent air raids on civilian infrastructure and valuable economic targets. The flow of aid to Ukraine needs to be sufficient to keep government services operating while funding appropriate repairs within a reasonable time frame. 

The two priorities are of course funded by different types of Western support: macro financial assistance funds the Ukrainian government and keeping services open while the recovery would ideally be funded through recovery loans but these haven’t been fully disbursed because they haven’t been matched with enough projects. To avoid delays and inefficiencies, Kyiv should continue building out trust and transparency mechanisms to showcase how international support is deployed. Large in-kind donations such as spare turbines and transformer equipment have been useful on occasion, but come with costs, from transportation to adaptation for the local infrastructure. Some urgent needs are best addressed with cash transfers, which donors are still uncomfortable providing to organizations in certain sectors, like energy.

Money is fungible and the lack of macro financial assistance earlier this year did force the Government of Ukraine to defer recovery projects, though these in theory are funded from a different source. An improvement the Multi-agency Donor Coordination Platform can make is to apply the coordinating prowess G7 finance ministers have demonstrated on macro financial assistance and do more to bring the flow of recovery funding closer to what the Government of Ukraine and the latest RDNA agree is the budget necessary to tackle recovery priorities—$15 billion this year—and should continue to do so in the years to come.

The Multi-agency Donor Coordination Platform may come across as a simple capital-to-capital device that will entrench centralization. However, its structure in no way precludes the sort of country-to-city or country-to-region donor engagement that has been very successful, albeit on a small scale so far. Led by the Danish Export and Investment Bank, the Denmark-Mykolaiv Partnership has earmarked more than $100 million for reconstruction across the city. Local engagement fosters a timely and needs-based pipeline for aid. In the case of Mykolaiv, Denmark rapidly responded to needs including water purification, wildfire containment, agriculture projects, schools, technical support, and energy infrastructure. Such a partnership enables a city- or region-level focus at times when most of the aid is moving through centralized channels in Kyiv (a necessary but imperfect method for addressing urgent needs in localities). Italy and France are exploring similar partnerships and can draw on vital best practices from the Denmark initiative, such as strong governance and robust stakeholder engagement.

If every European country adopted a Ukrainian city on its reconstruction journey, or at least the cities with the worst damages, it would help to ensure that no communities were left behind. This is not a small ask, but these partnerships can begin with small financial commitments and focus on highlighting local needs across Ukraine’s forgotten municipalities for the international donor community. EIB developed a unique solution to the difficulties of local governments’ creditworthiness and the fact that some needs may be too small for the major loan providers, which could be replicated by other major funders: financing guaranteed by the European Union in sovereign loans. In many cases, receiving aid comes down to how well the local leadership can energize international supporters. However, most mayors don’t have the capacity to advocate for their cities on the global stage—in some cases because of simple language barriers but also because of poor creditworthiness.

Large state-owned enterprises also require credit instruments tailored to Ukraine’s exceptional circumstances and needs. This implies intense coordination among those in development finance who are willing to take on the challenge. In June 2023, the EBRD—the largest institutional investor in Ukraine—and eighteen other development finance institutions signed a memorandum of understanding (MoU) on a Co-investment Platform to support Ukraine’s SOEs and private sector. In practice, this means the institutions are meant to coordinate their activities so that funding is deployed strategically. Participants held their first meeting following the MoU in Norway in May 2024.

Where will next year’s money come from?

The outlook for financial assistance to Ukraine is now adequate—a reversal of fortune since the cash-flow challenges in February. It is crucial to avoid making the same mistakes that led to this crisis, which forced Ukraine’s government to slow the pace of even basic repairs.

The European Union and the United Kingdom have made multiyear commitments: £3 billion in the United Kingdom’s case and—assuming the European Union sends at least one-fourth of its four-year Ukraine Facility budget—€8 billion in loans and €4.25 billion in grants from the European Union. On the other hand, the IMF’s disbursements will slow from $5.3 billion to $1.8 billion and most other IFI commitments will go to infrastructure projects and private firms, not the central government. We also have seen that Ukraine’s private bondholders are pushing for interest payments to start again.

As the war draws on, it also seems likely that expenditure will have to be bigger than currently forecast—by about $12 billion above the current baseline deficit projection of $23 billion.

So what can be done?

Recent G7 discussions about using the future interest income from the approximately $300 billion of Russia’s reserves immobilized in the West to lend funds to Ukraine are showing more promise than they have before. The solution would offer a timely injection of cash, $50 billion or more, and this wouldn’t preclude any long-term policy involving the reserves.

The full amount won’t be transferred to the government of Ukraine in one go and it is highly likely some of it would be used to buy weapons on Ukraine’s behalf. Nonetheless, to finance a gap in the 2025 budget which could be the $10-12 billion normally financed by the United States, the instrument could be very useful indeed.

The details that still need to be ironed out for the loan to work include the risk sharing between Europe and North America.

Demining and air defenses should be more of a priority

The international community has not fully grasped the scale of demining that needs to take place in Ukraine, particularly in the liberated territories, to make them ready for reconstruction. Mine contamination and other explosive hazards riddle over a third of Ukraine (180,000 square km), according to the Ukraine government, endangering civilians, halting agricultural activities, and detracting from such areas’ investment prospects. It also complicates the return of civilians to the liberated territories. However, with the right resolve and the latest technologies, Ukraine’s allies can remove this large-scale obstacle to reconstruction.

Ukraine’s National Mine Action Authority, which was established under Ukraine’s 2018 Mine Action Law, oversees mine action activities, coordination, monitoring, and tasking and is in charge of approving national plans for mine action. The Mine Action Centre (under the Ministry of Defense) organizes and coordinates demining efforts in Ukraine, which are conducted by the State Emergency Service of Ukraine, and works with the Humanitarian Demining Center. The Ministry of Economy and the Ministry for Reintegration of the Temporarily Occupied Territories of Ukraine also lead land mine clearance efforts.

The United Nations Development Programme (with contributions from several Western nations) funds 80 percent of the demining operations and multiple nongovernmental organizations such as the HALO Trust are present on the ground. Direct bilateral donations, technical support, and equipment assistance also play crucial roles. The United States, the European Union, and South Korea, among others, have made important in-kind donations with innovative systems including MV-10 demining systems. External entities sometimes struggle or take a while to receive accreditations to assist in demining, but their role is essential. Streamlining the process also offers an opportunity to engage countries and organizations that have been unable to provide military support for Ukraine, like Ireland.

Compared to demining, the lack of air defenses receives relatively more coverage—precisely because the situation has become steadily worse since late 2023. Facing off against Russia’s inexpensive kamikaze drones, Ukraine’s rate of success with its air defenses remains high at 82 percent, but the frequency and sophistication of attacks—often starting with fleets of drones and followed by ballistic missiles—are designed to overwhelm systems. A lack of provision from allies has forced Ukraine to use its supplies sparingly so even valuable economic assets have to be knowingly sacrificed, like the Trypilska power plant in the supposedly well-protected Kyiv region.

The supplemental passed by the US Congress will restore some supplies—but other initiatives including a German-led effort to donate Patriot batteries have fizzled. Finding solutions is beyond the scope of this report, but we see the damage done to Ukraine’s energy network and economy and would welcome anything that can spare Ukraine the impossible dilemma of not being able to shoot down a cheap missile that wreaks extremely costly damage. Analysts have suggested that Poland, for instance, should protect its border areas by shooting down Russian missiles in Ukraine’s skies that are adjacent to its air space, which would free Kyiv to focus its resources further east. Others have suggested embracing Ukraine’s ability to target drone production facilities, storage, and launch units in Russia.

Empowering Ukraine’s leadership structure for success 

The chain of command for economic recovery and reconstruction is understandably split and subject to change. As the Office of the President reorganizes these authorities, the priorities should be easy engagement and transparency. Currently, the bodies in the executive branch that have a say over these issues include the Cabinet of Ministers as well as the Ministry of Economy, the Ministry of Energy, the Ministry of Strategic Industries, and last but not least, the Ministry for Communities, Territories and Infrastructure Development. Created by a merger of two ministries in December 2022, the latter oversees the State Agency for Restoration and Infrastructure Development. In the coming months, this key ministry is likely to be split again into separate ministries for regional development and infrastructure.

Meanwhile, the dismissal of the top team at the soon-to-be divided ministry met with some consternation. The team was known for its commitment to transparent decision-making and open data: The DREAM platform was one of its most recognizable achievements. At the June Recovery Conference in Berlin and over the second half of the year, it will therefore be fundamental for the government to show that the systems (and the principles behind them) remain central to decision-making on the allocation of funds to projects. The same should go for procurement. The ProZorro portal, Ukraine’s e-procurement system, is not being used for any military spending, although this represents half the government’s budget. It should be possible to set tenders on nonsensitive purchases through this system.

A second gap concerns the management of big-ticket investments that will drive Ukraine’s modernization and its integration into the EU single market. Ukraine needs an updated public investment management framework and also a fit-for-purpose vehicle for private-sector stakeholders—including those with little to no exposure to Ukraine—to interact and agree on joint ventures. One goal of the Berlin Recovery Conference is to create an online platform for this—which notably could provide access to insight on the relative war risk and mitigation strategies. For it to work, however, the methodology will have to be agreed at least between the government of Ukraine, the European Union, and the IMF, and discussions are ongoing. Once running, this platform should not be restricted to firms based in the participating countries of the Multi-agency Donor Coordination Platform. While these capitals may feel they deserve some recompense for their efforts, it would be foolish to exclude firms that are interested and have something to offer. The most obvious example: Turkish building contractors, who represent the second-biggest global force in this sector after China, provided they aren’t servicing the Russian market.

Section 3: Steps to create a reconstruction-friendly ecosystem

The pull of EU accession

It was the Euromaidan protests against the Ukrainian government’s failure to sign an Association Agreement with the European Union in 2013—as President Viktor Yanukovich pivoted toward Russia—that led to the 2014 fall of the government in Kyiv. Russia responded by invading Crimea and southeastern Ukraine, violating Ukraine’s territorial integrity. Ukrainians continue to desire EU membership, seeing in it the promise of a more prosperous and stable life, and are overwhelmingly in favor of moving in this direction.

The EU accession process is demanding—and provides a very useful framework for reform, with clear incentives, visible and embraced by the public, for making progress toward EU standards.

The thirty-five chapters of the acquis—the body of common rights and obligations that is binding on all EU member states—all come with dozens of reforms. Firms based within the EU’s current border represent an important driver of the move to higher standards in anticipation of membership. Invaluable transfers of know-how on EU law compliance can happen as long as there is a sense that the government and the parliament are stewarding the reforms through. 

Even with the uncertainty of the war, tapping into such virtuous cycles will be vital. Efforts made now to comply with environmental standards in the short term will shorten the wait for EU accession. All mid-term reconstruction planning should account for sustainability and green elements and, while there is a minimum threshold of 20 percent of these in the Ukraine Facility, it is worth identifying which will have the maximum impact on Ukraine’s carbon emissions.

Ukraine’s National Energy and Climate Plan (NECP) for 2025-2030 is in line with 2030 Energy Community Treaty energy and climate targets. However, there will be several areas where a long-term vision for Ukraine’s economic and societal prosperity must be carefully balanced with the most urgent wartime needs to keep the lights on, the government running, and the economy afloat. With the latest bombardment on Ukrainian energy generation, securing gas turbines and multiple co-generation facilities and fixing coal power plants must be prioritized in the immediate term. This does not amount to reducing the roles of renewable energy, efficiencies, and clean technologies deployment: Ukraine’s government drew from a clean energy road map produced for Kyiv by nine US agencies ahead of the UN COP 28 climate talks as it set its decarbonization goals, while finalizing its recovery and energy strategy. But a big concern is just what kind of price Ukraine could pay when the European Union’s Carbon Border Adjustment Mechanism (CBAM) kicks in in 2026, with tariffs that penalize trade from countries with insufficiently rigorous environmental rules. The European Union should bear in mind Ukraine’s wartime context. A 2023 European Commission staff report notes Ukraine’s “good progress on environment, some progress on energy and Trans-European networks,” and limited progress on climate change and transport policy.

The European Union, recognizing how cumbersome accession can be, has identified sixty-nine priority reforms, most of which are tied to investment indicators. Some Ukraine Facility disbursements will be tied to progress on these, providing added incentives for progress along the way toward the long-term goal of EU accession.

At this early stage, we are concerned about the European Union’s ability to keep offering Ukraine advantageous market-access terms: They have helped generate much-needed cash for Kyiv and almost all regions, but the objections of European farmers and truck drivers can’t be ignored. As part of the association agreement, the EU-Ukraine Deep and Comprehensive Free Trade Area allows for tariff-rate quotas if a particular good is being exported in excessive amounts. Yet more elegant solutions exist, especially with fungible products like food. More grain entering the single market should also mean the EU has more capacity to export, and global demand remains high. EU and national leaders should be bolder in calling out and refuting Russian disinformation meant to exploit such issues.

Still, the Polish farmer border protests are symptomatic of a wider challenge that the European Union and Ukraine will have to face together. Ukraine remains much poorer than even the least well-off EU member states. In this European Parliament campaign season, low wages in Ukraine have frequently been invoked by some at the political extremes as a reason to delay or refuse Ukraine’s accession. And if the rules on cohesion funding were left unchanged, the EU Council estimates that €186 billion would be redirected to Ukraine over a seven-year budget cycle at the expense of “convergence” elsewhere in the bloc. The European Commission is already working on how it will have to change the rules, but the task is momentous—and will inevitably be costly. An underused argument which Kyiv and EU capitals should lean on more often is that, with the right reforms, Ukraine’s joining the single market can be a net contribution to Europe’s strategic autonomy. We shall see in the following section just how much Ukraine has to offer, from food and critical raw materials to battle-hardened know-how on defense and IT.

Decentralization and winning the fight against corruption

Ukraine has a successful track record on decentralization. Starting from a low bar in the aftermath of the Revolution of Dignity, Kyiv embarked on a three-year process to rebalance decision-making. A new status for amalgamated municipalities, or hromadas, was created and revenue for local authorities increased threefold through a combination of direct transfers and new tax-raising powers. The new hromadas have played a vital role in assisting citizens throughout the war, and they are mostly ready to help allocate funds to reconstruction projects in a way that best suits their citizens.

One area of reform that was incomplete before the 2022 invasion was providing hromadas with the ability to act as a “legal person.” This would provide them with the ability to borrow money more easily and make claims through the courts in a more reliable way. Completing this reform should clearly be a priority so that hromadas can take on a fuller role, including by actively raising funds.

On our research trip, we heard differing accounts of how the anticorruption apparatus was faring. On paper, the division of labor is straightforward and justified. The National Agency on Corruption Prevention (NACP) takes care of strategy and foreseeing legal bottlenecks in dealing with corruption. The Specialized Anti-Corruption Prosecutor’s Office can launch investigations, and the High Anti-Corruption Court’s role is self-explanatory. The National Anti-Corruption Bureau of Ukraine (NABU) has a much broader role, and interlocutors ranging from elected legislators to business leaders suggested this may have become a little too wide-ranging and could do with more checks and balances. It is clear that Ukraine needs a transversal body that is independent and can withstand political pressure. NABU would do well to pursue this important work without television cameras in tow for showy raids and arrests, which only play into Russian propaganda on corruption in Ukraine.

The corpus of judges in Ukraine needs new recruits. The overhaul of the political class since 2014 has not been accompanied by the same replenishment in the judiciary and courts rank among the least trusted public institutions in the country. To the government’s credit, the war has not slowed longstanding plans to “liquidate” the most notoriously corrupt courts, like the District Administrative Court of Kyiv, but the new bodies being set up are often staffed by the same people.

Energy sector reforms

Energy sector reforms have a dedicated subsection in this brief due to their outsized impact on Ukraine’s broader economic recovery.

Tremendous progress has been made on governance and institutional reforms, anticorruption measures, rule of law, and human rights. However, the war has posed unique challenges and opened the door to backsliding, something that had made private equity stay away even before the full-scale invasion. When institutional investors and companies consider entering the Ukrainian market, war risks are not the only deterrents. In addition to concerns shared by other investors about judicial independence and capital controls, energy sector investors seek assurances against seizure and/or nationalization of their assets, whether their return on investment can be easily taken out of Ukraine without controls or restrictions, and whether board management is independent and fully functional.

It will remain challenging to convince foreign investors that Ukraine’s energy sector is worth the additional risks when similar returns could be secured elsewhere.

Good arguments exist. Entering Ukraine’s market now, before reconstruction picks up speed, would give companies competitive advantage and valuable market insight, while paving the way for other growth opportunities in the region. 

Ukraine has also conducted energy reforms. The Cabinet of Ministers adopted a resolution on the guarantees of origin for electricity generated from renewable energy sources. This legislative change will improve transparency and valuation of renewable energy production for accurate feed-in tariff payments and cross-border exports, particularly as the European Union works toward expanding the CBAM’s scope. Additionally, Ukraine adopted reforms to align its legislation with the EU Regulation on Energy Market Integrity and Transparency, which drives wholesale energy market integrity and transparency and combats market manipulation with help from an independent utility regulator, the National Energy and Utilities Regulatory Commission, adopted in May 2023.

Another huge milestone is Ukrenergo’s full membership in the European Network of Transmission System Operators for Electricity, as of January 2024, two years after Ukraine cut ties with Russia’s electric grid and pivoted to the European network in record time. Thanks to the updated EU Trans-European energy network regulation, Ukraine can apply for project funds through the Connecting Europe Facility (CEF) program’s calls for transport proposals to strengthen connectivity with EU member states; moreover, the status of the projects of mutual interest may unlock funding and streamlined permitting for energy infrastructure. Cross-border renewable energy projects offer yet another avenue for Ukraine to pursue CEF-Energy support.

Nonetheless, the energy sector has more work to do, particularly in moving toward liberalization of electricity prices. Although an extremely unpopular reform, charging market rates for the cost of electricity would reduce debt for Ukraine’s national energy companies, incentivize efficiency solutions, and attract foreign investment when developers can rely on receipt of payments for electricity generation and services. It’s important to note that ending the blanket fixed low electricity prices for households would be particularly challenging when households are barely getting by. However, with carefully targeted support for consumers in need and effective communication strategies with grassroots engagement, Ukraine can take this difficult step toward creating an attractive investment environment. Extra care must be taken to ensure that this reform does not affect energy security or access for the Ukrainian population, particularly the elderly and disabled, and those with financial hardships or other obstacles. Several waves of tariff increases have already taken place, driven by the financial strain of repairs needed across the system: Prices nearly doubled in June 2023 and again in June 2024. However, they are still below the market rate. Ukraine needs to develop a timetable for the careful phaseout of public service obligations, paired with robust strategic support for the most vulnerable consumers. In addition, Ukraine has opportunities to reduce consumption across district heating systems and integrate efficiency criteria into public procurement processes.

War risk and political risk: Insurance mechanisms

Ukraine was a very large market for “war insurance”—until the war. In February 2022, the risk of an insured asset being damaged became too high for private providers to be able to provide new insurance at a competitive price, and the market dried up. Laudable progress has since been made.

State backing was extremely helpful for insuring the first Black Sea convoys, under the UN-brokered grain initiative. Now, the risk is better spread between friendly governments and a nascent market. The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) can issue trade finance guarantees giving exporters and logistics providers peace of mind that they will be compensated for shipments that don’t make their destination.

While the available insurance products are a big achievement, they only offer coverage for as long as the shipment lasts. Long-term insurance covering the private investments Ukraine needs is scarcely available. The World Bank’s MIGA has provided coverage for new warehouses and the Unites States Development Finance Corporation and Poland’s Development Fund offer guarantees against political and war-related risks as well. Still, Russia’s targeting of economic assets make an insurance market capable of covering high value-add installations a remote possibility for now. It is still important to prepare. Building robust data portals for evaluating risks and differentiating for every region can start to build an appetite for the private sector to reenter the market.

Human capital

Ukraine’s greatest reconstruction asset is its human capital—and also its most concerning shortage.

Ukraine’s labor markets have been through tremendous disruption since the onset of Russia’s full-scale invasion, with a massive loss of jobs followed by labor shortages in some sectors and high unemployment in others. As men get called to the front lines, women make up a larger percentage of the workforce. Automation and other efficiencies happen out of necessity.

Nonetheless, Ukraine needs to continue making progress on merit-based recruitment and reforming job classifications and salaries because transparency and human resource management feature among the sixty-nine priority reforms in the Ukraine Facility Plan, which calls for a “transparent procedure for selecting specialists for positions and digitalization of civil service and human resources management.” These are major issues for the public and private sectors.

Human capital will play a disproportionately large role in the success of the recovery efforts, which means that investments today will bring compounded economic benefits down the road. Creating a path for bringing people back to Ukraine now—through lucrative employment opportunities, secure schools, and robust air defense capabilities—will be vital for a successful economic recovery and, eventually, self-sufficiency. 

Reintegrating veterans into civil society and the workforce is both an economic and societal imperative for Ukraine, and there could be five million of them by the end of the war. Some have missed out on higher education due to the war and should be supported in advancing their studies, should they choose to do so. Others may seek upskilling or retraining. But their unique postservice needs must be prioritized first, with easy access to services including healthcare and financial support. 

Ukraine’s future workforce includes schoolchildren now living close to the front lines and who are losing years of schooling due to the insufficient number of shelters. This is the biggest impediment to continued education, as Russia targets kindergartens, schools, sporting facilities, and libraries in its ruthless campaign. Donors should prioritize building shelters to optimize children’s educational opportunities and future career prospects. Big City Lab, in collaboration with public and private stakeholders, is developing principles and testing out pilot projects on how to most effectively rebuild and remodel old Soviet school buildings into safe, social, multifunctional, and innovative spaces fit for tomorrow’s needs. Such pilot projects can be recreated in other sectors to develop best practices for reconstruction.

International organizations can expand support for strategic reskilling, upskilling, and specialty trade training. The technology sector can provide the mechanism for these trainings and is a growing sector in its own right, particularly in providing employment opportunities for veterans. Digital startups are at the front lines of innovations. Ukraine is already exporting solutions, such as the Diaa portal of digital services, to other countries.

Rail, roads, and ports

Efficient and frequent movement of goods will be a key metric for Ukraine’s economic recovery.

And to reinforce earlier points, none of these large-scale investments will be realized without sufficient and sustained air defense. Investing in Ukraine’s transportation system by the EBRD, EIB, and the World Bank must be scaled now through private sector engagement to maintain current trade volumes and prepare the system for large-scale reconstruction efforts, including the tonnage of materials coming in and burgeoning exports leaving Ukraine through ports, railways, roads, and air. 

Ukraine has already achieved important transportation reforms, such as decentralizing the state agency of roads, Ukravtodor, and reforms and greater transparency through ProZorro. However, Ukraine will need to adopt and implement the trans-European transport network (TEN-T) guidelines and prepare its transport system for decarbonization and digitalization.

Donors have an opportunity to support feasibility studies for priority projects identified under the Indicative TEN-T Investment Action Plan. Moreover, pairing ProZorro with additional transparency and verification measures in the transportation development area will contribute to weeding out corruption risks and instilling confidence for the donor community. Digitalizing, upgrading, and securing “soft infrastructure” like customs controls and port data systems would improve efficiency and ensure consistent adherence to process.

The US government deserves particular praise here. USAID’s contribution to upgrades to border crossing infrastructure and railway infrastructure leading to the European Union will help the integration of Ukraine’s economy into the single market; and while a prosperous Ukraine is clearly a US foreign policy goal, the projects will benefit the US economy much less directly.

Section 4: The best opportunities for each economic sector

Russia’s hybrid war is spreading at the rate of an aggressive cancer, penetrating all sectors of Ukraine’s economy to destroy Ukraine on the financial battlefield, as Russian President Vladimir Putin fails to win on the actual front lines. Every dollar Ukraine can produce through trade is a win against Moscow’s efforts to diminish Ukraine’s economic output, and vital tax revenue for the military budget. Support for Ukraine’s top sectors and trade is the smartest investment into the country’s future self-sufficiency and economic stability.

The European Council presidency, in consultation with parliament negotiators, provisionally extended the duty-free trade agreement with Ukraine until June 5, 2025, which is pending June steps for official adoption. The action—which includes an automatic safeguard mechanism to trigger “tariff-rate quotas” for poultry, eggs, sugar, oats, maize, groats, and honey as well as “enhanced monitoring” of wheat and cereal imports—underscores the importance of EU member nations’ domestic communication of the benefits of this economic lifeline for Europe.

Recovery Priority #1: Supporting Ukraine’s energy sector

The energy sector will be the engine of Ukraine’s reconstruction, but urgent support is needed now to keep it from collapsing. Moscow annihilated much of Ukraine’s energy generation—but not the country’s rich energy potential, nor its ingenuity and resolve. Ukraine urgently needs more air defense and a lifting of restrictions on how it deploys weapons furnished by its allies to prevent Russians from leveling more cities and driving civilians into a state of despair and displacement. As long as any prohibition to use US weapons for attacks on Russian soil is in place, Ukraine’s power plants are sitting ducks and prime targets for Moscow’s bombardment. These restrictions are slowly and incrementally being lifted, but Kyiv still faces difficult trade-offs on defending key economic assets.

Ukraine’s air defense and offensive capabilities should be complemented with passive protection (i.e., physical barriers for critical infrastructure) which is effective against drones and is currently being enhanced to withstand missiles when covering smaller critical structures such as a transformers, substations, and generators. Meanwhile, the large power plants must rely on air defense for protection. This multilayer strategy for defending critical energy infrastructure—grid, centralized power plants, transformers, gas storage systems—is crucial for future energy development and energy system transformation.

The latest wave of attacks aimed at destroying centralized energy production capacity and natural gas storage caused immeasurable harm and system imbalance, with Ukraine having to resort to scheduled blackouts and purchasing electricity from its neighbors instead of producing it at home at a fraction of the price. Preparations for the winter must start now as the system is already in critical condition months ahead of the heating season. Securing and financing gas turbines to ensure sufficient capacity and balancing the grid is a matter of life and death for the Ukrainian population this winter. The G7+ Energy Coordination mobilizes efforts to restore and protect Ukraine’s energy infrastruture through efforts such as equipment procurements and the Ukraine Energy Support Fund, managed by the Energy Community Secretariat, is intended to finance critical energy equipment for Ukraine, such as procuring gas turbines. All possible efforts must be made to expedite procurement while adhering to the Austrian Federal Public Procurement Law (given that the secretariat is based in Vienna). Capacity-driven delays must be addressed through proper staffing at the secretariat and timely communication with the Ukrainian stakeholders.

Decentralizing Ukraine’s energy production system requires a multipronged strategy, which Ukrenergo is leading with support from relevant ministries. Distributed generation would advance decarbonization, make for challenging targets for Moscow’s attacks, and could present an appealing investment opportunity for the private sector. Such a system will require smart and digital solutions and customer service, with strong cybersecurity measures. Storage installation could be owned by the distribution system operators to attract financing. Coordination with local communities, both to tap their capacities and get buy-in, will be foundational to the success of building out distributed networks. Ukraine can work towards establishing a decentralization ecosystem through regulatory changes (such as streamlining connectivity rules), feasibility studies for projects, and liberalization of electricity prices. 

Ukraine has tremendous clean energy resources (including wind, solar, hydropower, and geothermal potential); low-carbon gases including biomethane; critical minerals deposits; and unparalleled expertise in cybersecurity and system resilience and recovery from kinetic attacks. Conducive policies will be essential for encouraging investments. Ukraine’s National Energy and Climate Plan—an important condition for securing financing via the EU’s Ukraine Facility—will be presented at the Berlin Recovery Conference on June 11-12: This will signal which clean energy technologies will play the biggest roles in meeting climate targets for the country, the policy gaps to enable their deployment, and most importantly, private investment needs to reach scale.

There is untapped potential in energy efficiency for Ukraine. Soviet buildings were built without care for energy conservation. Determining which buildings to remodel and which to demolish will be an important part of the reconstruction process. Cost and building condition will play a major role. The industrial sector presents tremendous opportunity for cutting energy consumption and could lead to 12.5 million tonnes in CO2 reduction, and $3 billion in annual savings, with $13 billion in investments through 2030. Low energy costs are also a key driver in industrial competitiveness and would contribute to the revival of this important sector. In 2023, Ukraine launched the State Fund for Decarbonization and Energy Efficient Transformation, which could be an effective mechanism for attracting international loans and grants for the implementation of investment projects. However, Ukraine will need market mechanisms to properly account for the value of energy efficiency investments, which pay for themselves over time (particularly in a liberalized market), but may require a higher upfront cost compared to less-efficient construction and technologies. For scale, Ukraine will need market solutions which will enable the private sector to capitalize on efficiency investments. On paper, Ukraine’s energy efficiency rules are generally aligned with the European Union’s; however, opportunities exist for infusing energy efficiency criteria into both the public procurement process and strategy for building renovations. Ukraine should also seek to attract investment for making the transmission and distribution systems more efficient.

A number of Ukrainian state-owned enterprises, such as Energoatom and Ukrnafta (owned by Naftogaz), are integrating independent boards into their leadership structure to create additional layers of transparency and verification. These boards will have a unique opportunity to advance implementation of reforms and instill confidence through transparent operations and practices.

Nuclear energy is a critical low-carbon, balancing resource for Ukraine, which has a wealth of expertise in the sector. Ukraine should continue building partnerships with Western countries and companies to extend the life of existing reactors, build out new capacity, and diversify nuclear supply chains for future nuclear plants and uranium enrichment. To lay the foundation for an appealing investment environment, Ukraine needs to complete reforms at Energoatom (under the leadership of the new supervisory boards) and carve a path forward on transparent denationalization. Following debilitating capacity losses, Ukraine is looking to undertake nuclear build-out starting as early as 2024, utilizing existing equipment from Bulgaria. Most importantly, the international community must pressure Russia to leave the Zaporizhzhia nuclear power plant, a 6 GW facility, before an accident takes place.

Recovery of Ukraine’s energy sector will hinge on the support of a multitude of stakeholders, and multilateral development banks are poised to play a key role. When it comes to gas, however, some of these institutions have guidelines that prevent or make it challenging to finance such infrastructure, per climate commitments. This is a missed opportunity to support Ukraine in its time of need—especially since investment in gas turbines and piston installations would accelerate Ukraine’s shift away from coal.

Ukraine’s natural gas network could be redeployed to transport Ukraine’s indigenous gas production and low-carbon gases (with some adjustments), after the gas transit agreement with the Kremlin expires by the end of 2024. There is a chance that European traders may work out a short-term agreement with Gazprom on the flows and negotiate the transit fees with Ukraine separately. However, for any gas flows to continue moving through Ukraine, the country needs to invest in border-metering mechanisms for clarity on export volumes. Ukraine also needs a strategic vision for its robust pipelines network, most of which is not utilized at the moment, as the upkeep of the entire network weighs on the country’s expenditures at a critical time. With sufficient air defenses, European traders can continue to utilize Ukraine’s vast gas storage in the western part of the country—which they have done so far without war risk insurance. The storage system has demonstrated incredible resilience in light of the recent escalatory attacks. 

Large-scale investing in agriculture

Dodging bombs and navigating land mines are not standard farming practices, yet Ukrainian farmers have persisted. The resilience and bravery shown in this sector, which employs 14 percent of Ukraine’s population and yields 12 percent of country’s GDP, must not be taken for granted. The sector requires large-scale investments to continue and expand this level of production and prevent famine for the consumers reliant on Ukrainian crops, who number 400 million.

First and foremost, Ukraine’s farming communities must be demined (as discussed above), and secure and reliable transportation routes and storage must be established.

The full liberalization of the agriculture market in early 2024 unlocked a variety of financial mechanisms for farmers, such as the ability to borrow against their land. Notwithstanding, additional capital is needed for farms of all sizes to improve operations productivity and maintain export levels.

Avoiding deindustrialization and seeking a competitive edge in manufacturing

Ukraine’s manufacturing sector has been battered since Russia’s initial invasion in 2014, which led to illegal occupation of Ukraine’s industrial centers. COVID-19, inflation, the full-scale invasion, and workforce migration (mostly forced by the war’s atrocities) have placed more pressure on the neck of once a robust economic sector. Massive investments in modernizing, digitalizing, and efficiency measures are needed to keep Ukraine’s factories afloat. But the sector is also deeply interconnected to developments in air defense, secure and reliable transportation routes, transparent and functioning customs systems, and clear signals from the European market on how Ukraine can contribute to EU strategic autonomy through priority trade partnerships such as in the mining and processing of critical minerals.

Unleashing tech innovations

Ukraine is digitizing its economy at record speed. In some cases, this is happening out of necessity to provide vital, urgent services in a safe environment through platforms such as DREAM, Diaa, Prozorro, and United24. Digitalization also enables transparency and verification—top requests by Ukraine’s donors. This is also a space with top growth potential as new sectors integrate digitalization into their reforms and to create efficiencies and automation. Ukraine’s sophisticated IT sector offers some of the most desirable jobs in the country, with one opening attracting 150 applications. The sector already employs 300,000 professionals and has plenty of room to grow. Ukraine has a unique opportunity to unleash its digital space innovations while it prepares to synchronize its regulatory environment with EU legislation such as the Digital Services Act, AI Act, and the Digital Markets Act. 

Summary of recommendations

Measuring the damage

International stakeholders

  • Support Ukraine’s capacity to track damages, develop a verification mechanism, and connect to resources, particularly in areas that may lack capacity and capabilities with documenting destruction. Enlist AI and automation where feasible.
  • Develop a focused platform enabling the Ukrainian government and IFIs to differentiate among large-scale projects as either long-term or short-term/urgent repairs.

General reconstruction strategy

International stakeholders

  • Provide multiyear financial, recovery, and military assistance commitments (of five years at a minimum) to establish a reliable investment ecosystem.
  • Support reconstruction during wartime as a vital ingredient to Ukraine’s victory, morale, and future economic prosperity, treating this call for international investment with the urgency necessary for its success.
  • Unify around an allied vision and approach toward Ukraine’s reconstruction to ensure efficient resource utilization and impactful collaboration.
  • Prioritize support for the completion of demining Ukraine’s territories to avoid derailing reconstruction.
  • Enhance aid and reconstruction coordination efforts among donors via the special envoys for reconstruction.
  • Support municipalities and underserved communities in advocating for themselves through, for example, partnerships between European nations and Ukrainian cities, following the success of the Denmark-Mykolaiv example. 
  • Find creative financial solutions for local government authorities and SMEs which lack creditworthiness, using sovereign guarantees and workarounds provided by the EIB where possible.
  • Recognize the delicate balance between Ukraine’s urgent needs to fuel the economy and making progress toward a resilient, low-carbon future.
  • Make recovery convenings more impactful through an action-driven approach.
  • Continue decoupling from Russian infrastructure.
  • Encourage CEOs and boards to visit Ukraine to understand the challenges and opportunities. 

Ukraine government

  • Enhance the leadership structure of and coordination across Ukrainian ministries, streamlining decision-making and communication with external stakeholders.
  • Kyiv should continue building out trust and transparency mechanisms to showcase how international support is deployed.

Energy sector

International stakeholders

  • Assist Ukraine in bolstering protection of its energy infrastructure, which needs passive (physical barriers) and active (air defense) protection from Russian bombardment to minimize future damage and attract investment in the sector.
  • Expedite equipment procurement under the Energy Community Secretariat platform and other mechanisms.
  • Participate in public-private investments to advance decentralization of the energy network through distributed generation, batteries, and prosumers (i.e., those who both produce and consume energy), which is a massive undertaking necessary to secure, decarbonize, and liberalize Ukraine’s energy system.
  • Reduce barriers and restrictions for multilateral development banks to finance gas infrastructure in Ukraine to secure sufficient capacity and balancing services this winter.

Ukraine government

  • Devote vigor to the important work of decentralizing the energy network.
  • Make progress on liberalized energy market pricing while maintaining targeted subsidies for vulnerable populations.

Agriculture

International stakeholders

  • Invest in demining, transportation, and storage.
  • Ensure farms of all sizes have access to capital.

Workforce

International stakeholders

  • Prioritize building school shelters to optimize children’s educational opportunities and future career prospects.
  • Expand support for strategic reskilling, upskilling, and specialty trade training opportunities.

Ukraine government

  • Continue to make progress on merit-based recruitment and the reform of job classifications and salaries.
  • Support veterans in reintegrating into civil society with comprehensive services, continued education, and reskilling and upskilling opportunities. 

Finance

International stakeholders

  • Support Ukraine in absorbing aid in a timely manner through capacity building and streamlined procurement.
  • Promote Ukraine’s potential as a net contributor to Strategic Autonomy. EU citizens tend to be told about substantial cost of supporting Ukraine’s accession but know less about its supplies of critical minerals (especially titanium) and its innovative defense sector.
  • Unlock grants and incentives for Ukraine’s private sector, particularly in workforce development and creating efficiencies and automation. Provide support for small- and medium-sized enterprises through grants, loans, and risk mitigation, addressing the main barrier of war-related risks and the lack of related insurance products.

Ukraine government

  • Continue to modify strict capital controls imposed at the beginning of the full-scale invasion, which are a deterrent for new investors. A recent relaxation announced by the National Bank of Ukraine includes a provision for the payment of dividends to foreign investors and the repayment of foreign currency loans, albeit under a monthly cap, which should be gradually lifted as long as capital outflows do not undermine financial stability.

Stakeholders and the Ukraine government

  • Ensure that no communities are left behind during aid distribution through municipalities capacity building. 

General reforms

  • Complete the decentralization reforms, including granting hromadas “legal person” status.
  • Hire new judges and improve their salaries.
  • Harness investment by firms based in the EU as a driving force for convergence with EU rules and norms.

Conclusion

This report has avoided sugarcoating the reality of Ukraine’s economic and financial predicaments. We still believe it is a testament to unmatched resilience and innovation amidst the challenges of war. As we discuss recovery, two imperatives emerge: sustained multiyear military support, especially for air defenses; and clear, forward-looking funding commitments, in macro financial assistance and in recovery grants and loans. These are two distinct funding streams but, when we visited Kyiv, uncertainty over the former was affecting the government’s cash flow and preventing it from focusing on recovery projects which were already feasible.

Even amid conflict, reconstruction is necessary because of the destruction it has wrought.  By prioritizing viable projects in sectors such as energy, industry, agriculture, transport, and technology, and ensuring transparency, we can drive economic recovery and help Ukraine meet EU standards.

The upcoming conference in Berlin has broken the task ahead into four dimensions: business, the human dimension, regions, and EU accession. However, due to Russia’s ongoing attacks, the most urgent priorities are restoring energy capacity and bolstering air defenses to protect new and existing assets.

Now is the moment for Ukraine’s allies to take decisive action. By supporting Ukraine today, we invest not only in its survival but also in its future contributions to a stronger, more prosperous Europe. Together, we can help Ukraine rebuild and thrive, setting a powerful example of hope and resilience for the world.

ABOUT THE AUTHORS

Staff

John E. Herbst

Senior Director

Eurasia Center

Ukraine Politics & Diplomacy

Staff

Olga Khakova

Deputy Director, European Energy Security

Global Energy Center

Geopolitics & Energy Security Europe & Eurasia

Staff

Charles Lichfield

Deputy Director and C. Boyden Gray Senior Fellow

GeoEconomics Center

Economic Sanctions Economy & Business

The authors would especially like to thank Nicholas Pantazopoulos, who conducted critical graphing and cartography, and Lizi Bowen, who led web design, in this effort.

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]]> Policy memo: What will it take to make the MENA region a renewable energy powerhouse? https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/policy-memo-what-will-it-take-to-make-the-mena-region-a-renewable-energy-powerhouse/ Wed, 05 Jun 2024 16:00:00 +0000 https://www.atlanticcouncil.org/?p=769162 The Middle East and North Africa region is well placed to become not just a major source of renewable energy, but also a central and indispensable player in the global energy transition, uniquely able to balance supply and demand for all types of energy, both hydrocarbons and renewables.

The post Policy memo: What will it take to make the MENA region a renewable energy powerhouse? appeared first on Atlantic Council.

]]> Saudi Arabia and its Gulf Cooperation Council (GCC) neighbors stand as a pivotal force in the global energy landscape. Beyond their stature as premier fossil fuel producers and exporters, these nations play a crucial role in effectively coordinating and regulating the production and sale of oil globally. Through strategic measures, they have endeavored for decades to stabilize prices and maintain a consistent oil supply to the international market. In doing so, they mitigate the risks of excessive price volatility that could undermine demand or deter essential investment in supply.

At a time of rapid growth in renewable energies such as solar and wind, it would be easy to write off the region (as some are doing) as a waning power, both in terms of energy and geopolitics. After all, how good can the outlook be for petrostates in a world focused on moving to net-zero emissions? In our view, the opposite is true: the region is well placed to become not just a major source of renewable energy, but also a central and indispensable player in the global energy transition, uniquely able to balance supply and demand for all types of energy, both hydrocarbons, and renewables.

Saudi Arabia and other GCC countries are already moving in this direction, perhaps faster than many outside the region realize, thanks to a powerful mix of investment, infrastructure, and political determination. They have a unique opportunity to take the lead in putting the world on a more sustainable energy footing while simultaneously diversifying and enriching their economies.

A critical question is whether and how the other countries in the region follow their lead. A new phase of cooperation within MENA will be needed if the potential for the region in a reconfigured energy setup is to be realized.

Natural and geographical advantages

GCC countries are in a strong starting position for the energy transition in large part because of their natural advantages. Thanks to abundant sunshine and wind, they can produce and export renewable energies at a consistently lower cost than any other region. For example, Saudi Arabia’s Al Shuaiba project is projected to generate solar energy at a levelized cost of electricity (LCOE) of 1.04 US cents per kilowatt hour, which is just one-fifth of the 2023 global average for solar photovoltaic (PV) energy. This is followed by the United Arab Emirates’ 2 gigawatt (GW) Al Dhafra Solar PV project, which can produce solar energy at a price as low as 1.35 US cents per kilowatt-hour.

The abundance of both fossil and renewable resources means that, at every point on the path from a hydrocarbon-based energy system to a fully decarbonized one, GCC countries can deliver the cheapest configuration for the desired CO2 emissions level without compromising on energy security. In other words, they are well placed to continue with their role of balancing supply and demand—not just with oil and gas, but in a new, green era with a full range of energy resources, both renewable and traditional.

Other advantages are the region’s central geographical location, which provides comparatively easy access to large import markets in both Europe and Asia, as well as to developing markets such as those within Africa, and a ready supply of capital to help finance the transition. Moreover, the closely regulated single-buyer market in GCC countries, which grants regulators greater control over the whole electricity system, enables them to efficiently enact state policy and ensure a choreographed deployment of supply and transmission investments.

A Saudi man walks on a street past a field of solar panels at the King Abdulaziz City of Sciences and Technology, Al-Oyeynah Research Station. REUTERS/Fahad Shadeed

Uneven prospects in the region

For the GCC alone, as we write in our recently published book, Arabian Gambit, these advantages provide the opportunity to become a global force in green hydrogen, recycled plastics, artificial proteins, and even some low-energy manufacturing, among other prospects. For instance, we estimate that every million tonnes of recycled plastics produced could create around 1,450 jobs and contribute US$650 million directly to the GCC’s gross domestic product. Furthermore, attracting 10 percent of global manufacturing in high-potential products could bring up to US$300 billion in foreign direct investment and create 150,000 new jobs, while also unlocking US$25 billion in nonoil exports and offsetting 75 million tonnes of CO2-equivalent emissions annually. Where does that leave other countries in MENA—a region that is particularly exposed to climate change as well as to global efforts to mitigate it?

It’s important to draw some distinctions between countries: MENA is not a monolith and can be distinguished into three groups based on national governmental budget and net energy exports. The first group consists of countries with a budget surplus and large net energy exporters, such as Saudi Arabia, the UAE, Kuwait, and Qatar. With their strong financial position, they can invest heavily in renewable energy infrastructure. The second group consists of countries with a budget deficit, but are net energy exporters, such as Oman, Libya, and Algeria. These countries might face challenges in transitioning to renewable sources of energy due to budget constraints. Egypt is a country in this category, but it has already made significant progress in the renewable transition despite similar constraints. The third group consists of countries with a budget deficit which are net energy importers such as Morocco, Jordan, and Lebanon. Morocco and Jordan focus heavily on renewable transition and have considerable potential to become significant hubs for renewable energies.

The push into renewables in many of these countries is impressive. The International Energy Agency (IEA) estimates that, over the past decade, North Africa has managed to increase its renewable energy production by 40 percent. Countries like Egypt and Morocco are leading in solar and wind energy production outside the GCC, according to the IEA. Egypt alone added 25.5 GW of new generating capacity between 2015 and 2019, including 1 GW of solar PV and nearly 840 megawatts (MW) of new wind capacity—and in the process, went from chronic power shortages to having a 25 percent surplus of electricity supply. Morocco, meanwhile, accounts for three-quarters of the region’s renewable electricity production growth. Home to one of the largest solar farms in the world, the Noor Ouarzazate complex, Morocco is on track to increase the share of renewables in electricity to 60 percent to 65 percent by 2030, according to IEA estimates. Jordan has also been developing substantial solar and wind projects.

Collaborative energy framework

Much more still needs to be done to press home the renewable energy advantages that the whole MENA region has—and help those countries still lagging accelerate their energy transition. Wind and solar energy are only the beginning: even when countries have renewable resources and land on which to build installations, they lack some of the other attributes that are needed, including long-term finance, trust of investors and other potential stakeholders, appropriate regulatory regimes, and the government offtake that will make these installations viable.

This is where the GCC countries can help, taking the lead to build a collaborative energy framework and network across the region. The GCC members have a natural edge through their access to capital and the stability that allows for long-term investments that some other countries in the region may lack—and they can be the prime movers and facilitators of such a network.

There are multiple opportunities for greater collaboration. These include opportunities to integrate more renewables overall: creating possibilities to balance loads by exchanging renewable energy with neighboring countries, building out renewable energy infrastructure, and, potentially, marketing jointly to other regions such as Europe. GCC countries could facilitate the transfer of technology and expertise to other MENA countries, focusing on training and capacity building in renewable technologies. They can do so by fostering joint ventures and public-private partnerships with local companies and government agencies in those countries.

Further, the GCC countries can lead in developing a harmonized regulatory framework for renewables that encourages investments across the region. Harmonization of renewable energy practices and standards among MENA countries would be a big step forward to greater cooperation. For financing, GCC countries could develop a foreign direct investment approach, stepping in to help, where useful. They can establish a MENA renewable fund to support projects in countries with budget deficits and high solar or wind potential and use this to drive demand for the export of components manufactured in the GCC. For manufacturing, for example, GCC countries could help finance and develop the capacity to produce solar and wind turbines elsewhere in the region. If the cooperation develops strongly, it could even give rise to the creation of a clean energy souk, or marketplace, that brings together all the different elements under a single umbrella.

Some of this is already starting to happen, particularly on the investment front. Saudi Arabia is heavily investing in the renewable transition of MENA countries. The Saudi firm ACWA Power is looking to ramp up investments in both Egypt and Morocco to further clean energy projects there. This includes setting up a 200 MW solar project in Kom Ombo, Egypt, and a 150 MW solar plant as part of the Noor Ouarzazate solar complex in Morocco. The UAE also is driving large investments in solar and wind projects in Egypt, Morocco, and Jordan. In Egypt, Abu Dhabi’s Masdar signed an agreement to build a US$10 billion wind farm, and AMEA Power completed a US$1.1 billion deal to deploy 1 GW of wind and solar energy. Further, AMEA Power has won a contract to build two solar power plants in Morocco, and Masdar is set to develop a 1 GW wind project in Jordan. Additionally, Arab Petroleum Investments Corporation has taken a 20 percent stake in a major Jordanian wind project.

This is just the beginning, and more can be done to promote ties and further cooperation in clean energy across the MENA region. Much is at stake and much can be gained: the energy transition amounts to a larger regional reset as a global clean energy powerhouse. For all their differences, MENA countries have the essential components required to step into the new role. Now they need to take decisive steps toward realizing that potential.

Dr. Shihab Elborai and Anthony Yammine are partners, and Pavel Popikov is a manager, at Strategy& Middle East, a strategy consultancy part of the PwC network.

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]]> A new NATO command structure https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/a-new-nato-command-structure/ Wed, 05 Jun 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=768872 The Russian invasion of Ukraine in February 2022 and the accession of Finland and Sweden to NATO suggest an urgent need for a revised NATO Command Structure, better suited to the security needs of allies and better organized to deter and defend in light of these new realities.

The post A new NATO command structure appeared first on Atlantic Council.

]]>
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The 2014 Russian annexation of Crimea and Russian aggression in the Donbas brought home to NATO the need for a relook of the NATO Command Structure (NCS), resulting in the creation of Joint Force Command Norfolk and the Joint Support and Enabling Command, both in 2018.1 The Russian invasion of Ukraine in February 2022 and the accession of Finland and Sweden to NATO have once again altered the security landscape in the North Atlantic treaty area. These dramatic events suggest an urgent need for a revised NATO Command Structure, better suited to the security needs of allies and better organized to deter and defend in light of these new realities.2

The current structure consists of two strategic military commands: Allied Command Operations (ACO) based in Mons, Belgium, and Allied Command Transformation (ACT) based in Norfolk, Virginia. These are supported by three “operational” commands: Joint Force Command Brunssum, oriented to the east; Joint Force Command Naples, oriented to NATO’s southern flank; and Joint Force Command Norfolk, oriented to the North Atlantic sea lanes of communication. In addition, there are three “tactical” commands: Allied Air Command, based in Ramstein, Germany; Allied Land Command, based in Izmir, Turkey; and Allied Maritime Command, based in Northwood in the United Kingdom.3 While suitable for peacetime requirements, these arrangements are not optimized for major theater war against Russia. What has changed, and why do these changes require new command structures?

The obvious answer is that Russian aggression in the European security space has brought the possibility of direct confrontation with Russia closer to NATO than at any time since the fall of the Soviet Union. For allies bordering Russia, in particular, the threat level is perceived as high, driving major changes in force structure, defense spending, operational planning, and foreign and security policy.4 For Finland and Sweden, accession to NATO even a decade ago was considered unlikely. Today it is a reality, accentuated by efforts to establish unified air forces and steep increases in defense spending.5 Poland has emerged as one of the strongest military powers in Europe, exceeding France, Germany, and even the United Kingdom in conventional capability and spending nearly 4 percent of GDP on defense.6 Romania has also embarked on a remarkable military buildup.7 The Baltic States have responded as well; all three spend at least 2 percent of GDP on defense. Latvia has reintroduced conscription, while Estonia transferred all its 155 mm howitzers to Ukraine and ordered more modern replacements. Lithuania is moving to equip an entire infantry division with tanks.8 For its part, NATO has moved to double the size of the four battle groups established in 2017 on the eastern flank, and added four more, matched by five air policing missions.9 The United States has added an additional brigade set of prepositioned equipment in Europe, forward-based two additional F-35 squadrons in Europe, and increased its presence on the eastern flank from brigade to division size, augmented by a corps forward headquarters with enablers.10

F-35 fighter jets taxi during a media day of NATO's "Air Defender 23" military exercise at Spangdahlem US Air Base near the German-Belgian border in Spangdahlem, Germany June 14, 2023.
F-35 fighter jets taxi during a media day of NATO’s “Air Defender 23” military exercise at Spangdahlem US Air Base near the German-Belgian border in Spangdahlem, Germany June 14, 2023. Source: REUTERS/Jana Rodenbusch

These moves demonstrate that allies are deeply concerned about the prospect of further Russian aggression. Some argue that Russia’s losses in Ukraine have negated the threat,11 but an increasingly likely frozen conflict in Ukraine suggests that “a wounded, vengeful Russia will remain a threat as long as Vladimir Putin, or like-minded successors, are in power.”12 Two years into the conflict, the Russian economy is actually experiencing modest growth despite doubling its defense budget, while leaky international sanctions and support from China, Iran, and others continue to prop up Russian industry and economic performance.13 Putin’s ambitions to restore Russian imperial greatness and recover lost Russian territories are well documented. The threat of more Russian aggression is real and may well transpire unless deterred.14

How should the NATO Command Structure evolve? The first step should be to acknowledge a changed security environment and the importance and contributions of new members. (The current NCS dates to a time when Russia was viewed as a partner, and major theater war in the North Atlantic region was considered unlikely.) To achieve consensus for change, political realities must be taken into account; major NATO powers should occupy key posts that reflect their roles and influence in the Alliance. Existing infrastructure and staffs should be leveraged to avoid unnecessary expense. Finally, as much as possible, changes to the command structure should not add bloat or generate waste.

Lean, high-performing command arrangements are best suited to both peacetime economy and wartime stresses.”

With these concerns in mind, a revised NATO Command Structure should retain ACO and ACT as strategic headquarters, with some caveats. ACO should focus first and foremost on its responsibilities as a trained and ready battle staff, thoroughly exercised and ready to provide theater command and control of joint and multinational forces in time of war across the vast NATO area of responsibility. Historically, ACO planning and intelligence functions were subject to a degree of politicization in order not to “provoke” the Russian Federation.15 In recent years, these functions have been strengthened and those trends should continue. Its traditional leadership—a US four star as supreme commander with a UK deputy—is sound and should be retained.

Formally established in 2003, ACT is charged with contributing to “preserving the peace, security and territorial integrity of Alliance member states by leading the strategic warfare development of military structures, forces, capabilities and doctrines.” It executes this mission through four principal functions: strategic thinking; development of capabilities; education, training and exercises; and cooperation and engagement.16 ACT serves as the higher headquarters for NATO’s Joint Warfare Center in Stavanger, Norway; the Joint Analysis and Lessons Learned Center in Lisbon, Portugal; and the Joint Force Training Center in Bydgoszcz, Poland. ACT shares responsibility for NATO’s exercise program with ACO and is also responsible for the “establishment, accreditation, preparation of candidates for approval, and periodic assessments” of NATO’s twenty-nine Centers of Excellence.17

Though one of only two strategic commands in NATO, ACT has struggled to establish itself on an equal footing; according to some observers, ACT is not sufficiently staffed with “the best and brightest” and is held in less regard by the North Atlantic Council (NAC) than legacy units and commands. Struggling to make its voice heard in Brussels, it has been termed “the forgotten command.”18 Part of ACT’s “second class” status has to do with geography. Initially commanded by US Admiral Edmund Giambastiani, ACT was the successor to Allied Command Atlantic, located in Norfolk (Giambastiani was the last Supreme Allied Commander Atlantic, or SACLANT, disestablished in 2002). ACT is commanded by a French four star with a four-star German deputy and three-star UK chief of staff.19 The command would benefit by relocating to Paris or Washington, enhancing its prestige and enabling closer cooperation with the US Department of Defense and Joint Staff and defense industries as well as ACO and NATO headquarters. Given persistent challenges with interoperability and standardization across the Alliance, as well as the great potential of advanced technologies in the form of artificial intelligence, unmanned air and sea vehicles, robotics, quantum computing, ACT can only increase in importance for the Alliance. Accordingly, it should receive priority for staffing on a par with ACO.

National flags of the Alliance's members flutter at the NATO headquarters in Brussels, Belgium, April 17, 2024.
National flags of the Alliance’s members flutter at the NATO headquarters in Brussels, Belgium, April 17, 2024. Source: REUTERS/Yves Herman

Relocating ACT to Paris or Washington is also advisable given the new Joint Force Command (JFC) headquarters, which is located in Norfolk.20 Clearly established as a response to the reemergent Russian threat, JFC Norfolk is primarily a maritime headquarters that closely resembles the former Allied Command Atlantic in form and purpose. Currently commanded by a US vice admiral (dual-hatted as commander US 2d Fleet), its mission is to “protect the Strategic Lines of Communication across all domains, protect sea-lanes between Europe and North America, and enable the reinforcement of Europe.”21 In a revised NATO Command Structure, JFC Norfolk would be redesignated “JFC West,” with geographic responsibility for the North Atlantic up to the Greenland-Iceland-UK gap. Given its vast area of responsibility, and the fact that the commanders of the other JFCs are four stars, the JFC West commander should be a US four-star admiral, dual-hatted as commander US Fleet Forces command (the lineal successor to the former US Atlantic Fleet, also currently based in Norfolk), with three-star UK and French officers as deputy and chief of staff.22 JFC West should not be tasked with the conduct of land or air operations in the Nordic region.

The accession of Finland and Sweden to NATO this year suggests that establishing a new “JFC North” is both appropriate and opportune. The Nordic region is enormous, encompassing 3,425,804 kms, larger than the territory of all other European allies combined. With a total strength of more than 360,000 troops (active and reserve), 250 combat aircraft, 2,000 armored vehicles, and 290 naval combatants (including 11 submarines), the Nordic allies represent a formidable and modernized deterrent force.23 Collectively, their size, population, geographic importance, and economic heft deserve a strong voice and senior representation inside NATO. Perhaps based at Bodo in Norway (the site of the current Norwegian Joint National Headquarters), or in Stockholm (the site of Sweden’s Joint Forces Command), JFC North should be commanded by a Swedish four star, with rotating Finnish and Norwegian three-star deputies and a Danish chief of staff.24 Its geographic responsibilities would include the North, Norwegian, Barents, Greenland, and Baltic seas, as well as the airspace and land territories of NATO members Sweden, Finland, Norway, Denmark, and Iceland.25

The most imminent threat lies along NATO’s eastern flank, presumably the province of JFC Brunssum in the Netherlands under an Italian or German four star.26 Established in 2004, its stated mission is “to foster an open and active family of headquarters based on enduring relationships focusing on issues of common interest in order to enhance coordination, cooperation and situational awareness.”27 The lack of a specific geographic area of responsibility and precise mission statement arguably do not focus the command on defense and deterrence, while Brunssum is very far from the most likely scenes of Russian aggression (it is some 2,200 kms from Brunssum to Narva in eastern Estonia, for example). The growing capabilities of Poland, the importance of geographic proximity, and the reality of large scale combat operations just across its border with Ukraine strongly suggest that JFC Brunssum should be replaced with a “JFC East,” possibly located at Szczecin near the German-Polish border.28

As the preponderance of forces would likely come from Poland, JFC East should be commanded by a Polish four star with a Romanian deputy and Baltic chief of staff. Its geographic area of responsibility should include the Baltic States, Poland, Slovakia, Hungary, Romania, and Bulgaria.”1

NATO’s southern flank has traditionally been the responsibility of JFC Naples, commanded by a US four-star admiral dual-hatted as commander US Naval Forces Europe and Africa. This bifurcation pulls that officer and staff between NATO’s southern flank and maritime operations far to the north. The JFC Naples mission statement, like that of JFC Brunssum, is vague and imprecise and reads “to prepare for, plan and conduct military operations in order to preserve the peace, security and territorial integrity of Alliance member states throughout the Supreme Allied Commander’s Area of Responsibility (AOR) and beyond.”29 In a revised NATO Command Structure, JFC Naples would be redesignated as “JFC South” under the command of an Italian four star, with a three-star Greek deputy and two-star Spanish or Portuguese chief of staff.30 Its geographic AOR would include Spain, Portugal, Italy, Greece, and Turkey as well as NATO’s Balkan allies (Albania, North Macedonia, Croatia, Montenegro, and Slovenia). As described below, US Naval Forces Europe and Africa would relocate to the UK.

To ensure the right kind of mission focus, the mission statements of these four JFCs—North, East, West, and South—should be recast as “provide command and control of assigned joint and combined forces in order to deter and defend against aggression by opposing forces in the assigned geographic area of responsibilities; be prepared to execute other military tasks as assigned by SACEUR.” General and flag officers (GOFOs) assigned to these headquarters should come principally from the nations present in their geographic AORs.31 Given their missions, they are more properly referred to as “geographic” commands.

In response to Russian aggression in Ukraine in 2014, NATO established the Joint Support and Enabling Command (JSEC) in Ulm, Germany, in 2018. Commanded by a German three star, JSEC’s mission is “to contribute to enablement and help the Alliance set the theatre for reinforcement by forces, if and when required.”32 During crisis and conflict, JSEC will coordinate reinforcement by forces and their subsequent sustainment. Solving the problem of military mobility across national boundaries in wartime is a prime task, along with the reception, staging, onward movement, and integration (RSOI) of reinforcing forces and their theater-level support and sustainment. Theater-level, high-altitude air defense against ballistic and cruise missiles in central Europe may also fall to this command. To execute these tasks efficiently, the JSEC commander should have equal rank and status with the other JFC commanders. Accordingly, JSEC should be renamed “JFC Center” with a German four star as commander. Given the importance of prepositioned equipment storage sites in Eygelshoven, Netherlands, and Zutendaal, Belgium, those nations should rotate at the three-star level as deputy commanders, with a two-star French chief of staff.33

NATO’s three “tactical level” commands—Allied Air Command (AIRCOM) in Ramstein, Germany; Allied Land Command (LANDCOM) in Izmir, Turkey; and Allied Maritime Command (MARCOM) in Northwood in the United Kingdom—have several responsibilities. The first is to serve as principal advisors to SACEUR for operations in the land, sea, and air domains. Next, these commands are tasked to monitor the readiness and interoperability of NATO’s land, sea, and air forces. They are also responsible for providing wartime component command headquarters. As they do not actually operate at the tactical level, they are more properly referred to as “functional” commands.

US Navy sailors operate onboard aircraft carrier USS Harry S. Truman, in the Adriatic Sea, February 2, 2022. The Truman strike group is operating under NATO command and control along with several other NATO allies for coordinated maritime maneuvers, anti-submarine warfare training and long-range training.
US Navy sailors operate onboard aircraft carrier USS Harry S. Truman, in the Adriatic Sea, February 2, 2022. The Truman strike group is operating under NATO command and control along with several other NATO allies for coordinated maritime maneuvers, anti-submarine warfare training and long-range training. Source: REUTERS/Yara Nardi

AIRCOM in Ramstein is tasked “to provide air and space power to the Alliance” and is commanded by a US four star, dual-hatted as commander US Air Forces Europe and Africa. That officer therefore commands the air component for both USEUCOM and ACO. The Combined Air Operations Center (CAOC) at Uedem in Germany manages air operations north of the Alps, while a second CAOC in Torrejón, Spain, covers NATO airspace south of the Alps. There is also a deployable or “flyaway” CAOC based in Poggio Renatico in northern Italy. All three report to AIRCOM, along with some fifty control and reporting centers. This organization is sound, well-resourced, and resilient and requires no significant reorganization.

LANDCOM in Izmir is commanded by a US four star, dual-hatted as commander US Army Europe. Its mission is “on order, serve as Land Component Command in support of Joint Force Commands and as a Combined Force Land Component Command to provide theater-wide domain expertise to SACEUR; as SACEUR’s principal land advisor, LANDCOM coordinates AOR-wide activities to effectively deter Russia and Terror Groups and ensure a trained, ready, and lethal land force for NATO.”34 Reporting suggests that, while LANDCOM can effectively monitor and flag readiness and interoperability shortfalls, its ability to field a fully staffed and trained battlestaff as an effective land component command for SACEUR remains a work in progress.35 One solution is to reactivate US Seventh Army as an operational field army headquarters, akin to US Central Command’s Third Army, on the backbone of US Army Europe and Africa.36 This would provide a trained and ready Land Component Command able to command two or more NATO corps. LANDCOM would retain its current functions and location and be prepared, when augmented, to provide an additional land component command for lesser or alternate contingencies. Because the commander LANDCOM is often in Wiesbaden performing duties as commander USAREUR and AF, and also because of Turkey’s size and importance, the LANDCOM deputy commander should be a Turkish four-star general.

MARCOM in Northwood serves as “the central command of all NATO maritime forces” and the MARCOM commander is the primary maritime advisor to the Alliance.37 Currently commanded by a UK vice admiral, MARCOM serves as the maritime headquarters for Standing NATO Maritime Groups 1 and 2 and Standing NATO Mine Countermeasures Groups 1 and 2.38 Naval Striking and Support Forces NATO (STRIKEFORNATO), built around the US 6th Fleet, reports directly to SACEUR and is headquartered in Oeiras, Portugal.39 MARCOM is also host to the NATO Shipping Centre (NSC), which links NATO and the merchant shipping community.40 For challenging contingencies, such as maritime operations against the Russian Northern Fleet in the North Atlantic and Norwegian Sea, US naval forces would certainly predominate. As the Russian Northern and Baltic fleets represent the primary maritime threat, US Naval Forces Europe and Africa should accordingly relocate from Naples, Italy, to London (its former headquarters through 2005) as the naval component of USEUCOM.41 Its four-star commander could then be dual-hatted as commander MARCOM, placing MARCOM on a par with LANDCOM and AIRCOM.42 The MARCOM headquarters would remain in Northwood under a UK three-star deputy. For maritime operations north of the GIUK Gap, MARCOM should command, reporting directly to ACO, with JFC West exercising command of the sea lanes of communication in the North Atlantic.

Romanian helicopter Puma 330 is seen as Romanian, British and US maritime NATO forces carry out 'Exercise Trojan Footprint' exercises during a media tour of the special operations at sea off Constanta, Romania, May 9, 2022.
Romanian helicopter Puma 330 is seen as Romanian, British and US maritime NATO forces carry out ‘Exercise Trojan Footprint’ exercises during a media tour of the special operations at sea off Constanta, Romania, May 9, 2022. Source: REUTERS/Remo Casilli

These recommended changes to NATO’s Command Structure offer several advantages. They acknowledge the importance of the US as leader of the Alliance but provide four-star representation for NATO’s largest and most important military contributors, both old and new (the US, UK, France, Germany, Italy, Sweden, Turkey, and Poland)—important for achieving consensus for any adaptations. They represent a more rationalized and practical geographic approach to command and control, recognizing the addition of important new members and far more territory to the Alliance. They provide flexible options for SACEUR, particularly for two or more campaigns that may occur simultaneously within NATO’s area of responsibility. They align component commanders between NATO and USEUCOM, simplifying SACEUR’s command arrangements in times of fast-moving crises and for sustained multi-domain warfare. Most importantly, they modify and adapt the command structure to more effectively address a changed security environment in the North Atlantic Treaty area, now facing its most serious military threat since 1945.

To be sure, change is hard—and nowhere more so than in NATO. Political sensitivities and equities will be hotly contested, and the gears of the NATO bureaucracy may wind slowly. But the need is urgent. Europe finds itself in the largest shooting war since 1945, and it is right on NATO’s doorstep. Russian aggression and imperialism are not going away.43 As presently constituted, the NATO Command Structure is not fit for purpose in a post-2022 NATO. The time is therefore right to consider improvements—both to deter and, if necessary, to contain and defeat a dangerous adversary.

About the author

Fellow

Richard D. Hooker, Jr.

Nonresident Senior Fellow

Scowcroft Center for Strategy and Security Transatlantic Security Initiative

Europe & Eurasia National Security

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1    “Allied Command Operations (ACO),” North Atlantic Treaty Organization, updated April 26, 2024, https://www.nato.int/cps/en/natohq/topics_52091.htm.
2    “NATO’s current military Command and Control (C2) structure was designed for forces engaged in crisis management and expeditionary operations, not territorial defence. It will thus not be suitable for implementing NATO’s new regional defence plans, or for building credible deterrence and defence.” Gintaras Bagdonas, “Military Command and Control,” Vilnius Summit Series No. 5, July 2023, International Centre for Defence and Security, ICDS_Brief_Vilnius_Summit_No5_Gintaras_Bagdonas_July_2023.pdf.
3    “About Us,” Supreme Headquarters Allied Powers Europe, https://shape.nato.int/about.
4    See Reuters, “Newest NATO Member Finland to Spend 2.3% of GDP on Defence,” August 28, 2023, https://www.reuters.com/business/aerospace-defense/newest-nato-member-finland-spend-23-gdp-defence-2023-08-28/, and Reuters, “Sweden Adds Another 700 Million Crowns to Its 2024 Defence Spending,” September 11, 2023, https://www.reuters.com/world/europe/sweden-adds-another-sek-700-mln-its-2024-defence-spending-2023-09-11/.
5    “The ultimate goal is to be able to operate seamlessly together as one force.” “Nordic Air Chiefs: We Must Have One Unified Air Defence,” March 27, 2023, Defence-Aerospace.com, https://www.defense-aerospace.com/nordic-countries-agree-to-combine-air-forces-integrate-operations/.
6    Matthew Karnitschnig and Wojciech Kosc, “Meet Europe’s Coming Military Superpower: Poland,” Politico, November 21, 2022, https://www.politico.eu/article/europe-military-superpower-poland-army/, and Paul Jones, “Poland Becomes a Defense Colossus,” Center for European Policy Analysis, September 28, 2023, https://cepa.org/article/poland-becomes-a-defense-colossus/.
7    Romania fields 400 tanks and 1,200 artillery pieces and is procuring M1A3 main battle tanks, F-16 fighters, Patriot air defense systems, and other advanced materiel. James L. Jones (Gen., USMC, ret.), Curtis M. Scaparrotti, (Gen., USA, ret.), and Richard D. Hooker Jr., A Security Strategy for the Black Sea, Atlantic Council, December 15, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/a-security-strategy-for-the-black-sea/.
8    Lukas Milevski, “How Long Do the Baltic States Have? Planning Horizons for Baltic Defense,” Foreign Policy Research Institute, July 11, 2023, https://www.fpri.org/article/2023/07/how-long-do-the-baltic-states-have-planning-horizons-for-baltic-defense/.
9    These are now located in Poland, Lithuania, Latvia, Estonia, Romania, Hungary, Bulgaria, and Slovakia. Sean Monaghan, Pierre Morcos, and Andrew Lohsen, “Designing New Battlegrounds Advice for NATO Planners,” Center for Strategic & International Studies, April 15, 2022, https://www.fpri.org/article/2023/07/how-long-do-the-baltic-states-have-planning-horizons-for-baltic-defense/.
10    Sydney J. Freedberg Jr., “Army Adding New Arms Stockpile in Europe: Gen. Perna,” Breaking Defense, February 4, 2020, https://breakingdefense.com/2020/02/army-adding-new-arms-stockpile-in-europe-gen-pern, and Paul Taylor, “The Threat from Russia Is Not Going Away. Europe Has to Get Serious about Its Own Defence,” The Guardian, July 10, 2023, https://www.theguardian.com/world/commentisfree/2023/jul/10/russia-threat-europe-defence-military/.
11    Suzanne Lynch, “Russia No Longer Perceived as Top Threat by Germans,” Politico, February 12, 2024, https://www.politico.eu/article/russia-no-longer-top-threat-germany-g7-munich-security-conference-concern-ukraine-war-fades/.
12    Taylor, “Threat from Russia Is Not Going Away.”
13    Reuters, “Russia’s Q3 GDP Growth Confirmed at 5.5%, December 13, 2023, https://www.reuters.com/markets/europe/russias-q3-gdp-growth-confirmed-55-rosstat-2023-12-13/.
14    “If Putin is not decisively defeated in Ukraine, he will surely go further in his mission to “return” lost Russian lands. The list of former Russian imperial possessions that could potentially become targets is extensive and includes Finland, the Baltic States, Poland, Belarus, Moldova, Georgia, Armenia, Azerbaijan, and the nations of Central Asia.” Peter Dickinson, “Putin Admits Ukraine Invasion Is an Imperial War to ‘Return’ Russian Land,” Atlantic Council, June 10, 2022, https://www.atlanticcouncil.org/blogs/ukrainealert/putin-admits-ukraine-invasion-is-an-imperial-war-to-return-russian-land/.
15    Friedrich W. Korkisch, NATO Gets Better Intelligence, Center for Foreign and Defense Policy, April 2010, https://natowatch.org/sites/default/files/NATO_Gets_Better_Intell_April_PDP_0.pdf.
17    “Events and activities related to NATO training and exercises are developed by NATO’s two strategic commands—Allied Command Operations (ACO) and Allied Command Transformation (ACT). This process culminates with the publication of the annual Military Training and Exercise Programme (MTEP). Since July 2012, ACO is responsible for setting the training requirements and conducting NATO’s evaluations, while ACT is responsible for managing the MTEP and executing the exercise programme.” See https://www.nato.int/cps/en/natohq/topics_49285.htm and https://www.act.nato.int/about/centres-of-excellence/.
18    Julian Lindley-French et al., One Alliance: The Future Tasks of an Adapted Alliance, GLOBSEC, November 27, 2017, 18, https://www.globsec.org/sites/default/files/2017-07/GNAI-Final-Report-Nov-2017.pdf.
19    The current NATO Command Structure includes two German four stars, although the German armed forces have only one (the chief of defense staff/inspector general of the Bundeswehr). This is excessive given that France and the UK currently have only one in NATO.
20    Having two NATO four-star headquarters located in Norfolk is clearly not ideal.
21    NATO, “JFC Norfolk Commander Briefs Military Committee on Security Trends in the North Atlantic and Arctic Regions,” Mary 5, 2022, https://www.nato.int/cps/en/natohq/news_195074.htm?selectedLocale=en.
22    Commander Fleet Forces Command also performs duties as US Naval Forces Northern Command, US Naval Forces Strategic Command, and US Strategic Command Joint Force Maritime Component Commander. To assist with his JFC duties, arguably as or more important, he can be provided with a UK three-star deputy.
23    With 700 howitzers, 700 heavy mortars, and 100 multiple rocket launchers, Finland has perhaps the strongest artillery arm in NATO except for the United States and Poland. International Institute for Strategic Studies, The Military Balance 2023 (Routledge, 2023), 88.
24    Sweden is the largest Nordic nation in population, GDP, and military strength, making a Swedish four star the best choice as commander JFC North. Zachary Basu, “Finland and Sweden Bring Military Might to NATO,” Axios, May 18, 2022, https://www.axios.com/2022/05/19/nato-finland-sweden-military-might.
25    In former times, SACLANT’s AOR extended all the way to the North Pole. The accession of Finland and Sweden calls these arrangements into question. Should circumstances require, additional NATO maritime forces can be “chopped” to JFC North or be controlled directly by ACO/SHAPE through MARCOM.
26    However, six of the nine JFC Brunssum commanders have been German.
27    Allied Joint Force Command Brunssum, https://jfcbs.nato.int/.
28    Szczecin is currently the home of NATO’s Multinational Corps Northeast. Poland is the strongest conventional power in Europe and currently fields 550,000 active and reserve military personnel, more than 700 main battle tanks (on hand or on order), almost 2,400 artillery systems (on hand or on order), 116 fighter aircraft (on hand or on order), and 36 naval combatants (including 3 submarines).
29    Allied Joint Force Command Naples, https://jfcnaples.nato.int/.
30    In this revised structure, the addition of a US four star in Norfolk and Italy’s large economy and substantial military warrant Italian four-star representation in Naples. Italy’s economy ranks eleventh in the world in GDP, and its defense budget rivals Poland’s, supporting a defense establishment of just under 200,000 active and reserve.
31    As the leader of the Alliance, the United States should be represented at the GOFO level in all joint force commands.
32    Sergei Boeke, “Creating a Secure and Functional Rear Area: NATO’s new JSEC Headquarters,” NATO Review, January 13, 2020, https://www.nato.int/docu/review/articles/2020/01/13/creating-a-secure-and-functional-rear-area-natos-new-jsec-headquarters/index.html.
33    The United States maintains prepositioned equipment storage sites at Mannheim and Dulmen in Germany as well as Zutendaal in Belgium and Eygelshoven in the Netherlands. Another is under construction in Powidz, Poland. Each can store vehicles, equipment, and supplies under climate-controlled conditions for an armored brigade combat team. Fact Sheet: Army Prepositioned Stock, US Army Europe and Africa Public Affairs Office, https://www.europeafrica.army.mil/Portals/19/documents/Fact%20Sheets/APS%20Fact%20Sheet%2010262022.pdf?ver=gfg2yCbEhimp3riAj1GBhQ%3D%3D.
35    Based on written inputs from several recent LANDCOM commanders.
36    US Seventh Army was deactivated in 2010.
37    MARCOM Mission, https://mc.nato.int/about-marcom/mission.
38    As of this writing, SNMG1 includes 1 destroyer and 2 support ships; SNMG2 includes 1 destroyer. SNMCMG1 has 1 minehunter and 1 support vessel. SNMCMG2 has two minehunters and one support ship. US 6th Fleet has six destroyers and a command ship. Allied Maritime Command, “Standing NATO Maritime Group One (SNMG1),” https://mc.nato.int/snmg1; Allied Maritime Command, “Standing NATO Maritime Group Two (SMG2), https://mc.nato.int/snmg2.
39    Naval Striking and Support Forces, https://sfn.nato.int/.
40    NATO’s Maritime Activities, updated August 2, 2023, https://www.nato.int/cps/en/natohq/70759.htm.
41    Given the reemergence of the Russian threat, USNAVEUR’s center of gravity should be oriented more to the north, instead of the Mediterranean, far from the bulk of Russian naval forces.
42    The Northern Fleet includes two-thirds of the nuclear-powered vessels in the Russian navy and consists of 26 submarines, 10 principal surface combatants, 6 patrol craft, 8 minesweepers, and 8 amphibious ships. The flagship of the Russian navy is the Admiral Kuznetsov, Russia’s only aircraft carrier, also located with the Northern Fleet, under repair since 2018 and expected to rejoin the fleet in 2024. IISS, The Military Balance, 193.
43    “[T]here is no assurance that even if Russia got what it wanted out of negotiations it would not subsequently endeavour to physically occupy the rest of Ukraine or be emboldened to use force elsewhere.” Jack Watling and Nick Reynolds, “Russian Military Objectives and Capacity in Ukraine through 2024,” Royal United Services Institute, February 13, 2024, https://rusi.org/explore-our-research/publications/commentary/russian-military-objectives-and-capacity-ukraine-through-2024.

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]]> PACC 2030 objectives: The road to implementation https://www.atlanticcouncil.org/in-depth-research-reports/report/pacc-2030-objectives-the-road-to-implementation/ Fri, 31 May 2024 19:01:12 +0000 https://www.atlanticcouncil.org/?p=768813 The Atlantic Council organized a PACC 2030 Working Group and worked closely with governments, the business community, and civil society organizations to support the implementation of PACC 2030’s objectives.

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]]> The fifth of a six-part series following up on the Ninth Summit of the Americas commitments.

This is a report from the Atlantic Council’s Adrienne Arsht Latin America Center in partnership with the US Department of State. This readout was informed by multi-stakeholder dialogues focused on facilitating greater, constructive exchange among multi-sectoral thought leaders and government leaders as they work to implement commitments made at the Ninth Summit of the Americas.

Executive summary

On March 14, the Atlantic Council’s Caribbean Initiative partnered with the US Department of State to organize the PACC 2030 Road to Implementation Summit on the sidelines of the Energy and Climate Partnership of the Americas Ministerial Meetings in the Dominican Republic. The summit built on the PACC 2030 Climate Resilient Clean Energy Summit, which took place on the sidelines of US Vice President Kamala Harris’s inaugural trip to the Caribbean in June 2023, and previous partnerships with the Department of State to advance commitments adopted at the Ninth Summit of the Americas in Los Angeles in 2022. Since then, the Atlantic Council has organized a PACC 2030 Working Group and has worked closely with governments, the business community, and civil society organizations to support the implementation of PACC 2030’s objectives.

5 recommendations for implementing PACC 2030’s commitments:

  1. Enhance partner coordination to streamline access to resources and technical assistance
  • Improve coordination among partners to create a standardized project application and approval process that alleviates administrative burdens on small governments with limited technical capacity. This can include creating templates and guidelines for project proposals, permitting procedures, and regulatory compliance.
  • Create regular networking forums and knowledge-sharing platforms where stakeholders from various sectors can exchange ideas and explore potential collaborations through workshops, conferences, and online platforms that promote dialogue and partnership building.
  1. Support capacity building to strengthen the regulatory environment to help scale up projects and welcome new investors
  • Enhance access to technical expertise and resources through partnerships with US national laboratories, academic institutions, and industry experts to create knowledge transfer programs or country mentorship initiatives to build local capacity and expertise in key areas, including renewable energy integration, grid stability, and project management.
  • Develop programs tailored to government officials, project developers, and community leaders to improve their understanding of financing options, investment structures, and risk management strategies.
  1. Build innovative financing mechanisms to mobilize new capital at affordable rates
  • Introduce risk mitigation instruments such as insurance protections and guarantees to address uncertainty and attract further private sector investment. These instruments would protect investors against market fluctuations, policy changes, and natural disasters, thus increasing confidence in climate resilience projects.
  • Align partnerships with multilateral institutions like the World Bank and Inter-American Development Bank (IDB)—for example, through the latter’s new “One Caribbean” program—to build a project pipeline to attract capital to the region and facilitate technical assistance to de-risk clean energy projects.
  1. Continue and expand engagement with new actors and partners
  • Encourage greater private sector involvement in financing, implementing, and scaling up climate resilience and clean energy projects through public-private partnerships.
  • Prioritize community engagement and empowerment strategies to ensure climate resilience and clean energy projects are inclusive, participatory, and responsive to local needs and priorities, particularly as the agenda takes shape for the next Summit of the Americas.
  • Expand connections between subnational and small-state leaders across the Summit of the Americas process, including before a second Cities Summit of the Americas.
  1. Continue progress at the Tenth Summit of the Americas
  • Utilize the Tenth Summit of the Americas’ CEO Summit—to be organized by the IDB—to engage business leaders to work with stakeholders in the Caribbean to ensure that the summit responds to the needs of the region and the wider Americas.
  • Reinforce regional cooperation on clean energy and climate-related challenges by building on commitments like “Our Sustainable Green Future” and “Accelerating the Clean Energy Transition” adopted at the Ninth Summit of the Americas in the next iteration.
  • Engage with the Joint Summit Working Group’s organizations and the Americas Business Dialogue to streamline financing and technical assistance to support implementation of the commitments made at the Ninth Summit of the Americas.
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]]> Who’s a national security risk? The changing transatlantic geopolitics of data transfers https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/whos-a-national-security-risk-geopolitics-of-data-transfers/ Wed, 29 May 2024 19:34:02 +0000 https://www.atlanticcouncil.org/?p=767982 The geopolitics of data transfers is changing. How will Washington's new focus on data transfers affect Europe and the transatlantic relationship?

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]]>
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Table of contents

Introduction
Data transfer politics come to America
Data transfer politics in Europe
Conclusions

Introduction

The geopolitics of transatlantic data transfers have been unvarying for the past decade. European governments criticize the US National Security Agency (NSA) for exploiting personal data moving from Europe to the United States for commercial reasons. The US government responds, through a series of arrangements with the European Union, by providing assurances that NSA collection is not disproportionate, and that Europeans have legal avenues if they believe their data has been illegally used. Although the arrangements have not proven legally stable, on the whole they have sufficed to keep data flowing via subsea cables under the Atlantic Ocean.

Now the locus of national security concerns about international data transfers has shifted from Brussels to Washington. The Biden administration and the US Congress, in a series of bold measures, are moving aggressively to interrupt certain cross-border data flows, notably to China and Russia.

The geopolitics of international data flows remain largely unchanged in Europe, however. European data protection authorities have been mostly noncommittal about the prospect of Russian state surveillance collecting Europeans’ personal data. Decisions on whether to transfer European data to Russia and China remain in the hands of individual companies.

Will Washington’s new focus on data transfers to authoritarian states have an impact in Europe? Will Europe continue to pay more attention to the surveillance activities of its liberal democratic allies, especially the United States? Is there a prospect of Europe and the United States aligning on the national security risks of transfers to authoritarian countries?

Data transfer politics come to America

The US government long considered the movement of personal data across borders as primarily a matter of facilitating international trade.1 US national security authorities’ surveillance of foreigners’ personal data in the course of commercial transfers was regarded as an entirely separate matter.

For example, the 2001 EU-US Safe Harbor Framework,2 the first transatlantic data transfer agreement, simply allowed the United States to assert the primacy of national security over data protection requirements, without further discussion. Similarly, the 2020 US-Mexico-Canada Free Trade Agreement3 and the US-Japan Digital Trade Agreement4 contain both free flow of data guarantees and traditional national security carve-outs from those obligations.

Edward Snowden’s 2013 revelations of expansive US NSA surveillance in Europe put the Safe Harbor Framework’s national security derogation into the political spotlight. Privacy activist Max Schrems then challenged its legality under EU fundamental rights law, and the Court of Justice of the European Union (CJEU) ruled it unacceptable.5

The 2023 EU-US Data Privacy Framework6 (DPF) is the latest response to this jurisprudence. In it, the United States commits to hold national security electronic surveillance of EU-origin personal data to a more constrained standard, as the European Commission has noted.7 The United States’ defensive goal has been to reassure Europe that it conducts foreign surveillance in a fashion that can be reconciled with EU fundamental rights law.

Now, however, the US government has begun expressly integrating its own national security considerations into decisions on the foreign destinations to which US-origin personal data may flow. It is a major philosophical shift from the prior free data flows philosophy, in which national security limits played a theoretical and marginal role.

One notable development is a February 28, 2024, executive order, Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern.8 The EO empowers the Department of Justice (DOJ), in consultation with other relevant departments, to identify countries “of concern” and to prohibit or otherwise regulate bulk data transfers to them, based on a belief that these countries could be collecting such data for purposes of spying on or extorting Americans. A week later DOJ issued a proposed rule describing the envisaged regulatory regime, and proposing China, Cuba, Iran, North Korea, Russia, and Venezuela as the countries “of concern.”9

The White House, in issuing the bulk data EO, was at pains to insist that it was limited in scope and not inconsistent with the historic US commitment to the free flow of data, because it applies only to certain categories of data and certain countries.10 Nonetheless, as has been observed by scholars Peter Swire and Samm Sacks, the EO and proposed rule are, for the United States, part of “a new chapter in how it regulates data flows” in that they would create an elaborate new national security regulatory regime applying to legal commercial data activity.11

Hard on the heels of the bulk data EO came congressional passage in April of the Protecting Americans’ Data from Foreign Adversaries Act, which the president signed into law.12 It prohibits data brokers from selling or otherwise making available Americans’ sensitive information to four specified countries: China, Iran, North Korea, and Russia. The new law has a significantly broader scope than the EO. It cuts off certain data transfers to any entity controlled by one of these adversary countries, apparently including corporate affiliates and subsidiaries. It extends to any sensitive data, not just data in bulk. It remains to be seen how the administration will address the overlaps between the new law and the EO.

Another part of the same omnibus legislation ordered the ban or forced sale of TikTok, the Chinese social media platform widely used in this country.13 Advocates of the law point to the government of China’s ability under its own national security law to demand that companies operating there turn over personal data, including, potentially, TikTok users’ data transferred from the United States. Critics have cast the measure as a targeted punishment of a particular company, done without public evidence being offered of national security damage. TikTok has challenged the law as a violation of the First Amendment.14

Finally, the data transfer restrictions in these measures are thematically similar to a January 29 proposed rule from the Commerce Department obliging cloud service providers to verify the identity of their customers, on whose behalf they transfer data.15 The rule would impose know your customer (KYC) requirements—similar to those that apply in the international banking context—for cloud sales to non-US customers, wherever located.

This extraordinary burst of legislative and executive action focused on the national security risks of certain types of data transfers from the United States to certain authoritarian states is indicative of how far and fast political attitudes have shifted in this country. But what of Europe, which faces similar national security data challenges from authoritarian states? Is it moving in a similar direction as the United States?

Data transfer politics in Europe

The EU, unlike the United States, has long had a systematic set of controls on personal data flows from EU territory abroad, articulated in the General Data Protection Regulation (GDPR).16 The GDPR conditions transfers to a foreign jurisdiction on the “adequacy” of its data protection safeguards—or, as the CJEU has refined the concept, their “essential equivalence” to the GDPR regime.

The task of assessing foreign legal systems falls to the European Commission, the EU’s quasi-executive arm. Article 45 of the GDPR instructs it to consider, among other things, “the rule of law, respect for human rights and fundamental freedoms, relevant legislation . . . including concerning . . . the access of public authorities to personal data.”

For much of the past decade, the central drama in the European Commission’s adequacy process has been whether the United States meets this standard. As previously noted, the CJEU invalidated first the Safe Harbor Framework,17 in 2015, and then the Privacy Shield Framework,18 in 2020. The DPF is the third try by the US government and the European Commission to address the CJEU’s fundamental rights concerns. Last year, the European Commission issued yet another adequacy decision that found the DPF adequate.19 The EU understandably has focused its energies on the United States, since vast amounts of Europeans’ personal data travels to cloud service providers’ data centers in the United States and, as Snowden revealed, offered an inviting target for the NSA.

Separately, the European Commission has gradually expanded the range of other countries benefiting from adequacy findings, conferring this status on Japan,20 Korea,21 and the United Kingdom.22 However, the 2019 adequacy decision for the UK continues to be criticized in Brussels. On April 22, the Committee on Civil Liberties, Justice, and Home Affairs (LIBE) of the European Parliament wrote to the UK House of Lords complaining about UK national security bulk data collection practices and the prospect of onward transfer of data from UK territory to jurisdictions not deemed adequate by the EU.23 Next year, the European Commission will formally review the UK’s adequacy status.

List of countries with European Commission Adequacy Decisions

This past January, the European Commission renewed the adequacy decisions for eleven jurisdictions which had long enjoyed them, including, notably, Israel.24 On April 22, a coalition of civil society groups published an open letter to the European Commission questioning the renewal of Israel’s adequacy decision.25 The letter expressed doubts about the rule of law in Israel itself, the specific activities of Israeli intelligence agencies in Gaza during the current hostilities there, and the surveillance powers exercised by those agencies more generally.

Also delicate is the continuing flow of personal data from the European Union to Russia and China. Although neither country has been—or is likely to be—accorded adequacy status, data nonetheless can continue to flow to their territories, as to other third countries, if accompanied by contractual data protection safeguards. The CJEU established in its Schrems jurisprudence that such standard contractual clauses (SCCs) must uphold the same fundamental rights standards as an adequacy decision. The European Data Protection Board (EDPB) subsequently issued detailed guidance on the essential guarantees against national security surveillance that must be in place in order for personal data to be sent to a nonadequate jurisdiction.26

In 2021, the EDPB received an outside expert report27 on several foreign governments’ data access regimes. Its findings were clear. “Chinese law legitimises broad and unrestricted access to personal data by the government,” it concluded. Similarly, with respect to Russia, “The right to privacy is strongly limited when interests of national security are at stake.” The board did not take any further steps to follow up on the report, however.

Shortly after Russia invaded Ukraine, Russia was excluded from the Council of Europe and ceased to be a party to that body’s European Convention on Human Rights.28 The European Data Protection Board issued a statement confirming that data transfers to Russia pursuant to standard contract clauses remained possible, but stressed that safeguards to guard against Russian law enforcement or national security access to data were vital.29

Over two thousand multinational companies continue to do business in Russia, despite the Ukraine war, although a smaller number have shut down, according to a Kyiv academic research institute.30 Data flows between Europe and Russia thus remain substantial, if less than previously. Companies engaged in commerce in Russia also are subject to requirements that data on Russian persons be localized in that country.31 Nonetheless, data flows from Europe to Russia are not subject to categorical exclusions, unlike the new US approach.

The sole reported case of a European data protection authority questioning data flows to Russia involves Yango, a taxi-booking mobile app developed by Yandex, a Russian internet search and information technology company. Yango’s European services are based in the Netherlands and are available in other countries including Finland and Norway. In August 2023, Finland’s data protection authority (DPA) issued an interim decision to suspend use of Yango in its territory because Russia had just adopted a decree giving its state security service (FSB) unrestricted access to commercial taxi databases.32

The interim suspension decision was short-lived. A month later, the Finnish authority, acting in concert with Norwegian and Dutch counterparts, lifted it, on the basis of a clarification that the Russian decree in fact did not apply to use of the Yango app in Finland.33 The Finnish authority further announced that the Dutch authority, in coordination with it and Norway, would issue a final decision in the matter. The Dutch investigation reportedly remains open, but it does not appear to be a high priority matter.

The day after lifting the Yango suspension, the Finnish data protection authority rushed out yet another press release advising that its decision “does not address the legality of data transfers to Russia,” or “mean that Yango data transfers to Russia would be in compliance with the GDPR or that Russia has an adequate level of data protection.”34

One can interpret this final Finnish statement as at least indirectly acknowledging that continued commercial data transfers from an EU jurisdiction to Russia may raise rule of law questions bigger than a single decree allowing its primary security agency, known as the FSB, to access certain taxi databases. Otherwise, the Finnish decision could be criticized for ignoring the forest for the birch trees.

Equally striking is the limited extent of DPA attention to data transfers between EU countries and China. China maintains an extensive national security surveillance regime, and lately has implemented a series of legal measures that can limit outbound data transfers for national security reasons.35 In 2023, the Irish Data Protection Commissioner36 imposed a substantial fine on TikTok for violating the GDPR with respect to children’s privacy, following a decision by the EDPB.37 This inquiry did not examine the question of whether Chinese government surveillance authorities had access to European users’ data, however.

Personal data actively flows between Europe and China in the commercial context, pursuant to SCCs. China reportedly may issue additional guidance to companies on how to respond to requests for data from foreign law enforcement authorities. To date there is no public evidence of European DPAs questioning companies about their safeguard measures for transfers to China.

Indeed, signs recently have emerged from China of greater openness to transfers abroad of data generated in the automotive sector, including from connected cars. Data from connected cars is a mix of nonpersonal and personal data. China recently approved Tesla’s data security safeguards, enabling the company’s previously localized data to leave the country.38 In addition, the government of Germany is trying to ease the passage of data to and from China on behalf of German carmakers. On April 16, several German government ministers, part of a delegation visiting China led by Chancellor Olaf Scholz, issued a joint political statement with Chinese counterparts promising “concrete progress on the topic of reciprocal data transfer—and this in respect of national and EU data law,” with data from connected cars and automated driving in mind.39

Conclusions

The United States and the European Union are, in some respects, converging in their international data transfer laws and policies. In Washington, free data transfers are no longer sacrosanct. In Europe, they never have been. Viewed from Brussels, it appears that the United States is, finally, joining the EU by creating a formal international data transfers regime—albeit constructed in a piecemeal manner and focused on particular countries, rather than through a comprehensive and general data privacy law.

Yet the rationales for limiting data transfers vary considerably from one side of the Atlantic to the other. Washington now focuses on the national security dangers to US citizens and to the US government from certain categories of personal data moving to the territories of “foreign adversaries.” Brussels instead applies more abstract criteria relating to foreign governments’ commitment to the rule of law, human rights, and especially their access to personal data.

A second important difference is that the United States has effectively created a blacklist of countries to which certain categories of data should not flow, whereas the EU’s adequacy process serves as a means of “white listing” countries with comparable data protection frameworks to its own. Concretely, this structural difference means that the United States concentrates on prohibiting certain data transfers to China and Russia, while the EU institutionally has withheld judgment about transfers to those authoritarian jurisdictions. Critics of the EU’s adequacy practice instead have tended to concentrate on the perceived risks of data transfers to liberal democracies with active foreign surveillance establishments: Israel, the United Kingdom, and the United States.

The transatlantic—as well as global—geopolitics of data transfers are in flux. The sudden US shift to viewing certain transfers through a national security lens is unlikely to be strictly mirrored in Europe. In light of the emerging differences in approach, the United States and European governments should consider incorporating the topic of international data transfers into existing political-level conversations. Although data transfer topics have thus far not figured into the formal work of the EU-US Trade and Technology Council (TTC),40 which has met six times since 2022 including most recently in April,41 there is no evident reason why that could not change. If the TTC resumes activity after the US elections, it could become a useful bilateral forum for candid discussion of perceived national security risks in data flows.

Utilizing a broader grouping, such as the data protection and privacy authorities of the Group of Seven (G7), which as a group has been increasingly active in the last few years,42 also could be considered. The deliberations of this G7 group already have touched generally on the matter of government access, and they could readily expand to how its democratic members assess risks from authoritarians in particular. Eventually, such discussions could be expanded beyond the G7 frame into broader multilateral fora. The Organisation of Economic Co-operation and Development (OECD) Declaration on Government Access43 is a good building block.

The days when international data transfers were a topic safely left to privacy lawyers are long gone. It’s time for Washington and Brussels to acknowledge that the geopolitics of data flows has moved from the esoteric to the mainstream, and to grapple with the consequences.

About the author

Fellow

Kenneth Propp

Nonresident Senior Fellow

Europe Center

European Union Digital Policy

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1    Kenneth Propp, “Transatlantic Digital Trade Protections: From TTIP to ‘Policy Suicide?,’” Lawfare, February 16, 2024, https://www.lawfaremedia.org/article/transatlantic-digital-trade-protections-from-ttip-to-policy-suicide.
2    U.S.-EU Safe Harbor Framework: Guide to Self-Certification, US Department of Commerce, March 2009, https://legacy.trade.gov/publications/pdfs/safeharbor-selfcert2009.pdf.
3    “Chapter 19: Digital Trade,” US-Mexico-Canada Free Trade Agreement, Office of the United States Trade Representative, https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/19-Digital-Trade.pdf.
4    “Agreement between the United States of America and Japan Concerning Digital Trade,” Office of the United States Trade Representative, https://ustr.gov/sites/default/files/files/agreements/japan/Agreement_between_the_United_States_and_Japan_concerning_Digital_Trade.pdf.
5    Schrems v. Data Protection Commissioner, CASE C-362/14 (Court of Justice of the EU 2015), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62014CJ0362.
6    “President Biden Signs Executive Order to Implement the European Union-U.S. Data Privacy Framework,” Fact Sheet, White House Briefing Room, October 7, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/07/fact-sheet-president-biden-signs-executive-order-to-implement-the-european-union-u-s-data-privacy-framework/.
7    European Commission, “Commission Implementing Decision of 10.7.2023 Pursuant to Regulation (EU) 2016/679 of the European Parliament and of the Council on the Adequate Level of Protection of Personal Data under the EU-US Data Privacy Framework,” July 10, 2023, https://commission.europa.eu/system/files/2023-07/Adequacy%20decision%20EU-US%20Data%20Privacy%20Framework_en.pdf.
9    Department of Justice, “National Security Division; Provisions Regarding Access to Americans’ Bulk Sensitive Personal Data and Government-Related Data by Countries of Concern,” Proposed Rule, 28 C.F.R. 202 (2024), https://www.federalregister.gov/d/2024-04594.
10    “President Biden Issues Executive Order to Protect Americans’ Sensitive Personal Data,” Fact Sheet, White House Briefing Room, February 28, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/02/28/fact-sheet-president-biden-issues-sweeping-executive-order-to-protect-americans-sensitive-personal-data/.
11    Peter Swire and Samm Sacks, “Limiting Data Broker Sales in the Name of U.S. National Security: Questions on Substance and Messaging,” Lawfare, February 28, 2024, https://www.lawfaremedia.org/article/limiting-data-broker-sales-in-the-name-of-u.s.-national-security-questions-on-substance-and-messaging.
12    “Protecting Americans from Foreign Adversary Controlled Applications Act,” in emergency supplemental appropriations, Pub. L. No. 118–50, 118th Cong. (2024), https://www.congress.gov/bill/118th-congress/house-bill/7520/text.
13    Cristiano Lima-Strong, “Biden Signs Bill That Could Ban TikTok, a Strike Years in the Making,” Washington Post, April 24, 2024, https://www.washingtonpost.com/technology/2024/04/23/tiktok-ban-senate-vote-sale-biden/.
14    “Petition for Review of Constitutionality of the Protecting Americans from Foreign Adversary Controlled Applications Act,” TikTok Inc. and ByteDance Ltd. v. Merrick B. Garland (US Court of Appeals for the District of Columbia Cir. 2024), https://sf16-va.tiktokcdn.com/obj/eden-va2/hkluhazhjeh7jr/AS%20FILED%20TikTok%20Inc.%20and%20ByteDance%20Ltd.%20Petition%20for%20Review%20of%20H.R.%20815%20(2024.05.07)%20(Petition).pdf?x-resource-account=public.
15    Department of Commerce, “Taking Additional Steps to Address the National Emergency with Respect to Significant Malicious Cyber-Enabled Activities,” Proposed Rule, 15 C.F.R. Part 7 (2024), https://www.govinfo.gov/content/pkg/FR-2024-01-29/pdf/2024-01580.pdf.
16    “Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation),” 2016/679, Official Journal of the European Union (2016), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679.
17    Schrems v. Data Protection Commissioner.
18    Data Protection Commissioner v. Facebook Ireland & Schrems, CASE C-311/18 (Court of Justice of the EU 2020), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62018CJ0311.
19    The Commission’s decision has since been challenged before the CJEU. See Latombe v. Commission, No. Case T-553/23 (Court of Justice of the EU 2023), https://curia.europa.eu/juris/document/document.jsf?text=&docid=279601&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1498741.
20    European Commission, “European Commission Adopts Adequacy Decision on Japan, Creating the World’s Largest Area of Safe Data Flows,” Press Release, January 23, 2019, https://commission.europa.eu/document/download/c2689793-a827-4735-bc8d-15b9fd88e444_en?filename=adequacy-japan-factsheet_en_2019.pdf.
21    “Commission Implementing Decision (EU) 2022/254 of 17 December 2021 Pursuant to Regulation (EU) 2016/679 of the European Parliament and of the Council on the Adequate Protection of Personal Data by the Republic of Korea under the Personal Information Protection Act,” Official Journal of the European Union, December 17, 2021, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022D0254.
22    “Commission Implementing Decision (EU) 2021/1772 of 28 June 2021 Pursuant to Regulation (EU) 2016/679 of the European Parliament and of the Council on the Adequate Protection of Personal Data by the United Kingdom,” Official Journal of the European Union, June 28, 2021, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021D1772.
23    European Parliament Justice Committee, Correspondence to Rt. Hon. Lord Peter Ricketts regarding Inquiry into Data Adequacy, April 22, 2024, https://content.mlex.com/Attachments/2024-04-25_L75PCWU60ZLVILJ5%2FLIBE%20letter%20-%20published%20EAC.pdf.
24    “Report from the Commission to the European Parliament and the Council on the First Review of the Functioning of the Adequacy Decisions Adopted Pursuant to Article 25(6) of Directive 95/46/EC,” European Commission, January 15, 2024, https://commission.europa.eu/document/download/f62d70a4-39e3-4372-9d49-e59dc0fda3df_en?filename=JUST_template_comingsoon_Report%20on%20the%20first%20review%20of%20the%20functioning.pdf.
25    European Digital Rights et al., Letter to Vice-President of the European Commission Věra Jourová Regarding Concerns following  Reconfirmation of Israel’s Adequacy Status, April 22, 2024, https://edri.org/wp-content/uploads/2024/04/Concerns-Regarding-European-Commissions-Reconfirmation-of-Israels-Adequacy-Status-in-the-Recent-Review-of-Adequacy-Decisions-updated-open-letter-April-2024.pdf.
26    Milieu Consulting and Centre for IT and IP Law of KU Leuven, “Recommendations 02/2020 on the European Essential Guarantees for Surveillance Measures,” Prepared for European Data Protection Board (EDPB), November 10, 2020, https://www.edpb.europa.eu/sites/default/files/files/file1/edpb_recommendations_202002_europeanessentialguaranteessurveillance_en.pdf.
27    Milieu Consulting and Centre for IT and IP Law of KU Leuven, “Government Access to Data in Third Countries,” EDPB, EDPS/2019/02-13, November 2021, https://www.edpb.europa.eu/system/files/2022-01/legalstudy_on_government_access_0.pdf.
28    European Convention on Human Rights, November 4, 1950, https://www.echr.coe.int/documents/d/echr/Convention_ENG.
29    Statement 02/2022 on Data Transfers to the Russian Federation, European Data Protection Board, July 12, 2022,
https://www.edpb.europa.eu/system/files/2022-07/edpb_statement_20220712_transferstorussia_en.pdf.
30    “Stop Doing Business with Russia,” KSE Institute, May 20, 2024, #LeaveRussia: The List of Companies that Stopped or Still Working in Russia (leave-russia.org).
31    “Russian Data Localization Law: Now with Monetary Penalties,” Norton Rose Fulbright Data Protection Report, December 20, 2019, https://www.dataprotectionreport.com/2019/12/russian-data-localization-law-now-with-monetary-penalties/.
32    “Finnish DPA Bans Yango Taxi Service Transfers of Personal Data from Finland to Russia Temporarily,” Office of the Data Protection Ombudsman, August 8, 2023, https://tietosuoja.fi/en/-/finnish-dpa-bans-yango-taxi-service-transfers-of-personal-data-from-finland-to-russia-temporarily.
33    “European Data Protection Authorities Continue to Cooperate on the Supervision of Yango Taxi Service’s Data Transfers–Yango Is Allowed to Continue Operating in Finland until Further Notice,” Office of the Data Protection Ombudsman, September 26, 2023, https://tietosuoja.fi/en/-/european-data-protection-authorities-continue-to-cooperate-on-the-supervision-of-yango-taxi-service-s-data-transfers-yango-is-allowed-to-continue-operating-in-finland-until-further-notice.
34    “The Data Protection Ombudsman’s Decision Does Not Address the Legality of Data Transfers to Russia–the Matter Remains under Investigation,” Office of the Data Protection Ombudsman, September 27, 2023, https://tietosuoja.fi/en/-/the-data-protection-ombudsman-s-decision-does-not-address-the-legality-of-data-transfers-to-russia-the-matter-remains-under-investigation#:~:text=The%20Office%20of%20the%20Data%20Protection%20Ombudsman%27s%20decision,Protection%20Ombudsman%20in%20October%2C%20was%20an%20interim%20decision.
35    Samm Sacks, Yan Lou, and Graham Webster, “Mapping U.S.-China Data De-Risking,” Freeman Spogli Institute for International Studies, Stanford University, February 29, 2024), https://digichina.stanford.edu/wp-content/uploads/2024/03/20240228-dataderisklayout.pdf.
36    “Irish Data Protection Commission Announces €345 Million Fine of TikTok,” Office of the Irish Data Protection Commissioner, September 15, 2023, https://www.dataprotection.ie/en/news-media/press-releases/DPC-announces-345-million-euro-fine-of-TikTok.
37    “Following EDPB Decision, TikTok Ordered to Eliminate Unfair Design Practices Concerning Children,” European Data Protection Board, September 15, 2023, https://www.edpb.europa.eu/news/news/2023/following-edpb-decision-tiktok-ordered-eliminate-unfair-design-practices-concerning_en.
38    “Tesla Reaches Deals in China on Self-Driving Cars,” New York Times, April 29, 2024, https://www.nytimes.com/2024/04/29/business/elon-musk-tesla-china-full-self-driving.html.
39    “Memorandum of Understanding with China,” German Federal Ministry of Digital and Transport, April 16, 2024,
https://bmdv.bund.de/SharedDocs/DE/Pressemitteilungen/2024/021-wissing-deutschland-china-absichtserklaerung-automatisiertes-und-vernetztes-fahren.html.
40    Frances Burwell and Andrea Rodríguez, “The US-EU Trade and Technology Council: Assessing the Record on Data and Technology Issues,” Atlantic Council, April 20, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/us-eu-ttc-record-on-data-technology-issues/.
41    “U.S.-EU Trade and Technology Council (TTC),” US State Department, https://www.state.gov/u-s-eu-trade-and-technology-council-ttc/.
42    “G7 DPAs’ Action Plan,” German Office of the Federal Commissioner for Data Protection and Freedom of Information (BfDI), June 22, 2023, https://www.bfdi.bund.de/SharedDocs/Downloads/EN/G7/2023-Action-Plan.pdf?__blob=publicationFile&v=1.
43    OECD, Declaration on Government Access to Personal Data Held by Private Sector Entities, December 14, 2022, OECD/LEGAL/0487, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0487.

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]]> Generational AI: Digital inclusion for aging populations https://www.atlanticcouncil.org/in-depth-research-reports/report/generational-ai-digital-inclusion-for-aging-populations/ Wed, 29 May 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=768355 Recommendations on improved inclusion and empowerment of older adults in the age of artificial intelligence.

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As artificial intelligence (AI) applications become ubiquitous in products and services, it is more important than ever to ensure that they are appropriately aligned for positive use and avoid exacerbating social exclusions for an aging population. Based on discussions with leaders in equity, AI, and aging, and additional research, Generational AI: Digital inclusion for aging populations outlines the unique considerations for older adults within the AI lifecycle, barriers to digital inclusion that older adults experience regarding AI and suggested near- and long-term solutions to advance digital inclusion and mitigate biases against older adults, while supporting practical AI innovation, AI policy, and healthy aging.

Age and its intersection with other dimensions of access—including income, race, language, and gender—dramatically influence an individual’s ability to fully access, benefit from, and contribute to the digital world. With current trends, the population of adults aged sixty and older is expected to surpass 1.4 billion by 2030. Guidance and policies that include and engage older adults in AI development and deployment can foster broader inclusion, as the demographic cuts across various protected statuses and minority identities. Empowering the inclusion of older adults supports them in acting as agents of enhancing more comprehensive inclusion across AI. This change is necessary to ensure responsible and equitable AI for all, especially as the global population rapidly ages.

Digital inclusion for aging populations is possible, with various solutions across the AI lifecycle. Generational AI: Digital inclusion for aging populations identifies the varied use cases of artificial intelligence and older adults, breaking down the main considerations within the design, development, and deployment of AI to support healthy aging and advance equitable AI. These considerations reveal four significant barriers to the digital inclusion of older adults in AI, including:

  • incomplete or biased data on older adults;
  • lack of inclusion of older adults in AI design, development, and post-deployment feedback;
  • limited digital literacy and algorithmic awareness of older adults; and
  • adaptive monitoring and evaluation.

To address each gap, priorities suggested for the multistakeholder field of AI development, deployment, and governance are:

  • forging data-inclusion and transparency standards;
  • empowering user education and literacy for older adults, while ensuring proportional and appropriate modes of consent; and
  • establishing a standard of care through monitoring, evaluation, and impact assessments.

Interoperability, connectivity, literacy, transparency, and inclusion emerge as key themes to help identify the existing gaps within the intersection of AI and aging. These themes are visible across recent policy efforts, and can be made even more impactful by recognizing their intersection with specific communities, like older adults. The recent developments in guidelines, frameworks, and agreements signify a positive shift toward enabling digital inclusion for older populations. These developments are crucial to safeguard against biases inherent in AI-enabled technologies, biases that can significantly impact older adults throughout the various stages of the AI lifecycle. The path forward demands not just the inclusion of older adults in AI, but also their empowerment. As AI products and services become intertwined with daily life, advocating for the rights and needs of the aging population becomes more critical. This approach will pave the way for an equitable landscape where older citizens are not merely passive recipients, but active contributors and beneficiaries of the AI revolution.

About the author

Staff

Caroline Thompson

Assistant Director

GeoTech Center

Artificial Intelligence Cybersecurity

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This report and event have been made possible through the generous support of AARP. All views expressed in the report and event may not necessarily reflect the views of AARP. Throughout this process, the author engaged in confidential consultations with many well-known private and public organizations. These discussions were instrumental in shaping the contents of this report. Consequently, to maintain confidentiality, specific affiliations are not disclosed in the report or event.

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]]> With the 2024 Mexican election looming, here are two major recommendations for the next president https://www.atlanticcouncil.org/in-depth-research-reports/report/2024-mexican-election-recommendations-for-the-next-president/ Thu, 23 May 2024 16:00:00 +0000 https://www.atlanticcouncil.org/?p=766946 Mexico is in a privileged position to leverage its border with the United States and deep commercial integration with the rest of North America, facilitated by the United States-Mexico-Canada Agreement (USMCA). The incoming administration has the opportunity to improve border efficiencies and unlock meaningful new investment throughout 2024-2030 and beyond. 

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Table of contents

Foreword

Countries representing half the world’s population are voting in 2024. On June 2, just over five months before Election Day in the United States, Mexican voters will set a historic milestone with the election of the country’s first female president. Over the course of her six-year term, Mexico’s new president will face enormous challenges—internally and in the country’s relationship with the United States. But, like never before, there is also a unique opportunity to strengthen the commercial and economic ties that bind the two countries and reimagine how our shared border could better serve our shared interests.

Although the United States and Mexico have long been economically intertwined, in 2023, Mexico became the United States’ most important trading partner. Now more than ever,  with great geopolitical headwinds, the commercial ties that bind our two countries will be increasingly critical to advancing US economic interests globally. Here, greater border efficiency will yield economic gains alongside improvements in our shared security.

The Atlantic Council’s Adrienne Arsht Latin America Center, in partnership with internal and external colleagues and partners, sought to envision the future of two key aspects of the US-Mexico relationship: commercial flows and investment. With extensive feedback and numerous consultations with border stakeholders, including business owners, truck drivers, port operators, civilians, and local and federal elected officials, we sought out fresh perspectives and actionable recommendations. Our goal with this report is to spark dialogue among policymakers, business leaders, and civil society in both countries on the urgent need to address the immediate challenges of border efficiency and investment attraction over the next Mexican president’s term while paving the way for a more prosperous and secure future in our countries.

The Rio Grande and its surrounding towns are more than a physical barrier separating the United States and Mexico. Rather, they are a vibrant artery of commerce, migration, and cultural exchange. Livelihoods depend on our border, but inefficiencies prevent us from maximizing the possible economic opportunities and achieving the necessary security gains. The pages that follow build on previous center findings and emphasize the need for a nuanced approach to foreign investment, infrastructure development, and security measures that prioritize efficiency and our national interests.

This publication also seeks to bring the human dimension to the forefront. Public policy, after all, should reflect how to improve everyday lives. We consolidate the stories of real people affected by the US-Mexico border daily. The combined stories we have gathered over the last two years remind us of the impact of policy decisions. That reminder is particularly poignant with the 2024 elections on both sides of the border. Indeed, we stand on the cusp of a new chapter in our shared history.

This report is a call to action for visionary leadership and bold, pragmatic solutions to the complex issues facing the United States and Mexico. We urge policymakers to embrace policies and strategies that address immediate challenges while laying the groundwork for both an even more inclusive and prosperous future. Let’s seize this unique moment in time.

Jason Marczak
Vice President and Senior Director
Atlantic Council’s Adrienne Arsht Latin America Center

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]]> Oil, gas, and war: The effect of sanctions on the Russian energy industry https://www.atlanticcouncil.org/content-series/russia-tomorrow/oil-gas-and-war/ Thu, 23 May 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=763276 A new Atlantic Council report explores the effect of sanctions on Russia's energy industry. Are oil and gas still Putin's lifeline?

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Russia’s full-scale invasion of Ukraine in February 2022 challenged much of the common Western understanding of Russia. How can the world better understand Russia? What are the steps forward for Western policy? The Eurasia Center’s new “Russia Tomorrow” series seeks to reevaluate conceptions of Russia today and better prepare for its future tomorrow.

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Table of contents

Introduction

I. The impact of sanctions: A brief overview

II. Gazprom in limbo: No substitutes for the lost European market

Chart 1: Gazprom’s self-reported losses.

III. The oil industry: Surviving in difficult Asian markets

IV. The G7 oil-price cap is not working

V. LNG: A lifeline for Putin

VI. The Russian budget: No more super profits

Table 1: Oil and gas revenues of the Russian federal budget

VII. The Global South and the limits of cooperation

VIII. Russia’s diminished ability to use energy as a weapon

Chart 2: Russia’s share of EU energy imports

IX. What is to be done? Recommendations for policymakers

X. Conclusions

About the author

In the two-plus years since Russia’s full-scale invasion of Ukraine, the United States and its allies have imposed approximately two thousand sanctions on Russian corporations, financial institutions, and individuals. But while the sanctions have been broad, sweeping, and in some cases unprecedented, the discussion about their level of efficacy is still ongoing.

This is particularly true for the industries that comprise the lifeblood of the Russian economy—the oil and gas sectors. While Russia’s hydrocarbon revenues have been significantly affected by Western sanctions, this impact has varied significantly across sectors.

Assessing the real impact of sanctions on these vital industries, and calibrating them to have the maximum impact on Vladimir Putin’s ability to continue financing and waging his war of aggression, will require policymakers to understand these nuances—to understand what has worked, what has not, and why.

Primarily, this requires an understanding of how the effect of sanctions has varied between the oil and gas industries. It also requires an examination of other relevant factors, most notably the role of China, other Asian markets, and the Global South in mitigating the negative impact of sanctions. It also requires an understanding of the role liquified natural gas (LNG) has played in Putin’s efforts to evade sanctions.

The impact of sanctions: A brief overview

The impact of Western sanctions differs not only between the oil and gas industries, but also between natural gas and LNG. There is also a significant divergence between the negative impact of sanctions on the Russian oil and gas industries on one hand, and the impact on state budget revenues on the other.

It should be stressed that the decoupling of Gazprom from the European gas market was mostly caused not by the Western sanctions—the European Union (EU) did not introduce an embargo against Russian natural gas as such—but, rather, by Gazprom’s self-imposed cutoff of piped-gas supplies to most EU member states.1

The Russian natural-gas industry, primarily Gazprom, has struggled with the consequences of decoupling from the EU market, as it lacks a viable business model to compensate for the loss. The oil industry, on the other hand, has managed to weather the sanctions better, albeit with significant loss of revenue due to heavy price discounts in Asian gas markets and sharp increases in the cost of shipping oil to Asia.

The party that has suffered the most from Western sanctions, however, is Russia’s state budget, which saw its revenues from oil and gas decline 24 percent in 2023 compared to 2022.

This has forced the authorities to consider serious tax hikes on the oil and gas industry to compensate for the losses and enable Putin to finance the war in Ukraine. Such a move would hurt investment and could result in subsequent output decline.

While piped-gas exports to Europe have decreased dramatically, Russia continues to export significant amounts of LNG to the EU unabated, resulting in significant revenue. Unlike Gazprom’s piped-gas exports, however, LNG exports are largely untaxed, meaning the government does not receive direct revenues from them. But for reasons that will be discussed in greater detail below, the Russian state has other means to extract rents from LNG exports to finance the war—notably through windfall taxes.

Sanctions and decoupling from European oil and gas markets have also significantly reduced Russia’s ability to use energy as a tool of political pressure against Western democratic countries. However, as will be discussed in greater detail below, this capability has not been eliminated entirely.

In what follows, this report will discuss each of these trends in greater detail, beginning with Gazprom, which has suffered the most serious consequences from Russia’s standoff with the West and faces nothing short of a full reinvention of its entire business model.

Gazprom in limbo: No substitutes for the lost European market

Russia’s natural-gas giant Gazprom has suffered enormously from cutting ties with Europe, formerly its largest market. As noted earlier, the termination of gas supplies to Europe happened not because of sanctions, but due to voluntary actions by Russia. In mid-2022, Gazprom cut off gas supplies to Europe through most of the export-pipeline routes, clearly aiming at creating political and economic problems for EU countries ahead of the 2022–2023 winter season.

The Kremlin’s hopes didn’t materialize. Despite rising gas prices, the EU managed to successfully navigate the winter and, in the process, find alternative long-term sources of gas imports. This allowed Europe to free itself from most Russian piped-gas imports, without even imposing sanctions on Gazprom.

Gazprom’s lost revenue and profits turned out to be enormous.

According to the company’s own reporting, Gazprom’s revenue fell by 41 percent year-over-year in the first half of 2023, while sales profits fell by 71 percent and gas production by 25 percent. In the first quarter 2024, Gazprom reported a net loss of almost $7 billion in 2023, marking its first annual loss in more than 20 years. Moreover, Gazprom’s upstream gas-production base is now isolated because infrastructure connecting its main western Siberian fields with alternative Asian markets is lacking. Gazprom also failed to build any LNG plants in western Siberia, which, before the imposition of sanctions, would have enabled the company to reroute natural gas to alternative markets.

Gazprom does not disclose the estimated construction costs of new pipeline infrastructure to China, but it would probably require at least $100 billion given the company’s experience constructing the existing Power of Siberia pipeline. That pipeline, which connects western and eastern Siberia and also delivers gas supplies to China, is considerably shorter than a proposed new pipeline, known as Power of Siberia-2, which would pipe gas from western Siberia to China. That raises the fundamental question of whether Russian gas supplies to China will ever be profitable.

Gazprom refuses to publish any data on gas-supply prices to China via Power of Siberia, but data published by Reuters, citing obtained internal materials of the Russian government, suggests that the average annual price of piped gas supplied to China was $297.30 per thousand cubic meters (tcm) in 2023 and will be $271.60 in 2024. Prices for 2023 were also not published, but the officially disclosed volume of supply was 22.7 billion cubic meters (bcm), and the cost of Chinese imports of piped gas from Russia was $6.4 billion. Thus, the average 2023 gas-supply price from Russia to China was $282/tcm (in 2020–2022, the price was well below $300/tcm).

This means that Russia is, in fact, most likely selling gas to China at a significant loss. When the contract to deliver gas to China via the Power of Siberia pipeline was signed in 2014, the average gas-supply price was set in the range of $350–380 per tcm. Even at that price level, Gazprom had requested that the Russian government effectively zero out all major taxes for the Power of Siberia project—claiming that the project would not be profitable unless near-total tax exemptions were provided. The exemptions were granted and, as a result, the mineral-extraction and property taxes were forgiven for fifteen years until 2035. In reality, the price of gas supplies to China via Power of Siberia never even reached $300/tcm, and many analysts believe they do not generate any profits.

That suggests that Russian gas supplies to China may not become profitable for the foreseeable future. China is clearly not expected to need additional gas supply until after 2030, and that appears to explain why Beijing is not interested in granting Gazprom any kind of price premium for new gas-supply contracts. Moreover, China has alternatives: domestic Chinese gas production, LNG, and imports of piped gas from Central Asia.

Speaking at the Eastern Economic Forum in September 2022, Vladimir Putin admitted that “our Chinese friends are tough bargainers,” which is why agreeing with Beijing on gas-supply price parameters “is never so easy.” More than a year later, there is still no indication that an agreement on gas supplies via the proposed new Power of Siberia-2 pipeline project is imminent. This is despite Putin’s promise made in September 2022 (and reiterated in March 2023 during a summit with Xi Jinping in Moscow) that Russia and China are “close” to signing a gas contract for Power of Siberia-2.

The lack of agreement on Power of Siberia-2 reflects the fundamental dilemma Gazprom faces: China is just not ready to buy Russian gas at a price that will be profitable for Moscow.

Moreover, the shipment distance for gas produced in western Siberia and shipped via the proposed Power of Siberia-2 pipeline will be significantly lengthier than that of Power Siberia-1, which means that Gazprom would need a significantly higher sales price than even $350/tcm to make any money from gas exports to China. At the very least, gas exports to China will not deliver any notable revenues to the Russian state budget.

Gazprom’s overall business model has been shattered by its decoupling from the European gas market. Most of the company’s profits came from the EU and, with its significantly lower gas prices, Russia’s domestic gas market just can’t deliver comparable profits. Building new gas-pipeline infrastructure to China, as discussed above, would require enormous capital investments, without offering obvious profits. Building a pipeline to deliver gas to India and other South Asian countries doesn’t seem viable given the complicated mountainous terrain and geopolitical challenges with potential transit countries like Afghanistan. Moreover, Gazprom suspended the construction of planned new LNG projects due to lack of access to critical Western technology.

In this situation, Gazprom attempted various measures aimed at containing gas output, expanding domestic gas demand, and seeking customers elsewhere, but with marginal results. It is not difficult to cut gas production given that the bulk of output comes from matured western Siberian fields, with a significant share of low-pressure gas from depleted reservoirs that require booster measures to increase well productivity. In many cases, it is simply enough to cancel additional booster activities to minimize production.

But finding alternative gas markets with comparable profitability to that of the lost European market will inevitably prove challenging. Russian Deputy Prime Minister Aleksandr Novak has formulated an ambitious program aimed at boosting Russian domestic natural-gas demand, including an accelerated program of gasification for Russian regions, the expansion of small-scale LNG, and boosting natural-gas use as engine fuel for the transport sector.

At the same time, Gazprom, through its lobbyists in the State Duma, is actively lobbying for the full liberalization of natural gas prices for domestic Russian consumers, with an exemption for households. But even with such a policy change, Russia’s domestic gas market is not capable of delivering profits even remotely comparable to those Gazprom received from the EU in the past. Also, significant growth in domestic gas prices will impede Russia’s fragile economic recovery, which is why the government will most likely intervene and cap Gazprom’s domestic gas price if it goes too far.

Gazprom is also actively trying to find new export consumers or to boost exports through existing pipelines. But these efforts have also met with little success. For example, Gazprom has signed a new contract with Uzbekistan, but it amounts to just 3 bcm per year, with scant prospects for growth. Since the full-scale invasion of Ukraine in February 2022, Gazprom has also been trying to set up a “gas hub” scheme with Turkey. This is effectively a “gas laundering” operation that involves mixing Russian gas with Azerbaijani or Iranian gas and then reselling the rebranded product to Europe via Turkey. But the project has been stalled due to wrangling between Moscow and Ankara over who would control the hub and trading schemes, as well as over concerns about the EU’s response.

All this leaves Gazprom in limbo for the foreseeable future. The domestic gas market and potential alternative piped-gas export markets will not be able to make up for those lost from the EU market, and the development of LNG exports so far remains blocked due to lack of access to critical Western technology.

This has ramifications for Russia’s budget, as Gazprom was a major source of tax revenue before the invasion of Ukraine. In 2021, the last year when Russia published detailed reporting on budget revenues, Gazprom’s share of federal budget revenues exceeded 7 percent, but it was estimated to be only about half of that share in 2023.2 These revenues are not recoverable in the foreseeable future, as Gazprom’s “super profits” from the European gas market were taxed heavily and LNG exports are largely exempt from taxation.

The oil industry: Surviving in difficult Asian markets

The Russian oil industry has weathered sanctions much better than Gazprom has, largely because it doesn’t suffer from the infrastructure limitations that exist in the gas industry. Russian oil can still be shipped via seaports to Asian markets, albeit with discounts and at a higher cost. Additionally, the industry is benefiting from a lighter tax burden that was introduced in response to falling oil prices. However, the government is planning to gradually raise taxes.

Oil output has contracted only slightly as compared to the pre-war period, by 1–2 percent. Russia currently produces about 10.5 million barrels per day (mbd) of crude oil, as opposed to just over 11 mbd before the war.

However, it should be noted that there are no verifiable and detailed public data on actual Russian oil output. We are therefore forced to rely on official aggregated figures. The general assumption among experts is that Russia has reduced its oil output in the past year by approximately 500,000 barrels per day (kbd) according to an agreement on oil-supply cuts within the Organization of Petroleum Exporting Countries Plus (OPEC+), which includes ten non-OPEC members including Russia. The exact figures remain unknown because the Russian government classified oil-production data following the full-scale invasion of Ukraine. But generally, in contrast to the gas industry, Russia has continued to produce oil more or less at pre-war levels.

The Russian oil industry has, however, suffered from significant revenue and profit losses due to the EU oil embargo. From December 2022 through March 2023, for example, Russia’s average monthly Urals crude-export prices have fallen to $48–50 per barrel due to the steep price discounts demanded by Asian consumers.

Russian oil exporters have managed to reduce these Asian discounts. In the second quarter of 2023, Urals oil prices rebounded to $55–58 per barrel. They exceeded $60 per barrel in July 2023 and reached $80 per barrel in September 2023. Overall, Asian price discounts for Urals oil have been reduced to $10–12 per barrel. Since November 2023, after the US Government has exerted some sanctions enforcement pressure on oil shippers and traders, discounts for Russian oil shipped to Asia grew again – they now stand at about $17 per barrel, but the average price of the Russian Urals oil export crude was around $68 per barrel in April 2024, well above the G7 oil price cap .

Oil-price level is not the only parameter influencing the profitability of Russian oil exports to Asia. Another is the significantly higher cost of shipping oil to Asian markets. For instance, there’s a reason why Russia barely exported any crude-oil volumes to India before the full-scale invasion of Ukraine. It takes approximately a month for an oil tanker to travel from Russia’s Black or Baltic Sea ports to India. In contrast, it takes just a few days to ship oil to Genoa or Rotterdam. Shipping oil to India also involves passing through additional bottlenecks, such as the Suez Canal or Bab al-Mandeb Strait, where tankers risk delays due to traffic and incur additional demurrage and insurance costs. Per the author’s estimates (as exact figures are unavailable), the extra costs of shipping Russian oil from Novorossiysk or Primorsk to India vary in the range of $10–15 per barrel, significantly reducing the efficacy of exports to India and other Asian destinations.

Russia has also established a so-called “shadow fleet” of oil tankers with obscure ownership and jurisdiction. It also sought to use third-country intermediaries and traders to sell oil to Asian destinations or even resell it to Europe, circumventing sanctions. But while such schemes may yield revenues for some Russian-affiliated shell companies, these revenues are not very large (just a few dollars per barrel). These profits also do not add revenues to the Russian state budget because oil exports are taxed according to officially available crude-oil price numbers and these shadow operations abroad are not visible to the Russian tax authorities.

A gasoline delivery of Russian energy company Rosneft in northernmost well of Russia. (Rosneft handout via EYEPRESS)

In 2023, Russia adopted a new mechanism of gradually increasing the oil-export price used for taxation, in an apparent effort to force oil companies to negotiate lower discounts with consumers. However, all these accounting tricks do not change the fundamentals of the situation, and paying too much attention to them is a distraction. Russian oil-export revenues throughout 2023 have largely been determined by the overall dynamics of the international market, and the declining discounts for Russian crude resulted from markets becoming significantly tighter due to the Saudi-led OPEC+ oil-output cuts announced in the spring of 2023.

Due to rebounding export prices, Russian oil revenues have normalized in the third quarter of 2023, following a sharp plunge early in the year. Nevertheless, it is also clear that rerouting oil exports to Asia has created additional cost burdens for Russian oil exporters. Another significant issue involves the relations between Russian oil majors and the Western oilfield-services companies working in oil-reservoir management, such as Baker Hughes, Halliburton, Weatherford, and SLB. Some of these announced they were leaving Russia following the full-scale invasion of Ukraine.

It is beyond the scope of this report to discuss which of these oilfield-services companies have kept their word and actually left Russia. What is important is that they possess unique technologies for oilfield-reservoir management and enhancing the productivity of oil wells, which can’t be substituted by Russian, Chinese, or other third-party technologies and know-how. Most of the oilfield stock of Russian oil companies is matured and depleted fields with difficult reservoirs in western Siberia, the Urals, and other regions. Therefore, using cutting-edge Western technology remains critical to maintaining the productivity of oil wells and overall levels of oil output.

At the end of the 1990s and the beginning of the 2000s, the massive outsourcing of Russian oilfield services to these Western companies led to dramatic increases in productivity. For example, the average Russian oil well increased production from approximately fifty-five barrels per day in 1995 to more than seventy-five barrels by the mid-2000s, a productivity growth of more than one-third. Should Western oilfield services completely depart Russia, this may result in comparable loss in average well productivity and, as a result, overall oil production. There are, however, strong indications that at least some of the Western oilfield-service companies continue to work with the Russian oil industry, reneging on their promises to leave.

The G-7 oil-price cap is not working

It is clear that the oil-price cap the Group of Seven (G7) imposed on Russia in September 2022 is not working. Russia has continued to easily sell oil exported via the Eastern Siberia-Pacific Ocean oil pipeline to China at a price well above the $60-per-barrel limit, effectively ignoring the price cap. Moreover, the Russian Finance Ministry reports that even the price of Urals crude shipped through Black and Baltic Sea ports has exceeded $60 per barrel. As said above, as of March 2024, Russia continued to export crude oil priced well above the $60 cap. When the oil-price cap was introduced, the G7 countries lacked sufficient capacity and legal authority to monitor the thousands of shipping, trading, and insurance transactions Russian oil-exporters use—particularly those outside the G7’s jurisdiction.

As a US Treasury Department press release put it, the Treasury Department simply hoped that “nonparticipating countries’ goal is to get the lowest price for buying oil, and the price cap will give them additional leverage in their negotiations with Russia.” However, this did not happen. When market prices went up, Russia was able to sell its crude above the price cap, switching mostly to traders, shippers, and insurers operating outside the G7 regulatory jurisdiction. Widespread price-cap evasion schemes are thriving due to a loose regulatory framework that does not require insurers and shipowners to know any pricing information about the oil shipped.

It is questionable whether the G7 will be able to enforce its oil-price cap at all, given these circumstances. At the very least, G7 countries will need to significantly beef up their sanctions-enforcement capacity. Hundreds of additional employees will be needed to monitor the thousands of transactions related to Russian crude-oil exports to ensure compliance with the oil-price cap. Unless these additional staffing measures are taken, and are accompanied by relevant legal action against companies involved in breaching the oil-price cap, enforcement will just not happen. It remains an open question whether the G7 countries will ever be able to do anything about Russia’s “shadow tanker fleet” or other shell companies engagement in trading, shipping, and insurance transactions, which are operating fully outside the G7 regulatory jurisdiction. It was the EU oil embargo, and not the price cap, that truly worked against Russian oil exports.

LNG: A lifeline for Putin

While the EU nearly stopped purchasing piped gas from Gazprom following the full-scale invasion of Ukraine in February 2022, Russia’s LNG exports to Europe in 2023 surged by about 38 percent as compared to the pre-war year of 2021; the EU imported about 22 bcm of Russian LNG in 2023. Remarkably, after the United States, Russia is Europe’s largest supplier of LNG.

Despite Russia’s increasing presence on the LNG market, Gazprom is not involved. The key Russian LNG exporter is Novatek, the country’s second-largest natural-gas producer. In 2022, Novatek exported more than 76 percent of the LNG produced by its Yamal LNG project to Europe. Overall, Russia currently exports more than 50 percent of its LNG to Europe, compared to just 39 percent in 2021.

These exports are not a major source of budget revenue for Russia as Novatek’s LNG production and exports are largely untaxed, enjoying a twelve-year exemption from mineral-extraction taxes and export duties. Nevertheless, such massive LNG exports to Europe are a major source of revenue for Russia, totaling up to 10 billion euros per year, and can be used by Putin to finance the war against Ukraine. For example, the Russian government has raised the profit tax on Novatek from 20 percent to 32 percent for 2023–2025. The draft budget for 2024 also contains hints that the authorities may impose certain one-time payments on oil and gas companies, including Novatek, in 2024. The European Union is not currently considering sanctioning Russian LNG, which means that the revenue flow will likely continue uninterrupted in 2024.

Novatek also managed to continue with a massive project called Arctic LNG-2 (ALNG-2), despite some initial difficulties accessing critical Western technology due to sanctions. Western companies such as Linde, Technip, and Baker Hughes left the project after February 2022, but Novatek managed to either assure the supply of previously contracted equipment or to find alternative Chinese suppliers. However, after sweeping US sanctions were introduced against the ALNG-2 project in November 2023, the project was effectively brought to a halt, which undermines Russia’s plans to expand LNG exports in the coming years and show the effectiveness of individual sanctions against specific oil and gas projects.

The Russian budget: No more super profits

Despite rebounding oil prices and the G7 oil-price cap not working, Russian oil and gas budget revenues were significantly down in 2023, contracting by 23.9 percent year-over-year. By comparing pre-war figures from 2021, the contraction of oil and gas revenues becomes even more visible. While the average oil price in 2021 and 2023 is comparable, oil and gas budget revenues have fallen precipitously. In 2021 they were 6.8 percent of GDP and accounted for 35.6 percent of total budget revenues; in 2023 they were just 5.3 percent of GDP and 30.9 percent of total budget revenues (see Table 1).

While oil-export revenues recovered in the second half of 2023, as discussed above, gas-export revenues appear lost for the foreseeable future. LNG revenue exports are not sufficient to compensate for the loss of piped-gas exports to the EU. Moreover, rerouting of oil shipments to Asia reduces the profitability of oil exports. It is, therefore, reasonable to expect that Russian oil and gas revenues will be significantly depressed due to Western sanctions and Gazprom’s decoupling from the European gas market. And barring a sharp rise in oil prices, these super profits will not return.

Russian budget revenues from oil and gas fell 55–58 percent in the first two quarters of 2023 as compared to the same period in 2022. In the third quarter of 2023 they recovered to nearly 2022 levels, although this is largely due to higher international prices resulting from output cuts announced by Saudi Arabia in the spring of 2023. Had Saudi Arabia maintained its previous levels of oil production, Russian revenue losses would have been significantly higher.

According to the 2024 federal budget projections, Russian government is nevertheless forecasting 29.8-percent year-over-year growth in oil and gas revenues in 2024, despite not projecting a significant rise in oil prices. The draft budget projects average oil prices for 2024 at $71.30 per barrel. The government has hinted that it may impose a one-time windfall tax on the oil and gas industry, although the nature of this tax remains unclear. Such a tax, combined with the increased cost of oil shipments to Asia and the loss of productivity due to the lack of access to Western technology, will have a negative impact on upstream capital investments, putting additional pressure on the industry.

The Global South and the limits of cooperation

After February 2022, Russia placed a lot of hope in developing energy cooperation with China, India, and the Global South. More than two years in, these hopes appear to be in vain. Investors do not appear interested in entering the Russian oil and gas sector, and the switch to Chinese technology and equipment has proven significantly more costly than working with Western companies.

Russia had high hopes that exiting Western oil and gas majors would be replaced by investors from the Global South. But thus far, there have been no significant oil and gas investments from China, India, or the Middle East since February 2022. This is largely due to fears of secondary sanctions and excessive wartime regulations, which increase the risks of investing in Russian assets.

Notably, Chinese and Indian companies were not rushing to invest in Russia even before the full-scale war. According to data from the Russian Central Bank, the total accumulated foreign direct investment (FDI) in Russia from all Chinese investors across all sectors totaled just over $3 billion at the end of 2021. For investors from India, the total was just $600 million. And no new FDI from the Global South has been recorded since.

Moreover, some Chinese companies even suspended certain operations in Russian oil and gas and related industries. The Chinese petroleum and chemicals firm Sinopec, for example, suspended talks with the Russian petrochemical company Sibur regarding a major investment and gas-marketing venture in the spring of 2022.

Switching to Chinese technologies and equipment to replace the departing Western technology companies has also proven costly. Novatek, for example, has reported a 17-percent (nearly $4-billion) increase in capital expenditures for the Arctic LNG-2 project due to switching from Baker Hughes turbines to Shanghai Electric equipment. Similar cost increases and losses in productivity can be reasonably expected across the Russian oil and gas industry.

China, India, and the countries of the Global South seem more interested in taking advantage of the current situation and buying Russian energy at a discount than they are in investing in Russia’s oil and gas industries.

Russia’s diminished ability to use energy as a weapon

Decoupling of Western markets from Russian oil and gas has seriously undermined Moscow’s ability to use energy as a weapon against Western democracies. According to the European Commission, the Russian share of EU imports of petroleum oils fell to 3.5 percent in the fourth quarter of 2023, down from 24.8 percent in the fourth quarter of 2021. The share of piped natural gas fell to 12.7 percent from 48.0 percent across the same period. This all significantly reduces Russia’s leverage over European countries through oil and gas supplies.

Some EU countries, most notably Hungary and Slovakia, continue to buy Russian oil and gas. Not surprisingly, these countries remain the least favorable to keeping sanctions against Russia and aiding Ukraine. In Slovakia, this became even more visible when the pro-Putin politician Robert Fico became prime minister after the October 2023 elections, but Hungary and Slovakia remain outliers in the EU.

Central Asian energy exporters, on the other hand, are much more vulnerable to Russia’s energy blackmail. Kazakhstan, which exports about 80 percent of its crude oil through Russian territory and seaports via the Caspian Pipeline Consortium, is particularly vulnerable. Establishing an alternative export route to Europe will be difficult for Kazakhstan, as it would require investing in and developing a tanker fleet in the Caspian Sea. In 2022, Russia threatened to shut down the Caspian Pipeline Consortium on regulatory grounds in an apparent effort to assure Kazakhstan’s loyalty amid the international backlash over Ukraine.

What is to be done? Recommendations for policymakers

How can Western policymakers make sanctions against Russia’s oil and gas industry more effective?

First, it is important to understand that Russian oil-export revenues have been rebounding recently not because the EU oil embargo is ineffective. In fact, the embargo is working. It has led to a sharp increase in costs of shipping Russian oil to consumer markets in Asia (more than $10 per barrel, according to the author’s estimate). It has also led to price discounts, which remain at levels above $10 per barrel. The key factor contributing to increasing Russian revenues from oil exports is the spring 2023 OPEC+ decision to cut oil output. Therefore, one key focus for Western policymakers should be to put diplomatic pressure on OPEC members and other oil-producing states to increase oil output.

The EU should also tighten sanctions against Russian oil transshipment through its territorial waters. This would further complicate the logistics of rerouting Russian oil to Asian markets. This matters, because the bulk of Russian oil is still exported via Baltic and Black Sea ports, as direct pipeline infrastructure to Asia is insufficient and its expansion requires huge investments.

The G7 oil-price cap on Russian oil is clearly not working. Several steps would, at least partially, increase the efficiency of the price cap, including

  • increasing the number of professional staff permanently dedicated to monitoring Russia’s export-oil shipments (currently, the job is mostly done by outside experts, journalists, and investigators, while the tens of thousands of transactions involved require regular monitoring and analysis to uncover price-cap evasion schemes);
  • introducing secondary sanctions against third-country insurers, traders, and shippers who are helping Russia evade the price cap; and
  • improving the mechanism of “attestation” of transactions ensuring compliance with the price cap. This involves assuring that shipowners and insurers are provided with sufficient pricing information by the buyers and sellers of the Russian crude to make sure that the oil is sold below the price cap.

Regarding piped-gas imports from Russia, the European Union should keep asking the EU member states that are still buying gas from Russia for specific plans to phase out Russian imports. Countries like Italy, which continue to receive certain volumes of Russian piped gas, are promising to end Russian gas imports quite soon, others, like Hungary and Austria, continue unrestricted imports of Russian gas, reaching and even exceeding pre-war import levels. At the same time, these countries have made little progress in renewable-energy production or reducing gas demand. EU unity on singling out Gazprom’s gas supplies is essential to continue minimizing Putin’s export revenues.

The EU should also unequivocally reject the import of natural gas from the so-called “energy hub in Turkey.” This project is nothing more than an attempt to launder Russian gas supplies by mixing them with gas from other producers like Azerbaijan and Iran. Turkey should be sent a clear message that laundering Russian gas will not be tolerated. Any contracts for gas supplies via Turkey to the EU should be concluded directly with suppliers, and not through opaque intermediary schemes that might assist Russia.

The EU also needs a comprehensive policy on LNG imports from Russia. These imports may be necessary in the short term to fill the gap left by the cessation of Russian pipeline-gas imports. Nevertheless, the surge of Russian LNG imports to the EU in 2022–2023 is not normal and generates significant revenues for Russia (which may also be used to finance the war through emergency windfall taxation). The EU needs a clear schedule to phase out Russian LNG imports. It should also accelerate its efforts to develop offshore natural-gas production, particularly in the Mediterranean and Black Seas, as an alternative to Russian gas in the medium and longer term.

The G7 countries should also conduct a comprehensive critical oil-and-gas technology review. Such a review would identify critical technologies Moscow still has access to that may assist Russia in sustaining its oil and gas exports and evading Western sanctions. It could also provide policy recommendations for additional sanctions, including secondary sanctions against third countries where appropriate.

Conclusions

It is reasonable to conclude that sanctions have had a significant impact on the Russian oil and gas industries and the budgetary revenues that come from them. And it is wrong to conclude that sanctions are not working—they are. However, much more work must be done to enhance the effectiveness of sanctions.

Also, for the purpose of setting realistic goals and expectations, it is important to understand that the Russian oil and gas industries and Russia’s public finances are too strong and resilient to simply collapse under the weight of sanctions. They haven’t collapsed yet, and probably won’t in the foreseeable future. But they are suffering enormous difficulties due to sanctions and decoupling from the Western energy markets. Over time, this is likely to result in further loss of investment, output, efficiency, and revenue.

About the author

Vladimir Milov is a Russian opposition politician, publicist, economist, and energy expert, and recently served as an economic and international affairs adviser to the late Russian opposition leader Alexey Navalny. He is also vice president of the Free Russia Foundation, an international organization supporting civil society and democratic development in Russia based in Washington, D.C. From 1997 to 2002, Milov had worked with the Russian Government, including as Deputy Energy Minister in 2002. He was the author of the concept of breaking up and unbundling Gazprom vetoed by Vladimir Putin. Later, Milov became one of the major public critics of Vladimir Putin, working closely with late opposition politician Boris Nemtsov, and later with Alexey Navalny. He is a research associate at the Wilfried Martens Centre for European Studies in Brussels, vice president of the Free Russia Foundation (Washington, D.C.). Milov is currently based in Vilnius, Lithuania.

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1    For simplicity, this report will not provide a separate disclaimer for this while assessing the overall impact of developments from the past two years on the Russian oil and gas industry. Most of the time, the report will refer generally to “sanctions” and “decoupling from European markets.”
2    Detailed data on this are classified since the beginning of the full-scale invasion of Ukraine, but this estimate is based on known information about the decline of gas output and exports.

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]]> China Pathfinder: Q1 2024 update https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/china-pathfinder-q1-2024-update/ Wed, 15 May 2024 23:20:24 +0000 https://www.atlanticcouncil.org/?p=765127 In the first quarter of 2024, Beijing pushed forward with a flurry of efforts to support a faltering stock market, ramp up exports to make up for domestic demand, and double-down on high-tech sectors with subsidies and other innovation funding.

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In March 2024, China’s Premier Li Qiang capped off a bumpy first quarter by cancelling a traditional annual press conference to talk about the government’s plans for the coming year. But in many ways, China’s policy measures spoke for themselves. The year-to-date story has been one of harried effort to support a faltering stock market, ramp up exports to make up for domestic demand, and double-down on high-tech sectors with subsidies and other innovation funding. The most important policy document of China’s economic year, the Government Work Report, promised state guidance and fiscal expansion but did not address the structural problems that have impaired Beijing from doing that in the past several years.

We identify some positive policy developments compatible with global market norms this quarter, including in financial system development and direct investment openness. New data security guidelines provided some reassurance to skittish foreign investors after years of uncertainty on the scope of data rules. Beijing pledged once again to ease the business environment and level the competitive playing field for foreign firms, this time through twenty-four measures and a charm offensive with foreign CEOs at the China Development Forum. And despite uncertainty, foreign portfolio investors took advantage of premium China bond returns, even as direct investment stalled.

These policy strategies were mostly familiar. In most of the areas monitored under the Pathfinder framework, there was either no market convergence or active backsliding. There was little to no public discussion of the structural and systemic factors weighing on the economic outlook, low productivity, foreign concerns over overcapacity or exchange rate risks. This paucity of needed debate fanned the flame of discussions in G7 capitals about the need to coordinate collective trade defense. While a few signs of the end of the property correction are showing up, suggesting a cyclical stabilization with the next several quarters, the longer-term headwinds to sustainable growth will mount until meaningful market reforms are implemented.


Source: China Pathfinder. A “mixed” evaluation means the cluster has seen significant policies that indicate movement closer to and farther from market economy norms. A “no change” evaluation means the cluster has not seen any policies that significantly impact China’s overall movement with respect to market economy norms. For a closer breakdown of each cluster, visit https://chinapathfinder.org/

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]]> Annual Report 2023/2024: How the Atlantic Council’s programs shaped the global future in 2023 https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report-how-programs-shaped-the-global-future/ Wed, 08 May 2024 18:31:08 +0000 https://www.atlanticcouncil.org/?p=749344 2023 was a successful year in the Atlantic Council’s history when measured by our growth, our impact, and our high-quality work across our sixteen programs and centers.

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Annual Report 2023/2024

How the Atlantic Council’s programs shaped the global future in 2023

2023 was the most successful year in the Atlantic Council’s history when measured by our growth, our impact, and our high-quality work across our sixteen programs and centers.

Adrienne Arsht Latin America Center

The Adrienne Arsht Latin America Center (AALAC) broadens understanding of regional transformations while demonstrating why Latin America and the Caribbean matter for the world. The center focuses on the pressing political, economic, and social issues that will define the region’s trajectory. AALAC proposes constructive, results-oriented solutions to inform public-sector, business, and multilateral actions to advance a vision for a more prosperous, inclusive, and sustainable future. AALAC—home to Washington’s premier Caribbean Initiative—builds consensus for action to advance innovative policy perspectives with a focus on select lines of programming to ensure relevance and impact.  

In its tenth year, AALAC deepened its impact, fostering global connections and driving policy changes. Through its convenings across eleven countries and seven US cities, alongside its publications and congressional footprint, AALAC elevated new ideas and consensus on how to work alongside partners to address top regional challenges with global implications. In the Caribbean, it led innovative energy and climate-change solutions, including hosting the PACC 2030 Climate Resilient Clean Energy Summit in The Bahamas, alongside US Vice President Kamala Harris’s inaugural visit to the Caribbean. Its groundbreaking research on the economic impact of reducing wait times at the US-Mexico border influenced bilateral conversations, with Mexico’s Secretary of Foreign Affairs Alicia Bárcena citing findings during the US-Mexico High-Level Economic Dialogue.  

The center’s US-LAC Strategy Working Group charted the course for the next five years of a US-LAC partnership strategy, which was released in early 2024, in advance of the US elections. The relaunch of its US-Colombia Advisory Group, with US Sen. Bill Hagerty joining as honorary co-chair, facilitated continued nonpartisan, binational engagement. With the Atlantic Council’s Europe Center and Club de Madrid, it supported the momentum generated by Spain’s European Commission presidency to deepen transatlantic ties.  

AALAC’s spotlighting of humanitarian-fund use in Venezuela reignited United Nations efforts to open previously frozen funding channels. During the inaugural Leaders’ Summit of the Americas Partnership for Economic Prosperity, the center’s official welcome dinner included the presidents of Chile, Costa Rica, the Dominican Republic, Ecuador, Peru, and Uruguay. To round out 2023, the center celebrated its milestone ten-year anniversary with a star-studded gala, honoring the Amazon Basin countries, Carlos Vives (who delivered a special musical performance), Cristina Junqueira, Mack McLarty, and Carlos Gutierrez.  

Adrienne Arsht-Rockefeller Foundation Resilience Center

The Adrienne Arsht-Rockefeller Foundation Resilience Center (Arsht-Rock) builds individual and community resilience in the face of climate impacts. It pledges to reach one billion people around the world with resilience solutions to climate change by 2030.

To better protect people from the dangerous impacts of extreme heat, Arsht-Rock expanded its work on climate adaptation and resilience in 2023. The center launched a new parametric insurance coverage for women in India, continued its pilot program to categorize and name heat waves, and hosted its first climate games accelerator program.

The Resilience Center also added to the global climate discourse by publishing a number of new publications and reports, including its economic analysis “The scorching divide: How extreme heat inflames gender inequalities in health and income.” The center further advanced this work at COP28, driving climate adaptation and resilience policy and financing for it. It welcomed its new global ambassadors Hillary Clinton, former US secretary of state, and Felipe Calderón, former president of Mexico, and other renowned climate leaders to six high-level events. Notably, the center also launched the Call for Collaboration, which aims to identify opportunities to accelerate and mobilize private finance for adaptation and resilience. To date, the call has twenty signatories, including the governments of Austria, Chile, Colombia, Guatemala, and Switzerland.

Africa Center

The mission of the Africa Center is to raise African voices and strengthen African nations’ influence in transatlantic dialogues. As the preferred destination for African cultural, political, and business leaders who want to create a more authentic African narrative, the center is also a powerful platform for producing better knowledge of Africa and promoting opportunities on the African continent. The center prepares policymakers and investors for the onset of the African century by supporting dynamic strategic partnerships with African states and multilateral institutions.

In 2023, the Africa Center navigated Africa’s hotspots through its series focused on democratic backsliding across the Sahel, continued programming on the war in Sudan, and conducted robust analyses on major geopolitical shifts across the continent.
The center has been at the forefront of discussions in Washington regarding the enlargement of the BRICS grouping to new African members, the Russia-Africa Summit and the consequences of Wagner Group leader Yevgeny Prigozhin’s death, the launch of a US Atlantic partnership, reforms of the Bretton Woods institutions, and the African Union’s new permanent membership in the Group of Twenty (G20). From Marrakesh with the World Bank-International Monetary Fund Annual Meetings, to Gaborone where the center kicked off discussions on the renewal of the African Growth and Opportunity Act, to Dubai for COP28, the Africa Center has showcased the central role of Africa as a rising actor in international relations. Through publications on digital infrastructure, green banking, and the agricultural sector, among other critical matters, the center also documented the issues faced by a continent that will double its population in the next twenty-five years.

Atlantic Council in Turkey

The Atlantic Council in Turkey aims to support transatlantic relations by strengthening dialogue between Turkey and its allies, primarily the United States. In line with the Atlantic Council’s mission of promoting constructive leadership and engagement in international affairs based on the Atlantic community’s central role in meeting global challenges, the center’s goal is to bolster transatlantic engagement with Turkey and its surrounding region through forward-looking research and high-impact, high-level convening. The program spotlights critical issue areas including energy, economics, business relations, migration, defense, and security.

The center’s featured project of 2023, aimed at strengthening a cornerstone of the transatlantic relationship, was the Defense Journal, a periodic publication covering the latest developments in the United States-Turkey defense relationship and providing analysis on the full spectrum of defense and security issues affecting the United States, Turkey, and the region. In recent years, the defense ties that have helped underpin the United States-Turkey relationship since the latter’s accession to NATO in 1952 have come under pressure. Through this publication, the center aims to enhance dialogue in the region and re-energize the relationship, while creating a platform for defense stakeholders to discuss regional developments. The Defense Journal was launched at a hybrid event featuring former and current policymakers and leading experts in Washington on June 22, 2023.

Digital Forensic Research Lab

The Digital Forensic Research Lab (DFRLab) is a global leader at the intersection of government, industry, civil society, and media in an era of rapid technological change. Comprised of the Cyber Statecraft Initiative, the Democracy + Tech Initiative, the DFRLab research team, and capacity-building efforts, and spread across seventeen countries, the DFRLab believes in transparency, accountability, and security online and around the world. The core of its approach is technical research that provides real evidence and examples at a granular level to inform policy, combined with convening stakeholders to use that research as the basis for action.  

In 2023, the DFRLab’s global research team worked at the digital forefront of an era of ever-increasing geopolitical competition and technological change. Researchers continued their years-long effort to expose Russia’s use of influence operations to justify its war of aggression against Ukraine, including unearthing the largest state-backed operation ever discovered on TikTok. They published in-depth technical analysis of how China implements its increasingly assertive “discourse power” strategy around the world. They continued to monitor the use of social media in conflict, including the use of online platforms in the Israel-Hamas conflict. And they dissected how competing powers in Sudan weaponized internet regulations to suppress pro-democracy movements.  

The year also began with a five-month sprint to chart the future of the internet. The Democracy + Tech Initiative convened a fifty-day Task Force for a Future Trustworthy Web that included forty high-level experts, engineers, executives, investors, and policymakers from varying technical backgrounds. During that time, the internet changed substantially, as the European Union’s Digital Services Act came into force and Open AI released ChatGPT. The task force’s findings remain relevant even with rapid technological change and will shape investment and standards for the emerging era. Likewise, the Cyber Statecraft Initiative matched technical analysis with field-leading policy work to help shape the US National Cybersecurity Strategy and host the launch of the National Cyber Workforce and Education Strategy.   

Any strategy is only as good as the people implementing it. This year, the team formalized a number of first-in-class efforts to build communities of action into an expanded capacity-building initiative. This includes the DFRLab’s Digital Sherlocks program that reached 1,163 people in 146 countries, the Cyber Statecraft Initiative’s Cyber 9/12 competitions that expanded to Latin America and Eurasia for the first time and included twenty-two teams from thirteen countries, and a new digital policy community-building effort launching in 2024. As always, the DFRLab matches analysis with action.  

Eurasia Center

The Eurasia Center’s mission is to promote policies that encourage stability, democratic values, and prosperity in Eurasia. A democratic, prosperous, and stable Eurasia is a core interest for the United States and plays into the Atlantic Council’s focus on great power competition. 

In 2023, the Eurasia Center continued to lead the conversation in Washington on a stronger Western response to Russia’s war against Ukraine. Led by former US Ambassador to Ukraine John Herbst, the Eurasia Center team consistently outlined why major Western support for Ukraine is in US and transatlantic interests and provided actionable recommendations to policymakers on Capitol Hill, in the White House, around Washington, and across Europe. The Eurasia team spearheaded a “Memo to the President” on how the administration should handle the issue of Ukraine’s relationship to NATO at the Washington NATO Summit, and presented it to senior officials in Washington and six European capitals. Alongside Atlantic Council CEO Fred Kempe, Board Chairman John F. W. Rogers, and Board member David Petraeus, the Eurasia Center presented the Atlantic Council’s 2023 Global Citizen Award to President of Ukraine Volodymyr Zelenskyy in Kyiv, and then welcomed him in New York City at the Council’s Global Citizen Awards gala. Throughout 2023, the Eurasia Center remained a top source for analysis on Ukraine and Russia through short-form articles on its UkraineAlert section and timely events that helped shape both public and policy discussions on the war in Ukraine. The center’s flagship Eurasia Congressional Fellowship for congressional staffers once again featured a trip to Lithuania and Poland to learn more about the regional impact of the war.

Elsewhere in the region, the Eurasia Center hosted high-level officials from Armenia, Azerbaijan, Belarus (the democratic forces), Georgia, Kazakhstan, Moldova, and Uzbekistan to discuss recent developments in their respective countries, encourage freedom and prosperity at home, and chart pathways toward stronger relations with the United States.

Europe Center

The Europe Center conducts research and uses real-time analysis to inform the actions and strategies of key transatlantic decisionmakers in the face of great power competition and a geopolitical rewiring of Europe. The center convenes US and European leaders to put the transatlantic relationship to work on shared global challenges and make the case for the US-EU partnership as a key asset for the United States and Europe alike.   

In 2023, Europe and the United States continued to face existential challenges as both sides of the Atlantic reexamined their strategic thinking and dependencies in a changing geopolitical context. The Europe Center was present every step of the way, using its unique combination of convening power and expert analysis on all aspects of the transatlantic relationship.  

The center hosted more than 170 public and private events in fifteen countries, recorded more than fifty “Debrief” podcast episodes, authored more than ninety Atlantic Council reports and commentaries, and was cited in more than 150 media outlets. The Europe Center’s flagship events—the EU-US Defense & Future Forum, Central Europe Week, and Warsaw Week—convened hundreds of officials and experts to emphasize the role of the European Union (EU) in the transatlantic partnership, explore the EU’s growing geopolitical footprint, and raise the profiles and prospects of Central European voices. 

The Europe Center’s thematic and geographic workstreams produced industry-leading reports and commentary. The Transatlantic Digital Marketplace Initiative’s TTC Track-2 Stakeholder Dialogues published policy papers on the future of the transatlantic trade and technology relationship. The Next Europe workstream tracked the progress of US-EU convergence on China and proposed a productive US-EU industrial policy agenda. The Transform Europe Initiative published a series of policy papers that reimagined the role decarbonization plays in Europe’s energy independence. The Balkans Forward Initiative convened trust-building track 2 formats and published forward-leaning proposals for the region. The Northern Europe Office tracked and advocated for a greater role for Sweden and the other Nordic countries in Europe’s security and defense. 

Freedom and Prosperity Center

The Freedom and Prosperity Center aims to increase the well-being of people everywhere and especially the poor and marginalized in developing countries through unbiased, data-based research on the relationship between prosperity and economic, political, and legal freedoms, in support of sound policy choices. 

During 2023, the center published its second annual Freedom and Prosperity Indexes report and launched its award-winning indexes website. It also published its inaugural collection of essays, The Freedom and Prosperity Equation, which included contributions from thirty scholars and political leaders from twelve countries. The center also held its inaugural research conference, which attracted more than three hundred experts and participants from more than thirty-five countries. The center also organized convenings and published articles to advance its ideas.  

GeoEconomics Center

The GeoEconomics Center develops data-driven programs, publications, and thought leadership at the nexus of economics, finance, and foreign policy. The center aims to bridge the divide between these oft-siloed sectors, with the goal of helping shape a more resilient global economy. Its work is built on the idea that the United States must lead with allies or risk becoming a bystander in a reshaped international financial system. The center is organized around three pillars—the Future of Capitalism, the Future of Money, and the Economic Statecraft Initiative.

In 2023, the GeoEconomics Center led the field at the nexus of economics, finance, and foreign policy.

The GeoEconomics Center tackled the most complex geopolitical and economic questions, and produced research that has informed leading decision makers. The team made a mark with interactive data visualizations and innovative economic modeling. The center continues to help Washington and its allies understand the rapid evolution of challenges to the US-led economic system. A major highlight of the year was the center’s flagship research on economic risks stemming from conflict in the Taiwan Strait and the potential for a coordinated economic-statecraft response. This research was featured in international news and became part of exercises conducted by both banks and governments. With a total of fourteen comprehensive reports and more than one hundred articles on its Econographics section, the center constantly irrigated the conversation with new facts, numbers, and ideas, including rebuilding the Society of Worldwide Interbank Financial Telecommunication (SWIFT) system and understanding China-Russia currency links.

In Washington and far beyond, the center used its growing convening power to host essential discussions. At its flagship Transatlantic Forum in Berlin, the center launched the first blueprint for transatlantic coordination of coercive and positive economic statecraft. The center was the only think tank with a studio inside the campus of the International Monetary Fund-World Bank meetings in Marrakesh, Morocco, hosting dozens of finance ministers and central-bank governors as part of its innovative Bretton Woods 2.0 project. Finally, much closer to Washington, it organized one of the first conferences devoted to central bank digital currency, bringing together more than two hundred participants from government and private digital-asset companies—two groups that often talk past each other.

GeoTech Center

The mission of the GeoTech Center is to shape the future of technology and data to advance the planet, people, prosperity, and peace. The center works to ensure emerging technologies enter use across the globe for public benefit, while identifying and mitigating potential geopolitical risks. Recent programs have focused on globally promoting human-centered governance of artificial intelligence; bridging data divides; increasing the humanitarian-focused expansion of next-generation space-based communications; and enhancing the capacity of governments to use, regulate, and promote a range of emerging technologies.

In 2023, the GeoTech Center deepened its programmatic work on commercial space, artificial intelligence (AI), and government capacity building.

Alongside the seventy-fourth International Astronautical Congress in Baku, Azerbaijan, in October, the GeoTech Center hosted a networking reception highlighting the importance of the growing commercial space sector worldwide and the need for increased public-private cooperation to ensure space sustainability and operational viability. The evening featured remarks from US Office of Space Commerce Director Richard Dalbello and International Telecommunications Union (ITU) Senior Engineer for Space Systems Jorge Ciccorossi, and brought together an esteemed international group of more than eighty experts from twenty-one countries, representing the world’s most prominent private space companies and organizations.

The center also successfully completed its AI Connect Program with a final stop in Nairobi, Kenya to host an in-person, pan-Africa workshop on responsible AI, convening forty AI professionals from twelve African countries to explore regional policy. AI Connect encourages the responsible stewardship of AI technologies in line with the Organisation for Economic Co-operation and Development (OECD) AI Principles and empowers low- and middle-income countries to more effectively participate in the global, multistakeholder conversation on AI policy.

Global China Hub

The Global China Hub’s mission is to research and devise allied solutions to the greatest global challenges posed by China’s rise, leveraging and amplifying the Atlantic Council’s work on China across its sixteen programs and centers. In doing so, the Hub capitalizes on the Council’s extensive global network and unique capacity to ascertain “ground truth” on China’s impact and galvanize creative policy solutions.

The Global China Hub partnered with centers and programs across the Atlantic Council to lead the conversation on China on a range of issues, from Beijing’s drive to dominate emerging technologies in the context of growing US-China strategic competition to its efforts to revise the global order and lead the Global South. The Hub also led robust programming on China’s economic statecraft and coercion, and on Taiwan’s domestic politics and the rising risk of conflict in the Taiwan Strait. The Hub’s impact was amplified through high-level participation of senior US and allied officials in its convenings, including co-hosting the public rollout of the Pentagon’s 2023 China Military Power Report. The Hub also kicked off exciting new bodies of work on China’s growing influence in Latin America and shifting nuclear doctrine in a potential crisis.

Across these efforts and more, the Hub remained focused on the centrality of US allies and partners to navigating the challenges posed by China’s global ambitions. 

Global Energy Center

The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

In 2023, the Global Energy Center continued to navigate the consequences of how the transforming energy system is impacting national security and the pathways to a net-zero future.

The Global Energy Center completed a scenario-based assessment of how the conclusion of the war in Ukraine could enhance Europe’s energy security. The center illustrated the comprehensive role nuclear energy can play in the energy system with its inaugural Nuclear Energy Policy Summit, held in New York during the United Nations General Assembly, and began to address core clean-energy supply-chain challenges and opportunities that will shape the net-zero future with direct implications for the competitiveness of the United States and its partners and allies.

This culminated at COP28 in Dubai, where the center’s Global Energy Forum and other sideline programming led an inclusive dialogue around the energy transition that charted a clearer path forward for industry to engage in global efforts to address climate change. The COP28 programming was the capstone of a year of strategic engagement with industry, governments, and civil society.

Millennium Leadership Program

For sixty years, the Atlantic Council has convened global leaders to address the world’s most pressing challenges. As a central pillar of this legacy, the Millennium Leadership Program (MLP) aims to connect and empower next-generation international changemakers who will shape the twenty-first century. Currently, the MLP comprises of the Millennium Fellowship, the Executive Leadership Intensive, the Climate Leadership Program, and the Young Global Professionals Program. Through its programs, global professionals sharpen their leadership abilities, increase their capacity for meaningful impact, and build unique communities.   

In 2023, the MLP team launched two new programs and brought eighty-three young global leaders to three continents. In March, the 2022 millennium fellows took a study tour to Guatemala; in July, the program convened next-generation climate investors in Ghana; and in November, a delegation of the 2023 millennium fellows visited Taiwan. 

The inaugural class of the Climate Leadership Program brought together climate-finance leaders from the United States, the European Union, the African Union, and China to advance a more inclusive, impactful, and prosperous climate-finance ecosystem.  

During the past year, the program expanded its partnership with the executive search firm, Spencer Stuart, which now provides the uniquely curated leadership training for the millennium fellows. Additionally, with more than two hundred alumni of the Millennium Fellowship, the inaugural Fellowship Alumni Board is working tirelessly to connect, train, and empower the program’s wider alumni network. 

Rafik Hariri Center and Middle East Programs

As the Middle East and North Africa (MENA) region continues to undergo significant political and socioeconomic changes, the Rafik Hariri Center and Middle East Programs are leading the way in providing a forum for informing and galvanizing the transatlantic community to shape a stable and prosperous region. The center has been at the vanguard of MENA current affairs, policies, and shifts for more than a decade. The center works in, with, and on the MENA region, amplifying regional voices and connecting regional stakeholders to their counterparts in the US and Europe. The mission is to promote peace and security and unlock the region’s economic and human potential through the ideas we publish, the solutions we generate, and the communities we influence.

2023 was an eventful year for the Middle East and North Africa, beginning with devastating natural disasters affecting Syria, Morocco, and Libya; including widening economic and environmental challenges; and ending with the Israel-Hamas war.

The Middle East Programs began the year honoring five trailblazers who embody the ethos of its work at the first Rafik Hariri Awards and celebrating the tenth anniversary of the center with a gala at the John F. Kennedy Center in Washington. The center continued to prioritize unlocking the human potential of the region, as the WIn fellowship—an executive leadership program for women—concluded its inaugural cohort from Saudi Arabia with a week-long roadshow and a graduation ceremony. The fellowship then expanded to include women entrepreneurs from the United Arab Emirates (UAE) and Bahrain for its second iteration.

The year was momentous for the Middle East Programs as a convener of diverse regional and US voices and decision makers and a hub for thought leadership and policy engineering. Positioning itself at the forefront of regional crises and developments, the center hosted Egyptian Foreign Minister Sameh Shoukry, Israeli President Isaac Herzog, Iraqi Foreign Minister Fuad Hussein, and Iranian human rights advocates from the Woman, Life, Freedom movement. The center actively promoted regional integration and peace through a series of convenings led by the N7 initiative on agriculture, food, and water security in the UAE and on trade in Bahrain.

Scowcroft Center for Strategy and Security

The Scowcroft Center for Strategy and Security works to develop sustainable, nonpartisan strategies to address the most important security challenges facing the United States and its allies and partners. The center honors the legacy of service of General Brent Scowcroft, including his ethos of nonpartisan commitment to the cause of security, support for US leadership in cooperation with allies and partners, and dedication to the mentorship of the next generation of leaders. 

The world is at a historic inflection point, and the Scowcroft Center is working alongside the US and allied governments to shape the strategies and policies that will remain in place for the coming decades and determine whether the free world prevails over revisionist autocratic rivals.

Over the past year, the Scowcroft Center has executed its mission by leveraging its core competencies of strategy, alliances, and defense. The center’s strategy and foresight work continued to bear fruit, as it kicked off the year with its annual Global Foresight report, added new papers to its Atlantic Council Strategy Papers Series, and launched a new ACTV series, So What’s the Strategy?, which is the query the late General Brent Scowcroft would pose to colleagues while working as national security advisor. The center’s Commission on Defense Innovation Adoption, co-chaired by former US Secretary of Defense Mark T. Esper and former US Secretary of the Air Force Deborah Lee James, made ten recommendations, most of which were adopted, to improve the way the Pentagon buys new technology. For the fourth time, the center was an official partner at the NATO summit and influenced US and allied policy, as well as the public debate on major issues such as the war in Ukraine and NATO enlargement. Its Indo-Pacific security team worked to strengthen US alliances in the region, including publishing the Atlantic Council’s most-read long-form report in 2023 on the risks of a two-front war involving China and North Korea.

  

South Asia Center

The South Asia Center (SAC) ) is the focal point for the Atlantic Council’s analysis of issues concerning the political, social, geographical, and cultural diversity of the region. At the intersection of South Asia and its geopolitics, SAC facilitates constructive dialogue to shape policy and forge ties between the region and the global community by producing cutting-edge analysis, convening key stakeholders, and amplifying policy conversations.

In 2023, SAC focused on the global emergence of the subcontinent.  

With the continued rise of India on the global stage, SAC conducted events and projects related to the BRICS economic grouping, the G20, and the Joe Biden-Narendra Modi summits. SAC also conducted programming on the impact of small- and medium-scale enterprises, job creation, and defense, energy, and digital infrastructure in India and Pakistan. These events were supplemented with continued engagement with Indian and US government officials, as well as stakeholders in the United States and India.  

SAC’s engagement on Pakistan broadened the conversation about the country’s political economy and economic future. SAC staff and nonresident fellows provided numerous contributions to the Atlantic Council’s New Atlanticist section and helped develop “Experts React” articles in response to regional events. The year concluded with the center’s widely cited annual Pakistan conference. However, the most viral highlight was an interview with former Prime Minister Imran Khan right before he faced political and legal challenges. This interview became the Atlantic Council’s second most-viewed video production ever.  

In addition, SAC provided thought leadership on Bangladesh’s national elections and its political economy. On Afghanistan, SAC conducted a research project collating, documenting, and analyzing Taliban decrees related to women and girls.

Read the Annual report

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]]> Annual report 2023/2024: Letter https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report-letter/ Tue, 07 May 2024 21:11:30 +0000 https://www.atlanticcouncil.org/?p=754897 The times are uniquely challenging. With your engagement and support, the Atlantic Council is equipped to help the United States and its global partners and allies shape a better future.

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Annual Report 2023/2024

Amid the gravest threat to global order in nearly a century,
the Atlantic Council is rising to the historic moment

by John F.W. Rogers and Frederick Kempe

The world confronts historic challenges: intractable wars in Europe and the Middle East, continued tensions in Asia, all happening amid once-in-a-generation technological shifts driven by artificial intelligence and other disruptive technologies. These challenges are unfolding during a particularly divisive and decisive US and global electoral year, with voters heading to the polls across more than sixty countries representing roughly half the global population.

The combination of these factors creates what many consider the biggest threat to global order since the 1930s. Yet it is also a time of opportunity for the Atlantic Council, when our mission of “shaping the global future together” with partners and allies takes on even greater importance and urgency.

We agree with US National Security Advisor Jake Sullivan’s observation that the world is in the early years of a new era, which he has described as one of “strategic competition in an age of interdependence” in which the major powers are fiercely competitive, and increasingly confrontational, but also deeply dependent upon each other.

The Atlantic Council plays a crucial role in providing understanding of this historic moment, particularly in making clear the stakes of these challenges and the connections between them. Supplying that understanding, however, is only a starting place. Beyond that, we work with partners and allies to formulate policies and seek solutions that address the defining challenges of our times. Today’s leaders have the ability and tools to shape the global future, just as their predecessors did in the years after World War II. But, as Sullivan has noted, the political will to do so needs to be mustered.

That is the demanding context for our work.

Fortunately, as we hope you will conclude from our Annual Report 2023/2024, the Atlantic Council has never been stronger operationally, substantively, or financially in our sixty-three-year history.

Yet the numbers that you’ll find in our financial summary section only tell part of the story, as we have been “growing better” at the same time in the people we hire, the projects we execute, and the quality of our events and publications. These results are produced by a motivated, resourceful, capable, and purposeful team, one that understands the historic context in which they operate.  

For example, to overcome the challenges of this new era, we are working to galvanize support for sustaining an independent, sovereign, and democratic Ukraine in the face of Russian aggression; to design a future Middle East that provides equal measures of security, peace, prosperity, and dignity to all, while protecting the region’s countries and people from the malign actions of terrorists and other spoilers; and to further stabilize US relations with China to allow a fierce competition for the global future that is free of violent conflict. Yet that just scratches the surface of our work, which ranges from harnessing technology for good to navigating the energy transition, and from economic statecraft to regional security cooperation.

The times are uniquely challenging. With your engagement and support, the Atlantic Council is equipped to help the United States and its global partners and allies shape a better future.

Thank you for your support of the Atlantic Council’s purposeful, nonpartisan, values-driven work. Our community is stronger because of you.

Sincerely,

John F.W. Rogers & Frederick Kempe

Read the Annual report

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]]> Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023 https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report-greatest-hits/ Tue, 07 May 2024 21:11:19 +0000 https://www.atlanticcouncil.org/?p=753889 At the Atlantic Council, we connect the dots for policymakers on the most urgent global challenges of our age—and the list is long, from artificial intelligence to climate change to trade policy and beyond.

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Annual report 2023/2024

The Atlantic Council’s greatest hits of 2023

At the Atlantic Council, we connect the dots for policymakers on the most urgent global challenges of our age—and the list is long, from artificial intelligence to climate change to trade policy and beyond.

Our two dozen “greatest hits” of 2023, which you’ll find below, encompass our best efforts to connect the dots and generate impact to further our mission of shaping the global future together with partners and allies. You’ll read about how we shaped the debate on the future of NATO, including Ukraine’s path to membership. We changed how leaders on both sides of the Atlantic think about sanctioning China in the event of a crisis over Taiwan. We were at the heart of the United Nations climate change conference, known as COP28, where the energy industry joined together with governments to tackle the climate crisis in ways never before seen—oftentimes doing so during public and private Atlantic Council meetings. Throughout the year, we convened heads of state, civil society leaders, members of Congress, White House officials, and business leaders at high-level, high-profile events.

We are always looking ahead, but we also find it inspiring to take stock of all that we’ve accomplished. We hope you will too, and that you’ll join us as we deliver even more impact during what promises to be a historic 2024.

Click to jump to a greatest hit:

Hosting star-studded galas

Delivering solutions at COP28

Launching ACTV

Standing up for Ukraine

Setting the NATO summit agenda

Mobilizing Atlantic Council-wide work on the Israel-Hamas war

Leading the future of a trustworthy internet

Shaping the debate on sanctioning China in a Taiwan crisis

Developing ‘The Freedom and Prosperity Equation’

Making sense of Turkey’s landmark elections

Informing data strategies for AI-powered government

Convening IMF-World Bank Week in Marrakesh

Rolling out the Climate Leadership Program

Shining the global spotlight on Africa’s needs

Decoding China’s tech efforts

Serving as the place where Latin American and Caribbean leaders come to get things done

Hearing Brett McGurk outline the ‘Biden doctrine’ for the Middle East

Deterring a two-front war and nuclear attacks in East Asia

Owning US-EU cooperation

Setting the agenda for Pakistan

Investigating how extreme heat inflames gender inequalities in health and income

Building the next generation of global technology leaders

Breaking ground on nuclear energy policy

Forecasting the future through Global Foresight 2023

Hosting star-studded galas

Our Distinguished Leadership Awards in Washington and Global Citizen Awards in New York are always can’t-miss events—but that was true in 2023 more than ever. Our all-female honoree slate of Distinguished Leadership Awardees included Commander of US Southern Command Gen. Laura Richardson, Nasdaq CEO Adena Friedman, World Trade Organization Director-General Ngozi Okonjo-Iweala, and National Intelligence Director Avril Haines. At the Global Citizen Awards, we honored Ukrainian President Volodymyr Zelenskyy, Japanese Prime Minister Fumio Kishida, German Chancellor Olaf Scholz, US Treasury Secretary Janet Yellen, and businessman Victor L.L. Chu. As one of our Global Citizen Awards attendees wrote to me afterwards, “For about two hours, it was the most influential room in the world.”

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist Sep 20, 2023

The 2023 Global Citizen Awards: A tribute to selflessness and cooperation in the face of autocratic aggression

By John Cookson and Daniel Hojnacki

The twelfth Global Citizen Awards took place in New York on the sidelines of the United Nations General Assembly on September 20. Honorees included President Volodymyr Zelenskyy, Prime Minister Fumio Kishida, Chancellor Olaf Scholz, Secretary Janet L. Yellen, and Victor L.L. Chu.
Economy & Business Germany
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist May 11, 2023

The 2023 Distinguished Leadership Awards: Honoring the women shaping the global future

By Katherine Walla, Daniel Malloy

Women play a leading role in problem solving, making a historic difference on battlefields, in protests, and in boardrooms. Our annual awards honored awardees embodying this role.
Africa Economy & Business

Delivering solutions at COP28

The Council delivered a record-breaking set of convenings at COP28 with over fifty staff from eight centers on the ground throughout the two-week period. The two-day Global Energy Forum, produced by our Global Energy Center (GEC), convened US climate envoy John Kerry, European climate commissioner Kadri Simson, and many more high-level speakers, and GEC put together dozens of panels and interviews at the Global Decarbonization Accelerator Connect space. For the third year in a row, the Adrienne Arsht-Rockefeller Foundation Resilience Center was a managing partner of the Resilience Hub and convened a steady stream of high-level guests including delegation lead, former US Secretary of State Hillary Clinton, and former President of Mexico Felipe Calderón, the center’s ambassadors for heat. And our Middle East Programs, Africa Center, Turkey program, Adrienne Arsht Latin America Center, and GeoTech Center staged events and contributed to our “live expertise” analysis and “Dispatches” newsletters throughout the conference.

New Atlanticist

Nov 30, 2023

Expert analysis: The successes and shortcomings in the fight against climate change at COP28

By Atlantic Council experts

Our experts dispatched to Dubai, where they analyzed how global leaders responded to the greatest challenges posed by climate change.

Climate Change & Climate Action Energy Transitions
Global Energy Center December 5, 2023

Global Energy Forum at COP28

The eighth Global Energy Forum was held in Dubai on December 5 and 7 as energy and climate decision makers converged for COP28.
Arsht-Rock at COP28

Launching ACTV

In September, the Council joined the streaming scene with our new platform, ACTV, which gathers our events and original video series into one online home. Our new premium video offerings include “So What’s the Strategy?”, an interview series focused on breaking down US and allied strategy around the world, and “Smart in 60 Seconds,” a quick-hit explainer series delivering expert insight on the most urgent issues of the day.

Standing up for Ukraine

The Council’s Eurasia Center once again drove our work on Ukraine in 2023, highlighted by Atlantic Council CEO Fred Kempe, Chairman John F.W. Rogers, and Eurasia Center Senior Director John Herbst presenting the Global Citizen Award to Zelenskyy in Kyiv in May. Zelenskyy then joined the Global Citizen Awards gala in New York in September, where he delivered a powerful address dedicating his award to those on the front lines, Ukraine’s supporters abroad, and “to all our sweet children who have been killed by Russian terrorists.” The Eurasia team mobilized transatlantic support for Ukraine, engaging with lawmakers on Capitol Hill and leaders from around the world to work toward Russia’s defeat in Ukraine. We also laid the groundwork for a more productive NATO summit in Washington in 2024, with a new “Memo to the President” detailing how to further integrate Ukraine into the Alliance in a manner that strengthens Ukraine’s position on the battlefield.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Memo to… Oct 10, 2023

Memo to the president: A bold agenda for the Washington summit: How to advance vital US interests by helping Ukraine win and defining its path to NATO membership

The upcoming NATO summit marking the Alliance’s seventy-fifth anniversary presents an opportunity for US leadership to meet this danger by taking steps to provide Ukraine the means to win the war and by setting a clear path for Ukraine’s membership in NATO.
Central Europe Conflict
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Press Release May 30, 2023

Ukrainian President Volodymyr Zelenskyy honored with Atlantic Council Global Citizen Award in Kyiv

KYIV, UKRAINE – May 30, 2023 – In recognition of his historic leadership during the Ukrainian people’s brave defense of their freedom, Atlantic Council Chairman John F.W. Rogers and President and CEO Frederick Kempe today presented Ukrainian President Volodymyr Zelenskyy with the Atlantic Council’s highest honor, its Global Citizen Award, a recognition conferred on unique individuals who contribute toward improving the state of the world.  
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist Sep 20, 2023

President Volodymyr Zelenskyy dedicates his Global Citizen Award to the brave people of Ukraine and those killed by ‘Russian terrorists.’ Read his full remarks.

By Atlantic Council

The Ukrainian president dedicated his award to the men and women on the frontlines of the war, the teachers and doctors who kept working despite the threat of missiles, and the children who have been killed.
Conflict International Norms

Setting the NATO summit agenda

In July, NATO heads of state and government faced down Vladimir Putin during a gathering in Vilnius, just twenty miles from the border of Belarus—and we were right there with them, convening leading experts, senior NATO and allied officials, and industry representatives to take stock of the most pressing security challenges and provide expert perspectives on decisions reached at the summit. The Scowcroft Center for Strategy and Security’s Transatlantic Security Initiative drove the Atlantic Council’s engagement in the lead-up to the Vilnius Summit with in-depth research and analysis on key challenges facing the Alliance. On the ground in Vilnius, we co-hosted the NATO Public Forum, reacted to breaking news, and convened private conversations with senior experts and decision makers to reflect on the communiqué and chart the path forward for NATO’s continued transformation.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Issue Brief Apr 11, 2023

Defining success for NATO’s Vilnius summit: A primer

By Charles Barry and Christopher Skaluba

A successful NATO summit in July requires significant progress on a host of NATO’s political and military priorities, especially those enumerated at Madrid.
Europe & Eurasia National Security
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Scorecard Aug 28, 2023

Scowcroft scorecard: NATO’s Vilnius communiqué embarks on a new era of deterrence, but punts on key decisions

By Atlantic Council

During the 2023 NATO Summit in Vilnius, heads of state and government issued a 90-paragraph communiqué, outlining key priorities for NATO in the coming term. Did allies succeed in addressing today’s threats while accounting for tomorrow’s challenges? Experts from the Atlantic Council’s Transatlantic Security Initiative weigh in on the Summit declaration.
Defense Policy Europe & Eurasia
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist Jul 11, 2023

Experts react: What NATO’s Vilnius summit means for Ukraine and the Alliance’s future

By Atlantic Council experts

Atlantic Council experts decode the summit’s implications for Ukraine’s membership, NATO’s approach to China, and more.
Belarus Central Europe

Mobilizing Atlantic Council-wide work on the Israel-Hamas war

From fast thinking on the ground in Israel in the hours after Hamas’s brutal terrorist attack of October 7 to ongoing deep thinking about the consequences of the ensuing conflict for the future of the Middle East to day-after planning for Gaza, teams across the Atlantic Council have responded with speed and smarts to the events that have gripped the region in recent months. In a rapidly changing conflict that has inflamed tensions around the world, we have informed policymakers and the public by bringing light, not heat, to the debate. That included hosting Israeli President Isaac Herzog and Egyptian Foreign Minister Sameh Shoukry for high-level AC Front Page events.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

The Big Story Oct 24, 2023

The global consequences of the Israel-Hamas war are just beginning. Here’s what to watch.

By Kirsten Fontenrose

It’s hard to predict what decisions the players will make tomorrow, but here are the early warning signs that could indicate what will come next in the Middle East and beyond.
Conflict Israel
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

MENASource Oct 12, 2023

Gaza under siege: A doctor recounts the humanitarian cost of war

By Arwa Damon

Dr. G is no stranger to war zones. He’s a plastic and reconstructive surgeon who often volunteers when bombs and disasters strike.
Civil Society Israel
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Econographics Oct 26, 2023

Global Sanctions Dashboard: How Iran evades sanctions and finances terrorist organizations like Hamas

By Kimberly Donovan, Maia Nikoladze, Ryan Murphy, and Yulia Bychkovska

Iran’s financing of Hamas and other terrorist organizations; UAE’s role in facilitating Iran and Russia sanctions evasion; lifting of UN sanctions on Iran’s ballistic missile program.
Economic Sanctions European Union

Leading the future of a trustworthy internet

Amid a seemingly Cambrian explosion of technological advancement including the introduction and widespread adoption of ChatGPT, the Digital Forensic Research Lab’s Democracy and Tech Initiative assembled a diverse array of forty experts for a five-month sprint to understand the state of trust and safety in our day-to-day digital lives and define an action-oriented agenda to make the internet safer and more trustworthy. In June, they launched their report, “Scaling Trust on the Web,” which delivered major impact across an array of fields. Major tech companies—including leading artificial intelligence (AI) startups—made the report required reading for their Trust and Safety teams, governments incorporated recommendations into their new AI rules and policies, and foundations increased investments in the ecosystem highlighted by the report.

Report

Jun 21, 2023

Scaling trust on the web

By Digital Forensic Research Lab

The Task Force for a Trustworthy Future Web’s report captures analysis of the systems gaps and critical opportunities that will define how the next generation of online spaces will be constructed.

Shaping the debate on sanctioning China in a Taiwan crisis

In 2023, the GeoEconomics Center and Rhodium Group took on one of the biggest questions facing the West: What are the costs of using the tools of economic statecraft if China undertakes a major escalation in Taiwan? The report was the product of eight months of research, including on-the-ground private workshops with policymakers and financial institutions in Brussels, London, and Berlin. The findings—including the estimated three trillion dollars in immediate costs to the global economy if banking sanctions were imposed—were featured in standalone write-ups in the Economist and the Wall Street Journal. The report has become a hot topic of debate, with the team doing briefings across Congress, the Biden administration, and Group of Seven (G7) governments. Even China has reportedly taken note. As one senior official told us, the report itself showed how serious the thinking was on this topic—and generated new transatlantic coordination on the challenge.

Report

Jun 21, 2023

Sanctioning China in a Taiwan crisis: Scenarios and risks

By Charlie Vest and Agatha Kratz

New research on possible options and their costs of G7 sanctions on China in the event of a Taiwan Crisis.

China Economic Sanctions

Developing ‘The Freedom and Prosperity Equation’

The authoritarian development model doesn’t work. This collection of essays by thirty scholars and political leaders from twelve countries makes the case that the surest way for developing countries to meet the aspirations of their people is by enhancing economic, political, and legal freedom. The book was co-edited by the Freedom and Prosperity Center’s senior director together with the chief executive officers of Atlas Network and Acton Institute, two organizations dedicated to free people and free economies in the Global South.

The Freedom and Prosperity Equation

Exploring the most durable path to development for countries around the world

Making sense of Turkey’s landmark elections

In May, Turkey, an important but at times challenging NATO ally, went to the polls to choose the next president and parliament—in what was dubbed the most important election of the year. The Atlantic Council’s Turkey program emerged as a thought leader in providing commentary and analysis on the elections, which were ultimately won by incumbent Recep Tayyip Erdogan and the ruling alliance. Afterward, the team organized two public events to break down the vote and evaluate the international and foreign policy implications.

Atlantic Council IN TURKEY May 31, 2023

Post-election transatlantic relations with Turkey

A discussion on what the results of the election mean for the future of US-Turkey relations and Turkey’s transatlantic relationship.
Atlantic Council IN TURKEY May 17, 2023

Turkish elections: Takeaways and implications

A discussion on the key takeaways and implications of the May 14 parliamentary and presidential elections in Turkey.

New Atlanticist

May 30, 2023

Five more years for Erdogan. What’s first on his agenda?

By Atlantic Council experts

Turkish President Recep Tayyip Erdoğan just won another five-year term in office. Atlantic Council experts share their insights on the pressing issues his administration faces.

Economy & Business Elections

Informing data strategies for AI-powered government

The GeoTech Center hosted a three-part event series exploring data strategies for an AI-powered government. The series of events convened leaders from the federal chief information officer, chief data officer, mission data, defense, and intelligence communities to discuss the challenges and opportunities in making data “AI-ready” across the federal enterprise. As a result of these discussions, the GeoTech Center released key findings and recommendations that were presented at an event in October, where experts shared what agencies are doing to successfully plan and develop data-centric AI applications.

GeoTech Center October 11, 2023

Data strategies for an AI-powered government

A discussion of what Federal agencies can do to maximize the value of data through AI and establish an AI-ready data infrastructure, along with strategies, tactics, approaches, best practices, and lessons learned to accomplish these goals.

Convening IMF-World Bank Week in Marrakesh

If you attended the International Monetary Fund-World Bank meetings in Morocco in 2023, you couldn’t miss the Atlantic Council. We were in person with a sunlit studio setup that hosted finance ministers and other policymakers all week for exclusive interviews, and in inboxes with our innovative daily “Dispatches” newsletters providing insightful quick-hit analysis led by our experts from our GeoEconomics Center, alongside the Africa Center and Middle East Programs.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist Oct 9, 2023

Go behind the scenes as financial leaders gather in Marrakesh for the IMF-World Bank meetings

By Atlantic Council

Atlantic Council experts are on the ground in Morocco to gauge whether global financial leaders can get the world on a trajectory toward ending poverty and attaining sustainable growth.
Africa Economy & Business
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Mar 31, 2023

IMF-World Bank Week at the Atlantic Council

WASHINGTON, DC APRIL 15–19 The Atlantic Council hosted a series of special events with finance ministers and central bank governors from around the globe during the 2024 Spring Meetings of the World Bank and International Monetary Fund (IMF).

Rolling out the Climate Leadership Program

In 2023 the Millennium Leadership Program, building on its transformative leadership initiatives, launched the Climate Leadership Program, a dynamic community accelerator for climate investors across the United States, China, the European Union (EU), and the African Union. The inaugural program focused on convening and connecting the next generation of climate venture capitalists driving critical technological innovation to mitigate climate risk and adapt to new realities. Following immersive virtual sessions, participants convened in Accra, Ghana to meet with climate entrepreneurs, develop strategies for advancing the global climate-investment ecosystem, and create action plans to increase inclusivity in climate finance. 

Aug 25, 2023

The Millennium Leadership Program’s lessons from Ghana: The climate-finance world must focus on diversity, equity, and inclusion

After successful action planning in Ghana, Climate Leadership Program participants are ready to take on a pressing issue in climate investment.

Press Release Jun 6, 2023

Atlantic Council welcomes inaugural Climate Leadership Program participants

Program to convene top international climate-focused venture capital fund managers in Accra, Ghana in July.

Shining the global spotlight on Africa’s needs

Africa’s time has come, and the Africa Center is relentlessly focused on making sure the world knows it. That has included traveling to Botswana to discuss the upcoming expiration of the African Growth and Opportunity Act, hosting conversations on Bretton Woods reforms at the IMF-World Bank meetings in Morocco, and attending COP28 in the United Arab Emirates. The center spent 2023 focused on pushing for more public and private sector investment in Africa, with a focus on innovative and creative industries, and encouraging US policymakers to move beyond just humanitarian assistance to a more robust approach to economic development, green energy, and industrial transformation. These efforts culminated in major reports on critical connectivity in Africa, the role of technology in agriculture (agritech), and green banking with an Africa focus.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Report Mar 3, 2023

Critical connectivity: Reducing the price of data in African markets

By Aubrey Hruby

This report analyzes the current state of the digital transformation in Africa and outlines how affordable and accessible data is imperative for further development.
Africa Digital Policy
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Issue Brief Sep 19, 2023

Unlocking Africa’s agricultural potential

By Aubrey Hruby and Fatima Ezzahra Mengoub

The ongoing digital revolution in Africa presents a valuable opportunity to revolutionize the continent’s food systems.
Africa Economy & Business
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Report Dec 5, 2023

How green banking can unlock climate solutions in Africa

By Jean-Paul Mvogo

In order to succeed in its transition to a green and inclusive economy, Africa must ramp up its green banking ecosystems and mobilize resources needed to finance climate mitigation and adaptation while also addressing deforestation, pollution and biodiversity loss.
Africa Economy & Business

Decoding China’s tech efforts

The Global China Hub partnered with centers and programs across the Atlantic Council, such as the GeoEconomics Center and Scowcroft Center for Strategy and Security, to lead the conversation on China’s drive to dominate emerging technologies in the context of growing US-China strategic competition. This robust body of work included reports and convenings examining China’s approach in individual sectors—including 5G/6G, artificial intelligence, semiconductors, and software—and its overarching technology strategy, including in the Global South. Senior US and allied officials’ participation in convenings and regular briefings of research findings amplified the impact of this programming. Across all of these efforts, we looked at how the United States can partner with allies to navigate the challenges posed by China’s technology ambitions and export of its techno-authoritarian practices around the world.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Issue Brief Feb 23, 2023

United States–China semiconductor standoff: A supply chain under stress

By Jeremy Mark, Dexter Tiff Roberts

What are the implications of US semiconductor policy for global semiconductor supply chains and the competition for primacy in an industry critical to the economy and global security?
China Economy & Business
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Report Sep 6, 2023

Sleight of hand: How China weaponizes software vulnerabilities

By Dakota Cary and Kristin Del Rosso

China’s new vulnerability management system mandates reporting to MIIT within 48 hours, restricting pre-patch publication and POC code. This centralized approach contrasts with the US voluntary system, potentially aiding Chinese intelligence. MIIT shares data with the MSS, affecting voluntary databases as well. MSS also fund firms to provide vulnerabilities for their offensive potential.
China Cybersecurity
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Atlantic Council Strategy Paper Series Jun 27, 2023

Global Strategy 2023: Winning the tech race with China

By Peter Engelke, Emily Weinstein

The United States and the People’s Republic of China (PRC) are engaged in a strategic competition surrounding the development of key technologies. Both countries seek to out-compete the other to achieve first-mover advantage in breakthrough technologies, and to be the best country in terms of the commercial scaling of emerging and existing technologies.
China Cybersecurity

Serving as the place where Latin American and Caribbean leaders come to get things done

Two events in 2023 in coordination with the White House underlined the Adrienne Arsht Latin America Center’s position as a pivotal player in international dialogues and policy impact. In June, with just three weeks’ notice, we organized the PACC 2030 Climate Resilient Clean Energy Summit, aligned with US Vice President Kamala Harris’s visit to the Bahamas. Then, in November, we hosted the official welcome dinner of the Inaugural Leaders’ Summit of the Americas Partnership for Economic Prosperity, at Adrienne Arsht’s residence in Washington. Six presidents from the region joined the dinner, along with many other dignitaries, proving once again the center’s strategic capability in advancing meaningful international relationships and dialogues.

Announcements

Jun 15, 2023

Atlantic Council wraps successful PACC 2030 Climate Resilient Clean Energy Summit

In partnership with RMI, the Caribbean Initiative at the Adrienne Arsht Latin America Center convened top US officials, Caribbean leaders, US companies, civil society, and policy experts to forge solutions to the region’s clean energy challenges on the sidelines of Vice President Kamala Harris’ trip to The Bahamas WASHINGTON D.C. – June 15, 2023 – […]

Hearing Brett McGurk outline the ‘Biden doctrine’ for the Middle East

On February 14, the Rafik Hariri Center for the Middle East hosted the inaugural Rafik Hariri Awards, celebrating the center’s tenth anniversary, at the John F. Kennedy Center for the Performing Arts. Among the award recipients were Sir Magdi Yacoub, founder of the Magdi Yacoub Global Heart Foundation, Magdi Yacoub Foundation, and Chain of Hope; Fatma Said, an award-winning soprano; Ahmad Abu Ghazaleh, executive vice chairman of Abdali Hospital; and the late Dame Zaha Hadid, an international award-winning architect. White House Coordinator for the Middle East and North Africa Brett McGurk delivered a keynote address in which he outlined the key principles guiding the Biden administration’s approach to the region.

2023 Inaugural Rafik Hariri Awards and Tenth Anniversary Gala

Wednesday, February 14, 2023
Kennedy Center

The Rafik Hariri Center celebrates 10 years of impact in promoting peace and prosperity in the MENA region and unlocking the human potential of the region. The center also launches its inaugural Rafik Hariri Awards to celebrate exceptional figures in Arts, social entrepreneurship, and business. 

Transcript

Feb 15, 2023

Brett McGurk sets out the ‘Biden doctrine’ for the Middle East

By Atlantic Council

In a keynote speech at the Atlantic Council’s Rafik Hariri Awards, the White House Coordinator for the Middle East and North Africa explains the Biden administration’s strategy in the region.

Iran Iraq

Deterring a two-front war and nuclear attacks in East Asia

In its inaugural year, the Indo-Pacific Security Initiative published the Atlantic Council’s most-read long-form report of 2023: a deep dive into the prospect of a two-front war in East Asia. The report explores how and why there is a high risk that a conflict with China or North Korea could escalate across the region into simultaneous conflicts with both countries and/or escalate in intensity to nuclear strikes. With actionable recommendations for policymakers and military leaders, it calls for a paradigm shift in how the United States and its allies think about deterrence in the Indo-Pacific, particularly to overcome the biases and questionable assumptions that have led the United States and its allies to artificially consider these two threats separately. This groundbreaking analysis has already garnered a great deal of attention and interest in the United States and abroad, including through its rollout in a public panel at the US Strategic Command’s annual deterrence symposium, two widely distributed Atlantic Council TV videos, and citations by numerous US and regional media outlets.

Report

Aug 16, 2023

The United States and its allies must be ready to deter a two-front war and nuclear attacks in East Asia

By Markus Garlauskas

This report highlights two emerging and interrelated deterrence challenges in East Asia with grave risks to US national security: 1) Horizontal escalation of a conflict with China or North Korea into simultaneous conflict; 2) Vertical escalation to a limited nuclear attack by either or both adversaries to avoid conceding.

Arms Control China

Owning US-EU cooperation

Throughout 2023, the Europe Center led the charge on all things US-EU cooperation—combining forward-leaning reports and policy papers on the issues impacting Europe with our convening power to provide a transatlantic perspective on policy debates. The center’s Next Europe workstream developed a transatlantic industrial policy agenda and convened a series of policy debates on transatlantic convergence on China. The TTC Track Two Dialogues produced definitive reports on the future of the US-EU Trade and Technology Council, the Transform Europe Initiative wrote policy memos and reports on Europe’s strategic decarbonization, and the Balkans Forward Initiative raised the ambition on the enlargement of the EU and integration of the Western Balkans along with Ukraine and Moldova. These efforts were multiplied by hundreds of public and private convenings across Europe and the United States to promote transatlantic ties, culminating in the third annual EU-US Defense & Future Forum, which made the case for the US-EU relationship in today’s geopolitical age.

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Issue Brief Oct 18, 2023

Designing a US-EU industrial and trade policy 

By Erik Brattberg, Frances Burwell, Jörn Fleck, Charles Lichfield, Zach Meyers, James Batchik, and Emma Nix

Both sides of the Atlantic are confronting the geopolitical necessity of adapting trade and industrial policies to be fit for purpose in an increasingly competitive world. To avoid competition between Washington and Brussels, policymakers must recognize each side’s priorities and commit to further cooperation to bridge the transatlantic economic relationship, not widen it.
Economy & Business Energy & Environment
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

In-Depth Research & Reports Sep 6, 2023

Policy memo: A NATO-style spending target could fund long-term decarbonization

By Ben Judah, Francis Shin, Rachel Rizzo, Théophile Pouget-Abadie

EU member states and like-minded allies should set national-level spending targets, each based on a percentage of their respective annual GDPs, for decarbonization-related purposes. This would provide the basis of an international coalition that would ramp up global climate spending and set a useful benchmark to anchor high-level diplomatic discussions on the subject.
Climate Change & Climate Action European Union
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

New Atlanticist Nov 15, 2023

Estonian Prime Minister Kaja Kallas’s message to NATO: ‘Defending freedom has a price tag’

By Katherine Walla

“Stay firmly on the course and boost our long-term support” to Ukraine, Kallas said at the EU-US Defense & Future Forum.
Conflict European Union

Setting the agenda for Pakistan

In November, the South Asia Center held its second annual Pakistan Conference, focused on resilience and reforms heading into an election year in 2024. Discussions included the future of AI, the role of middle powers in today’s volatile geopolitical environment, and ways in which Pakistan’s economy can be reformed so that it generates opportunities for the many, not just for the few. Coupled with newsmaking interviews with Indian Finance Minister Nirmala Sitharaman and former Pakistani Prime Minister Imran Khan, the South Asia Center further established itself as Washington’s go-to source on the region.

South Asia Center November 1, 2023

Second annual Pakistan Conference

The Atlantic Council’s South Asia Center in partnership with Johns Hopkins School of Advanced International Studies, presents the second annual Pakistan Conference, with a focus on resilience and reforms.

New Atlanticist

Jun 20, 2023

Imran Khan on the failed India-Pakistan thaw and why he’s ‘prepared for everything’—even death

By Wajahat Khan

The former Pakistani prime minister spoke with the Atlantic Council about unsuccessful plans to meet with Indian Prime Minister Narendra Modi and much more.

Corruption Economy & Business

Investigating how extreme heat inflames gender inequalities in health and income

In July, the Adrienne Arsht-Rockefeller Foundation Resilience Center released a groundbreaking report examining the profound and unequal impact of heat on women’s unpaid domestic labor, paid employment, and health in India, Nigeria, and the United States—examining current and projected 2050 conditions. Drawing on original research on socioeconomic variables such as population, employment, health, and economic activity, and deploying best-in-class climate models, the report illuminates the deep disadvantages that women and girls face in a hotter world. Beyond the numbers, the report shares the firsthand experiences of women across these three countries to unveil the very human cost of extreme heat—paving the way for gender-informed interventions, investments, policies, and research.

The scorching divide: How extreme heat inflames gender inequalities in health and income 

Building the next generation of global technology leaders

Throughout the year, the Atlantic Council continued to build and lead global communities around how technology impacts everything from our daily lives to global competition. The Cyber Statecraft Initiative’s Cyber 9/12 Competition expanded to include 706 students in 2023 in ten competitions from the United States to Uzbekistan. The Digital Forensic Research Lab’s Digital Sherlocks program remains the largest free course for ethical research on the open internet, with 1,129 participants from 107 countries in 2023. Meanwhile, the GeoTech Center’s AI Connect program built a network across sixty-five countries to support emerging leaders in low- and middle-income countries in designing and deploying trustworthy AI through responsible, internationally accepted principles of free and open governance. 

Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Nov 2, 2023

Cyber 9/12 Strategy Challenge

The Cyber 9/12 Strategy Challenge is an annual cyber policy and strategy competition where students from across the globe compete in developing policy recommendations tackling a fictional cyber catastrophe.
Annual report 2023/2024: The Atlantic Council’s greatest hits of 2023

Feb 23, 2022

AI Connect

An initiative that encourages the responsible stewardship of AI technologies in line with the OECD AI Principles and that empowers low and middle-income countries to more effectively participate in the global, multi-stakeholder conversation on AI policy.
Training + Resources

Breaking ground on nuclear energy policy 

The Nuclear Energy Policy Initiative hosted its inaugural Nuclear Energy Policy Summit in New York in September. The Summit took place on the sidelines of New York Climate Week, and it situated nuclear energy at the center of discussions on climate and finance, drawing more than one hundred in person guests and thousands of online views. Special Presidential Envoy for Climate John Kerry delivered keynote remarks.

Global Energy Center Mon, September 18, 2023

Nuclear Energy Policy Summit 2023: Accelerating Net Zero Nuclear

Experts discuss the role that nuclear power could play in achieving net-zero carbon emissions by 2050.

Forecasting the future through Global Foresight 2023

Our innovative Global Foresight franchise—which seeks to equip policymakers and the public in the present with the insight and foresight that come from conjuring possible futures—added a new dimension this past year: A survey of leading experts on what the world could look like in ten years. The results, which were featured exclusively by the Financial Times, made headlines around the world, while our list of top risks and opportunities in 2023 and “snow leopards” scored exclusives in the Washington Post and New York Times, respectively.

Read the Annual report

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]]> 2023 Honor roll of contributors https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report-honor-roll/ Tue, 07 May 2024 21:11:16 +0000 https://www.atlanticcouncil.org/?p=753439 The Atlantic Council is grateful for the generous support of its partners. Explore the 2023 honor roll of contributions.

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]]> This list represents cash support received January 1, 2023–December 31, 2023. The Atlantic Council is grateful for the generous support of its partners. We strive to be complete and accurate in our recognition of our contributors. We regret any errors or omissions.

Support the Council

$1,000,000+ Contributors

Adrienne Arsht

Bahaa Hariri

Craig Newmark Philanthropies

Embassy of the United Arab Emirates

Goldman Sachs

Meta

Michael Fisch, American Securities Foundation

System Capital Management

The Rockefeller Foundation

UK Foreign, Commonwealth & Development Office

United States Department of Defense

United States Department of State

$500,000—$999,999 Contributors

Abu Dhabi National Oil Company

Anonymous (1)

Benedict Peters

Crescent Petroleum

Foundation to Promote Open Society

Google

Google Community Grants Fund

James C. Temerty, C.M.

Schwab Charitable Fund made possible by the generosity of Anonymous

The William and Flora Hewlett Foundation

$250,000—$499,999 Contributors

Accenture Federal Services

Airbus

Amazon.com, Inc.

Anonymous (2)

Bank Gospodarstwa Krajowego

Bank of America Corporation

Çalik Holding A.Ş.

Charles and Lynn Schusterman Family Philanthropies

Chevron

ClimateWorks Foundation

CTIA – The Wireless Association

Cushman & Wakefield

Cyfrowy Polsat S.A.

DAI

Eni S.p.A.

ExxonMobil Corporation

Ford Foundation

Gary Rieschel

GE International Markets

German Federal Foreign Office

Jeffrey M. Talpins Foundation

Keith J. Krach and the Krach Institute for Tech Diplomacy at Purdue

Kostas Pantazopoulos

Limak Holding

Melanie Chen

Ministry of Foreign Affairs and International Cooperation of the United Arab Emirates

PPD

Robert J. Abernethy

Ronald Weiser

Rostam Zafari

Royal Norwegian Ministry of Defense

Royal Norwegian Ministry of Foreign Affairs

SAAB

Schmidt Futures

SICPA S.A.

Smith Richardson Foundation

United States Department of Energy

$100,000—$249,999 Contributors

Accrete AI

ADS Group

Agri Trading AG

Ahmet Ören

Alan Yang

Amazon Web Services

Andre Kelleners

Anonymous (1)

Apple

Aramco Americas

Ashraf Qazi

Baker Hughes

Beretta USA

Blackstone Charitable Foundation

Booz Allen Hamilton

BP America

Breakthrough Energy Foundation

C5 Capital

Cheniere Energy, Inc.

Chopivsky Family Foundation

Circle Internet Financial

Citigroup Inc.

Clifford Sobel

Delegation of the European Union to the United States

Dentons Europe LLP

Dimitrios Papalexopoulos

Div Turakhia

Embassy of Denmark to the United States

Embassy of the Kingdom of Bahrain to the United States

Emitel S.A.

Enrique Lores

Equinor

Excelerate Energy L.P.

FedEx Corporation

General Atomics

George and Kristen Lund

Gregg Sherrill

Helsing

Hunt Consolidated, Inc.

King Abdullah Petroleum Studies and Research Center

KNDS

Leonardo US Corporation

Lockheed Martin Corporation

Mapa

Mastercard Inc.

Millicom International Cellular SA

Morningstar Family Foundation

Mubadala Energy

Mundys S.p.A.

Newton and Rochelle Becker Charitable Trust

Northrop Grumman Corporation

Open Society Institute

Pathways Alliance

PayPal

Pernod Ricard USA

Pfizer

Raytheon Technologies Corporation

RBC Capital Markets

Repsol

Rockefeller Brothers Fund

Sarah and Peter Beshar

Sempra Energy

Siemens Energy AG

SK Group

Stellar Development Foundation

Swedish Ministry of Foreign Affairs

Taipei Economic and Cultural Representative Office (TECRO)

TC Energy

Tekfen İnşaat ve Tesisat A.Ş.

Tellurian Inc.

Thales Group

The Coca-Cola Company

The Howard Baker Forum

The Howden Group

The Korea Foundation

Tides Foundation

Topsoe

United Nations Entity for Gender Equality and the Empowerment of Women

United States Agency for International Development

Venture Global

Victor Pinchuk Foundation

William Marron

$50,000—$99,999 Contributors

AEVEX Aerospace

Afiniti Inc.

African Rainbow Minerals (ARM)

Ahmed Charai

Air Products

Alan H. Fleischmann and Dafna Tapiero of Laurel Strategies, Inc.

Americans for a Free Syria and the Syrian American Council

ANA Holdings, Inc.

Applied Intuition

BNP Paribas S.A.

Bradley

Bridgewater Associates

Charles O. Rossotti

Christopher Marlin

Dataminr

David L. Caplan and Karen E. Wagner

Donna and Mack McLarty

DT Institute

Edelman

Engie S.A.

Georgetown University Law Center’s ICAP

Guang Yang

HIF Global

Horizon Institute for Public Service

I.C. Holdings

Ilker Baburoglu

Invesco Capital Management LLC

Ivan Schlager

Jack Wadsworth

Jain Family Institute

Jenny Wood

Joia Johnson

Kris Singh

Leonardo DRS

LexisNexis

Margaret and Daniel Loeb Foundation

Mark Machin & Jenny Gu

Mastercard Center for Inclusive Growth

MBDA

MET Group

Michael Margolis

Ministry of National Defence of Lithuania

Nasdaq, Inc.

Nomura Holdings, Inc.

Omidyar Network

One8 Foundation

Orlen Synthos Green Energy

Palantir Technologies Inc.

Peraton Inc.

Raffaele Boccardo

S&P Global

SAIC

Sayari

Skydio

Snap Inc.

Solana Foundation

Sumitomo Mitsui Banking Corporation

Sustainable Development Capital LLC (SDCL)

Tennessee Valley Authority

Textron Inc.

Thomas H. Glocer

TPG Inc.

TÜPRAŞ

United States Institute of Peace

Xynteo

Yalta European Strategy

Zorlu Enerji Elektrik Üretim Anonim Şirketi

Zurich Insurance Group Ltd

$25,000—$49,999 Contributors

AARP

Adam Boehler

Adena Friedman

Afreximbank

American Pakistani Public Affairs Committee Foundation

Association for Unmanned Vehicle Systems International

Australian Office of National Intelligence

Axxess

Campero USA Corp.

CATS (Centre for Applied Turkey Studies) Network

Colleen Bell

Consolidated Contractors Company

Corporación Castillo Hermanos

Dentons Global Advisors

Dow Jones

Edward and Amy Knight Foundation

Elbit Systems of America

Eleanor Crook Foundation

Embassy of the Republic of Estonia to the United States

EMD Digital

Emirates Nuclear Energy Company (ENEC)

Epirus

European Climate Foundation

European External Action Service

FIFARMA

First Eastern Investment Group

George Bachiashvili

Global Affairs Canada

GLP Capital Partners

Humanity United

John E. Klein

Johnson & Johnson

Kibar Americas

Mary Ann Walker

Maxar Technologies

Merck Sharp & Dohme LLC

Ministry of Foreign Affairs of the Czech Republic

Movimiento Civico Nacional

Mustafa Siddiqui

Nancy and Geoffrey Stack Family Foundation

NATO Allied Command Transformation

NNPC

Nokia

Open Society Foundation for Albania

Ørsted

Our Common Home

Palm Drive Capital

Palo Alto Networks

Penguin Random House

PJT Partners

Republic Bank Limited

Roche

Safran USA

Salesforce, Inc.

Squire Patton Boggs

Standard Chartered

Steven A. Denning

Swedish Ministry of Defence

Tokyo Electric Power Holdings Company, Inc.

Trusted Elections Fund

UNICEF

United States Grain Council

UnitedHealth Group

Walmart

$10,000—$24,999 Contributors

AJC Global Jewish Advocacy

Amy and Stephen Shapiro Charitable Gift Fund

Anonymous (1)

B. Pratyusha Chennupati

BakerHostetler

Bank of Industry Limited

Bob Litterman

Carlos Gutierrez

Chemonics International

Clean Air Task Force

Club de Madrid

Committee for Freedom in Hong Kong Foundation

Constellation

David H. and Holly Petraeus

DBSA

Dewar Cyber Consulting

Eastern Europe Studies Centre

Elvin Guri

EMD Serono

Federation of Electric Power Companies of Japan (FEPC)

Feras Alhlou

Florida International University

Frank Finelli

Franklin D. Kramer

Frederick Kempe and Pamela Meyer

French Ministry of Armed Forces

Harlan Ullman

Helima Croft

Hydroma Inc.

IBC Bank

Institute for Progress

Invenergy LLC

Ira Straus

Jagello 2000

Japan External Trade Organization

John E. Chapoton

Judith A. Miller

Kodiak Robotics

Kornel Koronowski

Latent AI

Laura Oller

Lightbridge Corporation

Lisa Pollina

Mayowa Kuyoro

MetLife, Inc.

Ministry of Defence of the Republic of Singapore

Ministry of Defense of the United Kingdom

Mitsubishi Corporation (Americas)

Munich Security Conference

Nathan Bruschi

National Endowment for Democracy

NATO Public Diplomacy Division

Neal S. Wolin

Ntiva, Inc.

NWI Management LP

Opener DOC

Opportunitas Advisors

Our Secure Future program in the One Earth Foundation

PepsiCo

Polish Economic Institute

Public Strategies Washington

Rebellion Defense, Inc.

Renaissance Strategic Advisors

SAP Se

Scott Rechler | Rechler Philanthropy

Second Front Systems

Sourav Sinha

Stephen J. Hadley

Teodor Cataniciu

The Iyer Family

The Nebo Company

The University of Texas at Austin Strauss Center for International Security and Law

The World Bank Group

Thola Inc.

Thomas Bonsundy-O’Bryan

Timofte Ioana

Transgaz SA

UM6P

University of Utah

WI Harper Group

Willkie Farr & Gallagher

$5,000—$9,999 Contributors

Alexander Werman

Andreas Rutili

Arianit Pllana

Barbara Anderson

Biofuture Workshop

Bogdan Badea

Boundary Stone Partners

Bracewell LLP

Brendan Johannsen

Brookings

Byron Callan

CAE USA

Caio Dafico

Debbie Cross

Delphos

Diana Lady Dougan

Douglas Lute and Jane Holl Lute

DTEK Group

Dynapower

Edlira Muka, Chief Executive Officer of BALFIN Group

Embassy of Lithuania to the United States

Embassy of the Republic of Poland to the United States

Evan Weaver

Fabrizio Mattana

Fluence

Francesco Marconi

Frank Aquila

FTI Consulting, Inc.

Gabriel Malek

Gavin Walsh

Georgetown University McDonough School of Business

Grid United

Highgate

Highland Electric Fleets, Inc.

Hristijan Gjorgievski

Ilyse Hogue

Imran Shah

James Row

Jan Lodal

Jendayi Frazer

John M. McHugh

Katrin Eggenberger

Kay Bailey Hutchison

Ken Webre

Kevin Phillips

Laura M. Heery AIA

Melanne Verveer

Michael Goldfarb

Michael Rogers

Noel Coenraad

Nuclear Energy Institute

Nuclearelectrica S.A.

Patrick Gross

Peter Liu

Pinegate Renewables

Pirelli

Raul Alonso

Richard Morningstar

Rima Hindo

Samantha Sawmiller

Saronic

Shaun Fernando

Shvan Saeed

Soofian Zuberi

Sue Cobb

Syed Irfan

Tamera Luzzatto

The Boeing Company

Thomas Sanderson

Timothy Robinson

Tod Sedgwick

Virginia A. Mulberger

Walter B. Slocombe

Zachary Russell

$1,000—$4,999 Contributors

ACG Analytics

Ahmad Khan

Alexander Bozmoski

Alexandra de Borchgrave

Alisha Mathew

American Pakistan Foundation

Andrew Goff

Andrew Gross

Anna Ascani

Anne Thomassen

Anonymous (2)

Bell Textron

Carol Pensky

Chelsea Michta

Christian Osmena

Christopher Mundiath

Christopher Smith

Coalition for Disaster Resilient Infrastructure (CDRI)

Damon Wilson

Darius Mesca

Darlene Bookoff

David Gilmore

Diane Leopold

Elizabeth Frost Pierson

Enrique Carrizosa Gelzis

Equis Lab

Factiva

Farah Ahmed

Farida Rokadia

Frances M. Townsend

Grace Morrissey

Greg Sharenow

Hughes Hubbard & Reed LLP

International Tax and Investment Center

John Barranco

John E. Herbst

Joseph S. Nye

Joseph Thompson

Joseph W. Jagiello

Josh Lipsky

Julia Nesheiwat

Julie Varghese

K. A. Taipale

Landon Derentz

Luciana Ribeiro

Luis Marques

M. Reda Mossa-Basha

Mannaz Consulting Sweden

Mary C. Yates

Matt Welch

Michael McCurry

Minmin Yen

Mohsin Imtiaz

Mor Yahalom

Neil Brown

Office of Space Commerce, United States Department of Commerce

Olena Neymerzhytska

Olha Zykova

Paul Hawran

Randee Day

Richard Kyle

Sabanci University

Scott Kerr

Scott Van Buskirk

Shabu Qureshi

Shamoun Maayr

StrategEast

Sylwia Piekarska

The Garden City Company

Thomas Berg

Thomas Horlander

Transatlantic Leadership Network

Travelers Insurance

UNESCO

Vanessa Swan

Veriten

Vincent Abramo

Voces en Libertad

Wendy R. Sherman

William J. Hybl

William LaRivee

Up to $999 Contributors

Adrian Cox

Ajit Kang

Alan Obstler

Alex Del Vecchio

Alexander Nakhimovsky

Alissa Pavia

Andrea Broggini

Andrea Rotoloni

Andrew Chvatal

Andrius Bekintis

Anonymous (1)

Anthony Snyder

Arturo Valenzuela

Association for International Affairs

Azizkhan Akhmedov

Bachar Acherif

Ben Warner

Benjamin Ramey

Benz Sudta

Betsy Gidwitz

Bohdan Vitvitsky

Borys Sydoruk

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Brian Mefford

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Charles Waterman

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Craig Gravitz

Craig Spiezle

Dale Johnson

Dan Halbach

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Edward S. Solomon

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Ellen Cleary

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Fergus Wallace

Frank Monkam

Frederic Mulika

Garth Greimann

Gary Scott

Gayle Waxenberg

George A. Hatcher III

George Broussard

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Gina Wood

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Grant Lucas

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Guenther Seidel

Guy de Selliers

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Haroutyun Gevorkyan

Henry Venable

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Network for Good

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Raul Enyedi

Ravi Deepak

Ray Herras

Richard Boyd

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Robert Brian McDonald

Robert Finley

Robert Hall-Patch

Robert Kaplan

Robert Zabors

Roman Holobutoskyy

Romanian National University of Political Studies and Public Administration (SNSPA)

Ronald Marks III

Ross Alander

Roxanna Springer

S. Leigh Park

Samantha Feuer

Sanjyot Dunung

Sarah Razi

Scott Chappelka

Selman Unluaslan

Silvere Megelas

Solomon Gonite

Stanislav Rieznik

Stephanie Wander

Stephen Flanagan

Stephen Greene

Steve Miller

Steven Barclift

Steven Steiner

Suman Sengupta

Susan Green

Susan Lee

Tamar Rothstein

Thomas Herrick

Tim Kubarych

Tim Mills

Tom Henteleff

Tor J. Melin

Vicente Garcia

Vincent P. and Mary A. Stanton Fund

Walter Parchomenko

Warren Bayliss

Wendy Jacobson

William J. Henderson

William Nichols

William Reilly

Zachary Smith

Read the Annual report

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]]> Annual report 2023/2024: Financial summary https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report-financial-summary/ Tue, 07 May 2024 21:11:12 +0000 https://www.atlanticcouncil.org/?p=755683 Explore the Atlantic Council's financial results for 2023.

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]]>

Below are the Atlantic Council’s financial results for 2023. These numbers have not yet been audited.

Statement of activities

Statement of financial position

Diversity of support

Over 15 years of revenue growth

Read the Annual report

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]]> Annual Report 2023/2024 https://www.atlanticcouncil.org/in-depth-research-reports/report/2023-annual-report/ Tue, 07 May 2024 21:10:28 +0000 https://www.atlanticcouncil.org/?p=755323 The Atlantic Council's 2023/2024 annual report provides insight into our impact and agility.

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]]>

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]]> Natural gas and the energy transition: Security, equity, and achieving net zero https://www.atlanticcouncil.org/in-depth-research-reports/report/natural-gas-and-the-energy-transition-security-equity-and-achieving-net-zero/ Wed, 24 Apr 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=757022 A new report on the future of natural gas in the energy mix and financing in the context of the energy transition and energy security prerogatives.

The post Natural gas and the energy transition: Security, equity, and achieving net zero appeared first on Atlantic Council.

]]>
DOWNLOAD PDF

Executive summary

Within the short span of three years, the global economy has needed to contend with the COVID-19 pandemic, subsequent inflation, the Russian invasion of Ukraine, and the impact of that conflict on commodity shortages, rising energy costs, and declining energy security. As a result, short-term reliance on fossil fuels has increased, fewer resources are available for the energy transition, and coordination among regional and global partners has become more complicated. In the longer term, the crisis underscored the dangers of reliance on fossil fuel imports and exposure to price volatility.

All of this augers broadly for accelerating the energy transition. But narrow approaches to the transition run the risk of curtailing existing energy sources before viable alternatives are sufficiently scaled and integrated.

In their crudest form, policies to incentivize investment into decarbonization are based on categorizing energy sources as either “clean” or “dirty”—despite a wide range of emissions implications depending on the particular energy source. In the case of natural gas, the reality is that there are gradations of “clean.”

Alternatives also matter. Gas replacing coal or upgrading older gas-fired turbines to highly efficient modern ones are major wins. But greenfield unabated gas-fired generation will not be sustainable and will often be more costly than the renewable alternative.

Even under a credible net-zero scenario, gas demand will likely persist, both for technical reasons and to create low-carbon fuels like blue hydrogen. In the medium term, natural gas can be part of a solution in which sustainable economic development is a corollary (or prerequisite) to climate action. In developing countries where industrial activities are a source of growth and are particularly effective at addressing poverty, such development can equip societies with the resources and space to address climate concerns.

About the author

Phillip Cornell is a nonresident senior fellow at the Atlantic Council’s Global Energy Center. He is a specialist on energy and foreign policy, global energy markets and regulatory issues, critical energy infrastructure protection, energy security strategy and policy, Saudi Arabian oil policy, Gulf energy economics, and sustainable energy transition policy. He currently leads the global practice for energy and sustainability at Economist Impact, part of the Economist Group.

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]]> The flaws in project-based carbon credit trading and the need for jurisdictional alternatives https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/the-flaws-in-project-based-carbon-credit-trading-and-the-need-for-jurisdictional-alternatives/ Tue, 23 Apr 2024 16:17:16 +0000 https://www.atlanticcouncil.org/?p=758547 This issue brief highlights several significant, and at times unresolvable, problems with the project-based approach to carbon credit trading, the purpose of which is to reduce deforestation and sequester carbon.

The post The flaws in project-based carbon credit trading and the need for jurisdictional alternatives appeared first on Atlantic Council.

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WATCH THE LAUNCH

Public Event Wed, July 24, 2024 • 2:00 pm ET

Effective jurisdictional approaches to forest conservation

Please join the Atlantic Council’s Global Energy Center for the launch of a recent Atlantic Council issue brief, The flaws in project-based carbon credit trading and the need for jurisdictional alternatives.
Energy & Environment

This issue brief highlights several significant, and at times unresolvable, problems with the project-based approach to carbon credit trading, the purpose of which is to reduce deforestation and sequester carbon. Beginning with first-hand observations of the principal author during his experience with forest conservation efforts in the tropics, the brief describes the challenges that arise when this crediting model is implemented in the field, particularly in rainforests and other remote areas of the world. The publication then assesses the three critical structural problems with project-based credit trading that lead to a fundamental lack of integrity in such programs:

  • The intractable challenges of a project-based regulatory structure involving difficult-to-prove requirements of additionally and leakage prevention.
  • The major transaction and intermediary costs that can amount to half of project funding.
  • The credit duration that is far less than the life of the additional CO2 emissions that are consequently emitted.

The analysis also explains how economic forces and incentives exacerbate these problems, particularly with programs that are carried out by commercial credit traders as opposed to nonprofit entities. Finally, this brief discusses better alternatives, such as jurisdictional programs administered by governments or Indigenous associations, that could more effectively reduce emissions and strengthen the social fabric of communities required to assure credit integrity, accurate measurement, and adequate co-benefits.

download pdf (ENGLISH)
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AUTHOR

Byron Swift is an environmental lawyer and senior adviser for wildlands at Re:wild. He has devoted much of his career, over forty years, to conservation issues in Latin America, working in almost all countries with a focus on protected areas, natural resources management, and capacity building of local institutions. An environmental lawyer, he has served as president of Nature and Culture International, founder and president of Rainforest Trust, and head of the US office of the International Union for Conservation of Nature (IUCN). He has also spent a decade working with the Environmental Law Institute on pollution control and trading issues, and has worked on carbon issues since 1996.

CONTRIBUTING AUTHORS

Fellow

Ken Berlin

Senior Fellow

Global Energy Center

Chinese Climate Change & Climate Action

Staff

George Frampton

Distinguished Senior Fellow

Global Energy Center

Energy & Environment Energy Transitions

Staff

Frank Willey

Program Assistant

Global Energy Center

Energy & Environment French

ACKNOWLEDGMENTS

This report was written and published in accordance with the Atlantic Council policy on intellectual independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions.

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]]> Navigating dominant narratives and data accuracy: Implications for energy security https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/navigating-dominant-narratives-and-data-accuracy-implications-for-energy-security/ Tue, 23 Apr 2024 15:48:09 +0000 https://www.atlanticcouncil.org/?p=758070 Energy market shocks and uncertainties highlight the importance of understanding the interplay between data-driven narratives and market expectations within the energy sector. These narratives wield significant influence over market dynamics, impacting commodity pricing and investment trends.

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Top lines

  • Energy market forecasts create data-driven narratives that economists and lawmakers use to inform consequential policy and investment decisions.
  • Projections by influential international energy organizations, including the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC), vary widely. This discrepancy not only creates uncertainty within the market but also has the potential to impact market decisions and, ultimately, undermine energy security.
  • Moving forward, organizations must improve data accuracy and transparency, so that stakeholders can navigate energy market uncertainties with confidence, ensuring a resilient, sustainable, and inclusive energy future.
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THE DIAGNOSIS

Energy market shocks and uncertainties, from the COVID-19 pandemic to geopolitical tensions, highlight the importance of understanding the nuanced interplay between data-driven narratives and market expectations within the energy sector. These narratives, which are shaped by reputable energy organizations, wield significant influence over market dynamics, impacting commodity pricing and investment trends.

Delving into these narratives and discerning underlying sentiments are crucial for unlocking insights vital for ensuring energy security. By scrutinizing data-driven narratives, policymakers, analysts, and investors can adeptly navigate the intricacies of the energy market, anticipating trends, and making informed policy and investment decisions.

However, discrepancies between how major energy organizations like OPEC and the IEA approach forecasting complicate navigating energy market uncertainties both in the short and medium terms.

The IEA and OPEC offer distinct scenarios to forecast future energy trends and inform policy decisions. Comparing the organizations’ 2023 outlook reports, the IEA’s World Energy Outlook  scenarios focus on specific policy targets like net-zero emissions and aligning with the goals of the Paris Agreement. In contrast, OPEC’s World Oil Outlook scenarios incorporate policies more broadly, reflecting a range of possible policy outcomes and market conditions. This distinction is crucial, as it results in significantly varied projections.

IEA’s reliance on a policy-based methodology, evident in its outlook report and the influential Net Zero Roadmap, is susceptible to inaccuracies due to policy shifts driven by changing geopolitical, economic, environmental, and, ultimately, national security priorities. While this methodology provides insights into potential future scenarios based on existing policies, it should not be the sole determinant for policy and investment decisions, given the fluid nature of policies. These inaccuracies between policies and market realities in the future can lead to decisions that are not aligned with market realities, posing a threat to energy security.

BOTTOM LINES

Moving forward, improving data accuracy, and enhancing data-driven modeling are vital for crafting effective policies and shaping investment decisions in the face of energy market uncertainties. Access to accurate data and transparent modeling assumptions is crucial for informed decision-making, particularly during the energy transition. By embracing data-driven narratives rooted in classical forecasting models alongside with polices, stakeholders can navigate energy market uncertainties with confidence, ensuring a resilient, sustainable, and inclusive energy future.

ABOUT THE AUTHOR

Sara Vakhshouri is founder and president of SVB Energy International & SVB Green Access, Senior Energy Fellow at Oxford Institute for Energy Studies, and chair of the Center for Energy Security and Energy Diplomacy at the Institute of World Politics, a graduate school focusing on national security and statecraft.

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]]> Delivering results for the South: The Bretton Woods system we need https://www.atlanticcouncil.org/in-depth-research-reports/report/delivering-results-for-the-south-the-bretton-woods-system-we-need/ Thu, 18 Apr 2024 19:00:00 +0000 https://www.atlanticcouncil.org/?p=756095 2024 marks 80 years of the Bretton Woods system. What reforms will keep the system viable into its next century—and delivering results for all countries, including those of the Global South?

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In partnership with the Policy Center for the New South, the Africa Center is proud to present a joint report, “The Reform of the Global Financial Architecture: Toward a System that Delivers for the South,” by Otaviano Canuto, Hafez Ghanem, Youssef El Jai, and Stéphane Le Bouder.

This report issues specific and urgent calls for reform, including more representative global governance, increasing the World Bank’s operational and financial capacity, prioritizing programs that would integrate Africa into the global economy, connecting the continent’s critical infrastructure and trade routes, and increasing participation and collaboration with bilateral public and private lenders and investors, such as China, sovereign wealth funds, and multinationals.

2024 marks eighty years of the Bretton Woods system. It is crucial to implement extensive reforms and substantial policies to support African nations’ efforts and maximize their chances to unleash their immense economic potential.

These recommendations presented during the 2024 IMF-World Bank Spring Meetings reflect the urgency of both operational and more inclusive reforms for the African continent.

About the authors

Otaviano Canuto
Senior Fellow
Policy Center for the New South

Biography

Otaviano Canuto is a senior fellow at the Policy Center for the New South, principal at the Center for Macroeconomics and Development and a nonresident fellow at the Brookings Institute. Canuto is also a former vice president and executive director at the World Bank, executive director at the International Monetary Fund and vice president at the Inter-American Development Bank. He was also deputy minister for international affairs at Brazil’s Ministry of Finance, as well as professor of economics at University of São Paulo (USP) and University of Campinas (UNICAMP).

Hafez Ghanem
Senior Fellow
Policy Center for the New South

Biography

Hafez Ghanem holds a PhD in economics from the University of California, Davis and is a senior fellow at the Policy Center for the New South. Ghanem is a development expert with a large number of academic publications, and more than forty years’ experience in policy analysis, project formulation and supervision, and management of multinational institutions.  He has worked in more than forty countries in Africa, Europe and Central Asia, the Middle East and North Africa, and South East Asia.

Youssef El Jai
Economist
Policy Center for the New South

Biography

Youssef El Jai works at the Policy Center for the New South as an economist. He joined the center in 2019 after earning a master’s degree in Analysis and Policy in Economics from the Paris School of Economics and the Magistère d’Economie from the Sorbonne.

Stéphane Le Bouder
Nonresident Senior Fellow
Africa Center

Biography

Stéphane Le Bouder is a nonresident senior fellow at the Atlantic Council’s Africa Center and the chief operating officer of MiDA Advisors, a global advisory firm specializing in facilitating institutional investments and trade in Africa and other emerging markets.

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

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]]> Advancing health and resilience policies in Latin America and the Caribbean https://www.atlanticcouncil.org/in-depth-research-reports/report/advancing-health-and-resilience-policies-in-latin-america-and-the-caribbean/ Tue, 16 Apr 2024 23:35:30 +0000 https://www.atlanticcouncil.org/?p=754527 During an off-the-record private roundtable, thought leaders and practitioners from across the Americas discussed how to further enhance access to and finance for health services and products in the region.

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]]> The fourth of a six-part series following up on the IX Summit of the Americas commitments.

A report by the Adrienne Arsht Latin America Center in partnership with the US Department of State. This readout was informed by multi-stakeholder dialogues focused on facilitating greater, constructive exchange among multi-sectoral thought leaders and government leaders as they work to implement Summit commitments.

Executive summary

During the Ninth Summit of the Americas, member states made a historic political pledge by committing to the Action Plan on Health and Resilience, which aims to strengthen access to and investment in health services and products in the Americas. As experts and practitioners deliberated on transforming this commitment into reality, they emphasized the crucial need for consistent multisectoral coordination on both new and existing initiatives. They also stressed the importance of addressing equity issues in the implementation efforts, with special emphasis on traditionally vulnerable groups whose healthcare access was affected most by COVID-19: children with disabilities, people with autism, and the elderly. They emphasized the need to develop accountability mechanisms ensuring that national health plans transcend political shifts and provide sustained access to financing to secure their sustainability and resilience. As human mobility across the Americas continues to grow, enhancing intraregional cooperation on technology and digital infrastructure for data and information sharing will be key to addressing climate-related illnesses and other shared health challenges.

Recommendations for advancing the implementation of durable health systems in the Americas:

  1. Enhance multisectoral coordination to streamline investment in existing initiatives and commitments.
  • Leverage the Americas RISE for Health platform and other existing platforms to enhance collaboration and coordination among stakeholders, ensuring active participation and coordination among academia, civil society, the private sector, multilateral banks, and regional organizations such as the Pan American Health Organization (PAHO).1
  • Lead the organization of biannual regional forums with member states to facilitate knowledge sharing and best practices for the implementation of the goals outlined in the Health Action Plan until 2030.2
  • Consider incorporating the Action Plan on Health and Resilience into member states’ broader commitments such as the Americas Partnership for Economic Prosperity (APEP), Alliance for Development in Democracy (ADD), Asia-Pacific Economic Cooperation Forum (APEC), and other intraregional cooperation mechanisms and/or pledges that could play an important role in developing the necessary workforce and supply-chain resilience needed for sustainable health systems.3
  • Promote further collaboration between the private and public sectors to develop effective communication channels for better alignment with ongoing initiatives, ensuring a coordinated effort to identify and address specific areas where private-sector support is needed and to avoid duplication of programs and efforts.4
  • Promote regulatory-harmonization best practices across the region to facilitate access to telemedicine and other digital solutions to health problems between countries.
  1. Enhance equitable and universal access to health services and products with a special emphasis on access to innovation and technology.
  • Identify, address, and prevent barriers to health access in the Americas by finding innovative solutions that adapt to the lives of people in the region. Consider levels of informality, geographical location, workday hours, child and elderly care, public-transportation hours, security threats, and/or other factors that might be preventing access to health care.5
  • Develop a targeted strategy to improve the presence and sustainable operation of healthcare workers in remote areas, where most of the populations are marginalized.6
  • Promote targeted investment in health and digital infrastructure in remote areas of the Americas with little to no connectivity. This will facilitate affordability and access to digital health, taking one step further to promote primary-care access for all.
  • Develop a plan to mitigate the high cost of innovative health technology, such as artificial intelligence, robotics, digital tools, and other research and development tools. Ensure that middle- and low-income countries can adequately finance these tools without raising healthcare costs for the population or weakening intellectual-property (IP) protective legislation or violating IP rights.
  1. Consider the importance of sustained institutional capacity and proper country leadership to ensure consistent implementation efforts.
  • Empower civil-society organizations (CSOs) to play an active role in auditing and monitoring the implementation of national and local health initiatives through open engagement with governments. This will ensure accountability in the implementation of the Action Plan and other health-related commitments.7
  • Explore opportunities to integrate health initiatives into broader economic strategies, emphasizing the interconnectedness of health and a country’s economic performance. Collaborate with local and international stakeholders to align health policies with sustainable economic-development goals.8
  • Advocate for countries to prioritize sustained financing for health systems, recognizing this as an investment in long-term public-health resilience. Develop mechanisms to ensure that health budgets are protected and sustained despite economic fluctuations and differing political interests.9
  • Address challenges around in-country institutional capacities, including leadership development, strategic planning, and regulatory frameworks aligned with international standards that ensure access to safe and effective therapies. Prioritize investments in training and capacity building to ensure that institutions are equipped to handle evolving health challenges.10
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]]> Geoeconomic fragmentation and net-zero targets https://www.atlanticcouncil.org/content-series/bretton-woods-2-0/geoeconomic-fragmentation-and-net-zero-targets/ Tue, 16 Apr 2024 23:25:56 +0000 https://www.atlanticcouncil.org/?p=756461 This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

The post Geoeconomic fragmentation and net-zero targets appeared first on Atlantic Council.

]]> The second half of the twentieth century experienced significant economic integration. International trade, cross-border migration, capital flows, and technological diffusion increased per capita incomes across countries and reduced global poverty. However, events such as the global financial crisis of 2007 to 2009, Brexit, and the COVID-19 pandemic—all against the backdrop of escalating great power rivalry and tensions between the United States and China—have demonstrated the rise of geoeconomic fragmentation (GEF). Since the 2022 Russian invasion of Ukraine, a growing numberof world leaders have addressed the impacts of GEF on global energy and agricultural markets. For one, higher and increasingly volatile food and energy prices have made it increasingly difficult for developing nations to prioritize environmental concerns and implement sustainable development initiatives.

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The second half of the twentieth century experienced significant economic integration. International trade, cross-border migration, capital flows, and technological diffusion increased per capita incomes across countries and reduced global poverty.1 However, events such as the global financial crisis of 2007 to 2009, Brexit, and the COVID-19 pandemic—all against the backdrop of escalating great power rivalry and tensions between the United States and China—have demonstrated the rise of geoeconomic fragmentation (GEF). Since the 2022 Russian invasion of Ukraine, a growing numberof world leaders have addressed the impacts of GEF on global energy and agricultural markets. For one, higher and increasingly volatile food and energy prices have made it increasingly difficult for developing nations to prioritize environmental concerns and implement sustainable development initiatives.

The International Monetary Fund (IMF) describes GEF as a pattern of “policy-driven reversal of global economic integration” that threatens capital flows to low-income countries, hinders innovation in emerging markets, and discourages cooperation on international crises. Stemming from the prioritization of national security objectives, GEF takes the form of policies that reduce reliance on other countries by incentivizing domestic production and employment. In our increasingly fragmented world, nations have focused on reshoring essential goods and supply chains, including minerals crucial for green technologies, semiconductors, and military hardware due to concerns over national security and geopolitical motives. These transformations are in direct opposition to the founding principles of the Bretton Woods institutions (BWIs)—the International Monetary Fund, the World Bank, and the World Trade Organization (WTO)— which collectively seek to promote free trade, globalization, unified and competitive exchange rates, and the reorientation of public expenditures to achieve reductions in global poverty and increased economic prosperity for developing nations.

The costs of GEF are far-reaching and include higher import prices, segmented markets, diminished access to technology and labor, reduced productivity, and lower living standards. A June 2023 article in the IMF’s Finance & Development magazine points to diminished output in a scenario where countries must align with either a US-EU as 2.3 percent of global gross domestic product (GDP). Advanced economies and emerging markets could face permanent losses of between 2 percent and 3 percent, while low-income countries are at risk of losing more than 4 percent of their GDP. These losses could deepen risks of debt crises, exacerbate social instability, and increase food insecurity. The most vulnerable nations, heavily dependent on the imports and exports of key commodities, will find it particularly costly to adapt to new suppliers under fragmented trade conditions. Moreover, a 2023 IMF paper with a comprehensive analysis of GEF and its potential effects on the future of multilateralism found that increasing international trade restrictions could lead to a long-term decline of up to 7 percent in global economic output, or approximately US$7.4 trillion. Building on these findings, an October 2023 IMF blog, titled “Geoeconomic Fragmentation Threatens Food Security and Clean Energy Transition,” argued that disruptions in the global trade of goods induced the spike in inflation experienced globally in 2022, heightened food insecurity in lower-income nations, and contributed to a deceleration in global economic growth. In addition, GEF is posing a threat to food security and the clean energy transition, namely by impacting the trade of essential minerals and agricultural goods, according to the blog co-authors.

GEF also risks short-circuiting the multilateralism needed to coordinate climate change mitigation and sustainable development in the years to come. An IMF policy report, titled “Geo-Economic Fragmentation and the Future of Multilateralism,” noted signs of GEF including:

  • Formation of regional economic blocs.
  • Declivities in cross-border capital flows.
  • Prioritization of resilient supply chains over and above efficiency.
  • Growing income inequality.
  • Rising geopolitical tensions.
  • Increasing discontent associated with a free trade system.

Among the goals of the BWIs is to achieve global net-zero emissions by 2050; however, GEF has limited these organizations’ abilities to work with governments, businesses, civil society organizations, and other stakeholders to mobilize resources and accelerate the transition to a low-carbon economy. Policymakers and scholars have raised growing concerns, suggesting that increased GEF will have implications for sustainable development outcomes. However, there remains a paucity of research on the impact of GEF on net-zero targets specifically. This report builds on previous scholarly work to examine the impacts of GEF on the ability of nation states to attain their net-zero targets to combat climate change.

In conclusion, the paper calls for a democratized governance structure in the BWIs, emphasizing the need for reevaluating quota allocations and diversifying leadership roles. By addressing these foundational challenges, the BWIs can navigate the complexities of today’s global economic landscape more effectively, fostering trust, representation, and robust leadership. The authors also argue persuasively that BWI reform can not only reinforce the legitimacy of the IMF and World Bank but also indirectly help the soft and hard power of the states most hesitant to reform the international monetary system.

About the authors

Shirin Hakim is a Senior Fellow at the Center for Middle East and Global Order and a former Bretton Woods 2.0 Fellow with the GeoEconomics Center.

Amin Mohseni-Cheraghlou is the macroeconomist with the GeoEconomics Center and an assistant professor of Economics at the American University in Washington, DC. He leads GeoEconomics Center’s Bretton Woods 2.0 Project.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

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]]> How Bangladesh can achieve its vision of prosperity https://www.atlanticcouncil.org/in-depth-research-reports/report/how-bangladesh-can-achieve-its-vision-of-prosperity/ Mon, 15 Apr 2024 20:25:11 +0000 https://www.atlanticcouncil.org/?p=757132 Bangladesh is forging ahead with its Vision 2041, aiming to transform into a developed and prosperous country by 2041.

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]]> Bangladesh is forging ahead with its Vision 2041, aiming to transform into a developed and prosperous country by 2041. This ambitious agenda prioritizes economic growth and social advancement, highlighting Bangladesh’s dedication to empowering its people and strengthening its democratic roots. Recent developments, particularly the January parliamentary elections, have solidified a trend towards a “dominant-party” system, with the Awami League extending its rule. While this promises stability, such systems can pose challenges to governance. Ensuring healthy competition across politics, government, and the economy is vital to mitigate these risks.

Free countries tend to be wealthier and healthier, with freedom fostering economic growth. Bangladesh, currently ranking 141st on the Freedom Index and 99th on the Prosperity Index out of 164 countries, faces hurdles in achieving both freedom and prosperity. Despite declines in freedom, Bangladesh has shown resilience in terms of prosperity. However, addressing these freedom declines is crucial for sustained progress. The report suggests targeted reforms to bolster long-term prosperity in Bangladesh, emphasizing the importance of political and economic freedoms in attracting foreign investment and fostering development.

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About the authors

Nina Dannaoui is an associate director at the Atlantic Council’s Freedom and Prosperity Center.

Annie (Yu-Lin) Lee is a young global professional at the Atlantic Council’s Freedom and Prosperity Center.

Joseph Lemoine is a director at the Atlantic Council’s Freedom and Prosperity Center.

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]]> Standards and interoperability: The future of the global financial system https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/standards-and-interoperability-the-future-of-the-global-financial-system/ Wed, 10 Apr 2024 13:40:25 +0000 https://www.atlanticcouncil.org/?p=755001 Digital assets promise enhanced efficiency, inclusion, transparency, and choice to global payments. But to fulfill this promise, the international community must first develop interoperability standards.

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]]>

Table of contents

Abstract

Over the past few years, the global financial landscape has undergone a significant transformation marked by the emergence and integration of digital assets. Looking ahead, the global financial terrain is set to include a spectrum of both sovereign and nonsovereign digital currencies and both centralized and decentralized networks. This future brings the promise of enhanced efficiency, inclusion, transparency, and choice to global payments. To fulfill this promise, the international community must develop interoperability standards that prioritize a fast, highly scalable, and resilient architecture. The flexibility of this architecture to adapt configurability based on policy and economic considerations is critical to its success.

This working paper is a foundational step toward a broader, global dialogue about digital asset standards. The Digital Dollar Project and the Atlantic Council’s GeoEconomics Center hosted a global convening titled “Exploring Central Bank Digital Currency: Evaluating Challenges and Developing International Standards” in November 2023. A version of this paper was released as a working paper to level set the attendees of the conference and provide a call to engage the public and the private sector in standard-setting efforts. This paper was further developed based on feedback from the conference and outreach afterward. The  paper now reflects what we learned from our convening and incorporates the most recent developments in standard-setting efforts globally. The rapid growth of central bank digital currencies (CBDCs) worldwide underscores the importance of aligning approaches to their development, adoption, and implementation across technical, regulatory, and governance levels. Today, there is a patchwork of first steps undertaken by both public-and private-sector entities, aimed at achieving different objectives. These efforts have focused on frameworks, guiding principles, and, in some cases, the development of standards for digital assets broadly, as described below. Some are CBDC-specific and others have general applicability in the payments sector. As governments and stakeholders collaborate to establish consistent benchmarks for CBDC development, it’s crucial to identify, organize, and align standard-setting endeavors. This process involves assessing existing efforts to pinpoint gaps and create a foundation for international standards that remain open and flexible for future development and innovation. Through this paper, we show the crucial element of interoperability, which is needed for the furtherance of standards on CBDCs and digital assets. We attempt to build the pressing themes around which standards will have to be addressed through existing and new efforts.

Introduction

In recent years, the global financial landscape has witnessed a profound transformation characterized by the accelerated rise and integration of digital assets. As a subset of these assets, central bank digital currencies (CBDCs) have captivated the interest of countries worldwide.1 The CBDC landscape has rapidly evolved with 130 countries, representing 98 percent of the global economy, actively researching and, in some cases, deploying CBDCs. A recent survey by the Bank for International Settlements (BIS) revealed that the number of central banks likely to issue a CBDC within the next three years has grown in the past year from 15 percent to 18 percent for retail CBDCs (rCBDC) and from 8 percent to 15 percent for wholesale CBDCs (wCBDC).2

CBDCs, in their promise and potential, are emblematic of a broader shift—a movement toward a more efficient, frictionless digital infrastructure, shaping the future of international trade, cross-border payments, and global financial integration. However, with transformative potential comes inherent complexity. As fiat currencies become more intertwined with technology there are significant implications for privacy, human rights, cybersecurity, digital financial inclusion, and the movement of money across borders for international trade, aid, investment, and other payments. If designed without a common framework of standards and collaboration, a shortsighted and fragmented approach to CBDC development could lead to the emergence of walled gardens.

At the core of establishing standards lies the concept of interoperability—the ability for diverse systems to interact seamlessly and reduce friction. In this context, interoperability extends beyond technical objectives alone; it requires a broader framework including regulatory and governance standards, paving the way for streamlined cross-border transactions, reduced operational friction, and bolstered trust among participating entities. While not a panacea, technical, regulatory, and governance benchmarks are instrumental in navigating the complexities of the international payments systems. In order to achieve interoperability, CBDC exploration should prioritize a thorough discussion on establishing technical, regulatory, and governance standards. (See Annex 1 for definitions relevant to this discussion.)

This paper is intended as a catalyst to stimulate a broader, global dialogue about CBDC standards. It takes stock of existing activities, begins to define how these efforts may be coordinated and aggregated into a set of globally accepted best practices, and offers a baseline for addressing gaps or deficiencies in defining best practices.

The call for standards

CBDCs are a digital form of a country’s national currency, issued and backed by the country’s central bank. They come in two forms: retail CBDCs (rCBDC), accessible to individual consumers and usable for everyday purchases and peer-to-peer payments, and wholesale CBDCs (wCBDC), utilized by financial institutions or other major entities for interbank settlements and large financial transactions. The motivations behind rCBDCs and wCBDCs are distinct. The deployment of rCBDCs is usually motivated by financial inclusion, payment efficiency, privacy, and safety. Interest in wCBDCs is aimed at addressing cross-border friction to improve international payments—including limited operating hours, long transaction chains, restrictions on legacy technology platforms, data fragmentation, high costs, complex funding, and compliance issues.3

Ultimately, rCBDCs and wCBDCs would operate in conjunction with each other to achieve both the domestic and cross-border needs of a country.4 Therefore, the deployment of domestic CBDCs must not be considered in isolation or the result will be walled gardens that stand apart from global commerce and economic trends. Creating a CBDC in a silo is unlikely to achieve the desired outcomes in the short or long term, as it will replicate the friction of the existing payments systems. CBDCs’ potential to provide a simpler and more efficient way to move money can only be realized as long as the CBDCs can interoperate with one another.

If deployed, a CBDC must be able to operate across various transactions, institutions, and users. Many CBDC initiatives and explorations recognize the complex and interconnected ecosystem in which financial activity takes place and the interdependencies of the different participants in transaction settlements. By agreeing on standards upfront—which is by no means a simple task—CBDCs can hopefully escape some of the growing pains that we have seen with the development of new financial technology (such as automated teller machines that could only be used by customers of a specific bank) or new digital technology (such as the challenges posed by the early years of closed-loop email).

Concentrating on developing and implementing clear and accessible global standards can enable greater industry collaboration and competitiveness through interoperability, transferability, consistency, and safety across various industries and economies. With this clarity, countries can direct their efforts toward aligning and promoting key principles such as privacy, free enterprise, the rule of law, and economic liberty within the global financial landscape.5

Defining standards

At the heart of this paper is the effort to promote interoperability in payments systems and prevent the creation of walled gardens. We therefore define standards as the technical, regulatory, and governance benchmarks needed to achieve interoperable systems in the long run. It is crucial to recognize that standards do not emerge arbitrarily; instead, they evolve from fundamental principles, embodying intentional consideration and consensus.

Standards specific to CBDCs are not unchanging; they must reflect and be responsive to technological development, market shifts, and experience. Standards are established by technical and governance bodies, often made up of diverse stakeholders, and reflect a consistent floor for pragmatic implementation across jurisdictions. Therefore, they must have built-in flexibility to adjust to changing circumstances across a variety of market structures.

Our use of a narrow definition of standards as a means to achieve interoperable payments systems helps navigate the complex technical, governance, and regulatory environment. In the following section, we catalog existing standards for digital assets and the institutions responsible for setting them.

A comprehensive overview of current standards on digital assets 

Methodology

Due to their rapid growth, global standard-setting bodies have had to regulate and harmonize the adoption and use of digital assets across borders. In this section we provide an overview of the prominent organizations that play a pivotal role in shaping the digital asset landscape. Understanding the functions, roles, and importance of these bodies is critical for fostering a safe, competitive, and inclusive digital economy. We explore global governance institutions—the International Monetary Fund (IMF) and Bank for International Settlements—as well as regulatory standard setters—the Basel Committee on Banking Supervision (BCBS), the Financial Action Task Force (FATF), the International Organization of Securities Commissions (IOSCO), the Committee on Payments and Market Infrastructures (CPMI), and the Financial Stability Board (FSB)—and technical bodies like the International Organization for Standardization (ISO). Since rCBDC projects have largely been in the pilot, development, and research stage while wCBDC projects are currently limited, standard-setting efforts in some bodies have focused on broader digital asset developments.

International Monetary Fund

As a key institution in international monetary cooperation and exchange rate stability, the IMF is instrumental in assisting its 190 member countries in managing economic change. Its expertise in macrofinancial surveillance can help identify vulnerabilities associated with digital assets and it can offer policy advice to enhance the resilience of economies.

In November 2023, the IMF released a virtual handbook on CBDCs, designed as a comprehensive guide for policymakers and experts in central banks and finance ministries. The plan for this evolving handbook is to offer about twenty chapters by 2026, with periodic updates to reflect the latest findings and viewpoints.6 The initial chapters address key topics like the framework for exploring CBDCs, product development, impacts on monetary policy, capital flow management, and financial inclusion.

A publication called IMF Approach to Central Bank Digital Currency Capacity Development, released in April 2023, outlines the IMF’s efforts to facilitate peer learning and develop analytical underpinnings for advising member countries on CBDCs. In addition to research, the IMF provides technical assistance, including the XC platform initiative.7 The XC platform, proposes a global centralized ledger to simplify and streamline cross-border payments. This initiative builds on the concept of wholesale CBDCs, but the platform includes commercial banks, payment providers, and central banks within a single, streamlined system. The XC model aims to reduce transaction costs and settlement times, making it an attractive option for countries looking to enhance their cross-border payment systems.

Described as a “digital town square,” the XC platform would build a three-layer architecture: a settlement layer that acts as the primary ledger, a programming layer for executing smart contracts, and an information layer designed to protect personal data while ensuring compliance and facilitating currency controls as needed.8 The platform’s architecture is designed to be open and upgradeable, ensuring its longevity and adaptability to future innovations. Instead of adopting CBDCs, central banks can issue certificates of escrow (CE) for use exclusively on the XC platform. CEs enhance financial accessibility by granting more entities, including nonbank financial institutions (NBFIs), payment-system providers (PSPs), and nonresidents, direct access to central bank reserves. These certificates share characteristics with CBDCs and can later be converted into central bank reserves by financial institutions. According to the IMF, a key advantage of using CEs is that it allows countries to prioritize domestic use cases for their CBDC projects, while CEs can be used solely for cross-border transactions.9

The XC model is designed for wide-ranging compatibility with existing systems, requiring central banks to make only minor technical updates. The model is a policy and regulatory framework; it encourages countries to adopt consistent and supportive regulations for cross-border payments, potentially incorporating tokens and distributed ledger technologies (DLTs). In order for the model to work, however, it will need compatible legal and regulatory frameworks to effectively manage risks and ensure compliance across various jurisdictions. Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department at the IMF, further explained this point at our conference in November 2023.

Bank for International Settlements

The BIS acts as the central bank for central banks, fostering monetary and financial stability globally. It actively explores the impact of digital currencies on the financial system and central bank operations. The BIS Innovation Hub facilitates research and development on digital innovation, helping member countries adapt to the rapidly evolving digital asset landscape. Its membership consists of sixty-three central banks and monetary authorities.10

Recent significant projects include Project Mariana, which tested cross-border trading using CBDCs and decentralized finance technology, and Project Icebreaker, which focused on using retail CBDCs for international payments through a novel hub-and-spoke model, both completing their testing phase in 2023.11 Most recently, Project Sela, a collaboration between the BIS Innovation Hub Hong Kong Centre, the Bank of Israel, and the Hong Kong Monetary Authority, focused on exploring rCBDC features including accessibility, cyber security, and effective public-private collaboration, with an emphasis on central banks overseeing retail ledgers and private intermediaries managing customer-facing services.12

In July 2023, the BIS presented the results of a survey showing that 93 percent of central banks are engaged in CBDC work, with retail CBDC development more advanced than wholesale CBDC.13 The survey reveals most central banks recognize the value of having both a retail CBDC and a fast payment system.14 By 2030, there could be fifteen retail and nine wholesale CBDCs publicly circulating, while stablecoins and crypto assets are rarely used for payments outside the crypto ecosystem.15 This BIS finding followed its June 2021 report discussing its survey on CBDCs, which found that many central banks had not decided on issuing a CBDC, but had a tentative inclination toward allowing cross-border use by tourists and nonresidents. In March 2021, the BIS explored the potential for multi-CBDC (mCBDC) arrangements to improve cross-border payments by leveraging interoperable central bank digital currencies. Technology could play a role in addressing inefficiencies, and the paper discusses the dimensions of payment system interoperability and the benefits of mCBDC arrangements.16

The BIS Universal Ledger interoperability model advocates for a shared global ledger that integrates various forms of money—including CBDCs, tokenized deposits, and other digital financial assets—into a single, programmable environment. The BIS aims to address the inefficiencies and silos present in the financial system by enabling safer transactions and atomic settlements within a transparent framework.

The architecture of the unified ledger model is designed to be secure, scalable, and interoperable, with a strong emphasis on privacy and regulatory compliance. At its core, the architecture includes a data environment for securely storing digital asset representations, like CBDCs and tokenized deposits, in organized partitions managed by authoritative entities such as central banks and commercial banks. The execution environment facilitates the automation of complex financial operations and secure, efficient transaction processing. This environment supports atomic settlement, ensuring comprehensive transaction success or complete rollback. In addition, to safeguard sensitive data and transaction privacy, the model implements cryptographic methods like homomorphic encryption and secure multiparty computation. These technologies enable encrypted data computation without exposing the actual data, reinforcing the system’s privacy and security. An important component of the BIS project is the governance framework that establishes operational and regulatory compliance protocols, while also detailing the responsibilities of all involved parties, including central and commercial banks.

Unlike the XC model, which builds on blockchain solutions, the BIS’s unified ledger approach uses application programming interfaces (APIs), creating a more centralized system where transactions have to be processed and validated by authorized entities, such as central banks or designated financial institutions. 17 Within this system, central bank money can circulate on a platform that is not owned and operated by the central bank, which can present risks. It also raises questions about the security, control, and integrity of central bank money when it is managed outside the traditional central banking systems.

The BIS favors a system grounded in central bank money, offering a sounder basis for innovation, stable and interoperable services across borders, and a virtuous circle of trust through network effects.18

Basel Committee on Banking Supervision

The BCBS is the global body for setting prudential standards for banking supervision and regulation. With the emergence of digital assets and their potential impact on banking operations and risk management, the BCBS is studying the implications for financial institutions. The committee’s membership includes central banks and banking supervisory authorities from twenty-eight countries.19

The BCBS standard for prudential treatment of crypto asset exposures integrates crypto assets into the Basel Framework for banks.20 Joint reports by CPMI, BIS, the IMF, and the World Bank on central bank digital currencies for cross-border payments emphasize CBDCs’ potential to enhance cross-border payments through international cooperation and coordination.

Financial Action Task Force

FATF primarily focuses on combating money laundering and terrorist financing and has had less emphasis on specific guidelines for CBDCs. Its recommendations function as guidance on regulating virtual assets and virtual asset service providers (VASPs) to ensure the prevention of illicit financial activities. More than 200 jurisdictions have committed to implementing FATF standards, making the organization a key player in shaping regulatory frameworks to maintain transparency and security in the digital asset sphere.21 FATF has thirty-eight member countries, including major economies and financial centers worldwide.22

FATF has published several papers related to virtual assets and VASPs. The first version of its Guidance for a Risk-Based Approach to Virtual Assets and VASPs, released in June 2019, focused on risk assessment and monitoring, particularly for issues of anti-money laundering and combating the financing of terrorism (AML/CFT).23 A twelve-month review of the revised FATF standards on virtual assets and VASPs was conducted in July 2020, showing progress in implementing these standards among some jurisdictions, but not yet sufficient progress to create a global AML/CFT regime for virtual assets.24 A second twelve-month review in June 2022 revealed continued progress, but indicated that implementation was still insufficient and certain challenges remained, such as the implementation of the “travel rule.”25 This rule is a legal obligation that requires financial institutions—such as banks and cryptocurrency service providers—to collect and share detailed information about the parties involved in a financial transaction.

To address these challenges and based on the two reviews, FATF published Updated Guidance for a Risk-Based Approach to Virtual Assets and VASPs in October 2021. This guidance includes updates in six key areas, including clarifying the definitions of virtual assets and VASPs, guidance on stablecoins, and additional guidance on peer-to-peer transactions and information-sharing among VASP supervisors.26 However, the latest update on the implementation, published in June 2023, indicated that jurisdictions still struggle with fundamental requirements.27 The report also emphasizes the need for appropriate risk identification and mitigation measures, especially for decentralized finance (or DeFi) and unhosted wallets (e.g., controlled by the owner rather than a platform or exchange manager), which have the potential for misuse. In 2020, FATF has also reported to the Group of Twenty (G20) on stablecoins, outlining its specific views on the application of anti-money laundering and counterterrorist financing requirements.28 There is ongoing work needed to ensure consistent and effective implementation of FATF standards in the digital asset sphere, and some jurisdictions are still struggling with fulfilling the fundamental requirements outlined by FATF.

International Organization of Securities Commissions  

As the leading international standard-setting body for securities regulation, IOSCO plays a critical role in ensuring the stability and efficiency of capital markets. With a growing interest in digital securities, IOSCO’s principles on issuer and investor protection, market integrity, and risk mitigation have significant implications for the global adoption of tokenized assets. IOSCO has more than 120 members, including national securities regulators and exchanges from various jurisdictions.29

While debates on which digital assets count as securities are ongoing in the United States, IOSCO has been actively engaged in providing insights into the realm of digital asset markets through a series of consultation reports and public reports. Policy Recommendations for Crypto and Digital Asset Markets, published in November 2023, stands out as a comprehensive consultation report proposing eighteen recommendations that address six key areas of concern. These areas include conflicts of interest resulting from vertical integration, market manipulation, cross-border risks, custody and client asset protection, operational and technological risks, and retail access, suitability, and distribution.30

In March 2020, IOSCO released Global Stablecoin Initiatives, a public report emphasizing the applicability of principles for financial market infrastructures to stablecoin arrangements with systemically important functions. IOSCO’s work on exchange traded funds and crypto-asset trading platforms may also apply to global stablecoins.31 In March 2022, IOSCO presented its public report on decentralized finance, highlighting regulatory concerns like fraud risks, flash loans, cybersecurity, and spillover effects on traditional markets. Additionally, in December 2020, the organization published Investor Education on Crypto-Assets, a report to educate the public and investors on crypto assets and risk mitigation.32

Committee on Payments and Market Infrastructures  

Under the BIS, the CPMI provides a platform for central banks to promote the safety and efficiency of payment systems worldwide. With digital assets gaining recognition, the CPMI is actively engaging in discussions concerning the potential role of CBDCs and their interplay with private cryptocurrencies. The CPMI has twenty-eight members, representing major central banks and monetary authorities.

A 2018 Markets Committee report titled Central Bank Digital Currencies introduces and defines CBDCs, assessing their potential implications for monetary policy and central bank operations.33 It recommends further research on various aspects including interest rates, financial stability, and exchange rates. The report also warns against the risks of private digital tokens due to their volatility and lack of protection for investors and consumers, making them unsuitable for widespread use in payments.

Financial Stability Board  

The FSB’s mandate is to oversee and coordinate global financial regulation, identifying and addressing systemic risks to foster stability in the financial system. Recognizing the growing importance of digital assets, the FSB monitors developments and potential risks arising from their use and ensures that the digital asset market operates within established stability parameters.34The FSB is broadly focused on the global regulatory framework for crypto-asset activities, and has not released any specific research or guidelines on CBDC development. The board’s membership includes a combination of G20 economies, other major economies, and international organizations.35

International Organization for Standardization

The ISO fosters agreement on best practices and processes, and publishes standards and technical specifications (TS), including on the security aspects for digital currencies. ISO/TS 23526:2023 focuses on providing a security framework for the issuance and management of digital currencies in general, using cryptographic mechanisms standardized by ISO and other references. The document aims to integrate security aspects into the design of digital currency systems, as opposed to adding them later as an extra layer, to accommodate legacy infrastructures​.​36 ISO does not have any explicit references or guidelines on CBDCs’ technical security, but instead has a broader focus on digital currencies overall.The following organizations below were added after the conference and depict wide-ranging efforts for interoperability occurring both in the private and public sector.

Society for Worldwide Interbank Financial Telecommunication

Building on its legacy in global financial messaging, the Society for Worldwide Interbank Financial Telecommunication (Swift) has introduced a model to enhance its existing infrastructure for cross-border payments, making them faster, more transparent, and cost-effective. Currently in beta testing, this model facilitates the connection of disparate national CBDC networks, enabling them to communicate and transact with one another while leveraging Swift’s existing infrastructure and security protocols—best thought of as a hub-and-spoke arrangement between various central banks with Swift at the center. This initiative is part of a broader Swift effort to prevent the fragmentation of the global payments landscape into “digital islands.”37

The project began in March 2023, with over eighteen participants, including the Monetary Authority of Singapore and the Banque de France. Within a twelve-week period, they were able to process over 5,000 transactions. In September 2023, Swift further broadened the initiative by announcing the participation of three new central banks: the Hong Kong Monetary Authority, the Central Bank of Kazakhstan, and an additional, anonymous central bank.

Following the insights and successes from Phase 1, Swift released the takeaways from the Phase II CBDC sandbox project in March 2024, engaging thirty-eight central banks, commercial banks, and market infrastructures from around the globe. This project was designed to tackle complex use cases and assess solutions within a controlled sandbox environment. The second phase involved over 125 participants, who collectively executed more than 750 transactions. The sandbox was hosted on Kaleido, a Web3 platform for blockchain applications, where central banks were able to simulate CBDC transactions. Swift’s technology stack included a combination of the Corda, Hyperledger Fabric, and Hyperledger Besu platforms.38

Phase II explored four new use cases. First, it demonstrated the automation of trade payments through CBDC networks and smart contracts, aiming to improve trade efficiency and minimize costs. Second, it evaluated two models for foreign exchange trade and settlement: an International Foreign Exchange Marketplace and a Continuous Linked Settlement (CLS) inspired system, both of which underscored the integration of CBDC trade and settlement. Third, the project focused on delivery versus payment (DvP), facilitating atomic DvP for tokenized bonds by ensuring interoperability between tokenization platforms and CBDC networks. Finally, it investigated mechanisms to mitigate liquidity fragmentation across various currencies and platforms, utilizing smart contracts and netting algorithms. The report established three foundational principles for interoperability: linking networks via ISO 20022 messaging, providing a unified point of access through Swift, and ensuring coexistence with traditional market infrastructures.39

This model leverages Swift’s global reach and the existing network effects among financial institutions. It also offers flexibility for countries to maintain their own domestic CBDC infrastructure while ensuring global connectivity.

The Internet Engineering Task Force

The Internet Engineering Task Force (IETF) is deeply involved in the development of standards to enhance blockchain interoperability, focusing on the Secure Asset Transfer Protocol (SATP).40 This protocol is designed to enable seamless transfers of digital assets across diverse distributed ledger technologies (DLTs) by leveraging a network of trusted gateways, akin to the role border gateway routers played in the early internet. Such an approach offers a scalable and ledger-agnostic solution for the rapidly evolving digital asset ecosystem.

SATP facilitates asset transfers through a structured process that includes three main stages: Transfer Initiation, Lock-Evidence Verification, and Commitment Establishment. The protocol ensures that digital assets are exclusively valid within one network at any given time, adopting a transfer mechanism that maintains the asset’s integrity and uniqueness.41 This is achieved through the strategic use of gateway endpoints which manage the transfer process, ensuring secure, transparent, and auditable transactions that adhere to Atomicity, Consistency, Isolation, and Durability (ACID) principles.42 The SATP framework comprises a comprehensive set of API endpoints and resources for the initiation and execution of asset transfers. It also aims to facilitate the integration and management of digital asset transactions, contributing to a more efficient and secure digital economy.

Hyperledger, an open-source community focused on blockchain technologies, plays a role in implementing and advancing SATP through projects like Hyperledger Cacti.43 Cacti serves as a blockchain integration framework that enhances interoperability by allowing operations across multiple enterprise-grade blockchain networks. It achieves this through a pluggable architecture that supports Business Logic Plugins (BLP) and Ledger Connectors, enabling seamless interaction with various DLTs.

Global Blockchain Business Council

The GBBC has launched the fourth iteration of the Global Standards Mapping Initiative (GSMI 4.0), a comprehensive project designed to map and analyze the blockchain and digital assets landscape.44 This initiative provides an extensive overview of regulatory developments across 230 jurisdictions and six global bodies, compiles a taxonomy of 350 terms and definitions, maps sixty-three technical standards bodies, and identifies more than 2,000 stakeholders in the blockchain ecosystem. Additionally, it offers access to 1,500+ courses from accredited educational institutions and includes four in-depth reports focusing on AI convergence, digital identity, supply chain, and sustainability, with a special spotlight on Brazil. GSMI 4.0, building on the work since 2020, aims to present a holistic view of global industry activity. The initiative’s resources, including an interactive map of blockchain and digital asset regulations and a series of reports, are available on the GSMI site (https://gbbcouncil.org/gsmi/). All materials produced by the GSMI are crowd-sourced and open access, ensuring they serve as a reliable information source for those interested in blockchain and digital assets.

The Internet Governance Forum

The Internet Governance Forum (IGF), primarily serves as a multistakeholder platform for policy dialogue on internet governance issues.45 While not directly implementing or proposing specific financial systems, the IGF’s contribution lies in facilitating discussions, building consensus, and sharing best practices among stakeholders to influence the governance frameworks that underpin these technologies. First convened in 2006 by the United Nations secretary-general as a result of the World Summit on the Information Society (WSIS) held in 2003 and 2005, IGF gathers governments, the private sector, civil society, and technical communities to debate and share insights on enhancing internet security, ensuring digital privacy, fostering the digital economy, and expanding internet access.

Security, trust, and privacy are central to the IGF’s discussions on digital financial services. The forum encourages dialogue on how to protect against fraud, ensure the integrity of digital transactions, and safeguard users’ privacy and data in an increasingly digital global economy. Key areas of focus for the IGF also include the development of governance frameworks that protect user data and ensure a secure online environment. The forum also emphasizes the importance of digital inclusion, advocating for equitable access to the internet and digital services across different regions and communities. Through its annual meetings and intersessional work, the IGF indirectly supports the infrastructure and policies that impact the digital economy and financial inclusivity.

As the above section shows, there have been some efforts in creating standards for interoperability of digital assets. From feedback after the conference, we added the work of organizations such as Swift, IETF, GBBC, and IGF in standard creation. All the organizations listed above have led to important standard making efforts as described. However, these efforts are concentrated in specific areas and, as explored below, some crucial gaps exist that must be addressed in any evolving framework for standards.

Lessons learned from standard-setting efforts

As we evaluate the above models of governance, it is important to assess growth opportunities for the next stage of standard developments. In this section, we identify the critical learnings and gaps in standards development for interoperability of digital assets.

First, the rCBDC experimentation space has provided countries with some experience in building CBDCs, largely driven by domestic objectives. These experiments are at very different stages and use a range of private-sector vendors that are not subject to the same regulations due to a slower pace of crypto-asset regulation globally.

Second, within wCBDC experimentation, operating frameworks in technology and regulation have emerged, led by entities like the BIS Innovation Hub, the global financial-messaging cooperative Swift, and other private-sector players. However, they are constrained by the limited number of participating countries, furthering the issue of fragmentation in cross-border CBDCs. Current experimentation should incorporate standards-setting bodies (SSBs) such as FSB, BCBS, CPMI, ISO, and FATF as participants or observers to ensure better collaboration in the development of standards.

The membership structure of SSBs significantly influences the establishment of the goals and priorities of these institutions. Additionally, while emerging market economies often surpass developed economies in the development of digital infrastructure, including CBDCs, they sometimes find themselves underrepresented in setting norms and establishing benchmarks. This underrepresentation can result in an inadequate consideration of their technological advancements within the organization’s priorities.

Moreover, apart from the FATF, there seems to be a shortage of robust frameworks for assessing the global standards’ impact and implementation lags. To address the evolving landscape of financial technologies, it is imperative that new and non-financial SSBs be actively involved in these discussions, leveraging their expertise in technological matters and regulatory concerns.

Finally, some of the above frameworks have actively involved private sector participants in influencing standard development and creation. As intermediaries, the private sector has a crucial role in the entire lifecycle of standards, from actively influencing the creation of standards to ultimately adopting and implementing them.

Towards establishing standards

A transparent and collaborative multi-stakeholder approach is crucial for establishing frameworks for standards related to digital currencies. Standardization is driven by consultation processes with governments, industry specialists, consumers, regulators, and civil society organizations (CSOs). Historically, governments have provided the necessary legal and governance paradigms, in turn creating environments conducive to standard development and assimilation across multi-stakeholder groups. Central banking authorities, driven by the imperative of maintaining financial stability and directing monetary policy, contribute a nuanced perspective essential for shaping these standards. The private sector’s technological advancements and practical exposure play a critical role, not just in ideation, but in the tangible implementation of these standards, ensuring their practical efficacy. Lastly, the participation of CSOs provides reflection and inclusion of key social elements, serving as a check by society on the suitability of resulting standards.

The goal of this collaborative process is the establishment of a guiding framework for standards. To begin this process, we outlined the following themes for CBDC framework creation, which align with the G7 principles proposed in 2021, to identify the key themes necessary to begin building a framework. These key themes are governance; privacy and data protection; competition and consumer protection; global impact and sustainability; and transferability and accessibility. Through conversations at the conference and outreach afterward, we aimed to test the robustness of these themes through a survey (see Annex 2 for survey questions). Within each theme, we describe the areas of framework development needed for the establishment of standards. Conference attendees and survey respondents identified thematic overlaps and largely agreed with these themes, which have allowed us to set policy priorities for CBDC frameworks.

A thematic approach to CBDC and digital asset standard creation

  • Governance
    Effective governance of CBDCs requires a nuanced approach, placing a focus on maintaining public policy objectives and central bank mandates including monetary and financial stability. To achieve this, the framework should involve the creation of dynamic mechanisms that not only monitor, but also proactively mitigate potential destabilizing effects. Stress-testing frameworks are essential tools for central banks to assess the comprehensive impact of CBDCs on economic stability. The principle of “do no harm” dictates that economic stability must be safeguarded at every stage of CBDC implementation, through concrete guidelines and risk assessments. In parallel, there is an imperative to establish legal and governance frameworks, offering clear definitions of regulatory benchmarks. Governance is the biggest challenge that emerges as we analyze existing efforts for standard setting, as each of the technical models discussed at the conference envisions an operator of an inherently global system. This is a complex and difficult endeavor, likely to have many challenges and phases.
  • Privacy and Data Protection
    The protection of privacy and data involves specifying requirements for user data protection, consent, and disclosures.46 Mechanisms for cross-border data transfer should be designed to navigate the complexities of various data protection laws across jurisdictions, ensuring compliance, individual privacy protections, and seamless transactions. Operational resilience and cybersecurity require technology standards for resilience against cyber, fraud, and operational risks, including security measures, encryption standards, and incident response protocols.47 There was widespread agreement at the conference that piecemeal privacy protections will not be sufficient for the evolving financial system, and that comprehensive privacy protections will have to be regulated for. Additionally, all models of digital asset interoperability have highlighted the importance of built-in privacy frameworks.
  • Competition and Consumer Protection
    CBDCs should coexist with existing means of payment and should operate in an open, secure, resilient, transparent, and competitive environment that promotes choice and diversity in payment options. Promoting fair competition and consumer protection requires the development of international standards for open-access APIs, ensuring competition and interoperability, thereby enhancing the overall efficiency of the CBDC ecosystem. It also is crucial to strike a balance between the demand for faster, more accessible payments and the necessity to combat illicit finance and protect the right to personal privacy. Establishing protocols for collaboration between CBDC operators and regulatory authorities, including law-abiding information sharing, joint investigations, and the development of responsive regulatory frameworks, is vital to address and mitigate potential risks associated with illicit finance.48
  • Global Impact and Sustainability
    Considering the global impact and sustainability of CBDCs, spillovers can begin to be addressed by establishing technical principles for cross-border transaction reporting and information sharing. Energy and environmental considerations are crucial; hence, international standards for the energy efficiency of CBDC infrastructure should be created, specifying benchmarks for sustainable operations. This has to be built into the next phase of testing and experimentation at the domestic and international levels.
  • Transferability and Accessibility
    Ensuring interoperability with existing and future payment solutions is necessary to achieve the goal of transferability and accessibility. Technical standards should be formulated for integrating CBDCs with emerging digital payment solutions, and interoperability protocols should be specified to facilitate seamless transactions between CBDCs and other payment instruments. Additionally, for payments to and from the public sector, protocols for cross-border collaboration among central banks and organizations must be defined, addressing the international dimensions of CBDC design. Technical requirements for cross-jurisdictional compatibility and seamless integration into global financial systems should be established. Additionally, technical reporting requirements should be instituted to ensure transparency in the utilization of CBDCs for international development initiatives. A lot of recent experiments have shown “token agnosticism” or the ability to support a wide variety of tokens, demonstrating that builders do not want to be overly prescriptive and provide consumers with a range of options.

These key themes illuminate the areas of framework development needed to achieve comprehensive standards for CBDCs. These are not an exhaustive list, but provide primary recommendations as the public sector, policymakers, and the private sector engage in CBDC development.

Through conversations at the conference, it was evident that the G20 payments roadmap is used as an industry benchmark by the public and the private sector as they address modernization efforts. The identified themes speak to some of the priorities outlined by the G20, but seek to go beyond the existing priorities. As G20 targets evolve to include leveraging the digital asset ecosystem, the above described themes can provide crucial benchmarks for standards creation. As governments draft regulations and the private sector engages in experimentation, often along with the public sector, they must address these themes. It also is imperative that global standard-setting bodies address the current gaps in their guidance and participate in these discussions—especially in the development of cross-border flows. Through the conference, it also became clear that many of the standard setters in this space are working across overlapping areas of work—which makes the need for communication channels essential going forward. Crucially, as was repeatedly emphasized at the conference, interoperability is imperative as any standards for CBDCs or digital assets broadly are developed, so that future systems of money do not increase friction in the global payments landscape.

Conclusion

As countries worldwide explore CBDCs’ potential for an advanced and seamless digital infrastructure, a unified standard framework will become necessary to foster harmony, quality, and trustworthiness worldwide. Our working paper served as a call to action for both public and private stakeholders to actively engage in standard-setting efforts with the goal of ensuring interoperability and efficiency, as well as embedding democratic norms, values, and rules of law in CBDCs.  It also set some common definitions and understanding of the current state of international standards for those seeking to understand the current state of international standards and existing gaps and areas for improvement. As previously noted, standards ensuring consistency and seamless functionality are not static; they must be flexible enough to accommodate advancements in digital currency technology, shifts in economic priorities, and changing societal perspectives on digital assets.

To further global dialogue on these topics, The Digital Dollar Project and the Atlantic Council GeoEconomics Center hosted a first-of-its-kind convening, “Exploring Central Bank Digital Currency: Evaluating Challenges & Developing International Standards,” on November 27-29, 2023. This event brought together international policymakers, technologists, financial services providers, innovators, and consumer and privacy advocates to discuss the ongoing impact of emerging technologies on the future of money, its infrastructure, and global payment systems. The convening explored the complexities around digital currency, focusing on key technology and policy considerations, outlining areas for future public-private cooperation, and identifying potential pathways to standards that embed privacy protections, democratic values, and interoperability. Following the conference, this paper was revised to reflect what we learned from the conference, incorporate recent developments in international standard setting, and build on the framework offered in the working paper in consideration of future global interoperability standards efforts.

About the authors

Ananya Kumar is the associate director for digital currencies at the GeoEconomics Center. She leads the center’s work on the future of money and does research on payments systems, central bank digital currencies, stablecoins, cryptocurrencies, and other digital assets.

Alisha Chhangani is a program assistant at the Atlantic Council’s GeoEconomics Center.

Jennifer Lassiter is the executive director of The Digital Dollar Project, working to shape the future of money through collaboration with stakeholders. Her experience includes roles at the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau.

Katherine Haar is the strategy director of The Digital Dollar Project and a digital currency specialist within Accenture’s Innovation Group.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Digital Dollar Project

The Digital Dollar Project (DDP) encourages research and public discussion on the potential advantages and challenges of a digital dollar. DDP identifies options for a CBDC solution to help enhance monetary policy effectiveness and financial stability; provide needed scalability, security, and privacy in retail, wholesale, and international payments; and integrate with existing financial infrastructures, including US Federal Reserve-related projects.

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Digital Currencies Economy & Business
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Digital Currencies Economy & Business
Standards and interoperability: The future of the global financial system

Econographics Mar 14, 2024

CBDCs will need to work across borders. Here are the models exploring how to do it

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Digital Currencies Economy & Business
1    Atlantic Council, “Central Bank Digital Currency Tracker,” Atlantic Council, last updated December 2023, https://www.atlanticcouncil.org/cbdctracker/.
2    Bank for International Settlements (BIS), Central Bank Digital Currency: Motivations and Implications, BIS Papers no. 136, November 2020, https://www.bis.org/publ/bppdf/bispap136.htm.
3    Josh Lipsky and Ananya Kumar, “It’s Official: The United States Is Developing a Bank-to-Bank Digital Currency,” New Atlanticist, Atlantic Council, December 15, 2022, https://www.atlanticcouncil.org/blogs/new-atlanticist/its-official-the-united-states-is-developing-a-bank-to-bank-digital-currency/.
4    BIS, “Project Icebreaker Concludes Experiment for a New Architecture for Cross-border Retail CBDCs,” March 5, 2023, https://www.bis.org/about/bisih/topics/cbdc/icebreaker.htm.
5    The Digital Dollar Project: Exploring a US CBDC, Digital Dollar Foundation and Accenture, May 2020, https://digitaldollarproject.org/wp-content/uploads/2021/05/Digital-Dollar-Project-Whitepaper_vF_7_13_20.pdf.
6    International Monetary Fund (IMF), Central Bank Digital Currency Virtual Handbook, last updated November 2023, https://www.imf.org/en/Topics/fintech/central-bank-digital-currency/virtual-handbook.
7    IMF, IMF Approach to Central Bank Digital Currency Capacity Development, Policy Paper, April 12, 2023, https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/04/12/IMF-Approach-to-Central-Bank-Digital-Currency-Capacity-Development-532177.
8    Tobias Adrian and Tommaso Mancini Griffoli, “The Rise of Payment and Contracting Platforms,” Fintech Notes No. 2023/005 (International Monetary Fund, June 19, 2023), https://www.imf.org/en/Publications/fintech-notes/Issues/2023/06/16/The-Rise-of-Payment-and-Contracting-Platforms-534794.
9    Tobias Adrian, “A Cross-Border Payments, Exchange, and Contracting Platform for the 21st Century,” International Monetary Fund, November 18, 2022, https://www.imf.org/en/News/Articles/2022/11/18/sp-cross-border-payments-exchange-contracting-platform-21st-century.
10    “Member Central Banks,” BIS, n.d., https://www.bis.org/about/member_cb.htm.
11    “BIS Innovation Hub projects,” BIS, accessed November 26, 2023, https://www.bis.org/about/bisih/projects.htm?m=268&#8203.
12    Bénédicte Nolens, “Project Sela: An Accessible and Secure Retail CBDC Ecosystem,” a joint experiment by BIS and the central banks of Hong Kong SAR and Israel, September 12, 2023.
13    Anneke Kosse and Ilaria Mattei, “Making Headway–Results of the 2022 BIS Survey on Central Bank Digital Currencies and Crypto,” BIS Papers no. 136, BIS, July 10, 2023,
https://www.bis.org/publ/bppdf/bispap136.htm.
14    Kosse and Mattei, “Making Headway.”
15    Kosse and Mattei, “Making Headway.”
16    “Project mBridge: Experimenting with a Multi-CBDC Platform for Cross-border Payments,” BIS, last updated October 31, 2023, https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm.
17    Adrian, “Cross-Border Payments.”
18    Agustín Carstens, “The Future Monetary System: From Vision to Reality,” Keynote Speech at the CBDC & Future Monetary System Seminar, Seoul, Korea, November 23, 2023, via BIS site, https://www.bis.org/speeches/sp231123.htm.
19    “The Basel Committee–Overview,” BIS, n.d., https://www.bis.org/bcbs/.
20    Note a prior section on crypto asset exposures was removed in mid-December 2023. A new section will be effective in 2025 and is is available for viewing. https://www.bis.org/basel_framework/chapter/SCO/60.htm?inforce=20250101&published=20221216.
21    Financial Action Task Force (FATF), FATF, https://www.fatf-gafi.org/en/home.html.
22    That number includes the Russian Federation, whose membership has been suspended. See “FATF Member Countries,” FATF website, https://www.fatf-gafi.org/en/home.html.
23    FATF, Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, 2019, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets.html.
24    FATF, Updated Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers, October 2021, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets-2021.html.
25    Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers, FATF, June 2022, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Targeted-update-virtual-assets-vasps.html.
26    FATF, “Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.”
27    FATF, “Virtual Assets: Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers,” June 27, 2023, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/targeted-update-virtual-assets-vasps-2023.html.
28    FATF, “FATF Report to G20 on So-called Stablecoins,” June 2020, https://www.fatf-gafi.org/en/publications/Virtualassets/Report-g20-so-called-stablecoins-june-2020.html.
29    FATF, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations, as amended November 2023, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html.
30    International Organization of Securities Commissions (IOSCO), Policy Recommendations for Crypto and Digital Asset Markets: Final Report, November 16, 2023, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf.
31    IOSCO, Global Stablecoin Initiatives: Public Report, March 2020, PDF, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD650.pdf.
32    IOSCO, Investor Education on Crypto-Assets: Final Report, December 2020, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD668.pdf.
33    Committee on Payments and Market Infrastructures (CPMI), Central Bank Digital Currencies, CPMI Markets Committee, March 12, 2018, https://www.bis.org/cpmi/publ/d174.htm​.
34    Financial Stability Board, “Crypto-assets and Global ‘Stablecoins,’ ” n.d., https://www.fsb.org/work-of-the-fsb/financial-innovation-and-structural-change/crypto-assets-and-global-stablecoins/​​.
35    Financial Stability Board, “Crypto-assets and Global ‘Stablecoins.’
36    “ISO/TS 23526:2021,” Online Browsing Platform, International Organization for Standardization (ISO), accessed November 26, 2023, https://www.iso.org/obp/ui/en/#iso:std:iso:ts:23526:ed-1:v1:en.
37    “Swift Advances CBDC Innovation as Interlinking Solution Begins Beta Testing,” Swift, September 13, 2023, https://www.swift.com/news-events/press-releases/swift-advances-cbdc-innovation-interlinking-solution-begins-beta-testing.
38    “Swift Advances CBDC Innovation,” Swift.
39    “Swift Advances CBDC Innovation as Interlinking Solution Begins Beta Testing,” Swift, September 13, 2023, https://www.swift.com/news-events/press-releases/swift-advances-cbdc-innovation-interlinking-solution-begins-beta-testing.
40    “Secure Asset Transfer Protocol (SATP),” Internet Engineering Task Force, accessed April 6, 2024, https://datatracker.ietf.org/wg/satp/about/.
41    Andre Augusto, Rafael Belchior, Imre Kocsis, Laszlo Gonczy, Andre Vasconcelos, and Miguel Correia, “CBDC Bridging between Hyperledger Fabric and Permissioned EVM-based Blockchains,” paper presented at INESC-ID and Instituto Superior Tecnico, 2023, https://www.dpss.inesc-id.pt/~mpc/pubs/Augusto-CBDC-2023.pdf.
42    Martin Hargreaves, Thomas Hardjono, and Rafael Belchior, “Secure Asset Transfer Protocol (SATP) Core,” draft-ietf-satp-core-04 (Internet-Draft), Internet Engineering Task Force, , https://datatracker.ietf.org/doc/draft-ietf-satp-core/.
43    “Cacti, “Hyperledger Foundation, https://www.hyperledger.org/projects/cacti.
44    “Global Standards Mapping Initiative (GSMI),” Global Blockchain Business Council, https://gbbcouncil.org/gsmi/.
45    “About Us,” Internet Governance Forum, accessed March 1, 2024, https://www.intgovforum.org/en/about.
46    The Digital Dollar Project, Digital Dollar Foundation and Accenture.
47    J. Christopher Giancarlo and Daniel Gorfine, “3 Keys to Ensuring the U.S. Maintains Dollar Primacy in the Age of Digital Money,” Commentary, Fortune Crypto newsletter, August 22, 2023, https://fortune.com/crypto/2023/08/22/3-keys-to-ensuring-dollar-primacy-digital-money-cbdc/.
48    Daniel Gorfine and Michael Mosier, “Stablecoin and Other Digital Assets Are Falsely Framed as a Choice between Personal Privacy and National Security. We Can Have Both,” Opinion, MarketWatch, last updated July 23, 2022, https://www.marketwatch.com/story/stablecoin-and-other-digital-assets-are-falsely-fram[…]-privacy-and-national-security-we-can-have-both-11658206072

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]]> Accelerating transatlantic defense innovation in an era of strategic competition https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/accelerating-transatlantic-defense-innovation-in-an-era-of-strategic-competition/ Fri, 05 Apr 2024 15:00:00 +0000 https://www.atlanticcouncil.org/?p=753438 NATO’s warfighting edge will not be sufficient for the transatlantic community to weather today’s military and geopolitical realities.

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Table of contents

I. Introduction

II. Elements of innovation

III. New concepts: Innovation in adoption and adaption

IV. New technologies: Exported concepts to returned capabilities

V. New attitudes: Niche innovations

VI. Conclusion

I. Introduction

The North Atlantic Treaty Organization’s (NATO) warfighting edge has traditionally been anchored by the innovation and industrial capacity of the United States, but this will not be sufficient for the transatlantic community to weather today’s military and geopolitical realities. The return of true strategic competition, between nations that believe in the universal value of the free and open liberal international order and those that seek to remake it for their own benefit, has made every element of the international order a contested space—ranging from economics and information to seeking to redraw sovereign territorial borders through force. Strained by the return of industrial warfare on their borders and the need to ensure the security and territorial integrity of partners in the Middle East and Western Pacific, and faced with outdated acquisition systems and supply chains reliant on production in competitor nations, the United States and its NATO partners need new approaches, attitudes, and concepts for technology innovation and industrial production if they are to prevail on future battlefields.  

Seen as the solution to every emerging military challenge, the call to innovate has been constant in recent years. Innovation is certainly going to be key to success, and some analysts have even defined the era of strategic competition in terms of an “innovation race.”1 Too often, however, “innovation” is used as shorthand for “develop a new technology or widget.”

Innovation is as much about process, concepts, implementation, and execution as it is about the technology itself—and it is often in these enabling functions where innovation is needed most to gain significant improvements and advantages.

Society is also going through a transition phase from hardware led to software led, which impacts how we think about technology, its development, and its implementation. This is not new, and is evident across all aspects of modern life. But because the military is more heavily hardware defined than most other sectors, and often more cautious in its evolution, it has greater implications than might be immediately apparent. One key implication is the potential for easier collaboration between allies in capability development. But for this potential to be realized, there will need to be innovation not just in technology, but in the concepts, processes, and,
most importantly, attitudes that allow it to happen.

This is not to claim that hardware is no longer important. Anyone with a passing understanding of artificial intelligence (AI) and the possibilities it portends will also understand how critical the architecture of the silicon chips it runs on is, for instance. But to see how the importance between software and hardware has shifted, take the example of “network centric warfare.”2 The term du jour in the early 2000s, this concept for how war would be fought has been proven right. Yet, most militaries attempted to implement it by forcing every partner military to use the same hardware and “network” systems. More recently, modern Western militaries have begun taking a more data-centric approach, which emphasizes shared data formats rather than shared systems, and has seen a rapid improvement in implementing the concepts network-centric warfare championed.3 The hardware is still important, but the software is the defining element.  

If advanced technologies are a key pillar of winning the era of strategic competition, and allies are one of the United States’ great advantages, then surely tech collaboration with allies should be a center of gravity for the US to win. Defending the Euro-Atlantic area, and securing NATO’s advantage across operational domains in a moment of unprecedented strategic competition with near-peer adversaries, will require strengthened defense and technology cooperation between the United States and its allies and industry partners across the Atlantic. To achieve this, the United States will need innovative thinking and approaches—not just for the development of technologies, but for sharing and ultimately co-producing them.

II. Elements of innovation

The concept of innovation can be abstract, and there are few agreed rules or definitions for exactly how it can be achieved. Innovation can have many sources and take many forms, and occurs in every aspect of the human experience. In military terms, it has most often originated during times of conflict and out of necessity. Since the end of the Second World War and the start of the Cold War—a period of incredible innovation—technology development was driven by military and federal funding, and undertaken by a handful of centralized, traditional research organizations with a focus on government and military applications. The internet is the most commonly cited example of Department of Defense (DOD)-funded invention, having started as an Advanced Research Projects Agency project, but examples include the Global Positioning System (GPS), night vision, jet engines, and many others. This innovation was paired with experimentation of concepts and doctrine that often needed to occur in large, remote areas and involved significant infrastructure and forces.  

Today, greater innovation is occurring in the commercial sector, led by a handful of technology behemoths and a vast number of decentralized start-ups funded by private capital.“4 As technology becomes increasingly software driven, there is greater scope for new entrants and broader collaboration as the development environments are less constrained by geography and infrastructure. Experimentation can happen virtually and through simulation, allowing for more input from a more diverse set of participants. This is critically important, as collaboration and cross-pollination of perspectives and ideas can be powerful drivers of innovation. And while national militaries still have a key role to play in innovation and technology development—for instance, through programs like the Defense Advanced Research Projects Agency (DARPA) and NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA)—many of the most important capabilities are dual use, with the rapid iteration and evolution in the commercial field outpacing those of government-driven programs.

Mobile phones are seen during the Locked Shields, cyber defence exercise organized by NATO Cooperative Cyber Defence Centre of Exellence (CCDCOE) in Tallinn, Estonia April 10, 2019. REUTERS/Ints Kalnins

Technology will always play a key role in innovation, as it can enable us to do new things we couldn’t do before or provide new ways to complete existing tasks more efficiently. But innovation does not always require new technologies, and it is not always characterized by a sudden or high-profile shift. Even small improvements, new ways of doing things, or applying existing ideas in new contexts can generate significant innovation. In other cases, new processes or methods that enable something to occur, or encourage greater creativity in execution, can be considered innovative. And in the government sector, where departments of defense and militaries reside, these sometimes boring and arcane improvements can be the most significant.5 The problems and constraints created by the US International Traffic in Arms Regulations (ITAR) are an obvious area where even small changes could have a dramatic impact on cross-border innovation collaboration.6 An adaptation in attitude and mindset can be the most crucial, if it means that a new approach can be adopted where it would not previously have been.  

Therefore, innovation can be defined as the successful implementation of new ideas, methods, or products that create value. It involves challenging the status quo, thinking creatively, and taking calculated risks to achieve positive outcomes. Fresh perspectives and unconventional thinking foster innovation by questioning existing assumptions and approaches. These new concepts can disrupt traditional methods and spark the creation of entirely new fields of study or application, in part by fusing seemingly unrelated fields. This is where open societies have an advantage, as they embrace diversity of experience and perspective. Leveraging niche expertise and many different cultural, geopolitical, educational, and experiential perspectives that exist within the United States’ robust network opens new opportunities. Closer cooperation across design, experimentation, and implementation of cutting-edge technologies and approaches help the United States not only strengthen connectivity with allies and industry partners, but share the burden of innovation investment while gaining insights and capabilities for its own forces.  

Deeper transatlantic defense cooperation has the potential to unlock new advantages needed to ensure the United States and its allies retain their strategic edge over near-peer adversaries in a future conflict. But cashing in on these opportunities requires an understanding of the forms innovation takes, what is needed to best harness them, and a willingness within the traditional US defense establishment to reform procurement, contracting, and data-sharing mechanisms in ways that make it easier for trusted allies and industry partners to do business with the United States.7 

Broadly, we can think of the forms of innovation as new concepts, new technologies, and new attitudes. New technologies become the tools to implement fresh concepts brought to life by a shift in attitudes. Fostering innovation requires more than just the latest technology. It necessitates a culture that embraces new ideas, encourages experimentation, and fosters collaboration—allowing all three ingredients to work together in a powerful synergy, shaping a more innovative and progressive future. 

III. New concepts: Innovation in adoption and adaption 

Experimentation is a vital component of innovation, and forces in active combat will always seek new ways to gain an advantage over enemy combatants. Their lives depend on it.  

It is not surprising that we have seen a wide range of innovations emerge from brave Ukrainians defending themselves in the face of Russia’s war of aggression. As this is the first conventional conflict between two modern militaries in decades, there will be many attempts to extrapolate insights about the nature of modern and future warfare from successful technologies and tactics, techniques, and procedures (TTPs) implemented in Ukraine. But while the obvious lessons to learn might come from the extensive use of small commercial drones for precision strikes, this has been occurring at a smaller scale in Middle East since at least 2017, and is not particularly new or radical.8 What the Ukrainians have done, with great success, is integrate this drone capability effectively into combined-arms operations, and with the scale, sophistication, and diversity of platform capable of changing the nature of the battlespace.“9

A first-person view (FPV) drone is seen at a training location of the “Achilles” Attack Drone Battalion of the 92nd Separate Assault Brigade of the Ukrainian Armed Forces, amid Russia’s attack on Ukraine, at an undisclosed location in Donetsk region, Ukraine February 6, 2024. REUTERS/Alina Smutko

The more interesting lesson to learn, however, is the way Ukraine has leveraged the drones to amplify their effect through domestically created software. For years, analysts have predicted a transition from hardware-focused warfare to a software-defined ecosystem, mirroring similar transitions in civilian and commercial sectors. In the West, there is a slow process of moving from system- and platform-centric reference architectures for military systems to software products that enable larger platforms. Companies like Anduril and Palantir are transforming the traditional procurement pathways, but this will be a slow and iterative process. Ukraine is showing how it can be accelerated.10

Local software developers have created their own software solutions, like the Kropyva artillery targeting and blue-force tracking combat-control app; Delta, a cloud-based, comprehensive situational-awareness and battlefield-management system; and a chatbot, often integrated into the widely used Diia app, to crowdsource intelligence from the general population about enemy movements and military capabilities.11

The development and deployment of these software-enabled capabilities share several key characteristics. They often include aspects of private-public partnership; integrate elements of crowdsourcing and support from the wider populations; automate key features; and mimic more sophisticated commercial services. Moreover, one of their key contributions is the ability to modernize and integrate old and outdated equipment with more modern systems and tactics, such as Ukraine’s legacy, Soviet-originated anti-aircraft systems.12

There are wider lessons to be learned from the development and deployment of such systems. A country facing an existential threat has an inherently different risk profile than a country in a state of peace, and a smaller nation will usually have less bureaucracy than a larger one. Nonetheless, private-public collaboration and the ability and willingness to quickly adapt, along with more flexible and streamlined procurement processes, show what can be possible. Moreover, this demonstrates how software can overcome the limitations of hardware—particularly dated, legacy systems—which will be vital as the United States seeks to modernize the forces of allies and partners around the world as efficiently as possible. The benefit cannot be understated. While all allies and partners strengthen the strategic value of the network, many may struggle to meaningfully contribute in a high-end contingency due to the capabilities of their legacy systems. Leveraging the expertise Ukraine has built in creating and effectively utilizing an ecosystem of partner security cooperation increases the second- and third-order value of past US security-cooperation investments, while increasing the deterrent value of its core strategic asset and increasing stability and security for all. 

IV. New technologies: Exported concepts to returned capabilities 

Alliances provide unique opportunities for innovation through the exportation and application of concepts—opening new doors for innovation in response to countries’ unique geopolitical needs and circumstances, with multiplying effects for others in the network. Australia’s Ghost Bat program is a fascinating example of this type of innovation across the alliance ecosystem. Boeing’s MQ-28 Ghost Bat is “a pathfinder for the integration of autonomous systems and artificial intelligence to create smart human-machine teams” that resulted from collaboration between the Australian Air Force and Boeing.13 The Ghost Bat represents a new way of conducting air-combat operations, in which human-flown aircraft like the F-35 will be able to seamlessly coordinate and cooperate with autonomous systems, in a concept known as the “loyal wingman.”14

A Boeing MQ-28 Ghost Bat fighter-like drone is kept on display at the Australian International Airshow, in Avalon, Australia February 28, 2023. REUTERS/Jamie Freed

The design of the Ghost Bat was so successful that it has been expanded by $250 million to build a Block 2 version, spawned an underwater unmanned-vehicle program called the Ghost Shark, and is now being exported to the United States for testing.15. What is more interesting is that the collaboration involves a US allied government, is led by a US defense manufacturer, and manifests a US-developed concept that, despite several conceptual iterations, is yet to be fully developed in the United States itself.16

A simplistic analysis of this case study could point to streamlined procurement processes and reduced bureaucracy in non-US governments, but this is not necessarily the case. The more useful framing for thinking about such a program is that every nation has a unique set of national circumstances—from geography and economy to national objectives and military approaches. As such, there will be varying requirements and incentives for military designs and programmatic commitments.

Rather than seeking to cover all possibilities, or even to replicate others’ experiences, streamlining the ability to leverage that experience and context to flow concepts, manufacturing, and techniques back and forth between nations means the United States can benefit from the diversity of its vast partner network, while sharing the burden of development costs.

It is the flow of concepts, skills, technology, and prototypes between partners in complex innovation ecosystems that reveals the possibilities for operationalizing ideas to capabilities. And while Ukraine demonstrates that makeshift and improvised solutions in real-time combat can provide paths to innovation, the Ghost Bat program was a long-term, planned procurement process, in which an ally’s pursuit of capabilities to meet its own needs (in Australia’s case, the need to amplify the effect of a small population across vast territory through high-end technology and capabilities) offers an opportunity to advance solutions the United States can leverage to achieve its own capabilities goals.  

Partnerships such as the US National Technological and Industrial Base (NTIB) and AUKUS trilateral defense partnership have created vehicles for cooperation between the United States and some of its closest historical allies—which can drive collaboration like the Ghost Bat program. The NTIB, for example, supports security and defense objectives by “supplying military operations; conducting advanced R&D and systems development to ensure technological superiority of the US Armed Forces; securing reliable sources of critical materials; and developing industrial preparedness to support operations in wartime or during a national emergency.” 17  While effective, the NTIB and AUKUS only tap into a small subset of countries, excluding the advanced capabilities, platforms, and expertise spread across the United States’ twenty-nine other NATO allies. Bringing new partners into the US orbit via an AUKUS+ framework—or extending the NTIB to other close transatlantic allies with cutting-edge expertise and capabilities, like Sweden, Italy, and the Netherlands—would open new acquisition pathways and facilitate the enhanced cooperative development, experimentation, and industrial co-production needed for the United States to outpace competitors in today’s threat environment.18 Agreements like AUKUS should not be seen as ends in themselves, but pathfinders to create new and more streamlined channels for tech collaboration and cooperation.  

V. New attitudes: Niche innovations 

Another way to leverage allied innovation is through adapting and adopting niche capabilities that allies have naturally developed to meet their own needs, built on the native talents and expertise of their own populations. Some of the easiest and most critical of these tools are in the cyber and information domains, though across allied countries in NATO, for instance, there are numerous small drone, satellite communications, and ballistic-missile technologies that could be highly useful across the US-aligned alliance ecosystem. For instance, countries such as Estonia and the Netherlands are at the forefront in areas such as misinformation detection, cyber-threat intelligence, network security, and incident response. Co-production will also be vital for NATO to meet the challenges of this era of renewed strategic competition, and the value of it—particularly in niche advanced capabilities—can be seen through the ramping up of production for items such as first-person view (FPV) drones in support of Ukraine’s defense.19

The value of leveraging native conditions that can be leveraged by the wider alliance can be seen in countries like the Netherlands, where a high concentration of high-tech companies, knowledge economies, and widespread public-private collaborations has resulted in niche capabilities in ballistic-missile defense, sensor systems, and space, communications, and quantum technologies.20 Its innovation hub at Brainport Eindhoven now also hosts a NATO DIANA accelerator cell to further leverage its successful investments and public-private collaborations, and its success in areas such as the launching of micro satellites has drawn attention from potential adversaries.21 More importantly, they are proactive in seeking to collaborate and disseminate natively developed insights, showing how important the attitude toward innovation must come from both sides of any collaboration.22

US Secretary of State Antony Blinken speaks with Charles Marcus, professor at Niels Bohr Institute and principal researcher at Microsoft, as he tours the Quantum Materials Lab at the University of Copenhagen, in Copenhagen in Copenhagen, Denmark, May 17, 2021. Saul Loeb/Pool via REUTERS

In many cases, knowledge-based innovation should be easy to export and share. But it cannot occur without recognition of the expertise of the source country and a genuine desire to learn from and adopt the lessons being generated. This requires a shift in attitude toward the value of the innovation itself, and a willingness to learn from others’ experiences. At a more basic level, it requires appropriate information-sharing agreements to be in place, which also requires a degree of trust between parties and a dedication to reforming the bureaucratic processes needed to enable them. While initiatives like the NTIB have arguably failed to live up to their potential, their value in shaping attitudes and focusing attention on the need for collaboration and sharing of data and technologies could be as valuable as any other element.23 For this reason alone, the United States should consider expanding the effort to more NATO nations, with the future intent of also bringing them into an expanded AUKUS+ framework.24 Agreements of this type are a perfect example of the process innovation needed in addition to the development of technologies, because without process and regulatory reform—not to mention increased data sharing—and the attitude required to enable it, technological collaboration will not be able to occur in a meaningful way. 

Successful innovation requires a shift in attitude across a number of issues, including willingness to experiment, increased risk appetite, open-mindedness, and an embracing of inevitable failures as a path to learning. But the need to recognize the value of diverse perspectives on addressing challenges—and have the willingness to enable the sharing of those perspectives and the data that support them—is vital to exploring untrodden paths and fostering a culture of continuous improvement. There are likely few across the US agencies, military, or defense industrial base who would disagree in principle. But for this attitude to have a material effect, there must be a shift from passive agreement to proactive measures to enable it. 

VI. Conclusion

If advanced technologies are a key pillar of winning the era of strategic competition, and allies are one of the United States’ great advantages, then surely tech collaboration with allies should be a center of gravity of US means to win. In a race of innovation, harnessing the perspectives, experiences, and extant investment of a diverse network of partners is a huge strategic advantage for the United States and NATO. But it will be a squandered advantage if appropriate attitudes, concepts, and processes are not in place to amplify development and harness the resulting capabilities. There are already a number of programs that seek to do this, and they should be supported, studied, and replicated. But more should be done to harness the new concepts, technologies, and niche capabilities that the partner ecosystem is generating, particularly within NATO member states—either through expansion of programs such as the NTIB, AUKUS, and DIANA, or by using them as templates to reform and evolve other bilateral and multilateral frameworks. Doing so will be imperative if the transatlantic Alliance is not only to prevail in this era of strategic competition, but retain sufficient military advantage needed to ensure security and stability for a free and open international system. 

About the author

John Watts

Fellow

John T. Watts

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Conflict Crisis Management

Acknowledgement and disclaimer

This publication has been produced in cooperation with the Ministry of Defence of the Kingdom of the Netherlands under the auspices of a project on transatlantic defense innovation.

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Accelerating transatlantic defense innovation in an era of strategic competition

Report Jan 16, 2024

Atlantic Council Commission on Defense Innovation Adoption: Final report

By Whitney M. McNamara, Peter Modigliani, Matthew MacGregor, and Eric Lofgren*

The DoD must accelerate defense innovation adoption from the leading edge of the private sector. This report has ten recommendations to do so and features eight vignettes that explore how these actions may play out in practice.
Artificial Intelligence Defense Policy

The Transatlantic Security Initiative, in the Scowcroft Center for Strategy and Security, shapes and influences the debate on the greatest security challenges facing the North Atlantic Alliance and its key partners.

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1    Brandon Kirk Williams, “The Innovation Race: US-China Science and Technology Competition and the Quantum Revolution,” Wilson Center, Wilson China Fellowship, and Kissinger Institute, 2023, https://www.wilsoncenter.org/sites/default/files/media/uploads/documents/Williams_2022-23%20Wilson%20China%20Fellowship_Understanding%20China%20Amid%20Change%20and%20Competition.pdf. 
2    Edward A. Smith Jr., “Network-Centric Warfare,” Naval War College Review 54, 1 (2001), https://digital-commons.usnwc.edu/cgi/viewcontent.cgi?article=2391&context=nwc-review.
3    Joe Lacdan, “Army Intelligence Leader: ‘Cultural Shift’ Will Help Service Become Data Centric,” Army News Service, January 12, 2024, https://www.army.mil/article/272946/army_intelligence_leader_cultural_shift_will_help_service_become_data_centric.
4    Commission on Defense Innovation Adoption,” Atlantic Council, last visited March 24, 2024, https://www.atlanticcouncil.org/programs/scowcroft-center-for-strategy-and-security/forward-defense/defense-innovation-adoption-commission/.
5    The shift from hierarchical approaches to giving orders to “mission command”-style leadership is the best example of this; the implementation of “predictive-maintenance” approaches to equipment management is another. Even procurement processes like creating Other Transaction Authorities (OTAs), which allow DOD engagement with nontraditional suppliers for prototype projects. At a more granular and niche level, new processes such as using Significant Security Cooperation Initiatives (SSCI) to globally prioritize security-cooperation activities to create a more coherent approach to military aid can have multiple benefits.
6    John Schaus and Elizabeth Hoffman, “Is ITAR Working in an Era of Great Power Competition?” Center for Strategic and International Studies, February 24, 2023, https://www.csis.org/analysis/itar-working-era-great-power-competition; Hideki Tomoshige, “The Unintended Impacts of the U.S. Export Control Regime on U.S. Innovation,” Center for Strategic and International Studies, July 25, 2022, https://www.csis.org/blogs/perspectives-innovation/unintended-impacts-us-export-control-regime-us-innovation; Martjin Rasser, “Rethinking Export Controls: Unintended Consequences and the New Technological Landscape,” Center for a New American Security, December 8, 2020, https://www.cnas.org/publications/reports/rethinking-export-controls-unintended-consequences-and-the-new-technological-landscape; John T. Watts, “Evolving Cooperative Security Approaches for Tomorrow’s Realities,” Atlantic Council, December 20, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/evolving-cooperative-security-approaches-for-tomorrows-realities/.
7    Joslyn Brodfuehrer, “NATO’s Greatest Advantage over Adversaries Is Its Network of Allies and Industry Partners. Here’s How to Use It,” Atlantic Council, October 27, 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/natos-greatest-advantage-over-adversaries-is-its-network-of-allies-and-industry-partners-heres-how-to-use-it/. 
8    Joby Warrick, “Use of Weaponized Drones by ISIS Spurs Terrorism Fears,” Washington Post, February 21, 2017, https://www.washingtonpost.com/world/national-security/use-of-weaponized-drones-by-isis-spurs-terrorism-fears/2017/02/21/9d83d51e-f382-11e6-8d72-263470bf0401_story.html.
9    How Cheap Drones Are Transforming Warfare in Ukraine,” Economist, February 5, 2024, https://www.economist.com/interactive/science-and-technology/2024/02/05/cheap-racing-drones-offer-precision-warfare-at-scale; Laura Jones, “Lesson from a Year at War: In Contrast to the Russians, Ukrainians Master a Mix of High- and Low-End Technology on the Battlefield,” Conversation, February 22, 2023, https://theconversation.com/lesson-from-a-year-at-war-in-contrast-to-the-russians-ukrainians-master-a-mix-of-high-and-low-end-technology-on-the-battlefield-197853
10    Aaron Mehta, “Palantir Wins Contract for Army TITAN Next-Gen Targeting System,” Breaking Defense, March 6, 2024, https://breakingdefense.com/2024/03/palantir-wins-contract-for-army-titan-next-gen-targeting-system/; Christine H. Fox and Akash Jain, “Prime Time for Software: Reimagining the Future of Defense Acquisition,” War on the Rocks, April 17, 2023, https://warontherocks.com/2023/04/prime-time-for-software-reimagining-the-future-of-defense-acquisition/.  
11    Tom Cooper, “Kropyva: Ukrainian Artillery Application,” Medium, June 10, 2022, https://medium.com/@x_TomCooper_x/kropyva-ukrainian-artillery-application-e5c6161b6c0a; “Digital Country,” UkraineNow, last visited March 24, 2024, https://ukraine.ua/invest-trade/digitalization/. 
12    David Axe, “There’s a Good Reason the Russian Air Force Is Faltering. Ukrainian Air-Defense Crews Have Better Apps,” Forbes, October 18, 2022, https://www.forbes.com/sites/davidaxe/2022/10/18/theres-a-good-reason-the-russian-air-force-is-faltering-ukrainian-air-defense-crews-have-better-apps/?sh=44232a007960. 
14    Daniel Wassmuth and Dave Blair, “Loyal Wingman, Flocking, and Swarming: New Models of Distributed Airpower,” War on the Rocks, February 21, 2018, https://warontherocks.com/2018/02/loyal-wingman-flocking-swarming-new-models-distributed-airpower/.
15    Colin Clark, “Aussies Add $400M AUD for Boeing’s Ghost Bat Loyal Wingman, to Unveil an Armed UAV This Year,” Breaking Defense, February 8, 2024, https://breakingdefense.com/2024/02/aussies-add-400m-aud-for-boeings-ghost-bat-loyal-wingman-to-unveil-an-armed-uav-this-year/; Tim Fish, “Anduril’s Extra-Large UUV Ghost Shark Edges Closer to Production in Australia,” Shephard, November 10, 2023, https://www.shephardmedia.com/news/uv-online/anduril-keen-to-move-into-uuv-production/; Michael Marrow, “Boeing’s Ghost Bat Loyal Wingman Drone Spotted Hanging in US,” Breaking Defense, May 25, 2023, https://breakingdefense.com/2023/05/boeings-ghost-bat-loyal-wingman-drone-spotted-hanging-in-us/
16    Joseph Trevithick, “XQ-58 Valkyrie Solves Air Combat ‘Challenge Problem’ While under AI Control,” Warzone, August 3, 2023, https://www.twz.com/xq-58-valkyrie-solves-air-combat-challenge-problem-while-under-ai-control. 
17    H. M. Peter, “The National Technology and Industrial Base,” FAS Project on Government Secrecy, 2023, https://sgp.fas.org/crs/natsec/IF11311.pdf
18    William Greenwalt, “Leveraging the National Technology Industrial Base to Address Great-Power Competition,” Atlantic Council, April 23, 2019, https://www.atlanticcouncil.org/in-depth-research-reports/report/leveraging-the-national-technology-industrial-base-to-address-great-power-competition/; Brodfuehrer, “NATO’s Greatest Advantage over Adversaries Is Its Network of Allies and Industry Partners.”
19    Sam Skove, “UK, Latvia Launch Effort to Send Thousands of FPV Drones to Ukraine,” Defense One, February 15, 2024, https://www.defenseone.com/threats/2024/02/uk-latvia-launch-effort-send-thousands-fpv-drones-ukraine/394238/.   
20    Brodfuehrer, “NATO’s Greatest Advantage over Adversaries Is Its Network of Allies and Industry Partners.”
21    “Brainport Region First in the Netherlands to Join NATO’s DIANA Innovation Accelerator,” Brainport Eindhoven, March 14, 2024, https://brainporteindhoven.com/int/news/brainport-region-first-in-the-netherlands-to-join-natos-diana-innovation-accelerator; “China Seeking Dutch Space Technology—Military Intelligence Agency,” Reuters, April 19, 2023, https://www.reuters.com/technology/space-seeking-dutch-space-technology-military-intelligence-agency-2023-04-19/.
22    “Dutch Space Sector Strengthens Position in the United States,” Space Foundation, April 17, 2023, https://www.spacefoundation.org/2023/04/18/dutch-space-sector-strengthens-position-in-the-united-states/.
23    “Ebbing Opportunity: Australia and the US National Technology and Industrial Base,” United States Studies Centre, November 25, 2019, https://www.ussc.edu.au/australia-and-the-us-national-technology-and-industrial-base.
24    Caitlin M. Kenney, “US Open to Expanding AUKUS,” Defense One, June 26, 2023, https://www.defenseone.com/policy/2023/06/us-open-expanding-aukus/387948/.

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]]> The case for African social infrastructure https://www.atlanticcouncil.org/in-depth-research-reports/report/the-case-for-african-social-infrastructure/ Wed, 03 Apr 2024 15:13:06 +0000 https://www.atlanticcouncil.org/?p=751034 Investment in African social infrastructure can be defined as African real estate that serves an essential societal purpose.

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Africa is in urgent need of social infrastructure to support its rapidly growing population. As the demand for education, housing, hospitals, and public facilities continues to grow, investment is needed now more than ever. With emerging challenges ranging from pandemics, climate change disasters, food insecurity, and conflict, sustainable infrastructure is critical to averting the exacerbation of existing issues facing the continent. However, recognizing this growing demand presents a unique opportunity for investors, DFIs, and stakeholders from both public and private sectors to intervene in this emerging market.

Investment in African social infrastructure–simply put–can be defined as African real estate that serves an essential societal purpose, according to the author. Despite the existing barriers to investing in this sector, including limited data, the lack of proper regulatory and urban planning frameworks and limited financing options that hinder the development, investors who are willing to make risk-conscious investments would reap the long-term benefits of higher relative yields and the portfolio diversification that the African real estate market provides. This report argues that African social infrastructure can provide attractive investment opportunities that offer profitability and mutually beneficial impact across the continent.

About the author

Tom Koch is a nonresident fellow at the Atlantic Council’s Africa Center and is an emerging markets investment professional. He was previously director of global capital and strategy at FCA Corp, the advisor to a multi-sector Africa focused private equity fund. Prior to that, he worked within Deloitte Consulting’s mergers and acquisitions group.

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

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]]> Why Africans hold the future of global democracy in their hands https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/why-africans-hold-the-future-of-global-democracy-in-their-hands/ Tue, 02 Apr 2024 20:18:06 +0000 https://www.atlanticcouncil.org/?p=753290 By the end of 2024, the face of political Africa will—theoretically—no longer be the same. With nineteen elections scheduled this year, the continent will see presidents leave who were elected more than ten years ago (in Senegal and Ghana), uncertain civilian transitions (in Chad, Mali, and Burkina Faso), high-stakes elections (as in South Africa), and […]

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]]> By the end of 2024, the face of political Africa will—theoretically—no longer be the same. With nineteen elections scheduled this year, the continent will see presidents leave who were elected more than ten years ago (in Senegal and Ghana), uncertain civilian transitions (in Chad, Mali, and Burkina Faso), high-stakes elections (as in South Africa), and strongmen hanging on (in Tunisia and Rwanda). This volatility, combined with the continent experiencing a wave of coups d’état, makes many observers pessimistic about a decline of the democratic ideal.

This “democratic winter” is not unique to Africa. In the United States, according to Gallup, only 28 percent of Americans—a record low, fewer even than in the aftermath of the attack on the Capitol on January 6, 2021—are satisfied with the way their democratic system works. In France, two in five voters dream of an unelected strongman at the head of the country.  It is not surprising that the value of democracy is also disputed in Africa, and that arguments against it take the form of claims to national sovereignty and are mainly directed against the former colonial powers. Wherever recent coups have taken place, the putschists have publicly rejected the influence of former colonial powers (as in the Sahel region with France) or Western institutions (as in Sudan, where General Abdel Fattah al-Burhan used the structural reforms inspired by the World Bank to justify his coup in October 2021). Coup leaders have accused the previous governments of having installed falsely democratic regimes, which they claim were weak and responsible for the persistence of underdevelopment. In Niger, President Mohamed Bazoum is still being held against his will, accused by a military junta of having had “exchanges” with “foreign heads of state” and “heads of international organizations.”

How has the concept of democracy, at least in terms of aspiration, become so divisive that its rejection is no longer even taboo? No international conference lacks African putschists who have not been elected by anyone claiming their legitimacy to take power by force with the cheers of their supporters. While some of the allegedly “spontaneous” demonstrations in the streets they refer to are organized, these events resonate deeply in African opinions, especially among the younger generations.

These are poor excuses, not to mention that there is something deeply insulting about suggesting that Africans do not deserve to choose their leaders and, therefore, to live freely. Besides, why should anyone believe that democracy is only a Western concept?

An African vision of democracy

The Manden Charter, proclaimed in 1222 at the time of the Mali Empire—centuries before the UK Bill of Rights—is considered in Africa to be the first declaration of human rights in history. The charter celebrated the preservation of life (Article 5: “Everybody has a right to life and to the preservation of physical integrity”) and organized coexistence between communities (Article 11: “When your wife or your child is missing, stop running after them in the neighbour’s house”). It also protected the rights of women (Article 14: “Never offend women, our mothers”; Article 16: “Women, apart from their everyday occupations, should be associated with all our managements”), foreigners (Article 24: “In Manden, do not maltreat the foreigners”), the homeless (Article 31: “We should help those who are in need”) and even the enemy in battle (Article 41: “You can kill the enemy, but not humiliate him”).

As we can see, Africans are very familiar with democratic practice, and that is true well beyond the Mali Empire. Among the Yoruba, the power of the chief was revocable. Among the Ashanti in Ghana, the village chief was chosen by the heads of families, who formed a council. An association of adults from each village represented public opinion and elected a president.

Today, there are plenty of examples of democratic successes in Africa. In its 2023 report, Freedom House wrote, “Freedom in Africa slightly advanced in 2022 with 11 countries seeing improvements in their political rights and civil liberties and 9 experiencing declines.” In Liberia in January 2024, Joseph Bokai peacefully succeeded George Weah, who had succeeded Africa’s first female president, Ellen Johnson Sirleaf, in January 2018. In Botswana, all elections since independence in 1966 have been conducted peacefully, in a multiparty institutional system where minorities are represented. Botswana has no curse around raw materials: Diamonds, which generate half of public revenues, ensure the prosperity of the country and the government finances the primary and secondary education of all students. From Mauritius to the Seychelles to Cabo Verde, African islands enjoy remarkable political stability. According to Freedom House, “Cabo Verde (receiving a total score of 92 on Freedom in the World’s 100-point scale), Mauritius (85), and São Tomé and Príncipe (84) have the highest aggregate scores in the region. All are rated Free.” Namibia is notable for having only three presidents since 1990. The third—Hage Geingob, who died in February 2024—was first elected in November 2014 in Africa’s first fully electronic elections. He succeeded Hifikepunye Pohamba, who respected the constitution and stepped down after two terms in office.

Ghana is one of the countries that has made progress in its democratic practice. Since the 1992 constitutional reform, Ghana has held eight free elections, while the current president, Nana Akufo-Addo, is preparing to leave power in December 2024 after two terms.

In Zambia, President Hakainde Hichilema took office in August 2021 following a smooth political transition with outgoing President Edgar Lungu, despite a longstanding rivalry between the two men. Hichilema was running for president for the sixth time, three of them against Lungu. This was the third time since 1991 that power passed to the opposition in Zambia.

In Tanzania, former President Ali Hassan Mwinyi, who introduced multiparty democracy and recently died at the age of ninety-eight, was called the “champion” of democracy in East Africa by US Vice President Kamala Harris during her March 2023 visit. Under his successor, Samia Suluhu Hassan—in office since April 2021 and one of two women leading African nations, a distinction she shares with Ethiopia’s Sahle-Work Zewde, who has been in office since 2018—Tanzania is fighting for a democratic practice that began with Julius Nyerere, the Mwalimu (“the Teacher”), the president of Tanzania from 1964 to 1985.

In Senegal, recent upheavals—including a February announcement, since rescinded, by President Macky Sall that he would delay the previously scheduled February 25 elections—have not derailed the institutional system. Sall and the National Assembly have complied with the decision of the top legal authority that set the date of the presidential election, confirming the exceptional democratic journey of Senegalese society. In sixty years, the country has had only four presidents, and each transition has taken place under the watchful eye of communities and institutions—including the army, which is known for its peacemaking role.

At the level of regional organizations, the Economic Community of West African States (ECOWAS) has been criticized by commentators for failing to prevent recent coups d’état in the region and for the withdrawals of Mali, Niger, and Burkina Faso from the organization. However, the majority of ECOWAS members have upheld democratic norms—including Guinea-Bissau and Liberia, which previously faced war and conflict. Notably, from 2015 to 2020, ECOWAS maintained peace and stability in the region, without any coups.

It is worth noting that while all these successful experiences are individually celebrated as exceptions, they represent a significant trend of African democratic successes. Out of fifty-four African countries, 17 percent are considered “free” by Freedom House and 37 percent are considered “partially free.” Added together, the majority of African nations (54 percent) are at least partially free. In comparison, of the twelve countries in the Eurasia region (the countries of the former Soviet Union), 67 percent are considered “unfree” and none are perceived as “free.” According to Freedom House, people live freer in Africa than in Eurasia thirty years after the fall of the Soviet Union.

Contrary to the popular belief that Africa is a land of inter-ethnic wars, the continent’s significant cultural diversity, far from being only a challenge, is one of the most original elements of African democratic systems. For example, Senegal was led for twenty years by a president who belonged to two minority groups, Serers and Catholics, in a country that is predominantly Wolof and Muslim. With more than three thousand languages spoken and multiethnic cultural challenges, African political models have no equivalent elsewhere in the world. 

Africa’s history is full of experiences of multicultural governance. In the Mali Empire, diverse ethnic peoples—Tuareg, Wolof, Malinke, Bamba, Fulani, and Toucouleur—lived together, and a religious tolerance prevailed in which no Malian king waged a holy war (jihad). The Ghana Empire, which covered a large area from Tekrour to Awdaghost, included populations as diverse as the Bambara, Toucouleur, Wolof, and Serer. While the emperor practiced animist religion, he showed tolerance toward Muslims and chose most of his ministers from among them, as recalled by the Burkinabe historian Joseph Ki-Zerbo.

There’s no conflict between democracy and sovereignty

But if the arguments against democracy made by coup leaders and their supporters hit the nail on the head, it is because modern democratic practice, far from this African heritage, has disappointed them. First, the colonial period resulted in the destruction of traditional African participatory structures such as “acephalous societies, centralized kingdoms, elective theocracies, independent city-states, and oligarchic republics,” as researchers Fanny Pigeaud and Ndongo Samba Sylla reported in a January 2024 book. Democracy in Africa was then the collateral victim of geopolitical rivalries, as ordinary men who sought power in the aftermath of independence—such as Patrice Lumumba in the Democratic Republic of the Congo, Samora Machel in Mozambique, and Amilcar Cabral in Guinea-Bissau—were killed during or after running for office. Secondly, security was prioritized over democracy in countries where jihadist danger needed to be contained. In several cases, containing such danger has been a convenient excuse to muzzle dissidents, and to dodge or even rig elections. In the 1990s, the democratic opening was able to sweep away old leaders—such as the first president of Zambia, defeated in 1991 after twenty-seven years in power, or the first president of Malawi, Hastings Kamuzu Banda, defeated in 1994 after thirty years—but family and military transitions are a widely shared reality in Africa. The most successful democratic experiences have been akin to national liberation struggles and have come at a high price, as symbolized by South Africa, where the story of former President Nelson Mandela demonstrates the harshness of the democratic struggle.

Undoubtedly, these hardships have created a “democratic fatigue” that has been reinforced by the persistence of underdevelopment in countries richly endowed by nature.

The restoration of the democratic ideal requires going far beyond simple rankings with points awarded according to indicators of freedoms or rights. It also requires doing better than the use of election-observation missions in Africa. Although there are numerous such missions (including those by the African Union, International Organisation de la Francophonie, European Union, ECOWAS, foundations, and nongovernmental organizations), and they are governed by the Declaration of Principles for International Election Observation (2005), the Code of Conduct for International Election Observers (2007), and the Declaration of International Principles for the Impartial Observation and Monitoring of Elections by Citizens’ Organizations (2012), election-observation missions are often perceived as illegitimate because they are externally funded and, in some cases, do not prevent protests or violence. Moreover, missions can fail for security reasons, such as when the European Union withdrew from the Democratic Republic of the Congo in November 2023. Solutions to restore the luster of these missions have been widely documented, including greater integration of in-country residents, improvement of civil-status registers, better distribution and security of polling stations, and national financing of electoral missions.

But in an ideal situation, Africa would still be able to do without such solutions. Democracy is bigger than any one election. No matter how perfectly organized an election is, if the turnout is low, if the political parties competing are on the same side, if the conditions for competition are biased, if citizens are not educated or informed about the stakes, or if there is no possible appeal, a country is still falling short of the democratic ideal. These things are matters of education policy, civic training, and strong institutions, and often escape international observation missions and rankings.

With its population expected to double in the next twenty-five years, and a generation emerging with the ambition of making its voice heard, Africa holds much of global democracy’s future in its hands. The youth of Africa are fiercely committed to public affairs. There is a clear gap between the young Africans, including movements such as Le Balai Citoyen and Lucha, who are chasing away authoritarian regimes,  and those who applaud the Sahelian putschists. Young Africans are united by their desire for stronger national sovereignty. To regain value in the eyes of the people, the African version of democracy will not only have to renew some of their leaders (the new forty-year-old leaders of West Africa contrast with the advanced age of African leaders) but also embody their aspiration for sovereignty and a regained dignity. Neither Washington nor Beijing can bring this to Africans. As for the Westerners who want to reconnect with this old continent with such a young population, it is important that they do not practice the double standards, and instead apply to Africa the level of democratic demands they have for their own citizens. This is a competitive advantage they have over the Russians and the Chinese. This path holds great promise, as it is not certain that African youth—more educated and attached to their freedom of expression—would let Russia and China drag them onto the authoritarian path they promote.

African leaders must understand that democracy, far from being a simple electoral operation, is first and foremost an act of patriotism. That is why it is fundamental to teach the democratic history of Africa, so that democracy and national sovereignty on the continent no longer clash. It is also essential to strengthen civic education, starting in elementary school. In the political arena, the strengthening of institutions is crucial, including the administrations, federal institutions and services, and checks and balances such as the judiciary and media. It will also be necessary to reform institutions so that they better reflect African realities, including better representation of elders, strengthening of local governance, and inclusion of youth associations. Finally, it is crucial that the opponents—often weakened by years or even decades of opposition, exile, or prison—be equal to their heavy task. While men in fatigues are in vogue today, we can bet that this will not always be the case, and it will then be necessary for visionary patriots to be ready to take over.

About the author

Ambassador Rama Yade is senior director of the Atlantic Council’s Africa Center and senior fellow for the Europe Center. She is also a professor of African affairs at Mohammed VI Polytechnic University in Morocco and at Sciences Po Paris.

She is a Senegalese and French citizen.

Prior to joining the Council, she was a consultant for the World Bank. She also has strong experience in the private sector as an editor in London and as director for development at a French consulting firm in corporate and social responsibility.

Yade has over a decade of experience working in French, European, and international politics. At the age of thirty, she was appointed as the deputy minister for foreign affairs and human rights of the Republic of France: the first ever French minister for human rights and the first woman of African descent to become a member of the French cabinet. In recognition of her work, she was Nelson Mandela’s personal guest on his ninetieth birthday in Johannesburg. At that time she was also recognized as Young Leader by the World Economic Forum.

She was subsequently appointed to the position of deputy minister of sports. Yade was also appointed as the ambassador of France to UNESCO. She started her professional career as a parliamentary high civil servant at the French Senate and director of communications of the TV network of the Parliament.

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]]> How China could respond to US sanctions in a Taiwan crisis https://www.atlanticcouncil.org/in-depth-research-reports/report/retaliation-and-resilience-chinas-economic-statecraft-in-a-taiwan-crisis/ Tue, 02 Apr 2024 01:00:00 +0000 https://www.atlanticcouncil.org/?p=753185 New research on Chinese resilience to and potential against G7 sanctions in the event of a Taiwan Crisis.

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Table of contents

Executive summary

Introduction

Chinese economic statecraft in a Taiwan crisis: Tools and applications

Access to Chinese markets

China in the global economy

China’s capacity to circumvent financial sanctions and G7 economic statecraft

Using international Renminbi networks to circumvent sanctions

Current scope of Renminbi internationalization

Policy constraints on expansion of Renminbi financial networks

Responding to G7 economic statecraft in a crisis

Assessing China’s capacity to respond to G7 statecraft

The impact on trade and FDI

Financial statecraft and consequences

Preventing escalation in economic warfare

Appendix 1: China’s formal economic statecraft toolkit

Authors

Acknowledgment

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Executive summary

Beijing has watched carefully as Western allies have deployed unprecedented economic statecraft against Russia over the past two years. Our report from June 2023 modeled scenarios and costs of Group of Seven (G7) sanctions in the event of a crisis in the Taiwan Strait. However, that report largely left unanswered a critical question: How would China respond?

This report examines China’s ability to address potential US and broader G7 sanctions, focusing on its possible retaliatory measures and its means of sanctions circumvention. We find that reciprocal economic statecraft measures would exact a heavy financial toll on the G7, China itself, and the global economy. Crucially, however, we also find that China is developing capacities that are making its economy more resilient to Western sanctions.

We consider the use of economic statecraft tools in two main scenarios: a moderate escalation over Taiwan limited to the United States and China that remains short of military confrontation, and a more severe scenario with G7-wide restrictions targeting Chinese firms and financial institutions. For each, we consider China’s potential responses to adversarial economic statecraft in terms of retaliatory action (including restrictions on economic activity within China and China’s potential actions abroad) and attempts to circumvent G7 sanctions.

We arrive at seven key findings:

  1. China’s economic statecraft toolkit is quickly expanding. In the past five years, China has used a range of formal and informal statecraft tools, including tariffs, import bans, boycotts, and inspections, to punish firms and countries for their stances on Taiwan and other sensitive issues. In anticipation of the potential for more extensive foreign sanctions, China has also been legislating to equip itself with an expanded toolkit to respond. This scope of options distinguishes China from Russia, which had prepared for additional sanctions in a less organized fashion, and presents a significantly more difficult challenge for Western economic statecraft.
  2. China’s statecraft toolkit is heavily weighted toward trade and investment rather than financial statecraft. We assess that in a moderate scenario where US exports to China are curtailed, more than $79 billion worth of US goods and services exports (such as automobiles and tourism) would be at risk. In a higher-escalation scenario involving G7-wide sanctions against China, around $358 billion in G7 goods exports to China could be at risk from the combination of G7 sanctions and Chinese countermeasures. On the imports side, we estimate that the G7 depends on more than $477 billion in goods from China which could be made the target of Chinese export restrictions. Regarding investment, at least $460 billion in G7 direct investment assets would be at immediate risk from the combined impact of G7 sanctions and retaliatory measures by Beijing. By comparison, China has limited financial tools available to directly influence G7 economies. What restrictions China imposes on capital outflows are likely to be driven more by financial stability concerns rather than attempts to coerce.
  3. China will face steep short- and medium-term costs if Beijing deploys economic statecraft tools. China would face high economic and reputational costs from using economic statecraft tools, especially in a high-escalation scenario. While export restrictions would be one of China’s most impactful economic statecraft tools, it would also be among the costliest options for China. Over 100 million jobs in China depend on foreign final demand, and nearly 45 million of these jobs depend on final demand from G7 countries. In a high-escalation scenario, most of these jobs would at least temporarily be put at risk. Even in a moderate-escalation scenario, China’s viability as a destination for foreign investment would dramatically decline, with implications for China’s exchange rate and domestic financial stability.
  4. China may prefer to avoid tit-for-tat retaliation for strategic reasons. As a result of the major costs to its citizens, China is unlikely to follow a tit-for-tat approach but will target sectors where it can inflict asymmetric pain, particularly through the use of export controls or trade restrictions on critical goods such as rare earths, active pharmaceutical ingredients, and clean energy inputs (e.g., graphite). China’s political objectives in a Taiwan crisis are unlikely to be served with a completely reciprocal response to G7 sanctions.
  5. China will likely attempt to divide the G7 and thereby limit the impact of sanctions. In scenarios where the United States alone imposes sanctions on China, Beijing has more opportunities to circumvent sanctions using targeted retaliatory measures against the United States, but not other G7 countries. The G7 has varied relations with and commitments to Taiwan, and a significant proportion of firms, particularly in Europe, continue to see China as a critical export destination. In addition, China may use positive inducements to encourage countries across the Group of Twenty (G20) to stay neutral. Beijing may also leverage its large bilateral lending with a range of emerging and developing economies to attempt to circumvent or not implement G7 sanctions.
  6. China is seeking to create resiliency to sanctions by developing alternatives to the dollar-based financial system, including renminbi-denominated transaction networks. Renminbi-based networks are never likely to replace the US dollar-denominated global financial system. However, the gradual expansion of these networks can help Beijing find alternative mechanisms for maintaining access to financing and trade transactions even in the event of far reaching Western sanctions or trade restrictions. A rapidly growing number of domestic and cross border payment projects are being designed with the possibility of Western sanctions in mind.
  7. The timing of any crisis can significantly alter the impact of statecraft tools, for both the G7 and Beijing. Western efforts to de-risk and shift supply chains in the next five years may reduce Beijing’s “second strike” statecraft capacity over time. At the same time, China’s renminbi-based financial networks will expand in scope and liquidity, providing Beijing with more options to mitigate Western sanctions.

Introduction

The prospect of a crisis over Taiwan has generated intense discussion in recent years, as other unthinkable scenarios in global affairs have become depressingly manifest. Russia’s invasion of Ukraine presented the United States and its allies with a need to quickly escalate economic sanctions and other tools of statecraft against Russia as part of a broader political response. As tensions in the Taiwan Strait have risen, the policy community began asking whether similar tools could be used to deter China in a Taiwan crisis scenario. Senior leaders in China increasingly reference risks from Western sanctions in policy remarks, and Beijing has reportedly conducted its own assessments of China’s vulnerabilities to Western economic sanctions.1

As tensions have risen within the US-China bilateral relationship, policymakers and analysts have started to actively discuss the potential use of sanctions, export controls on critical technologies, and China’s retaliatory responses. These economic statecraft tools are now being considered as options within a broader multilateral strategy toward China, without fully considering the consequences for cross-strait stability or the global economy. Over the last two years, economic warfare has become more plausible, even if military engagement still seems remote.

In June 2023, Rhodium Group and the Atlantic Council GeoEconomics Center published a report that found that the Group of Seven (G7) would likely consider a wide range of economic measures to deter or punish China in a Taiwan-related crisis scenario.2 While that report highlighted what tools might be considered and their direct costs to the global economy, it largely set aside questions about China’s own economic statecraft tools and responses. This report aims to fill that gap and discuss China’s potential responses to G7 sanctions or other tools of statecraft.

While still extremely costly in economic terms, these tools are nonetheless likely to be considered in a crisis since the costs of war are far higher. But unless the US-China political tensions over Taiwan can be managed, these lines between economic and military warfare will be blurred in any crisis scenario, with economic statecraft tools appearing as plausible and manageable responses.

This is exactly why understanding China’s potential responses to US and allied statecraft is so important. Understanding China’s capacity for economic coercion and circumvention can help refocus policy debate around credible and effective deterrence of both broader military conflict and the steady escalation of tensions from more limited crisis scenarios. Just as theories of nuclear deterrence account for the concept of second-strike capabilities, so too must we consider economic retaliatory measures in assessing the deterrence character of sanctions.3 Recent actions by Beijing to establish export controls on critical raw materials and other critical inputs reveal that Beijing is practicing and refining its use of economic leverage, but the contours of China’s ability, willingness, and channels for action are not well understood.

A February 2024 Atlantic Council policy brief by a senior US official (at the time out of government) with deep experience in this domain outlined seven principles for the effective use of economic statecraft.4 While these principles focus on US options, the framework can also be used to evaluate the effectiveness of China’s policy instruments.

Designing and implementing a set of economic statecraft instruments in a Taiwan crisis scenario to achieve political objectives requires clarity on the trade-offs involved among these principles, and where benefits will outweigh costs. In a Taiwan crisis, decisions will need to be made quickly, making it critical to understand China’s potential response. While China’s retaliatory tools can inflict significant short-term economic pain, and China’s leaders may not be considering the same principles as outlined in the table below, Beijing will also struggle to mount an economic statecraft strategy that is both sustainable and effective in limiting G7 policy choices toward China. This study aims to improve understanding of the uses and limits of China’s statecraft tools, as well as the potential costs of escalation, in order to make the commitments from both sides to deescalate in a crisis far more credible.

For the purposes of this report, we are limiting the measures discussed to explicitly economic tools and sources of economic power, even as we are aware that any crisis scenario would also include consideration of other nonmilitary options such as cybersecurity-related measures or disinformation campaigns, as well as military coercion below the threshold of war. Conventional wisdom assumes that China’s response would be coordinated and centralized, free from the democratic factors that constrain US and G7 action, including rule of law and separation of authorities across different branches of government and agencies. This study questions some of those assumptions, as Chinese bureaucratic interests are likely to clash on the question of the country’s need for US dollar inflows in the event of economic sanctions, as well as China’s economic interests in imposing restrictions on trade.

Author analysis

In chapter one, we build a framework to categorize the channels of economic interaction at risk from Chinese economic statecraft. In chapter two, we explore how each of these tools might be used at different levels of escalation, up to the level of retaliation against a major G7 sanctions program. In chapter three, we review China’s capacity to circumvent sanctions and statecraft using financial networks outside of the US dollar system.

This paper, and our prior work on sanctions options in a Taiwan crisis, focuses primarily on China and the G7. A forthcoming paper will explore the role of the G20 in a Taiwan contingency.

Chinese economic statecraft in a Taiwan crisis: Tools and applications

No country has ever tried to sanction an economy of China’s size and importance to the global economy. The use of economic statecraft against Russia following its invasion of Ukraine was exceptional in its breadth and its level of international coordination, but Russia was only the world’s eleventh-largest economy before the war began and had few economic countermeasures available aside from energy export denial.

As the world’s second-largest economy and premier manufacturing powerhouse, China has a far larger toolkit of economic policy instruments. It also has a history of using economic leverage assertively to achieve foreign policy objectives, though with mixed success. That experience means retaliatory efforts are nearly certain in ways the Western powers did not experience after imposing sanctions on Russia in 2014 and 2022 onward. In past work we took stock of economic statecraft tools available to the G7 and the costs and limitations of their use. In this chapter we catalogue China’s economic statecraft tools and applications, and assess the likeliness of their use in moderate or high Taiwan scenario escalations.

Drawing on past case studies and China’s growing legal and regulatory toolkit, we identify a range of economic statecraft actions that China could use in a Taiwan Strait escalation scenario. Scholars of economic statecraft typically subdivide statecraft tools into categories based on their direction (i.e., inbound or outbound flows) and on their channel (i.e., trade or capital flows).5 In the first section of this chapter, we look at access to China’s markets—i.e., the potential use of statecraft tools against economic flows into China, looking respectively at trade, foreign direct investment (FDI), and portfolio flows. In the second section, “China in the Global Economy,” we look at the use of statecraft tools aimed at these flows from an outbound perspective.

There is substantial debate within Chinese expert circles on the use of these tools. Academics and experts affiliated with China’s financial and economic bureaucracy often argue that defending against economic sanctions starts by building a strong financial system to improve domestic resilience and by deepening China’s global economic ties to increase the economic and diplomatic costs on the sanctioning economy. Zhang Bei, an economist at the People’s Bank of China’s (PBOC) Financial Research Institute, has argued that although China needs to strengthen countersanctions tools such as the Unreliable Entity List and Anti-Foreign Sanctions Law, it also needs to strengthen management of domestic financial risks and deepen global economic engagement through renminbi internationalization and international financial cooperation.6 Chen Hongxiang, another PBOC-affiliated researcher, describes the anti-sanctions policy toolbox as a “last resort strategy.”7 Chen notes that the United States faces limitations in the use of financial sanctions given the risks to the attractiveness of the US dollar as a global currency and the diplomatic and economic costs of sanctions.

Author analysis

Other scholars have discussed China’s use of retaliatory measures and the legal foundations for responses in the future. For example, Yan Liang of Nankai University has described trade controls on strategic resources as having played an important role in China’s sanctions toolkit in the past, noting the 2010 export controls on rare earths.8 Cai Kaiming, a Chinese cross-border compliance lawyer, has written about the newly developed legal foundations of Chinese economic statecraft tools, including the Anti Foreign Sanctions Law, the 2021 blocking statute, the Unreliable Entity List, and the reciprocal measures of China’s Export Control Law, Data Security Law, and Personal Information Protection Law (see Appendix 1).9 Throughout this paper, we consider the use of these new formal tools in a Taiwan crisis scenario, as well as the range of informal tools available, such as phytosanitary inspections and administrative orders, to China’s customs department. Given the range of both formal and informal tools available for the purpose of statecraft, the focus of this paper is on the ends, rather than the means. These tools span many different bureaucratic jurisdictions, but it is likely that, as in past instances of major statecraft actions where major costs to China’s economy are involved (such as China’s retaliatory tariffs against the United States in 2018), the decision to use these tools will come from China’s senior-most leadership.

Author analysis

Scenarios

While China’s past use of economic statecraft is instructive, Beijing may not necessarily respond to future escalations with the same old tools, or with the same intensity. In recent years, China showed a willingness to use economic statecraft more explicitly and intensely than in the past, albeit in a concentrated fashion (e.g., trade bans against Lithuania). China has also created new legal frameworks to justify future retaliatory or punitive actions.10 In short, we need to make predictions of future use cases beyond the range of China’s past actions.

To explore how China might use economic statecraft tools in the future, we consider two scenarios:

Moderate-escalation scenario: China responds to the United States taking an escalatory diplomatic action in the Taiwan Strait, such as a substantial deepening of the political relationship with Taiwan, a step-change in military aid, or a limited sanctions package in response to Chinese aggression toward Taiwan. In this scenario, China reacts with economic statecraft measures targeting the United States designed to impose relatively higher costs on the United States than China. In this scenario, China’s willingness to use statecraft is constrained by the necessity to maintain a strong business environment amid high geopolitical tensions.

High-escalation scenario: China retaliates to a maximalist G7 sanctions package that includes full blocking sanctions on China’s major banks and the PBOC, sanctions on senior political figures and business elites, and trade bans with relevance for China’s military.11 China adopts a much stronger and broader set of economic statecraft measures against the entire G7, with an intent to impose costs as high as possible on the sanctioning economies.

Both scenarios stop short of war between China and the United States or other G7 countries, and are meant to provide a context to evaluate the potential use of China’s statecraft tools. We consider only economic statecraft responses in a Taiwan escalation scenario, although China is also likely to consider military and quasi-military actions that are outside the scope of this paper, such as undersea cable cuttings, cyberattacks, or blockades. Where we highlight costs in dollar terms, they should be understood as the assets and annualized economic flows at risk of disruption unless otherwise specified.

Access to Chinese markets

One of China’s primary methods of exercising economic statecraft in the past has been to restrict access to its markets, either through trade barriers or disruptions to the operations of foreign companies and investors in China. In this section we consider the use of these tools in the past and in moderate- and high-escalation future scenarios.

Chinese imports

One of China’s primary methods of exercising economic statecraft in the past has been to restrict access to its markets through tariffs and nontariff barriers. In a moderate escalation with the United States over Taiwan, China could scale up these tools to restrict imports across a range of noncritical goods such as consumer products, easily substitutable goods, and goods where the United States is heavily dependent on China as an export market. In a higher-escalation scenario involving a maximalist G7 sanctions program, China could impose import bans on a broader range of goods, although the main initial disruptions to imports would likely come from sanctions against Chinese banks and importers. A total ban on G7 imports, with exceptions for critical agricultural and medical imports, would put $358 billion in exports to China at risk.

Author analysis

Past uses of statecraft

Restrictions on market access have been one of China’s most common forms of coercion in past geopolitical incidents. In most cases, these tools have been narrowly targeted—either against single companies or narrow product categories—to minimize the impacts on China’s economy and to act as a warning rather than full-blown punishment mechanism. Yet they have the potential to be scaled up in response to higher levels of escalation, especially as many G7 companies depend heavily on the Chinese market for revenue and growth.

  • Tariffs – In numerous past cases, China has increased tariff rates on imported products in an apparent response to political actions taken by other countries. China retaliated against the Trump administration’s imposition of across-the-board tariffs on Chinese exports to the United States, resulting in a 21% average tariff rate on goods imported from the United States.12 After members of Australia’s cabinet called for independentinvestigations into the origins of COVID-19 in April 2020, China imposed economic restrictions on a range of Australian products. China’s Ministry of Commerce (MOFCOM) announced tariffs as high as 218 percent on Australian wine and 80.5 percent tariffs on barley.13 In these cases, China provided the justification for higher tariffs on the basis of anti-dumping action against Australian exporters, but the timing and character of the tariffs led to speculation that the tariffs were retaliatory action by the Chinese government.14 Notably, China targeted goods where the costs to China’s economy would be lower than products like natural gas and iron, for which Australia also depends on China as an export market. In the Australia case, MOFCOM was responsible for raising tariffs, but the State Council itself also has powers to increase tariffs, as it did in imposing retaliatory tariffs against the Trump administration’s June 15, 2018, Section 301 tariff announcement.15
  • Inspections and import bans – China also exerts economic pressure through inspections and informal bans on imported goods. In 2010, China effectively banned salmon imports from Norway on the pretense of a violation of sanitary regulations after the Norwegian Nobel Committee awarded the Nobel Peace Prize to dissident Liu Xiaobo.16 China banned banana imports from the Philippines on health grounds in 2012 amid tensions in the South China Sea.17 The most recent major case followed the opening of a Taiwanese Representative Office in Lithuania in 2021.18 China imposed a de facto ban on imports from Lithuania through a range of measures, including denials of trade finance, revocation of import permits, the removal of Lithuania from China’s customs system, and cancelation of freight shipping to Lithuania by a Chinese rail shipping operator. Given that Lithuania only accounts for 0.003 percent of Chinese imports and its goods are primarily agricultural, the immediate cost to the Chinese economy from the import bans was limited. However, the diplomatic blowback from targeting a European Union (EU) member state with a full trade ban was arguably quite high. Coercion against Lithuania led the EU to raise a trade case in the World Trade Organization against China, and it likely strengthened support for the creation of the Anti-Coercion Instrument. It is a matter of debate whether China took these actions against Lithuania accepting these costs, or whether it underestimated the harshness of the EU’s reaction.
  • Boycotts – China uses its state media to foment and support boycotts of foreign brands during crises. In 2022, Chinese consumers boycotted H&M for its refusal to use cotton from Xinjiang with backing from state media and party organizations.19 In February 2017, the Lotte Group approved a land swap with the South Korean government to place a Terminal High Altitude Area Defense (THAAD) missile defense system on its former property. In response, China forced the closure of 74 Lotte supermarkets for supposed fire safety violations and published news articles urging consumers to punish South Korea “through the power of the market.”20 In both cases, China focused on companies that had ample local competition and low import dependence to mitigate the costs to China’s economy. South Korean companies in petrochemicals and semiconductors, by contrast, saw limited or no effect on their performance during the THAAD incident.21
  • Preferential treatment of competitors – Beijing’s direct and indirect control of state-run procurement provides leverage over foreign firms hoping to capture a slice of China’s market. Companies fear that officials can manipulate the bidding process to hurt their sales and exert influence on their home countries. One example came in 2021 after Swedish authorities implemented a ban on Huawei and ZTE 5G technology in late 2020. In subsequent bidding for state-owned China Mobile in June 2021, Ericsson’s share of 5G equipment awards dropped by nearly 80 percent. Ericsson had previously lobbied against the ban in Sweden, fearing it would be targeted for retaliation in China,22 and an editorial in the state-run Global Times later tied the bidding results to Sweden’s policy decision.23

Potential use in moderate-escalation scenario

How countries choose which imports to restrict is a central question of economic statecraft. In China’s retaliation against US tariffs in 2018, China’s tariffs tended to target US exports produced disproportionately in counties that leaned Republican and voted for then president Donald Trump in 2016, suggesting a political influence logic to China’s tariff targets.24 More broadly, policymakers are likely to think about the effectiveness of tariffs: Is the sender country able to bear the cost of sanctions while imposing enough damage to compel the other side to make concessions?25

Past instances of China’s restrictions on imports have typically been targeted in ways that limit costs to China’s economy: single firms, narrow sectors, or smaller economies. In a scenario involving the United States in a moderate escalation over Taiwan, China might accept elevated costs if it felt that sanctions on the United States were necessary to signal resolve, punish US behavior, or deter further action. In such a circumstance, China could target a range of sectors where costs to the US economy are high and costs to the Chinese economy, though elevated, are still relatively low. The tools used are likely to be the same as in the past: some combination of higher tariffs and both formal and informal import restrictions. The key question facing Chinese policymakers would be which sectors and goods to target.

First, China could target consumer discretionary products such as imported cars and cosmetics. While consumers would face higher costs and fewer choices, a ban on these products would have a far lower impact on the Chinese economy than a ban on intermediate goods or capital goods that China depends on for industrial production. If restrictions were expanded to US-branded products made in China (Tesla cars made in Shanghai, for instance), China would face some employment impacts, but in general these would likely be the easiest goods to target.

Second, China could target products where it has diversified imports and the United States has limited market power. China imports commodities such as crude oil, coal, polyethylene, and copper ore from the United States, but in small quantities relative to other exporters. China could likely impose high tariffs or bans on such goods from the United States, and procure them from other countries (albeit at higher costs). While not included in the table below, China might also include products where import dependence is still high but where China is actively pursuing self-sufficiency and strong local players are emerging, such as medical devices. China would likely avoid targeting critical inputs to its supply chains that would be difficult or costly to replace quickly, such as integrated circuits.

Finally, China could target areas based on how much the United States depends on China as an export market. In 2022, over half of US exported soybeans went to China, as did 83 percent of its exported sorghum. US dependence on China for its agricultural goods informed China’s decision to target these goods in response to the Section 301 tariffs. Yet the costs to China for imposing tariffs on these products would also be high: the United States supplied 31 percent of China’s imported soybeans and 64 percent of its imported sorghum. China would likely tailor the strength of its import restrictions depending on global agricultural conditions and whether alternative supply could be found elsewhere.

Tariffs or bans on US imports could also provide China with an opportunity to drive wedges between the United States and other countries. Sustained demand from Chinese consumers amid higher restrictions on US imports would increase demand for imported goods elsewhere. As a group of advanced industrial economies, the G7’s exports overlap substantially with US exports that could be at risk from Chinese trade barriers. Table 5 shows the top ten exports from the United States to China by value, and the export rank of those products from other G7 countries and Europe to China. For every product that ranks among the United States’ top ten exports to China, at least one other G7 country (and often multiple countries) also have that product ranked in their top exports to China. While these products are often diverse and not completely substitutable, the overlap in the export baskets of G7 countries to China points to the potential for China to exploit competitive dynamics between the United States and other G7 countries.

Potential use in high-escalation scenario

In a maximalist-escalation scenario, the initial disruptions to foreign exports to China would stem from G7 sanctions themselves rather than Chinese retaliation. As we argued in our June 2023 study on G7 sanctions toward China in a Taiwan crisis, many goods such as chemicals, energy, and electrical equipment would likely fall under a strengthened G7 export control regime, putting hundreds of billions of dollars of trade at risk.26 Sanctions on China’s banking system would limit exporters’ ability to settle transactions with importers.

Over time, however, foreign businesses could shift their transactions to unsanctioned importers and banks. Despite sanctions on much of Russia’s economy, at least 101 multinational companies from G7 countries are continuing operations in Russia as of January 2024, according to Yale researchers.27 While some of these firms are operating in sectors that may be considered humanitarian exceptions— such as agriculture and healthcare—most are not.

G7 trade with Russia fell by more than half in 2022. One quarter of the remaining trade is in agricultural commodities, medicine, and medical devices, which are explicitly authorized under a general license from the US Office of Foreign Assets Control.28 But despite sanctions on many major Russian firms and banks, G7 countries exported almost $25 billion in non-agriculture and non-medical products to Russia in 2022, regardless of the reputational and logistical challenges of exporting even permitted goods to Russia.

The resilience of G7 exports to Russia after sanctions suggests that trade with China, though diminished, could continue even in a maximalist sanctions regime. Broadly speaking, there are three groups of exports in a maximalist sanctions program: (1) goods at higher risk of G7 export restrictions, (2) goods at higher risk of Chinese import restrictions as retaliation, and (3) goods at lower risk of either G7 or Chinese restrictions.

It is impossible to know a priori what sectors G7 countries would agree to impose strict export controls upon, given the substantial costs to their own economies from these sanctions. But for the sake of this analysis, we assume that energy, machinery, chemicals, electrical equipment, trains, planes, and metals are at higher risk of G7 sanctions, making Chinese import restrictions in these sectors less relevant.

What’s left? China imported $92.4 billion in automobiles, plastics, textiles, and rubber from G7 countries in 2022. Losing these imports would certainly be costly to the Chinese economy, but not fatal, making them possible candidates for Chinese retaliation in a maximalist scenario.

Finally, China imported $79.5 billion in agricultural goods, pharmaceuticals, and medical devices from G7 countries in 2022. Agricultural and medical goods were exempt from G7 sanctions in the Russia case as part of humanitarian carveouts present in all sanction regimes. It is likely they would be exempt from G7 sanctions against China as well. While China is likely to impose some restrictions on agricultural products (as it has in the past against French wine and US soybeans), a total ban on agricultural products from the G7 would be extremely costly to the Chinese economy, even if some of those imports could be backfilled by greater imports from non-G7 countries like Brazil. Medicine and pharmaceuticals would be even more so. In this instance, it seems likely that agricultural and medical goods would face lower risks of a total trade ban from either China or the G7.

Import-related statecraft tools have been a part of China’s economic statecraft toolkit in the past and would likely be featured in a moderate- and high-escalation scenario in the future. In a moderate-escalation scenario, the tools would remain more or less the same, but could target a broader range of sectors where Chinese dependence is low (consumer discretionary goods and substitutable goods) or where US dependence on China as an export market is high. Targeted import restrictions against the United States would also create opportunities for China to weaken G7 unity by importing more from other G7 countries.

In a high-escalation scenario, the initial disruption to foreign market access in China would stem primarily from G7 sanctions and market turbulence more broadly, rather than Chinese countersanctions. China is more likely to be judicious in imposing import bans on agricultural goods and pharmaceuticals against the full G7. Excluding those products, the full range of G7 exports to China at risk from G7 sanctions and Chinese countersanctions is around $358 billion.

Foreign direct investment in China

During past geopolitical crises, China has used investment-related tools such as audits, inspections, and antitrust rules, typically either to punish a specific firm for its own actions (such as perceived support for Taiwanese independence) or to pressure firms to lobby their home governments. In a Taiwan escalation scenario, these tools could be used more expansively, potentially affecting up to $460 billion in G7 investment in China and an estimated $470 billion in annual revenue, but at the cost of undermining investor sentiment and accelerating capital flight from China.

Past uses of statecraft

China’s past use of statecraft against foreign firms domiciled in China indicates the wide range of tools available:

  • Forced shutdown of online platforms – China’s cyberspace regulator has in the past used its authorities to force companies to adhere to China’s conception of “One China” on their websites and branding materials. In 2018, the Cyberspace Administration of China (CAC) forced Marriott to temporarily shut down its website in China due to an email questionnaire that listed Hong Kong, Macau, Tibet, and Taiwan as separate countries.29
  • Merger/antitrust reviews – China has used its antitrust authority, the State Administration for Market Regulation (SAMR), as a powerful extraterritorial tool to block mergers between foreign companies during times of geopolitical tension. It is widely believed that China blocked the $44 billion merger of Qualcomm and NXP in 2018 in retaliation for US Section 301 tariffs on Chinese goods.30 The deal had been approved by eight other jurisdictions but was ultimately called off, as China’s refusal to approve the deal would have prevented the merged companies from operating in China. SAMR refused to approve the merger of Intel and Israeli firm Tower Semiconductor in 2023 amid escalating US tech controls on Chinese semiconductor firms.31
  • Inspections, audits, fines, and permit delays – China has often used health, safety, environmental, and quality inspections, tax audits, and other routine regulatory actions to punish firms (or the firm’s home country) for their stances on crossstrait issues. In 2021, the Chinese subsidiaries of Taiwan-owned conglomerate Far Eastern Group were fined $13.9 million for a range of violations, including breaches of environmental protection rules. Far Eastern had been a major donor to Taiwan’s Democratic Progressive Party (DPP), a party that Beijing views as advocating for Taiwan’s independence. In the leadup to the 2024 Taiwan general election, Foxconn’s Chinese subsidies became the subject of tax audits and land-use investigations. The investigations were believed by some to be meant to force Foxconn’s founder, Terry Gou, out of the presidential race to avoid splitting votes away from Beijing’s favored party, the Kuomintang.32 And in 2017, China used fire safety and health code inspections to force the closure of Lotte supermarkets during the THAAD incident.33
  • Personnel disruptions – In some cases, China has imposed restrictions on personnel traveling in or out of China for geopolitical reasons. 34 China’s aviation regulator in 2019 ordered Hong Kong carrier Cathay Pacific to ban airline staff who supported the Hong Kong protests from traveling to China.35 In March 2023, China detained five local staff of Mintz Group, a corporate due diligence firm.36 In October 2023, China detained and then arrested a Japanese employee of Astellas Pharma on suspicion of espionage.37
Author analysis

Table footnotes38 39

Potential use in moderate-escalation scenario

Past methods of disrupting multinational corporation (MNC) activities in China could be scaled up in a moderate-escalation scenario, but the use of these tools runs the risk of accelerating MNC diversification away from China and impairing China’s economy. These tools are more effective when firms believe that, despite short-term tensions, China still holds promise for their business operations and sales.

The CAC could use its powers to shut down US companies’ websites in China, disable their apps, or close their app stores. China could impose these restrictions through a variety of legal and regulatory tools, including revoking a firm’s Internet Content Provider (ICP) filing license or by blocking their Internet Protocol (IP) address within China’s Great Firewall.40 Through merger reviews, authorities can force companies to choose between abandoning the Chinese market or what can be years-long, multibillion-dollar deals. Inspections, audits, and fines could be scaled up against US firms in a crisis. Personnel disruptions, including tacit hostage-taking as in the cases of Michael Kovrig and Michael Spavor, is extremely worrisome for firms. Put together, these instruments may create a strong incentive for businesses to lobby their home governments for more amicable relations that would allow a deal to go through, but they would also accelerate plans to move operations from China, particularly if it looks like relations will be tense for the long term. Previously unused tools could also be used at higher levels of escalation. China could initiate investigations into a firm’s handling of data or revoke certifications for cross-border data handling. Rules around data, personal information, and cybersecurity ranked second on the list of US companies’ top 10 challenges in China in 2023.41 Already many companies are working to minimize their regulatory risk by partially or completely localizing their data storage, information technology, human resources, and software solutions in China.42 Data issues are particularly acute in the automotive, healthcare, and financial services sectors, making retaliatory data audits and investigations a possibility in a moderate escalation scenario.43 Chinese authorities could also restrict how firms repatriate earnings. In past times of macroeconomic stress, China has restricted remittances for MNCs moving money abroad, although there is no evidence suggesting these restrictions were geopolitically motivated.44 Foreign companies in China often repatriate income by issuing dividend payments to their overseas parent companies, which requires certain tax documents and processing by a Chinese bank. Chinese authorities could initiate tax audits targeting US companies to delay repatriation, or order banks to delay or reject processing requests. However, even in a moderate-escalation scenario, China would face macroeconomic pressures that would constrain how aggressively it targeted foreign companies. High geopolitical tensions would likely increase capital outflows and put depreciation pressure on the Chinese currency. Although China has substantial foreign reserves and strong capital controls, China’s reserves are finite and its capital controls are imperfect. Aggressive moves against foreign companies in China could exacerbate capital outflows in ways that Beijing would want to avoid.

Beijing would also seek to avoid moves that make it appear “uninvestable” to foreign firms more broadly. China’s long-term economic and financial stability depends in part on the willingness of foreign investors to continue investing in China, both to offset inherent outflow pressures and to drive productivity through partnerships with world-leading MNCs. Actions taken against MNCs, even if targeted against only one country, could undermine China’s narrative that it is a safe and attractive place for foreign investors to do business.

Potential use in high-escalation scenario

In a high-escalation scenario, China’s willingness to use aggressive economic statecraft actions against MNCs would likely be much higher. G7 sanctions on China’s major banks would immediately make China appear “uninvestable” for many investors, and many MNCs would be executing plans to exit the market even before considering Chinese retaliatory action. At this point, China would have little to gain from holding back on retaliatory actions on a pretense of maintaining “investability.”

Firms selling their assets in China would likely do so at a steep discount given a limited number of buyers and intense pressure to move quickly. Even once assets are sold, it would not be guaranteed that sellers could repatriate the proceeds of the sales to their home countries given strict capital controls on foreign reserves.

Tools used at lower levels of escalation could be used at greater scale. Local staff and visiting executives would likely face higher risks of travel delays and, potentially, exit bans or detentions amid heightened concerns over espionage. Restrictions on personal information protection and cross-border data transfers would likely be tightened considerably, adding to the logistical challenges of operating a Chinese subsidiary. Strict capital controls would likely prevent MNCs from repatriating any earnings in dollars whatsoever.

Companies would also be exposed to risks of asset seizure. G7 companies in strategic sectors such as chemicals and pharmaceuticals could face the risk of immediate expropriation. Within months of Russia’s invasion of Ukraine, for instance, Russia took control of German and Finnish utility assets in Russia.45 In China, companies that stayed, even in nonstrategic sectors, would face the risk of seizure as retribution in kind for G7 asset seizures or freezes or to ensure continued employment at firms that suspended their operations due to G7 sanctions.46

Estimating the FDI stock and revenues of G7 firms in China is hamstrung by a number of methodological challenges. China’s total inward FDI stock in 2022 was $3.6 trillion, according to the International Monetary Fund’s (IMF’s) Coordinated Direct Investment Survey.47 However, because the IMF compiles data based on the immediate investing country, rather than the ultimate beneficial owner of the investing firm, it is difficult to identify what FDI ultimately comes from G7 countries. For instance, only $460 billion of China’s FDI stock comes directly from G7 countries, according to Chinese reporting to the IMF as of 2022, while $2.5 trillion (70 percent of the total) is attributed to Hong Kong, the Cayman Islands, and the British Virgin Islands, some of which is G7 investment channeled through these intermediaries. Complicating matters further, a substantial portion of China’s inward FDI stock is actually China-origin investment that is routed back through Hong Kong or other tax havens. Here we use the most conservative estimate of G7 FDI—that which is directly attributable to G7 countries. The full value of the G7 FDI stock in China is likely much larger.

Similarly, it is difficult to assess the total revenue and profit exposure from MNCs in China. Annual filings of listed companies do not systematically break out revenue by region. Data from China’s MOFCOM estimate that the total revenue of foreign-invested enterprises above designated size in China in 2022 was $3.9 trillion.48 China does not individually report business revenues from foreign-invested enterprises by country, although MOFCOM does report the amount of realized inward FDI by country. Assuming that business revenues are proportional to overall business revenue, we estimate that G7 foreigninvested enterprises earned $470 billion in revenues in China in 2022 and $33 billion in profits—all of which would be put at risk from the combined impact of G7 sanctions and Chinese countersanctions in a high-escalation Taiwan crisis scenario.

Author analysis

Portfolio investment and other capital flows

China could use restrictions on its equity markets to limit outflows of foreign portfolio capital from China. While these tools have not been used in the context of economic coercion in the past, China has restricted activity in its equity markets in an attempt to stabilize market conditions. In a moderate- or high-escalation scenario, China will likely consider imposing restrictions on market activity or outbound portfolio flows.

Past uses of statecraft

To our knowledge, China has not restricted trade orders or imposed capital controls in equity markets during disputes with other countries in an effort at coercion. However, China has intervened heavily in equity markets in the past in an attempt to steady markets during times of financial instability. In July 2015, a speculative bubble in China’s equity markets burst, with the Shanghai Composite Index falling by 32 percent from a peak the month prior. To stem the decline, China ordered brokerages not to process sell orders while using state funds to buy stocks.49

Potential use in moderate-escalation scenario

In a moderate-escalation scenario, it is probable that China would impose some capital controls and restrictions on equity markets to stanch capital flight stemming from a heightened sense of geopolitical risk among investors. Rather than a tool of economic statecraft per se, capital market controls should be seen as a likely response to financial instability during a crisis. In a more moderate scenario, where tensions with the United States and China trigger a stock market rout, for instance, China might turn to administrative controls on equity markets, as in 2015, that de facto restrict foreign investors selling Chinese stocks and repatriating funds. Given that the objective of such controls would be to ward off financial instability rather than impose costs on other countries, these restrictions would likely affect all financial investors in China rather than any one country.

Potential use in high-escalation scenario A higher-escalation scenario would likely see China impose capital controls across the board, including on capital flows through Hong Kong and Macao, to limit destabilizing outflows. Theoretically speaking, some of these tools could be targeted at G7 investors, but in practice, it would be difficult even for Chinese authorities to identify which portfolio assets belong to which investors. As with direct investment flows, portfolio investment is intermediated through tax havens, obfuscating the ultimate owners of capital. Efforts to estimate the holdings of Chinese securities on a nationality basis (rather than the typical residency basis) suggest that official data significantly understate holdings of Chinese securities.50 Chinese authorities in a crisis would likely be hard-pressed to systematically identify G7 countries’ portfolio assets in China, let alone block them in a targeted fashion. If they did pursue this strategy, it is more likely that only a few high-profile investment firms would be targeted.

Instead, the more likely outcome is a comprehensive set of controls aimed at preventing a financial crisis. The IMF’s Coordinated Portfolio Investment Survey provides estimates of total portfolio assets and liabilities by economy.51 Based on this data, if full capital controls were put in place, an estimated $2.5 trillion worth of foreign equity assets in China, Hong Kong, and Macao would be at risk.

China in the global economy

China’s central place in global supply chains means that disruptions stemming from actions in a Taiwan escalation scenario would have far-reaching consequences. The previous section considers Chinese economic statecraft actions on flows and assets into China. This section considers the use of China’s statecraft toolbox on the global economy outside China: exports, outbound investment, and interactions with global financial markets.

Chinese exports

In an escalation over Taiwan, China could use its central position in global supply chains to exercise leverage against other countries. Because weaponizing supply chains may accelerate diversification away from China, these tools have been used sparingly in the past. However, new legal and regulatory tools have created a pathway for their use in a future scenario where China is more willing to bear the economic and reputational costs of disrupting supply chains.

Past examples of statecraft

Export restrictions on critical goods – China has used export restrictions in past geopolitical incidents to exert leverage over other countries. In September 2010, after a collision between Japanese coast guard ships and a Chinese fishing vessel and Japan detained its captain, China imposed an informal export ban on rare earths to Japan.52 In October 2010, industry officials reported that China expanded the export restrictions to the United States and Europe amid a trade dispute. China resumed exports in November of that year.53

In July 2023, China announced it would require export permits for Chinese gallium and germanium, elements used in chip production and solar panels among other products.54 China’s announcement came as the United States imposed restrictions on high-end chip and chip equipment exports to China. China announced in October 2023 it would require licenses for export of graphite products used in electric vehicle batteries.55 In both cases, demand for the products shot up immediately in advance of the license requirement, as importers stockpiled goods, and then fell, as the license regime was put in place. Gallium and germanium exports returned to pre-control levels by December. Rather than an export ban as in the past, the imposition of an export regime around gallium and germanium appeared to be an effort to formalize the legal foundation of export controls on a new set of critical goods. While Chinese authorities denied that the measures were retaliatory and aimed at any particular country, the announced measures did highlight China’s economic leverage in a period of heightened geopolitical tensions.

Author analysis

Potential use in moderate-escalation scenario

Export restrictions on critical goods – In a moderate-escalation scenario, China could limit exports to the United States across a range of products through export tariffs, informal restrictions, or full export bans. The United States is China’s largest export destination, with $583 billion in goods exported to the United States in 2022 (16 percent of China’s total exports).56 Export trade to the United States is an important source of employment, with an estimated 21.6 million jobs in China supported by exports to the United States.57 China’s dependence on the United States as an export market suggests that Chinese policymakers will be cautious when imposing export restrictions, aiming to reduce the impacts on the Chinese economy while still imposing meaningful costs on the United States.

For this reason, initial export restrictions would likely focus on select intermediate goods where trade volumes and Chinese export-dependent employment is low, but the lack of which would have compounding effects on US industry. Past supply chain analyses have identified some of the main dependencies on imports from China (see Table 9).

Author analysis

Table footnotes58 59 60 61 62

Restrictions on overseas IP and licensing – In addition to restricting goods exports, China may also change its posture on technology exports to the United States. Since 2008, China has maintained a technology catalogue that regulates what technologies may be exported from China.63 The technology catalogue contains twenty-four technologies prohibited for export and 111 technologies requiring an export license. The latest revision issued in December 2023 added LiDAR systems, used in autonomous driving applications, to the list of technologies requiring a license. Other technologies covered requiring licenses under China’s technology control regime include advanced materials processing (e.g., chemical vapor deposition) and underwater autonomous robot manufacturing and control technology, among others. As China reaches the cutting edge in some of these technologies, the ability to grant or revoke export licenses to companies in the United States and elsewhere represents an additional statecraft tool.

Potential use in high-escalation scenario

In a high-escalation scenario, Chinese policymakers may decide to impose as high costs as possible on the sanctioning G7 countries by imposing export restrictions on all goods where import dependence on China is high. Such an approach would cover a broad range of consumer and industrial goods, and would be aimed at disrupting the economies of the targeted countries and increasing costs for consumers. However, this would come at tremendous cost to the Chinese economy and its ability to withstand sanctions.

Author analysis

Import dependence is contingent on a range of factors, including not only how much a country depends on another for a particular good, but also how widely available that good is in the global market. While a true accounting of import dependence requires a sector-by-sector approach, we roughly estimate the value of goods where the G7 nations are highly dependent on China by summing up G7 imports at the HS 6-digit level where (1) over 50 percent of G7 imports come from China, and (2) China accounts for over 50 percent of global exports. This encompasses all products where both initial dependence on China is high and where substitutes from other countries may be expensive or hard to find given how dominant China is in that product category, at least in the short run. Based on this approach, the G7 is highly dependent on $477.5 billion in goods imported from China. This is a highly conservative measure, since losing access to intermediate goods would disrupt downstream manufacturing and incur costs much greater than their import value alone.

While export restrictions would be one of China’s most impactful economic statecraft tools, it would also be among the options costliest to China itself. First, an estimated 101.2 million jobs in China depend on foreign final demand, 44.8 million of which depend on final demand from G7 countries.64 Any measures that disrupted these factories would exacerbate structural issues in employment and wages. Secondly, a major source of China’s resilience against sanctions is the fact that it runs a persistent trade surplus, which could be put at risk from export restrictions. Even under a full-scale G7 sanctions regime against Chinese banks, it would be very difficult to trigger a balance of payments crisis in China so long as the country continues to run a strong trade surplus. Trade restrictions from China that undermine its own trade surplus would work against China’s ultimate objective of maintaining macroeconomic stability in a moment of crisis. Finally, sanction regimes face the challenge of preventing transshipment of goods from third countries into the targeted economy. To effectively cut off the United States and other G7 economies from these products would require China’s non-sanctioned trading partners to agree not to transship controlled products to the G7, and for China to be willing to impose punishments on third countries that refuse to comply. China is unlikely to have the bureaucratic breadth even to monitor potential sanctions evasion on this scale, and may be loath to punish other countries in a moment where it is diplomatically isolated.

Chinese investment abroad

China has typically used overseas investment as a positive inducement rather than a coercive tool. In a moderate-escalation scenario, China could pair promises of outbound investment to friendlier countries with limitations on new outbound investment to other countries, although this would be likely driven less by a statecraft agenda and more by geopolitical realities in the host countries. In a highescalation scenario, China could potentially force the shutdown of Chinese-owned subsidiaries abroad, but this would be extremely costly and of limited effectiveness.

Past uses of statecraft

State-backed overseas investment – Overseas investment is a key part of China’s economic diplomacy.65 Although it is debatable how much investment is driven by state versus commercial interests, major investment projects are often marked by both governments as opportunities to demonstrate a constructive relationship. In many cases these projects bring tangible economic benefits to the host country, making them an important part of China’s statecraft toolkit.66

Author analysis

Table footnote67

Administrative control on outbound FDI flows – China maintains administrative controls on outbound investment, limiting or approving investment when it meets political and economic goals. In the early 2010s, China began liberalizing its strict controls on outbound FDI to encourage Chinese firms to invest abroad.68 In 2016, a surge in capital outflows led Beijing to reimpose restrictions on outbound FDI in an attempt to mitigate balance of payments pressures. While this is not a direct application of statecraft, the tools exist for China to selectively restrict outbound investment in a future escalation scenario.

Potential use in moderate-escalation scenario

In a moderate-escalation scenario, Beijing could use promises of investment as positive inducements to align with China diplomatically, or use threats to cut off ongoing or future investments as a form of coercion.

The perceptions of China and its role in a moderate-escalation scenario would matter significantly to the effectiveness of these tools. Where the escalation exacerbates national security concerns toward China, Chinese promises of outbound investment or threats to cut off ongoing or new projects will likely have little effect. Similarly, if the geopolitical environment contributes to capital outflow pressure, China will be less likely to greenlight much new outbound investment.

Potential use in high-escalation scenario

In an escalation over Taiwan, China could theoretically halt all outbound investment to G7 countries as a form of coercion, although geopolitical conditions would likely make the point moot. G7 countries would be unlikely to welcome new investment from China in a major Taiwan escalation. The wave of new and updated inbound investment screening regimes across the G7 over the past decade give G7 governments the capacity to block many types of investments on national security grounds.69 China would likely limit outbound investment regardless to stem capital outflows, and Chinese project developers would likely struggle to find overseas lenders willing to finance their projects at the risk of getting caught up in G7 sanctions.

China could hypothetically impose restrictions on the activities of Chinese-owned businesses abroad, with the aim of disrupting the domestic economy of the sanctioning countries. Chinese authorities could theoretically pressure Chinese firms in the United States to slow down operations or lay off workers. Chinese ownership of critical infrastructure — including State Grid Corporation of China’s 40 percent stake in the Philippines’ national grid and COSCO’s proposed 24.99 percent stake purchase in a port terminal in Hamburg — has raised concerns among policymakers over the national security risks of Chinese ownership of critical infrastructure in a crisis.70 To our knowledge, there have been no documented cases of Chinese firms shutting down their operations in other countries amid a geopolitical dispute with the intent to disrupt the local economy.

In a moderate- or high-escalation scenario, it is unlikely that China would or could compel Chinese-owned firms in the United States or G7 countries to disrupt their operations as part of an economic statecraft campaign. First, except in the most extreme circumstances, China would avoid pressuring its firms abroad to disrupt their own operations for fear of reputational blowback that could undo years of efforts to expand the global footprint of Chinese companies. Second, a large share of Chinese direct investment abroad is held in minority stakes, and China-based board representation would be too small to unilaterally force a work disruption. Finally, in the event of a deliberate slowdown or disruption, it is likely that G7 governments would nationalize the assets of the Chinese firms, as Germany preemptively did when it nationalized Gazprom’s German subsidiary after Russia’s invasion of Ukraine.71

Altogether, China holds an estimated $61 billion in FDI assets in G7 countries that could be theoretically put at risk from disruption, although the likelihood of China turning to such tools—even in high-escalation scenarios—seems low. China invested $13 billion in G7 economies in 2022. The most substantial disruptions to Chinese outward investment to G7 economies would likely be China’s own capital controls and defensive investment restrictions from G7 countries toward China in a moment of high escalation over Taiwan.

Portfolio investment and other capital flows

In addition to restrictions on market access or manipulation of operating conditions for multinational companies in China, Beijing could potentially use some of its financial policy tools to achieve certain political signals in response to G7 economic statecraft. However, China would struggle to use these tools aggressively without creating corresponding costs for its own economy and financial institutions. Most of the tools of financial leverage that China can use, including currency swap lines, are likely to be directed against borrowers from Chinese institutions. That volume of lending or the terms of lending could be adjusted in response to political developments. Selling foreign assets in large volumes (particularly US Treasuries) has never been a particularly viable policy option for Beijing. Similarly, using a policy-led depreciation of China’s currency as a tool of statecraft to pressure other countries would have significant implications for China’s own financial stability.

Author analysis

Past uses of statecraft

Official lending (in the form of subsidized concessional or preferential loans) and foreign aid are some of China’s primary economic diplomacy tools with developing and emerging market countries. These programs rarely take the form of explicit quid pro quos, but instead build long-term bilateral relationships that China can later activate to obtain political support on controversial Chinese “core issues,” including Taiwan, Hong Kong, and Xinjiang.

Aid and lending pledges are also key elements of the unofficial financial packages that China uses to induce diplomatic recognition switches from Taiwan to China. Recent examples include Nauru, the Solomon Islands, and Panama. Diplomatic relations with China (rather than Taiwan) are a prerequisite for the receipt of official aid (including concessional loans). Importantly, pledged lending may be just as important as the receipt of actual funds. Past cases suggest China can effect some control over the timing of these recognition switches to maximize their potential political impact on Taiwan, including Gambia (2016, after the DPP’s electoral victory in Taiwan), the Solomon Islands (2019, ahead of the People’s Republic of China’s 70th anniversary), and most recently Nauru (2024) (and likely Tuvalu), to coincide with adverse political events.

China has also offered bilateral swap lines to provide liquidity to developing countries. Although these are nominally intended to facilitate renminbi-denominated trade and investment, most swap agreements are never activated. Yet they are increasingly critical to a handful of countries, including Argentina, Pakistan, and Egypt, providing several billion dollars in emergency liquidity. Swap agreements typically last three years; countries may request the line be activated for a specific amount, and in practice that amount is simply rolled over at the end of a year. It is very rare for China to refuse to activate a swap line or to roll over any outstanding amounts, which would put pressure on any country relying on the swap line as a foreign exchange backstop. One (unconfirmed) counterexample came in December 2023, when China allegedly refused a request from Argentina to activate additional funds under the swap in response to Argentine President Javier Milei’s criticism of the China-Argentina relationship during the 2024 elections.72 The implications of China’s bilateral swap agreements with G20 countries will be covered in our forthcoming paper on the role of the G20 in a Taiwan crisis.

Potential use in moderate-escalation scenario

None of the G7 countries receive foreign aid or (official) loans from China in any significant amounts. In a moderate-escalation scenario, China could be expected to approach major recipients of development finance to ask for statements of diplomatic support or voting support in international forums like the United Nations General Assembly. China could look to accept a recognition switch from a country where discussions were already underway, to ratchet up additional pressure on Taiwan’s incumbent administration.

Most likely, China’s financial statecraft would not immediately increase in scope in a scenario of escalating tension over Taiwan. Financial pressures on China during a moderate escalation would likely constrain China’s ability to rush additional development finance to woo new allies. Rather, China would likely leverage the results of past financial statecraft measures to constrain Taiwan’s diplomatic space.

China would also benefit from deep economic and financial relationships with emerging market and developing countries itself to prevent alignment with the United States. China would also be unlikely to immediately begin punitive measures by formally cancelling or conditioning financial flows with existing partners. We are not aware of any examples of negative statecraft involving official lending or aid, where China either outright canceled existing aid projects or called in outstanding loans in response to a diplomatic or policy dispute. Such moves would be not only diplomatically counterproductive, but would also be restricted by Chinese aid and lending agreements and contracts, and a desire to avoid harming Chinese contractors, exports, and financial institutions for relatively limited marginal diplomatic gains. Rather than cancel existing projects, there is evidence that China instead has delayed or cancelled upcoming aid projects in past disputes. One example came in the Philippines in 2012. During a flare-up around the Scarborough Shoal, China continued to execute on existing aid and loan contracts, but does not appear to have undertaken new work until the election of Rodrigo Duterte in 2016.

Similarly, even in a moderate-escalation scenario, it is unlikely that Chinese lenders would cancel or otherwise call in existing projects or loans. As most of China’s project finance is funded on commercial terms, governed by commercial legal contracts, there are few instances where Chinese lenders could accelerate payment outside of clear events of default. One potential channel that could be deployed would be escrow accounts. China’s loans often require the use of escrow or other special accounts in China (either funded directly or through commodity sales to Chinese purchasers), which must be funded at certain levels. In an escalation, China in theory could raid these existing escrow accounts and demand replenishment. One recent example is Suriname, where in 2023 China EXIM Bank tapped an escrow account for payment while Suriname had halted debt service during multilateral debt renegotiations, a major breach of international debt protocol. Additionally, China would be more likely to halt lending (not yet committed or disbursed) in specific countries, as recent reports indicate it has done in Pakistan and Kenya. In an escalation scenario, bilateral swap lines would likely serve as an implicitly threatened target where they have been activated. This could constrain diplomatic support for any G7 sanctions or additional action. However, as very few countries have drawn upon swaps in significant volumes, China may find this tool of leverage limited.

Although China is unlikely to impose punitive measures with loans and aid, it has other options available to gain leverage. China accounts for 6 percent of the IMF’s voting share. An 85 percent majority is required for major decisions at the IMF such as quota increases and allocations of Special Drawing Rights (SDR). In partnership with a small number of other countries, China could disrupt processes (or threaten to do so) at the IMF to gain negotiating leverage.

In a moderate-escalation scenario, China might consider turning to other financial statecraft tools such as competitive devaluation of the renminbi. Facing persistent capital outflows for much of the last decade, China’s central bank frequently intervenes in currency markets to maintain the value of the renminbi, by selling US dollars and buying domestic currency. China could slow down that intervention, allowing the renminbi to depreciate, which would also likely trigger competitive devaluations and capital outflows in other emerging markets, particularly if the depreciation was seen as a policy signal. While this tool benefits from plausible deniability, Beijing runs the risk of undermining confidence in domestic monetary policy, encouraging additional capital outflows from both domestic and foreign investors, and antagonizing other countries with whom Beijing competes for export share. For G7 countries, a weaker renminbi would result in lower demand for G7 goods due to the weaker purchasing power of Chinese consumers, and greater competitive price pressure from Chinese exports.

Potential use in high-escalation scenario

In a high-escalation scenario, China would have limited capacity to harass G7 economies through financial statecraft without drastically undermining its own financial stability. Instead, China’s financial statecraft would be more effectively deployed at developing and emerging market countries to prevent a cohesive response outside of the G7.

Ever since China began to accumulate foreign exchange reserves in the 2000s, analysts have questioned whether China would sell its holdings of foreign assets to retaliate against the United States for political reasons. China officially held $782 billion in Treasuries at the end of November 2023, and likely holds around twice that level including holdings by state banks. The implied threat of a selloff would be to raise US interest rates and tighten US financial conditions. However, this threat has been somewhat overstated, as China could not sell these assets all at once, and US officials could take measures to respond well before significant volumes of assets could be sold. For example, if the Federal Reserve were to issue a statement claiming that it was noticing politically motivated disruptions in financial markets and would purchase securities as necessary to maintain stability, it would likely counteract any aggressive selloff. In March 2020, amidst COVID-19- related disruptions in markets, several foreign reserve managers began aggressively selling Treasuries and other US assets to repatriate funds and manage financial risks, and the Federal Reserve was still able to purchase assets and steady financial markets.

Even if China were able to sell significant volumes of its holdings of Treasuries, at the end of the day Beijing would still be holding US dollars, and would need to invest them in something, which would likely indirectly result in additional Treasury purchases. The withdrawal of China from new Treasury market purchases is also likely to have a limited impact, as Beijing has not been a significant net buyer of Treasuries for many years now. Ultimately, Treasury sales are an unlikely vehicle for Chinese economic statecraft, even in the case of a significant escalation in tensions.

Rather, Beijing would be likely to focus financial statecraft on preventing emerging and developing economies from aligning with G7 sanctions. Under high-escalation conditions, those countries would already feel acute macroeconomic pressure in the form of increased global finance and debt servicing costs (brought on by a stronger dollar), fluctuating commodity prices, and disruptions to global trade. This would increase developing countries’ potential susceptibility.

Even under high-escalation conditions, certain channels would still have constraints. Official lending and aid offers relatively little direct leverage against the G7. China would also be unlikely to be able to convince G20 or developing countries to impose their punitive measures against the G7, beyond pariah states like Iran, Russia, or Venezuela. But other channels would provide more room for maneuver. China has far greater ability to deliberately sell non-US dollar foreign assets in specific markets, as these are more discretionary purchases, and not the result of China’s decision to manage its exchange rate against the US dollar. China does hold significant proportions of non-US dollar currencies in its foreign reserves, and could potentially liquidate those holdings rapidly in response to political events. This may have an outsized impact on currency valuations and interest rates in certain emerging markets that are heavily reliant upon foreign demand for government bonds, such as Indonesia or Malaysia.

Additionally, more aggressive steps could be taken with outstanding loan agreements with developing countries. Publicly disclosed lending contracts from China’s policy banks allow for the lender to declare default—and immediately demand repayment—in response to certain political events, including a switch in diplomatic recognition to Taiwan (or China severing relations with a foreign country). Similarly, under “illegality clauses” common to commercial loans, China’s policy banks could immediately cancel disbursements or call in outstanding amounts due to changes in law that impact their ability to perform their obligations. G7 financial measures (like currency or banking restrictions) could, at least under a theoretical expansive reading, qualify. Yet invoking these clauses would come with bureaucratic risks for China Export-Import (EXIM) Bank and China Development Bank, which would be hard-pressed to collect any outstanding amounts and would likely be reluctant to acknowledge any debt as unrecoverable, especially at a time when China is seeking diplomatic support among other borrowing countries.

China’s capacity to circumvent financial sanctions and G7 economic statecraft

The previous section was concerned with China’s capacity to retaliate against US and G7 economic statecraft, but this is not Beijing’s only option. There have been long-running efforts in Beijing to not only develop tools to respond to foreign economic restrictions, including sanctions and export controls, but to circumvent or bypass them as well. Primary among those tools has been the development of alternative national-level and international financial networks using China’s own currency, the renminbi, rather than the US dollar. These have included bilateral currency swap arrangements for trade settlement, the designation of specific clearing banks in third countries, and the gradual expansion of China’s own interbank payment networks, the Cross-border Interbank Payment System (CIPS). The development of China’s central bank digital currency (CBDC) can be viewed in the same context, although the current structure is focused far more on domestic retail transactions than cross-border interbank financing.

At the same time, China’s reliance upon the US dollar is a major source of friction between different camps in Beijing. Security-minded officials have always viewed the dollar as a source of risk and vulnerability for China, given the potential threats posed by sanctions and other restrictions. However, financial technocrats in China have led the charge to integrate China’s economy more closely with the global financial system, precisely to attract foreign capital inflows. China faces a significant problem with the world’s largest single-country money supply at $40 trillion, which generates new pressures for Chinese savers to actively diversify into foreign assets, as the money supply continues growing by around $3.5 trillion in new renminbi every year. This outflow can create financial instability inside China and weaken the exchange rate and the global influence of China’s economy, unless it is counterbalanced by capital inflows via foreign direct investment or flows into China’s bond and equity markets, meaning purchases of renminbi-denominated assets. While the outflows from China’s financial system are inevitable, the inflows to stabilize conditions are contingent upon the state of China’s economy, interest rates, and the reform of the financial system.

As a result, throughout the past decade, even though the political climate in China has turned more hostile to foreign influence and interests, China has persistently attempted to attract foreign investment and capital inflows, denominated in foreign currency. This has also meant prioritizing policy choices and reforms favored by foreign investors and governments. Maintaining access to US dollar inflows has required deepening China’s access to the global financial system, and therefore exposing China’s financial institutions to potential restrictions on those dollar inflows. China has consistently made compromises when necessary to maintain foreign inflows, most recently including permitting audits conducted under the imprimatur of the US Public Company Accounting Oversight Board (PCAOB) in order to prevent the delisting of Chinese companies on US stock exchanges.

Beijing will continue to prioritize maintaining access to foreign capital and inbound investment, despite concerns about the vulnerability of Chinese institutions to US sanctions. Should China lose access to US dollar inflows, the renminbi’s value globally would depreciate over time, and China’s influence and throw weight in the global economy would similarly diminish. Any credible claim that China could catch the United States in economic prowess would evaporate. As a result, even as China’s overall policy environment has become obsessed with security, this has not fully extended to the financial system, where technocrats have been able to push back against the concerns of security-oriented officials.

At the same time, it is not a credible threat that outside of a wartime or similar scenario, the United States would completely cut off China’s access to US dollars, or take actions against China’s financial system as comprehensive as those against Russia. First and foremost, China remains a sizable exporter and global manufacturing center, at an estimated 14 percent of global exports. While there are alternative sources of exports, disrupting China’s capacity to use US dollars would necessarily interrupt China’s $5.9 trillion in annual trade flows as well. Other more extreme options, such as freezing significant proportions of China’s $3.22 trillion in foreign exchange reserves, as was done to Russia’s central bank following the invasion of Ukraine, would similarly not be credible because the primary impact would be on China’s capacity to defend its currency, producing a sharp depreciation of the renminbi and ironically making China’s exports even more competitive in the global economy. The disruptions of global supply chains during the COVID-19 era created significant economic dislocations, which only moderately eased after China’s rapid return to production and exports in April and May 2020. Suspending China’s overall access to US dollar financing and its impact on trade would generate immediate political opposition in the United States and other allied and like-minded democratic states.

Moreover, Beijing is very aware that wholesale restrictions on financing channels for all of its banks are improbable and difficult to maintain. As a result, China’s methods for avoiding broader sanctions have focused on channeling transactions through individual banks that typically have limited cross-border business. Therefore, when these smaller banks are inevitably sanctioned themselves, the net impact on the rest of the financial system is minimal. This was the playbook that China used in designating the Bank of Kunlun as a preferred vehicle for transactions with Iran after sanctions were imposed in 2012, even though the sanctions did force the bank to shift its behavior as well. Banks in Hong Kong have similarly been forced to juggle overlapping sanctions threats from the United States and China in recent years, but no bank in Hong Kong has completely lost access to US dollar clearing facilities because of secondary sanctions imposed by the United States. And as long as some banks within the Chinese system maintain access to dollar clearing facilities, then it is probable that Beijing and Chinese firms will be able to channel transactions through these institutions. It remains highly unlikely that all Chinese banks will suddenly find themselves unable to access or trade in US dollars in a situation similar to some Russian financial institutions, given China’s importance in the global trading system. Beijing’s awareness of these limits similarly conditions China’s attempts to develop alternative financial networks that do not involve the US dollar. These can serve as alternative channels to be expanded in case of temporary need and limited purposes, rather than alternatives for everyday usage.

Using international Renminbi networks to circumvent sanctions

Obviously, one method China can use to avoid economic sanctions on US dollar-denominated transactions is to conduct business in China’s own currency, the renminbi. (Here, we are assuming that China’s efforts would be designed to avoid or circumvent an explicit secondary sanctions package from the United States or the G7.) Over time, China has sought to both encourage the development of offshore pools of the Chinese currency as well as denominate trade transactions in renminbi. At first, this was primarily a mechanism to avoid the disruptions to US dollar-denominated trade transactions caused during the global financial crisis in 2008. Later, and particularly following the Russian invasion of Ukraine, China’s efforts to promote the international use of its currency carried greater geopolitical significance, as a potential tool of sanctions avoidance, and to reduce the scope of Chinese financial transactions potentially exposed to US economic statecraft. Former Chinese officials such as Yu Yongding, who served on the PBOC’s Monetary Policy Committee, has pointed to the G7’s freezing of Russian foreign exchange reserves as proof of US “willingness to stop playing by the rules” and have suggested sitting Chinese officials are exploring new alternatives to safeguard its foreign assets.7473

Russia itself started invoicing a far higher proportion of its own imports in renminbi in 2022 and using renminbi as a “vehicle currency” for transactions with third countries as well.74 Overall, however, the potential for renminbi-denominated transactions to bypass or circumvent economic sanctions depends upon:

  1. The liquidity and availability of renminbi to conduct economic transactions
  2. The capacity of Chinese international interbank payments systems to accommodate these transactions
  3. The ability of financial institutions to conceal those transactions from Western regulators, who could still impose secondary sanctions upon Chinese institutions should the transactions circumventing sanctions be discovered

Among these three requirements, the first one is likely the most difficult for Chinese authorities to control. It is always easy enough to provide financing in renminbi, but it is difficult to find counterparties willing to accept renminbi as payment or in borrowing, unless they have no other alternatives (as in Russia’s case). Setting up the institutional infrastructure to accommodate renminbi-denominated interbank transactions can occur largely within China’s borders, although it does require approvals of several international banks to facilitate these transactions. Beijing’s difficulty in avoiding detection of sanctions-busting financial transactions stems from the fact that China’s banks are also likely to maintain large volumes of dollar-denominated business, particularly for trade settlement. Beijing can always play a game of chicken regarding the imposition of secondary sanctions on China’s larger banks if certain sanctions-busting transactions are discovered, but it still runs the risk of retaliation from the United States and its allies.

Current scope of Renminbi internationalization

The term “renminbi internationalization” is often used to describe multiple phenomena, not all of which are relevant for China’s avoidance of Western economic statecraft. The most conventional definition involves the holdings and usage of renminbi outside of China’s borders, including for trade settlement. Other definitions include foreign holdings of renminbi-denominated assets within Chinese markets, which are less important in the context of sanctions avoidance. Sometimes “renminbi internationalization” incorporates the use of bilateral currency swaps extended by China’s central bank, or the usage of renminbi in outbound lending. But in terms of sanctions avoidance using renminbi-denominated transactions, the primary threat is the usage of Chinese financial networks by third parties to bypass US financial and regulatory surveillance. The most important consideration in that context is the liquidity and availability of renminbi itself, and trade and financial activity involving China’s currency, particularly wholesale transactions between banks.

One of the methods Beijing attempted to use to improve the attractiveness of renminbi-denominated assets was to have China’s currency included in the IMF’s SDR basket of currencies, which would provide an official designation that the renminbi was a currency that the IMF agreed was acceptable for holding within foreign exchange reserves. In addition, any transaction with the IMF would need to include renminbi, so this designation would produce a certain volume of purchases of renminbi. In addition, it would reduce a perceived obstacle to other investors, including central banks, acquiring renminbi-denominated assets. Beijing was required to demonstrate that the currency was “freely usable” in international financial markets. Because the renminbi was not fully convertible, and there were still capital controls in place on the currency, attesting to the currency’s usability was difficult. Instead, Beijing argued that the offshore currency, or the international renminbi (the Chinese yuan traded in the offshore market, or CNH) traded primarily in Hong Kong, fulfilled those criteria, since these transactions were subject to more limited capital controls. The IMF ultimately accepted the argument when it admitted the renminbi into the SDR currency basket in 2015, which helped to expand the range of investors who could readily invest in renminbi-denominated assets.

However, the accumulation of offshore renminbi and improving liquidity in financial markets for China’s currency is far from a straightforward process. Because China runs a global trade surplus, even if 100 percent of China’s trade was denominated in renminbi, no Chinese currency would necessarily accumulate outside the country’s borders, while foreign currency would come into the country. A portion of China’s trade could be denominated in renminbi—primarily China’s imports—which would result in third countries accumulating renminbi payments from Chinese companies. Then they would be forced with the choice of what to do with the Chinese currency: trade it for dollars or domestic currency, invest in renminbi-denominated assets, or deposit it in an overseas or Chinese bank. Chinese consumers could carry renminbi outside the country, but would need to find merchants to accept it. Capital outflows, including overseas investment and lending, could hypothetically increase the pools of available renminbi outside the country, assuming there were third parties willing to hold the currency or invest it in Chinese assets. This is one reason China’s central bank has encouraged currency swap deals to expand liquidity in offshore renminbi markets, but the actual utilization of these swap lines has been very limited. Simply put, there is no easy mechanism for Beijing to encourage foreign investors and central banks to hold the Chinese currency, as this depends upon public perceptions of the currency’s utility, liquidity, safety, and long-term value.

China’s currency is generally considered the fifth-most commonly used currency in the world, and is used for 3.6 percent of global transactions by value, according to SWIFT data. It still falls behind not only the US dollar and the euro, but the Japanese yen and pound sterling. Excluding payments within the eurozone, according to SWIFT’s data, the renminbi is sixth, falling behind the Canadian dollar. (And this may be low, given that SWIFT’s data will more heavily sample transactions in Western financial markets.) In terms of offshore holdings of renminbi, the PBOC’s own data shows that foreign holdings of renminbi-denominated assets totaled 9.76 trillion yuan ($1.36 trillion) as of June 2023, down from a peak of 10.8 trillion yuan in 2021. Naturally, the change in US interest rates starting in 2022 reduced the attractiveness of renminbi-denominated assets to foreign investors, along with geopolitical risks tied to China’s alignment with Russia.

Most relevant for sanctions avoidance is the liquidity of renminbi-denominated trading, or the ability of third parties to use renminbi in transactions outside of US and Western surveillance. However, the vast majority of renminbi-denominated financial transactions still take place in Hong Kong (79 percent), followed distantly by the United Kingdom (5 percent) and Singapore (3 percent). While this is logical given Hong Kong’s role as the gateway between China and international financial markets, the importance of Hong Kong within the offshore renminbi market raises the question of how “international” offshore renminbi trading really is. Most likely transactions involving offshore renminbi that are used to avoid sanctions would transact via Hong Kong, using institutions that would also maintain business in the US dollar, and would therefore also be subject to US sanctions or other economic statecraft.

As of 2023, the renminbi share of allocated global foreign currency reserves stood at around 2.4 percent, a decline from 2022 (2.6 percent) and 2021 (2.8 percent).75 According to the PBOC, more than 80 foreign central banks or monetary authorities have held renminbi in their foreign currency reserves.76 Many of the countries publicly committed to holding renminbi in their foreign currency reserves have a significant trade relationship with China (Table 13). China is the top trading partner of Russia, Australia, Brazil, Bangladesh, and Kazakhstan. At 13.1 percent, Russia holds the largest disclosed share of renminbi reserves (although the effective share of Russian reserves may be higher given the impact of sanctions). US sanctions on the use of US dollar assets have added pressure on Russia to diversify into other currencies, and Russia’s share of trade invoiced in renminbi increased from 3 percent in 2021 to 20 percent by the end of 2022.77 Around 2018, several European countries, including France, Belgium, Germany, Slovakia, and Spain, as well as the European Central Bank, began announcing the inclusion of renminbi in their reserves, likely a result of the renmimbi’s inclusion in the IMF’s SDR currency basket. However, these countries do not publicly disclose the current composition of reserves, and more recent reporting on the quantity of renminbi reserves is sparse. African countries such as Rwanda and South Africa primarily mention trade settlement and investment promotion as motives for diversifying assets with renminbi holdings.

Author analysis

Because the currency remains subject to capital controls and is not fully convertible, choosing to hold foreign exchange reserves in renminbi is not necessarily as straightforward as holding other currencies. But during periods when interest rates on US Treasuries and other traditional reserve currencies are low, higher return on Chinese government bonds may offer an attractive alternative to diversify reserve holdings.

Trade settlement in China is also increasingly denominated in renminbi. Naturally, it is easier for China to impose payment terms upon its own imports from foreign companies, as the customer. As a result, along with foreign exchange reserves, countries that tend to denominate more trade in renminbi tend to be significant exporters to China, and run trade surpluses with China, primarily in raw materials or commodities. The overall volume or proportion of trade settlement in renminbi is a far less significant gauge of renminbi internationalization than other metrics such as the accumulation of renminbi assets or the volume of cross-border financial transactions in renminbi. Nonetheless, the proportion of trade denominated in renminbi has increased notably since the Russian invasion of Ukraine, and has hit all-time highs above 35 percent in recent months.

In the past, when renminbi-denominated trade settlement surged from 2013 to 2015, this reflected strong demand for renminbi in offshore markets, because the Chinese currency was appreciating against others, and against the US dollar. As a result, exporters to China were more likely to be willing to hold renminbi if Chinese importers paid in the currency. The recent surge also corresponds with a change in the currency’s value, but the renminbi has depreciated against the dollar since early 2022. The rise in renminbi-denominated trade settlement in recent years has occurred alongside the rise in US and global interest rates relative to Chinese interest rates. The lower Chinese rates can make trade credit denominated in renminbi more attractive to firms, relative to more expensive US dollar-denominated trade finance. The renminbi’s share of global trade finance increased to 5.12 percent in November 2023, from only 2 percent in December 2020, according to SWIFT data, and it is probable that lower Chinese interest rates can explain the recent rise in overall trade settlement.

Financial infrastructure: CIPS

Central to Beijing’s efforts to build resilience and circumvent potential G7 sanctions is CIPS. Launched by the PBOC in 2015, CIPS is a large-value renminbi payments system designed to facilitate and settle domestic and cross-border renminbi transactions.78 Built to resolve the inefficiencies of China’s legacy payments system, including the China National Advanced Payment System (CNAPS), CIPS promises to integrate its participants into the existing global financial architecture, while allowing for onshore renminbi clearance and settlement services.79

Structured like the Clearing House Interbank Payments System (CHIPS), the US-led interbank payments system, financial institutions are either direct participants, which maintain an account within CIPS, or indirect participants, which engage with the system through relationships with a direct participant. As of December 2023, CIPS boasts 139 direct participants, with foreign participants concentrated within China’s trading partners, and 1,345 indirect participants.80 Direct participants have to be incorporated in China. However, direct participants can be located abroad if they are a subsidiary of a Chinese financial institution In total, CIPS participants span across 113 countries and regions around the world.81

CIPS’ stated goal is to improve efficiency and reduce costs associated with international renminbi settlements. Beijing aspires to make it an integral part of the world’s existing financial infrastructure. Unlike CNAPS, CIPS is directly interoperable with SWIFT and uses the ISO 20022 international payments messaging standard. However, CIPS’ potential as a replacement to the US-led global financial plumbing has not gone unnoticed. Experts in China noticed US efforts to disconnect Iran from SWIFT in 2012 and threats to take similar action against Russia in 2014. Fearful that the United States may eventually consider similar actions against China, some have argued CIPS may be more important as a tool to protect Beijing’s national and economic security.82 Recent actions by the G7 against Russia to follow through and disconnect ten Russian banks from SWIFT have amplified these fears.83 As a result, while CIPS does reportedly utilize SWIFT for around 80 percent of the transactions it processes,84 among CIPS’ direct participants, it does maintain an alternate communications channel.

Due to its capacity to operate independently with its direct participants, even in a maximalist-sanctions scenario similar to G7 actions against Russia or US sanctions against Iran, CIPS can continue to function and process bank-to-bank transfers. CIPS provides meaningful insulation for the Chinese financial system as well as means to easily engage with willing partners abroad either through CIPS’ current roster of direct participants or by onboarding new ones.

There is also little question CIPS can scale to meet China’s needs in the face of Western sanctions. When looking at CIPS’ support for renminbi internationalization efforts, especially in the context of sanctions, it’s critical to disaggregate Chinese goals to encourage international use of the renminbi from building resilience against potential G7 sanctions. At the end of 2023, CIPS processed around 3 percent of the total value that passes through CHIPS.85 This transaction volume is well short of what Beijing would need to legitimately challenge the dollar as the dominant currency of international commerce. However, taken along the far narrower goal of building a payments network that remains operational for trade and basic financial transactions in the face of economic sanctions, Beijing has succeeded.86 CIPS has the capacity and resilience to manage and onboard China’s global economic relationships in the event of maximalist G7 sanctions. While CIPS processes a fraction of the total value that passes through CHIPS, this is already adequate capacity to cover China’s total goods trade in the event Beijing is removed from SWIFT. In Q3 2023, CIPS processed, on average, $51 billion in transactions a day. Chinese total imports and exports over the same period amounted to an average of around $17 billion a day. Restrictions and transitional pain points will primarily stem from Chinese trading partners’ willingness to engage with the system.

Digital currency and e-CNY

In 2017, China established the digital yuan project, a CBDC, with the stated goal of facilitating cross-border transactions and reducing reliance on traditional payment systems. Mu Changchun, the director of the Digital Currency Research Institute at the PBOC, discussed expanding the scope of Project mBridge to eventually “formulating a road map to develop an influential cross-border payment infrastructure.”87 In the context of a Taiwan crisis, policymakers should consider China’s advancements and ambitions in both retail and wholesale CBDCs and how these platforms could be leveraged to mitigate the effect of potential Western sanctions.

China’s retail CBDC project focuses on enabling Chinese individuals and businesses to use the digital currency for everyday domestic transactions and creating a network of state-enabled payments.88 Common use-cases of the retail e-CNY include public transportation, integrated identification cards, school tuition payments, tax payments, and refunds.89 Currently, the domestic pilot project has 13.61 billion renminbi in circulation with 260 million digital wallets.90 However, this project has limited ability to help internationalize the yuan and serve as a means of sanctions evasion given its domestic focus.

China’s wholesale CBDC projects are different. Phase 1 of Project mBridge started in 2021 as a joint experiment with the central banks of China, Thailand, the United Arab Emirates, and the Hong Kong Monetary Authority (HKMA), and select commercial banks within these jurisdictions, as well as the Bank for International Settlements (BIS) Innovation Hub.91The project was initially designed to create a common infrastructure that enables real-time crossborder transactions using CBDCs. In the current version, the project connects over twenty banks across the four jurisdictions, reducing the reliance on the correspondent networks utilizing the dollar.92 mBridge can be understood as an upgrade to the current cross-border payments technology, and if implemented at scale could deliver efficiency, speed, and security to international payments outside of dollar-based networks. In October 2022, the project successfully conducted 164 transactions, settling a total valued at $22 million, with almost half of all transactions in e-CNY.9493 This was the first successful test of a wholesale CBDC with actual funds and concluded Phase 1 of the project.94

In Phase 2 of the project, China and the BIS will expand the mBridge participants. As of January 2024, twenty-five central banks have joined the project as observing members and additional countries are interested in joining this expanding network.95 mBridge is organized in a three-tier participation structure.96 The first level is the project’s founding members: China, Thailand, Hong Kong, and the UAE. The second level consists of eleven anonymous central banks engaged in mBridge’s sandbox testing; notably, the Central Bank of Türkiye has announced its involvement in testing. mBridge’s sandbox offers a secure environment for central banks to experiment with simulated nodes and transactions. The third tier consists of observing members, which includes the IMF, the World Bank, and fourteen additional central banks. The value of a payments infrastructure lies in the network effects it generates for participants. As more central banks join, this infrastructure becomes increasingly efficient.97 China has also announced plans to integrate traditional payment systems like real-time gross settlement systems or fast payment systems with mBridge, so that central banks can issue their own CBDC on mBridge without creating their own CBDC infrastructure.98

Transactions on this payment infrastructure are conducted outside of the US dollar and therefore outside of US sanctions influence. As a result, mBridge can offer an alternative cross-border settlement system to jurisdictions looking to bypass US sanctions or compliance with US anti-money laundering/countering the financing of terrorism regulations. Therefore, mBridge could serve as an alternative financial channel that could be leveraged in the event of a Taiwan crisis—especially as an option for jurisdictions that may be reluctant to join Western sanctions and/or “fence-sitting” economies that rely significantly on Chinese import and export markets. In a crisis scenario, China could also evade secondary sanctions and still maintain access to critical commodity markets and energy products.

There have been changes in technology that also reflect Beijing’s influence on the cross-border project. Until recently, mBridge was running on a proprietary blockchain based on Ethereum’s Solidity language and developed by “central banks for central banks,” unlike other CBDC initiatives that run on blockchains built by third parties.99 However, in November 2023, Chinese media reported that mBridge will be transitioning to the Dashing protocol, which was developed by the PBOC’s Digital Currency Research Institute and Tsinghua University.100 The specific program language has not been announced, but the protocol could achieve higher scalability and lower latency. This shift underscores how much China remains the center of mBridge as the project designer, manager, and main trading partner.

There is also a lack of US- or dollar-based alternatives to mBridge. Despite the dollar comprising more than 70 percent of SWIFT messages worldwide in 2023, there is currently no equivalent Western or G7 digital currency or platform to counterbalance the advantages presented by mBridge, including faster settlement and reduced transaction costs. This is a significant gap in the emerging digital financial ecosystem, which provides China with an opportunity to use this infrastructure to encourage more countries to opt for faster and more cost-effective transactions, and then turn to this system during a sanctions scenario.

While mBridge has significant potential to serve as a cross-border payments alternative for China, it is currently in the experimental stage—its scalability and wider adoption in real-world scenarios remains uncertain. Experts have projected that mBridge’s current capabilities are limited to facilitating roughly $190 million in transactions annually, which limits Beijing’s ability to shift flows in the event of a crisis in the short term.101 In the medium term (three to five years), the project can potentially be leveraged to shield China’s financial system. In 2022, the total trade volume between the four founding mBridge members was $540 billion—if China moves just 5 percent of these flows to mBridge it could facilitate trade up to $27 billion.102 Moving the mBridge consensus protocol to Dashing would also improve the efficiency of the project by increasing the number of transactions per second. However, liquidity remains a major concern for the scalability of mBridge. To facilitate large-scale cross-border transactions daily without dollars or euros would require a change in the current currency settlement system. However, at least for a shortterm crisis and for specific transactions that would fall under sanctions, mBridge can help the Chinese financial system and its commercial banks maintain liquidity.

mBridge, along with CIPS (see below), can potentially augment China’s ability to respond in a Taiwan crisis scenario. Despite its growth over the last two years, CIPS’ capability is limited by its reliance on SWIFT. Participants can message each other through the CIPS messaging system, but 80 percent of transactions on CIPS rely on the SWIFT infrastructure for translation.103 As a result, China might pivot toward strengthening the role of digital yuan and mBridge in its international payment networks, hoping to maintain transactional flows and mitigate the impacts of any restrictions on CIPS. Ultimately, China is likely to rely on both networks in a crisis to mitigate sanctions through multiple avenues.

One way to understand China’s goal with CIPS and its linkages with SWIFT is that by adding more banks to both networks China is making it more difficult to sanction the Chinese banking system without enormous repercussions to trading partners all over the world. Instead of a sanctions shield, like mBridge, CIPS expansion can be thought of as a leverage point to discourage sanctions.

There is growing interest around the world in finding alternatives to the dollar-based messaging and settlement systems. China is meeting this demand while also serving its own goals of internationalizing its currency and providing a hedge against sanctions. The development of the e-CNY and mBridge project provide Beijing with new options to circumvent a potential international sanctions regime in a Taiwan crisis. This makes the timing of a crisis critical. Without a change in current dynamics, the impact of sanctions today on China’s economy could be far more significant than the impact in three to five years when mBridge has become fully operational with additional countries as partners.

Prospects for future expansion of international Renminbi

While China has struggled to increase the attractiveness of the renminbi in overseas markets, there are certain political initiatives Beijing can take to increase the currency’s utility to third parties, and to expand participants in mBridge and CIPS. One of these is the use of currency swap arrangements to administratively offer pools of liquidity in renminbi for trade settlement or financial transactions in other countries. Another would be to offer concessionary lending to third countries in renminbi, for overseas infrastructure or Belt and Road Initiative-related projects, which can improve liquidity in overseas markets but may also require the borrower to spend or convert many of the proceeds back in China or with Chinese firms who can accept the renminbi.

Other options for Beijing include more ambitious concepts such as the use of a BRICS currency, which emerged as a topic of discussion during the last BRICS summit in South Africa in August 2023 and will continue to be a key area of policy exploration under the Russian BRICS presidency in 2024.104 Any creation of a BRICS currency would necessarily require China’s participation, and given China’s economic weight within the group of countries, a BRICS currency would be almost equivalent to an offshore renminbi. The basic challenge persists, though, in that a BRICS currency could not provide any meaningful insulation from Western economic statecraft. Most of the BRICS countries, including China, run trade surpluses, so unless China dramatically increased imports from these countries, these countries would continue to export to Western economies, most likely using US dollars, and accumulating US dollars that would need to be cleared via US-domiciled accounts.

Beijing is also using the Shanghai Cooperation Organization (SCO) to advance non-dollar-denominated financial systems by promoting the use of local currencies like the renminbi in international trade and finance. Chinese leaders have supported the creation of an SCO development bank and have advocated for measures to increase local currency settlements including through improving local-currency cross-border payment and settlement systems as well as bilateral currency swaps arrangements.105

The problem with the BRICS currency and Chinese efforts at the SCO speak to the larger limitations on the accumulation of offshore renminbi. As long as China runs a trade surplus, globally, then renminbi remains scarce, and remains inside China itself. Only by running a persistent trade deficit would renminbi end up circulating more regularly outside of China, and therefore create incentives for other market participants to hold renminbi-denominated assets. Otherwise, renminbi must spread through outbound investment, outbound lending, or currency swap arrangements, all of which must be negotiated with Chinese commercial banks or the central bank, rather than proceeding entirely via market transactions. The conundrum for Beijing is that should China run a persistent trade deficit or face persistent capital outflows, China’s currency would remain less attractive than other alternatives, because these forces may reduce the value of the currency over time. But those are also the only channels through which renminbi can significantly increase its circulation outside China.

Policy constraints on expansion of renminbi financial networks

China could meaningfully expand the international use of its currency by opening its capital account more rapidly to both capital inflows and outflows. The fact that the currency is not fully convertible meaningfully limits its usage, because market participants cannot exchange the currency freely for others, nor participate freely in Chinese financial markets. Beijing has significantly liberalized its own financial markets and allowed more foreign participation, but this has primarily been focused on maintaining inflows, rather than permitting outflows. There are still considerable restrictions on daily transaction volumes through China’s Bond Connect and Stock Connect programs, which permit two-way flows via Hong Kong.

However, fully liberalizing China’s capital account would bring a slew of additional financial risks, which explains Beijing’s reluctance to commit to greater opening. China has maintained a closed capital account for years, while the world-leading money supply has expanded to over $40 trillion, even though 98 percent of China’s monetary assets are denominated in renminbi. Currently, Chinese citizens are limited by the $50,000 annual quota on per capita foreign exchange conversions, and corporates are limited by a series of restrictions on outbound investments and rules limiting access to foreign exchange. These capital controls do not completely prevent conversions into foreign assets, but they slow down these flows considerably. Liberalization of the capital account would likely permit more inflows, but at the cost of much faster potential outflows, which may trigger significant liquidity problems within China’s financial institutions and significant pressure on the renminbi to depreciate. And such depreciation pressure would meaningfully reduce the attractiveness of the currency to overseas investors.

Implicit within these limitations is a broader problem of trust and credibility in Chinese policymaking. To hold an asset denominated in renminbi implicitly involves some degree of confidence in the longerterm value of the currency, the stability of China’s regulatory environment, and the credibility of China’s policymaking process. That policy credibility takes years to accumulate, but can be disrupted rapidly, through actions such as the crackdowns on IT firms or education and tutoring firms in 2021, or the botched efforts to bail out the equity markets, both in 2015 and earlier this year.106 These campaigns and crackdowns were highly adverse to foreign investors’ interests and raised questions about the ultimate intentions of China’s leadership to maintain economic growth and preserve an attractive climate for foreign investment. The same concerns among investors can emerge over geopolitical issues, such as China’s alignment with Russia after the invasion of Ukraine, which has cost China considerable credibility as an attractive economic partner or investment destination. As China’s political system has become more centralized, and campaign-style governance has become more common, it is more difficult for economic technocrats to send countervailing signals that campaigns have ended and normalcy has returned.

All of these constraints limit Beijing’s capacity to develop highly liquid and credible markets for its currency outside of China itself. As a result, China’s financial institutions remain dependent upon the US dollar at the same time as Beijing attempts to expand alternative financial networks in renminbi. Even while many states may seek an alternative to the US dollar system, Beijing faces meaningful limits in its capacity to provide that alternative, without jeopardizing financial stability in China itself.

Responding to G7 economic statecraft in a crisis

The concerns outlined above are longer-term in nature. The immediate question looming for Beijing is what China can plausibly do now if G7 countries initiated some of the economic sanctions and other statecraft measures discussed in the scenarios above. And Beijing does have some meaningful options, simply because most of the renminbi-denominated financial networks can still be used on a limited basis, even if they are unattractive for large volumes of conventional economic transactions.

The first and most obvious step would likely be to route trade transactions involving energy sources and critical commodities imports via countries that were unlikely to cooperate with G7 sanctions or export controls. This would also likely involve the use of the renminbi as a payment currency, which is plausible since many of the commodity exporters to China are likely already receiving renminbi from their Chinese customers. The third-party exporters to China could then be subject to secondary sanctions in some cases, but this would likely involve a significant escalation in targets from G7 countries. Most of this trade activity is likely to continue in spite of Western sanctions on China.

The second measure includes currency intervention, openly selling US dollars in order to shore up the value of China’s currency and reduce near-term pressures for capital outflows that would likely intensify as sanctions were imposed. Currency stability would likely be necessary to maintain Beijing’s capacity to use alternative financial networks in a crisis scenario, to prevent third countries from facing pressure to sell their renminbi and avoid the currency because of sanctions risks. This may appear in Western financial markets as China “dumping” US Treasuries or other US dollar-denominated assets, but the nature of this operation would be to maintain ammunition to stabilize China’s currency.

Third, Beijing can reallocate critical trade and financial transactions with the rest of the world through very large or very small financial institutions. Small financial institutions may be sanctioned, and lose access to US dollar clearing facilities, but these limits are unlikely to have significant implications for financial stability in China, and can shift to other institutions as necessary. Larger financial institutions are more difficult to sanction because of the potential for significant disruptions in regular trade activity with Western markets, and the potential for sudden dislocations in global supply chains. Shifting more critical transactions to larger state-owned banks such as the Bank of China or Industrial and Commercial Bank of China, for example, would be a more difficult secondary sanctions target for Washington.

In terms of rapidly accelerating the development of renminbi-denominated financial networks, Beijing may struggle to react quickly and effectively. More participants from third countries can certainly be admitted into CIPS, more central banks can be linked to mBridge, and more CBDC can be issued, of course. Beijing can suspend cooperation with SWIFT altogether, including within CIPS. But these are not the primary limits on the utilization of these networks, which remain the liquidity and attractiveness of renminbi financial assets, and the limits Beijing places on convertibility of the renminbi. The imposition of G7 sanctions would likely intensify these problems for Beijing, given the rising political costs of third countries in economic engagement with China, rather than catalyzing faster growth of renminbi-denominated financial networks.

Beijing’s responses to different types of crises

As discussed previously, the level of escalation and the mechanics of the scenarios involved will also influence the level of Beijing’s response and attempts to circumvent sanctions. Moderate escalation as defined in this report would suggest that Beijing will attempt to maintain the perception of normalcy in its international financial engagement, leaving channels open for capital inflows into China’s equity and bond markets. The exchange rate would likely be under pressure but within the capacity of the central bank to stabilize conditions, and under most circumstances, it would be in Beijing’s benefit to project financial stability. China would likely try to shift sensitive trade and financial transactions to smaller banks at less risk of international sanctions or restrictions.

Renminbi-denominated international financial networks could become more active in a moderate-escalation scenario, precisely because Beijing would not be facing widespread restrictions on trade, and would be attempting to portray Western sanctions as unreasonable and overreactions, demonstrating the lack of credibility in US and G7 economic policy. Beijing would likely attempt to sign up additional countries’ financial institutions to networks such as CIPS and mBridge, and channel trade and wholesale financial transactions through those networks. Renminbi-denominated central bank swap lines to friendly countries could also be expanded under these circumstances to improve liquidity conditions for renminbi-denominated trade transactions.

In a high-escalation scenario, the renminbi would presumably already be under considerable pressure and would be weaker against the US dollar, and the PBOC would not be as interested in maintaining a certain level of the currency (while also trying to prevent an outright currency collapse). Since this scenario assumes widespread restrictions on China’s financial institutions, it is probable that third countries would be cautious about engaging with China’s renminbi-denominated financial networks for fear of potential secondary sanctions. Furthermore, it is more likely that the pressure on the renminbi would reduce the attractiveness of engaging in trade transactions via China’s international financial networks. More probably, these transactions would be limited to those conducted with Beijing’s explicit political guidance.

Supply and demand of alternatives to the dollar-based financial system

Demand for alternatives to the dollar-denominated financial system are shaped by a desire to mitigate the impact of possible Western sanctions and reduce transaction costs associated with utilizing dollardenominated cross-border payments systems. The G7 and its partners levied unprecedented coordinated sanctions against Russia in response to Russia’s invasion of Ukraine. However, several governments maintain economic and political relationships with Russia. These “fence-sitter” governments, which include BRICS and Gulf countries, have not joined the sanctions campaign and are exploring alternatives to the dollar and euro in order to continue their economic relationships with Russia.107

The United States and its allies’ perceived willingness to use tools of economic statecraft in the event of any conflict shapes the urgency with which countries are pursuing these alternatives.108 Similar to G7 economic initiatives to de-risk or pursue China+1 goods supply chain initiatives, nonaligned capitals around the world are also interested in analogous financial hedges.109 Their efforts are not necessarily meant to supplant the dollar as the dominant international currency but are designed to safeguard their economies in a crisis scenario. It is important to recognize that different countries within the BRICS, for example, have varying motivations and levels of interest in de-dollarization. It is therefore more useful to evaluate de-dollarization efforts on a country-by-country basis as the Atlantic Council has done in its Dollar Dominance Monitor.110

Countries are also striving to reduce dollar usage in cross-border payments because of potential efficiency gains brought about from local currency settlement, or, in the case of China’s trading partners, renminbi trade settlement. This is particularly prominent in Association of Southeast Asian Nations (ASEAN) member states whose central bankers have long taken issue with the inefficiencies and risks incurred by their reliance on the dollar for regional trade and finance.111 Currently, most high-value crossborder dollar payments are settled through the US-led CHIPS system. However, because only one ASEAN member state’s bank—Thailand’s Bangkok Bank Public Company Limited—is a direct participant in CHIPS,112 most dollar-denominated financial flows have to rely on correspondent banking relationships where local institutions maintain accounts with institutions that are members of CHIPS. This financial intermediation incurs costs on traders and financial institutions generating financial motivations to advance dollar alternatives.113 Still, the network effects associated with dollar dominance are considerable, and dollar alternatives may not be readily available or cost effective.114 So while ASEAN countries, for example, are exploring new systems to directly link national payments systems as an alternative to correspondent banking,115 policymakers in the region face considerable headwinds to develop an alternative that is cheaper than established US dollardenominated financial networks.

Foreign exchange markets are one such example. Countries interested in local currency settlement still must utilize foreign exchange markets to convert their domestic currency to their partner’s. However, G7 currencies, led by the dollar, make up nearly 85 percent of all foreign exchange transactions globally.116 With emerging market currencies comprising just 8.9 percent of all foreign exchange transactions, markets for non-dollar currency pairs are mostly underdeveloped. Low volumes for local currency settlement increase the gap between buying and selling rates (the bid-ask spread). For example, in Asia, where ASEAN governments have made a concerted effort to close this gap and increase cross-border local currency use, the bid-ask spread can still be more than double what traders pay for a transaction involving the local currency against the dollar.117 This can counteract the dollar transaction costs incurred by financial intermediation, reinforcing the role of the dollar.

To decrease local currency transaction costs between China and its trading partners, Beijing is actively providing additional pools of renminbi offshore to improve liquidity. During the summer of 2022, the PBOC and the HKMA upgraded their currency swap line to a standing arrangement, providing offshore renminbi markets with stable, long-term liquidity support. The PBOC has also encouraged other regional central banks, namely the Monetary Authority of Singapore, to utilize its renminbi swap funds to enhance the liquidity of their own renminbi markets. The PBOC has suggested it will continue to improve offshore renminbi liquidity through additional supply arrangements.118

Geoeconomics and transactional efficiency gains must reinforce each other for meaningful supplies of dollar alternatives to emerge. The immense network effects of the dollar mean that governments must foot some of the bill, as Beijing and its financial system is doing to develop renminbi foreign exchange markets. These costs can be more easily justified when there is a legitimate national security concern. While the Russia sanctions have accelerated interest in efforts to find dollar alternatives, many of these initiatives are still years away from having enough demand from China’s partners to be useful and effective at scale. However, in the aftermath of a Taiwan crisis, and a sanctions package from the G7, it is likely countries would increase efforts to build these systems both between each other and with China. However, if G7 use of financial statecraft instruments becomes more infrequent or guidelines are adopted to constrain them, there will be less incentive and momentum to develop and adopt alternatives.

Assessing China’s capacity to respond to G7 statecraft

The costs of any Taiwan crisis scenario that threatens to spiral into broader conflict between China and the United States are so large that it may seem trivial to draw finite distinctions between these scenarios, or break down where costs are likely to be most severe. But understanding how China is likely to respond to G7 economic statecraft can help policymakers prepare to minimize those costs, while also outlining alternative paths to avoid conflict by emphasizing that the G7 understands the scope and range of China’s economic second-strike capability. Respect for the damage that both G7 and Chinese economic statecraft can impose can help both sides walk back from the brink of a Taiwan crisis.

The timing of any scenario is also critically important, given how policy is currently evolving in both Western democracies and in Beijing to improve the range of choices in the event of a crisis. The process of de-risking and diversification of supply chains is likely to marginally reduce China’s capacity to practice critical elements of economic statecraft via trade and export restrictions over time. But in finance, policy is trending in the opposite direction, with China’s renminbi-denominated financial networks likely to continue to expand in scope and liquidity, providing more alternative options for China to potentially circumvent US or G7 statecraft tools. A Taiwan crisis in a year’s time will present both sides with far different options and concerns about costs relative to a scenario in five years’ time.

The impact on trade and FDI

One of the principal arguments of this study is that China is armed with powerful statecraft options relating to trade (both imports and exports) and foreign investment (particularly inbound FDI), but that the expansive use of these tools in a moderate- or high-escalation scenario comes with steep economic and reputational costs. Prior geopolitical incidents have shown China to have a wide array of formal and informal tools available, but it has generally used these tools in a targeted fashion: on single firms or industries, or smaller trading partners. China is expanding the legal foundations for these tools. China’s Anti-Foreign Sanctions Law, anti-blocking statute, and expanding export control regime serve to highlight Beijing’s leverage in trade and direct investment with G7 countries.

In an escalation over Taiwan, China has the capability to expand the use of these coercive tools. Trade-related tools would likely focus first on restricting access to China’s market in goods where the costs to China are lower (consumer discretionary goods, easily substitutable goods) and where the relative costs to adversaries are high. Export-related restrictions would likely focus on critical raw materials and key industrial inputs that account for a relatively small share of China’s overall output and employment, but which are difficult for other countries to replace or do without. Investment-related tools would likely begin with disrupting MNC operations through investigations, audits, and interfering with data and financial flows. In a higher escalation scenario, all of these tools could be scaled up further, up to near-total trade restrictions and seizure of MNCs assets in China.

But using these tools, even in limited ways, comes with immediate costs to China. China’s economy depends in large part on the contributions of foreign firms and export-oriented manufacturing. It also carries longer-term costs from frightening off global investors worried about China’s “investability” due to macroeconomic and geopolitical risks. In short, though these coercive tools exist, their use comes at a cost that Chinese policymakers will be loath to bear.

More germane in a moderate-escalation scenario will be China’s usage of positive trade and investment inducements to create cracks in G7 unity on economic sanctions or restrictions, in combination with other restrictions on market access. Beijing may combine measures to restrict market access for one country while offering preferential access to another. In conditions where countries adopt unilateral sanctions against China, China is likely to seek opportunities to undercut alignment by focusing countersanctions solely on that country and offering positive inducements to other G7 countries or the broader G20.

Beijing’s response will also ultimately depend on China’s central position within global supply chains, and as a node in $5.9 trillion in annual global trade activity. Gradual de-risking and diversification of global investment will shift this position, even if the outright volume of China’s trade with the rest of the world remains at a high level and China continues to provide intermediate goods to newer manufacturing centers.

Financial statecraft and consequences

Beijing’s capacity to retaliate against G7 economic statecraft using financial tools alone is limited, and far less consequential for the global economy than Chinese statecraft’s impact on trade and FDI activity. More important are Beijing’s efforts develop alternatives to the dollar-based system financial infrastructure to withstand Western sanctions in the future.

Certainly, Beijing has the ability to impose financial sanctions on Western banks and firms. In a crisis, Beijing is likely to impose stricter capital controls in ways that disrupt financial investments in China, although the primary purpose of these tools would be to prevent destabilizing capital outflows rather than punish foreign investors. Beijing also exerts considerable influence over countries that have borrowed from state-owned banks or received other preferential credit terms for infrastructure construction in cooperation with Chinese companies. These loans could be withdrawn or renegotiated quickly, imposing immediate financial concerns for the borrowing country. This is far less relevant a tool in retaliation against the G7 specifically, but could help Beijing to shape the global political environment in the course of an escalating Taiwan crisis.

The greater focus of policy efforts in Beijing is to expand the scope and capacity of renminbi-denominated international financial networks to offset or circumvent some of the impact of G7 financial sanctions or other economic restrictions. These renminbi-denominated networks are unlikely to challenge the US dollar-dominated financial system at any point in the future, in terms of liquidity, global reach, or reducing transaction costs. But Beijing does not need a comparable or fully competitive system in order to preserve alternatives for critical transactions that can bypass US or G7 controls in the event of broader financial sanctions. Beijing is likely to make further progress in expanding the technical reach of these networks via its digital currency pilot programs such as mBridge and adding more banks in multiple countries to CIPS. This can occur even if offshore renminbi liquidity conditions continue to weaken, as China’s currency remains under pressure to depreciate from capital outflows, which would likely intensify considerably in the event of a Taiwan crisis. Ultimately, it is easiest to understand the internationalization of the renminbi as a safety valve for Beijing in the event of a crisis rather than a full-fledged alternative to the US dollar system.

Preventing escalation in economic warfare

In contemplating the use of economic statecraft in a Taiwan crisis scenario, the challenge for policymakers in G7 capitals and in Beijing will be managing escalation, limiting economic costs, and preventing a spillover into broader kinetic conflict. Understanding how Beijing is likely to respond to G7 statecraft tools can thus help to communicate the potential costs of responsive or retaliatory spirals, and assist both sides in stepping back from the brink before ruinous economic costs result. Escalation is a particular concern for financial markets, which are likely to draw simple parallels between any Taiwan-related crisis and the Russian invasion of Ukraine, along with the past G7 sanctions response. The potential costs of escalation will be presented clearly in the very early stages of any crisis scenario.

Beijing’s initial responses to G7 statecraft measures are likely to fall upon predictable ground, in line with the past actions that China has taken in more limited scenarios. The range of those actions detailed in the previous sections is unlikely to surprise G7 policymakers. But there will still be uncertainty about China’s escalatory responses from those initial steps. The revealed capacity of Beijing to respond with policy agility on unfamiliar ground appears limited, based on the current state of economic policymaking. In addition, past episodes of retaliation against economic statecraft seem to value the perception of reciprocity rather than a technocratic skill in targeting a response toward G7 weaknesses. However, there are some notable counterexamples, such as the restrictions impacting specific foreign firms in the semiconductor industry.

As a result, the chances of escalation and rising economic, political, and potentially humanitarian costs will be higher if in addition to Beijing, G7 actions are also seen as unpredictable, rather than following a logic that global policymakers, financial markets, and Beijing can understand. The case for transparency about the enormous costs of even economic restrictions short of military conflict is strong, particularly as tensions over Taiwan have already risen over the past several years.

Similarly, the more frequent usage of economic sanctions and G7 statecraft targeting US dollar-denominated transactions that are central to the global trading system will help to create further global demand for alternative networks, including those managed by Chinese institutions (even as Beijing maintains similar threats of controlling access to these alternative financial architectures). Explicit restraint in deploying the most aggressive restrictions on economic activity can therefore help to reduce the attractiveness of alternative renminbi-denominated financial networks to third countries, and can also weaken China’s potential leverage over global supply chains and trade activity.

As the lines between economic statecraft and military conflict blur, mapping the paths and consequences of escalatory dynamics can help to prevent initial actions that risk policymakers finding justifications to unveil newer economic statecraft tools. But analyzing the steps China has taken in the recent past and anticipating steps Beijing may take in the future can only go so far. China’s economic second-strike capability is considerable, extending into a large proportion of global trade activity. Credible commitments to restraint in the usage of the most aggressive G7 economic statecraft tools can be just as effective as actively threatening their deployment in limiting escalation in a crisis.

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Appendix 1: China’s formal economic statecraft toolkit

Author analysis

About the authors

Logan Wright is a partner at Rhodium Group and leads the firm’s China Markets Research work. He is also a Senior Associate of the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies. Previously, Logan was head of China research for Medley Global Advisors and a China analyst with Stone & McCarthy Research Associates, both in Beijing. Logan holds a Ph.D. from the George Washington University, where his dissertation concerned the political factors shaping the reform of China’s exchange rate regime. He graduated with a Master’s degree in Security Studies and a Bachelor’s degree in Foreign Service from Georgetown University. He is based in Washington, DC, after living and working in Beijing and Hong Kong for over two decades.

Agatha Kratz is a director at Rhodium Group. She heads Rhodium’s China corporate advisory team, as well as Rhodium’s research on European Union-China relations and China’s economic statecraft. Agatha also contributes to Rhodium work on China’s global investment, industrial policy and technology aspirations. Agatha holds a Ph.D. from King’s College London, having studied China’s railway diplomacy. Her previous positions include associate policy fellow at the European Council on Foreign Relations and editor-in-chief of its quarterly journal China Analysis, assistant editor for Gavekal-Dragonomics’ China Economic Quarterly, and junior fellow at the Asia Centre in Paris.

Charlie Vest is an associate director on Rhodium Group’s corporate advisory team. He manages research and advisory work for Rhodium clients and contributes to the firm’s research on US economic policy toward China. Charlie holds a master’s degree in Chinese economic and political affairs from UC San Diego and a bachelor’s degree in international affairs from Colorado State University. Prior to joining Rhodium, he worked in Beijing as research manager for the China Energy Storage Alliance, a clean energy trade association.

Matthew Mingey is an associate director with Rhodium Group, focusing on China’s economic diplomacy and outward investment, including development finance. Matthew is based in Washington, DC. Previously, he worked on global governance issues at the World Bank. Matthew received a Master’s degree in Global Business and Finance from Georgetown University’s Walsh School of Foreign Service and a Bachelor’s degree from the University of Pennsylvania.

Acknowledgments

This report was written by Logan Wright, Agatha Kratz, Charlie Vest, and Matthew Mingey in collaboration with the Atlantic Council GeoEconomics Center. The principal contributors from the Atlantic Council GeoEconomics Center were Josh Lipsky, Kimberly Donovan, Charles Lichfield, Ananya Kumar, Alisha Chhangani, and Niels Graham.

The GeoEconomics Center and Rhodium Group wish to acknowledge a superb set of colleagues, fellow analysts, and current and former officials who shared their ideas and perspectives with us during the roundtables and helped us strengthen the study in review sessions and individual consultations. These individuals took the time, in their private capacity, to critique the analysis in draft form; offer s uggestions, w arnings, a nd a dvice; and help us to ensure that this report makes a meaningful contribution to public debate. Our gratitude goes to Sarah Bauerle Danzman, Gerard DiPippo, Matthew Goodman, Peter Harrell, Annie Froehlich, Emily Kilcrease, Daniel McDowell, William J. Norris, Daniel Rosen, Dave Shullman, and Hung Tran.

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations.

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2    Vest and Kratz, Sanctioning China in a Taiwan Crisis.
3    See also the discussion of sanctions and deterrence theory in Chapter 6 of Henry Farrell and Abraham Newman, Underground Empire: How America Weaponized the World Economy (New York: Henry Holt and Co., 2023).
4    Daleep Singh, “Forging a positive vision of economic statecraft,” New Atlanticist, Atlantic Council, February 22, 2024, https://www.atlanticcouncil.org/blogs/new-atlanticist/forging-a-positive-vision-of-economic-statecraft/.
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11    Vest and Kratz, Sanctioning China in a Taiwan Crisis
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26    Vest and Kratz, Sanctioning China in a Taiwan Crisis
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41    US-China Business Council, Member Survey, 2023, https://www.uschina.org/sites/default/files/en-2023_member_survey.pdf.
42    Ibid.
43    Antonio Douglas and Hannah Feldshuh, How American Companies are Approaching China’s Data, Privacy, and Cybersecurity Regimes, US-China Business Council, April 2022, https://www.uschina.org/sites/default/files/how_american_companies_are_approaching_chinas_data_ privacy_and_cybersecurity_regimes.pdf.
44    Erin Ennis and Jake Laband, “China’s Capital Controls Choke Cross-Border Payments,” US-China Business Council, n.d., https://www.uschina.org/china%E2%80%99s-capital-controls-choke-cross-border-payments.
45    Bloomberg News, “Russia Seizes Foreign-Owned Utilities After EU Asset Moves,” Bloomberg, April 26, 2023, https://www.bloomberg.com/news/articles/2023-04-26/russia-seizes-fortum-uniper-plants-in-response-to-asset-freezes?sref=H0KmZ7Wk.
46    Sarah Anne Aarup, “Russian roulette for Western companies that stayed,” Politico, August 8, 2023, https://www.politico.eu/article/western-companies-stayed-russia-war-face-consequences/; Andrew Osborn, “West stands to lose at least $288 bln in assets if Russian assets seized -RIA,” Reuters, January 21, 2024, https://www.reuters.com/business/west-stands-lose-least-288-bln-assets-if-russian-assets-seized-ria-2024-01-21/.
47    International Monetary Fund, “Coordinated Direct Investment Survey.”
48    “Above designated size” refers to businesses with annual main business revenues of 20 million yuan or greater. “Foreign-invested enterprise” includes a range of entities, including wholly foreign-owned enterprises, Sino-foreign equity joint ventures, and other corporate structures.
49    Daniel H. Rosen and Logan Wright, “Credit and Credibility: Risks to China’s Economic Resilience,” Center for Strategic and International Studies, October 2018, https://www.csis.org/analysis/credit-and-credibility-risks-chinas-economic-resilience.
50    Sergio Florez-Orrego et al., “Global Capital Allocation,” NBER Working Paper Series, Working Paper 31599, National Bureau of Economic Research, August 2023, https://www.nber.org/system/files/working_papers/w31599/w31599.pdf.
51    International Monetary Fund, “Coordinated Portfolio Investment Survey,” https://data.imf.org/?sk=b981b4e34e58467e9b909de0c3367363.
52    Keith Bradsher, “Amid Tension, China Blocks Vital Exports to Japan,” New York Times, September 22, 2010, https://www.nytimes.com/2010/09/23/business/global/23rare.html.
53    Keith Bradsher, “China Restarts Rare Earth Shipments to Japan,” New York Times, November 19, 2010, https://www.nytimes.com/2010/11/20/business/global/20rare.html.
54    Reuters, “China gallium, germanium export curbs kick in; wait for permits starts,” August 1, 2023, https://www.reuters.com/markets/commodities/chinas-controls-take-effect-wait-gallium-germanium-export-permits-begins-2023-08-01/
55    Ministry of Commerce and General Administration of Customs of the People’s Republic of China, “海关总署公告2023年第39号 关于优化调整石 墨物项临时出口管制措施的公告” [MOFCOM and GACC Announcement No. 39 of 2023 on Optimizing and Adjusting Temporary Export Control Measures for Graphite Items], October 2023, http://www.mofcom.gov.cn/article/zcfb/zcdwmy/202310/20231003447368.shtml.
56    United Nations Department of Economic and Social Affairs, “UN Comtrade Database,” accessed March 4, 2023, https://comtradeplus.un.org/.
57    OECD, “Trade in Employment Database,” accessed March 4, 2023, https://www.oecd.org/industry/ind/trade-in-employment.htm.
58    Aakash Arora et. al., Building a Robust and Resilient U.S. Lithium Battery Supply Chain, Li-Bridge, February 2023, https://netl.doe.gov/sites/ default/files/2023-03/Li-Bridge%20-%20Building%20a%20Robust%20and%20Resilient%20U.S.%20Lithium%20Battery%20Supply%20Chain.pdf.
59    U.S.-China Economic and Security Review Commission, “Section 4: U.S. Supply Chain Vulnerabilities and Resilience,” accessed March 3, 2024, https://www.uscc.gov/sites/default/files/2022-11/Chapter_2_Section_4–U.S._Supply_Chain_Vulnerabilities_and_Resilience.pdf.
60    U.S. Department of Commerce and U.S. Department of Homeland Security, Assessment of the Critical Supply Chains Supporting the U.S. Information and Communications Technology Industry, February 24, 2022, https://www.commerce.gov/sites/default/files/2022-02/Assessment-Critical-Supply-Chains-Supporting-US-ICT-Industry.pdf.
61    Ibid.
62    U.S. Department of Transportation, Supply Chain Assessment of the Transportation Industrial Base: Freight and Logistics, February 2022, https://www.transportation.gov/sites/dot.gov/files/2022-02/EO%2014017%20-%20DOT%20Sectoral%20Supply%20Chain%20Assessment%20 -%20Freight%20and%20Logistics_FINAL.pdf.
63    Hogan Lovells, “China updates technology catalogue for export control, targeting emerging and cutting-edge sectors,” January 31, 2024, https://www.engage.hoganlovells.com/knowledgeservices/insights-and-analysis/china-updates-technology-catalogue-for-export-controltargeting-emerging-and-cutting-edge-sectors.
64    OECD, “Trade in Employment Database,” accessed March 4, 2023, https://www.oecd.org/industry/ind/trade-in-employment.htm.
65    Xinhua, “Full text of President Xi’s speech at opening of Belt and Road forum,” May 14, 2017, http://www.xinhuanet.com/english/2017-05/14/c_136282982.htm.
66    See, for example: Government of the Republic of Croatia, “Senj wind farm opened for trial run, the project will contribute to Croatia’s green transition,” December 7, 2021, https://vlada.gov.hr/news/senj-wind-farm-opened-for-trial-run-the-project-will-contribute-to-croatia-s-greentransition/33504; Wilhelmine Preussen, “Hungary’s Orbán courts China and wins a surge of clean car investments,” Politico, December 20, 2023, https://www.politico.eu/article/hungary-pm-viktor-oran-china-ties-ev-clean-car-investments-tensions-eu/.
67    International Monetary Fund, “Coordinated Direct Investment Survey.”
68    Thilo Hanemann, “Testimony before the U.S.-China Economic and Security Review Commission,” U.S.-China Economic and Security Review Commission, Hearing on Chinese Investment in the United States, January 26, 2017, https://www.uscc.gov/sites/default/files/Hanemann_USCC%20Hearing%20Testimony012617.pdf.
69    OECD, “Investment policy developments in 61 economies between 16 October 2021 and 15 March 2023,” April 2023, https://www.oecd.org/daf/inv/investment-policy/Investment-policy-monitoring-April-2023.pdf; Gabriel Rinaldi and Peter Wilke, “Germany rethinks China’s Hamburg port deal as further doubts raised,” Politico, April 19, 2023, https://www.politico.eu/article/germany-to-revisit-chinas-hamburg-port-deal-over-inconsistencies-on-critical-infrastructure-classification/.
70    James Griffiths, “China can shut off the Philippines’ power grid at any time, leaked report warns,” CNN, November 26, 2019, https://www.cnn.com/2019/11/25/asia/philippines-china-power-grid-intl-hnk/index.html.
71    Deutsche Welle, “Germany nationalizes former Gazprom subsidiary,” November 14, 2022, https://www.dw.com/en/germany-nationalizes-former-gazprom-subsidiary/a-63754453
73    Liu, “China’s Attempts to Reduce Its Strategic Vulnerabilities to Financial Sanctions.”
74    Maia Nikoladze, Phillip Meng, and Jessie Yin, “How is China mitigating the effects of sanctions on Russia?” Econographics, Atlantic Council, June 14, 2023, https://www.atlanticcouncil.org/blogs/econographics/how-is-china-mitigating-the-effects-of-sanctions-on-russia/.
75    Rhodium Group analysis of IMF Currency Composition of Official Foreign Exchange Reserves (COFER) data.
76    People’s Bank of China, 2023 RMB Internationalization Report, 2023, http://www.pbc.gov.cn/en/3688241/3688636/3828468/4756463/5163932/2023120819545781941.pdf.
77    Maxim Chupilkin et al., “Exorbitant privilege and economic sanctions,” EBRD Working Paper No. 281, European Bank for Reconstruction and Development, September 2023, https://www.ebrd.com/publications/working-papers/exorbitant-privilege-and-economic-sanctions.
78    People’s Bank of China, “人民币跨境支付系统(CIPS) 主要功能及业务管理” [Overview of the Main Functions and Business Management of the Cross-Border Payment System (CIPS) for Renminbi], July 2018. https://res.cocolian.cn/pbc/人民币跨境支付系统CIPS业务管理制度介绍-201807.pdf.
79    Josh Lipsky and Ananya Kumar, “The dollar has some would-be rivals. Meet the challengers,” New Atlanticist, Atlantic Council, September 22, 2022, https://www.atlanticcouncil.org/blogs/new-atlanticist/the-dollar-has-some-would-be-rivals-meet-the-challengers.
80    Cross-Border Interbank Payment System, “CIPS Participants Announcement No. 92,” accessed March 15, 2024, https://www.cips.com.cn/en/participants/participants_announcement/60849/index.html.
81    Cross-Border Interbank Payment System, “CIPS Participants Announcement No. 93,” accessed March 15, 2024, https://www.cips.com.cn/en/participants/participants_announcement/60945/index.html.
82    Xu Wenhong, “SWIFT系统：美俄金融战的博弈点” [SWIFT System: The Game of Financial Warfare Between the United States and Russia], Regional Studies of Russia, Eastern Europe, and Central Asia 6 (9) (2019): 17–32, http://www.oyyj-oys.org/Magazine/Show?id=70963.
83    Vincent Ni, “Beijing orders ‘stress test’ as fears of Russia-style sanctions mount,” Guardian, May 4, 2022, https://www.theguardian.com/world/2022/may/04/beijing-orders-stress-test-as-fears-of-russia-style-sanctions-mount.
84    Reuters, “Russian central bank, sovereign fund may hold $140 bln in Chinese bonds – ANZ,” March 2, 2022, https://www.reuters.com/markets/europe/russian-central-bank-sovereign-fund-may-hold-140-bln-chinese-bonds-anz-2022-03-03/.
85    “About Us,” Cross-Border Interbank Payment System, accessed March 15, 2024, https://www.cips.com.cn/en/index/index.html; “About CHIPS,” Clearing House, accessed March 15, 2024, https://www.theclearinghouse.org/payment-systems/CHIPS.
86    Peter E. Harrell, “How to China-Proof the Global Economy,” Foreign Affairs, December 12, 2023, https://www.foreignaffairs.com/china/how-china-proof-global-economy-america.
87    Matt Haldane, “Head of China’s digital yuan addresses blockchain’s role in mBridge, pushing digital currencies beyond their borders,” South China Morning Post, November 2, 2022, https://www.scmp.com/tech/policy/article/3198094/head-chinas-digital-yuan-addresses-blockchains-role-mbridge-pushing-digital-currencies-beyond-their.
88    People’s Bank of China, Progress of Research & Development of E-CNY in China, Working Group on E-CNY Research & Development of the People’s Bank of China, July 2021, http://www.pbc.gov.cn/en/3688110/3688172/4157443/4293696/2021071614584691871.pdf
89    People’s Bank of China, “Notice from the General Office of the People’s Bank of China on Further Enhancing the Work of ‘Digital Renminbi,’” January 1, 2023, http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4761016/index.html.
90    Ibid.
91    Bank for International Settlements, “Project mBridge: experimenting with a multi-CBDC platform for cross-border payments,” updated October 31, 2023, https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm.
92    BIS Innovation Hub, Project mBridge: Connecting economies through CBDC, October 2022, https://www.bis.org/publ/othp59.pdf.
93    Ibid.
94    Ibid.
95    Observing members: Bangko Sentral ng Pilipinas; Bank Indonesia; Bank of France; Bank of Israel; Bank of Italy; Bank of Korea; Bank of Namibia; Central Bank of Bahrain; Central Bank of Chile; Central Bank of Egypt; Central Bank of Jordan; Central Bank of Malaysia; Central Bank of Nepal; Central Bank of Norway; Central Bank of the Republic of Türkiye; European Central Bank; International Monetary Fund; Magyar Nemzeti Bank; National Bank of Georgia; National Bank of Kazakhstan; New York Innovation Centre, Federal Reserve Bank of New York; Reserve Bank of Australia; Saudi Central Bank; South African Reserve Bank; and the World Bank.
96    BIS Innovation Hub, Project mBridge Update: Experimenting with a multi-CBDC platform for cross-border payments, October 2023, https://www.bis.org/innovation_hub/projects/mbridge_brochure_2311.pdf.
97    Ibid.
98    Mike Orcutt, “What’s next for China’s digital currency?” MIT Technology Review, August 3, 2023, https://www.technologyreview.com/2023/08/03/1077181/whats-next-for-chinas-digital-currency/.
99    BIS Innovation Hub, Project mBridge: Connecting economies.
100    Wang Huirong, “已在央行数字货币桥等落地应用！中国自主设计研发的大圣协议是什么[“It’s in use with mBridge! What is China’s indigenously developed Dashing protocol?”] ThePaper.cn, October 17, 2023, https://m.thepaper.cn/newsDetail_forward_24964633.
101    Private conversations with experts associated with the project.
102    UN Comtrade data (2022).
103    Barry Eichengreen, Sanctions, SWIFT, and China’s Cross-Border Interbank Payments System, Center for Strategic and International Studies, May 20, 2022, https://www.csis.org/analysis/sanctions-swift-and-chinas-cross-border-interbank-payments-system.
104    “BRICS Dedollarization: Rhetoric Versus Reality,” Carnegie Endowment for International Peace, January 23, 2024, https://carnegieendowment.org/2024/01/23/brics-dedollarization-rhetoric-versus-reality-event-8227
105    Xinhua News Agency, “习近平在上海合作组织成员国元首理事会第二十二次会议上的讲话（全文）[Xi Jinping’s speech at the 22nd meeting of the Council of Heads of State of the Shanghai Cooperation Organization (full text),” September 16, 2022, https://web.archive.org/web/20240213211131/https://www.gov.cn/xinwen/2022- 09/16/content_5710294.htm.
106    Tom Westbrook and Summer Zhen, “Why China’s national team won’t save spiralling markets,” Reuters, February 5, 2024, https://www.reuters.com/markets/asia/why-chinas-national-team-wont-save-spiralling-markets-2024-02-05/.
107    New Atlanticist, “Transcript: US Treasury Secretary Janet Yellen on the Next Steps for Russia Sanctions and ‘Friend-shoring’ Supply Chains,” Atlantic Council, April 13, 2022, https://www.atlanticcouncil.org/news/transcripts/transcript-us-treasury-secretary-janet-yellen-on-the-next-steps-for-russia-sanctions-and-friend-shoring-supply-chains/.
108    Daniel McDowell, “Overview” in Bucking the Buck: US Financial Sanctions and the International Backlash against the Dollar (Oxford University Press, March 2023).
109    Gerard DiPippo and Andrea Leonard Palazzi, “It’s All about Networking: The Limits of Renminbi Internationalization,” Center for Strategic and International Studies, April 18, 2023, https://www.csis.org/analysis/its-all-about-networking-limits-renminbi-internationalization.
110    “Dollar Dominance Monitor,” Atlantic Council, accessed March 15, 2024, https://www.atlanticcouncil.org/programs/geoeconomics-center/dollar-dominance-monitor/.
111    Association of Southeast Asian Nations, “Summary of Summaries of Topic1 ‘Ways to promote foreign trade settlements denominated in local currencies in East Asia,’” accessed March 15, 2024, https://www.asean.org/wp-content/uploads/images/archive/documents/ASEAN+3RG/0910/Sum/16.pdf.
112    “CHIPS Participants,” Clearing House, accessed March 15, 2024, https://www.theclearinghouse.org/-/media/new/tch/documents/payment-systems/chips_participants_revised_01-25-2021.pdf
113    Congressional Research Service, “Overview of Correspondent Banking and ‘De-Risking’ Issues,” April 8, 2022, https://crsreports.congress.gov/product/pdf/IF/IF10873/3.
114    Gita Gopinath and Jeremy C. Stein, “Banking, Trade, and the Making of a Dominant Currency,” Working Paper 24485, NBER Working Paper Series, National Bureau of Economic Research, https://www.nber.org/system/files/working_papers/w24485/w24485.pdf.
115    Kominfo, “The Development of Cross-Border Payment Cooperation in ASEAN,” ASEAN, September 22, 2023, https://asean2023.id/en/news/the-development-of-cross-border-payment-cooperation-in-asean.
116    “OTC foreign exchange turnover in April 2022,” Triennial Central Bank Survey, Bank for International Settlements, October 27, 2022, https://www.bis.org/statistics/rpfx22_fx.htm#graph4.
117    Robert Greene, “Southeast Asia’s Growing Interest in Non-dollar Financial Channels—and the Renminbi’s Potential Role,” Carnegie Endowment for International Peace, August 22, 2022, https://carnegieendowment.org/2022/08/22/southeast-asia-s-growing-interest-in-non-dollar-financialchannels-and-renminbi-s-potential-role-pub-87731.
118    People’s Bank of China, 2023 RMB Internationalization.

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]]> Bolstering cooperation among Quad and Pacific Island countries https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/bolstering-cooperation-among-quad-and-pacific-island-countries/ Fri, 29 Mar 2024 13:00:00 +0000 https://www.atlanticcouncil.org/?p=752135 As the Pacific Islands’ relevance grows, there’s an influx of diplomatic attention and development assistance as external powers seek to curry favor with the sixteen countries. Australia, India, Japan, and the United States (the Quad) seeks to bolster regional engagement to address key regional issues including climate, connectivity, economic development, and maritime security.

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Executive summary

As the geopolitical relevance of the Pacific Islands has grown, so too has the attention paid to them by the outside world—including an influx of diplomatic attention, development assistance, and more as external powers seek to curry favor with the sixteen countries. Australia, India, Japan, and the United States—which collectively comprise the Quadrilateral Dialogue (known as the Quad)—have independently and collectively scaled up their engagement with the Pacific Islands.

In doing so, the Quad has sought to pursue a positive, practical agenda that aligns with the Pacific Islands Forum (PIF)’s 2050 Strategy for the Blue Pacific Continent.

Broadly speaking, the PIF members welcome the Quad, but some are critical of the “free and open Indo-Pacific” narrative that undergirds it. As the Quad seeks to bolster its engagement in the Pacific Islands, it should ensure that it accounts for the unique challenges facing this vast maritime region, which relies heavily on foreign assistance.

In 2023, the Quad announced a range of programmatic initiatives intended to address key regional issues, including climate, connectivity, economic development, and maritime security. The bloc is currently standing on solid ground, but the group is still finding its footing as a new player in the complex multilateral architecture in the Pacific Islands.

Looking forward, it should embrace four broad-based, cross-cutting policy recommendations that align with the stated priorities of the Quad, its member states, and Pacific Island countries:

  1. Prioritize programs that bolster physical and digital connectivity, such as the Quad Partnership for Cable Connectivity and Resilience that was announced at the 2023 Quad Leaders’ Summit.
  1. Emphasize maritime domain awareness and enforcement by providing partners with tools to facilitate greater enforcement capacity and enhanced monitoring.
  1. Implement positive, practical programs in areas of strategic advantage that fit into an already-complex regional donor landscape and meet Pacific needs.
  1. Take a forward-leaning approach to public diplomacy, including through elevated branding that proactively communicates intent, emphasizes shared values, and does not overemphasize geopolitics.

Introduction

As the geopolitical relevance of the Pacific Islands has grown, so too has the attention paid to it by the outside world. Other issues, from climate change to fisheries, drive engagement as well—but geopolitics is what has drawn the lion’s share of international media coverage and interest from decision-makers in foreign capitals who do not focus on the region day-to-day.

This, in turn, has brought an influx of diplomatic attention, development assistance, and more as external powers seek to curry favor with the sixteen Pacific Island countries.1 As the most aid-dependent region in the world, this recognition is welcomed, but Pacific Islanders remain leery about geopolitical competition and the detrimental impact it could have on their sovereignty and well-being.

Australia, India, Japan, and the United States have independently and collectively scaled up their engagement with these Pacific Islands. In 2007, the four countries formed the Quadrilateral Dialogue (the Quad), which has become an increasingly important element of the Indo-Pacific’s growing multilateral architecture. It serves as a forum for addressing shared challenges across the Indo-Pacific, including in the Pacific Islands.

In February and March 2024, the Indo-Pacific Security Initiative (IPSI) of the Atlantic Council’s Scowcroft Center for Strategy and Security convened public and private discussions with governmental and nongovernmental experts from Quad member states and Pacific Island countries to formulate policy recommendations for the bloc as it expands activities in the region.

The collective output of those discussions, in turn, is the basis for this policy brief, which provides an overview of the relationship between the Quad and the Pacific Islands as it stands today, followed by a series of policy recommendations for the former as it seeks to bolster its engagement with the latter over the coming years.

The Quad and the Pacific Islands: An overview

It is no coincidence that the Quad’s revival in 2017 came at a time of heightened geopolitical competition in the Indo-Pacific. As noted in the 2023 Joint Leaders’ Statement, its members are committed to ensuring “a free and open Indo-Pacific that is inclusive and resilient” and one where “all countries are free from coercion, and can exercise their agency to determine their futures.”

Alongside other fora, the Quad has become an increasingly important node in the Indo-Pacific’s growing “minilateral” architecture. Cooperation within it focuses on six key areas—climate, critical and emerging technology, cyber, health security, infrastructure, and space—that are reflected by the bloc’s formal leader-level working groups.

While they may skate around thornier issues that could divide the bloc, these agreed-upon priority areas have helped the Quad formulate a positive, practical agenda that will benefit not just the four Quad countries but also partner nations. Leaders’ meetings have become an annual occurrence and overall cohesion in the bloc has increased—no small feat, considering how quickly it went dormant after being first conceived in 2007.

Along with its thematic focus areas, the Quad has emphasized cooperation with countries in three key Indo-Pacific subregions—Southeast Asia, the Pacific Islands, and Indian Ocean rim—and expressly acknowledged the centrality of their respective multilateral forums: the Association of Southeast Asian Nations (ASEAN), Pacific Islands Forum (PIF), and the Indian Ocean Rim Association (IORA).

In the Pacific Islands, the Quad has sought to align itself with the objectives of the 2050 Strategy for the Blue Pacific Continent (2050 Blue Pacific Strategy), a long-term road map for addressing key regional issues that were agreed upon by PIF members in 2022. The PIF strongly encourages external partners to work within this framework, and the Quad’s commitment to supporting its objectives is an important sign of respect for regional institutions.

It should be noted that the PIF is not the only regional institution in the mix; others, such as the Melanesian Spearhead Group (MSG), cater to subregions and may deviate from the PIF at times and contend with it for influence. Furthermore, each of the sixteen Pacific Island countries have unique cultures, histories, and interests. It is therefore important that the Quad members build bilateral relationships with each country rather than opting for the easier route of painting the region with a monolithic brush.

Regional footprint of Quad members

Outside of the Quad framework, Canberra, New Delhi, Tokyo, and Washington also independently maintain regional presences that reflect each country’s unique priorities and interests. The added value of the bloc is its ability to capitalize on members’ regional initiatives to maximize the efficiency and impact of joint initiatives.

Of the four, Australia has historically been the most engaged in the region. It is a PIF member, maintains a comprehensive diplomatic footprint with missions in all sixteen Pacific Island countries, and is by far the single largest aid donor to the region. Canberra possesses unmatched levels of deep and long-term engagements with the Pacific Island countries, but, as with any long-standing bilateral relationship, this inevitably comes with areas of tension.

India has long maintained an interest in Fiji due to the latter’s large Indo-Fijian population but remains a relatively new player in the Pacific Islands region. Its amplified Pacific Islands engagement flows from a broader effort by Prime Minister Narendra Modi to enhance India’s global footprint. For instance, Modi’s 2023 visit to Papua New Guinea included the announcement of a strategic action plan to expand cooperation on a diverse issue set with Pacific Island countries.

Japan has a long history in the region and ramped up its modern-day engagement in the late 1990s, initiating the Japan-Pacific Islands Leaders Meeting (PALM) mechanism in 1997. It is the region’s second-largest provider of overseas development assistance and well-known for its focus on infrastructure and fisheries. As the originator of the “free and open Indo-Pacific” concept, it has been a leading voice for increasing regional cooperation through mechanisms like the Quad.

The United States has deep regional roots due to its ties with the three freely associated states2 (FAS) and the geographic location of the US State of Hawaii within Polynesia. The United States significantly scaled back its regional presence in the early 1990s and only truly returned to previous levels of engagement in the late 2010s due to rising geopolitical competition. Since then, it has reestablished itself as a regional player by amplifying development aid, opening new embassies, and more—but questions linger about its long-term reliability and staying power.

All four countries have broadened their engagement in the region. Although Australia is the only full member of the PIF, India, Japan, and the United States hold observer status. They also maintain their own dialogue mechanisms with Pacific Island countries—for example, India’s Forum for India-Pacific Islands Cooperation and the now-annual US-Pacific Island Forum Leader’s Summit. Additionally, Australia, Japan, and the United States are members of the Partners in the Blue Pacific (PBP) mechanism.

The view from the Pacific Islands

With a collective exclusive economic zone (EEZ) of over sixteen million square kilometers, the Pacific Islands occupy nearly 10 percent of the world’s maritime space. In recent years, Pacific Island countries have sought to define themselves as “large ocean states” instead of the more common moniker of “small island states.” Their maritime nature is a defining, cross-cutting feature of the region.

Broadly speaking, the Quad has been welcomed, albeit not universally. Some are critical of the “free and open Indo-Pacific” narrative that undergirds it, arguing among other things that it is incompatible with the 2050 Blue Pacific Strategy and could “funnel resources away from investment in Blue Pacific interests and objectives.” Others contend that the Quad is an unnecessary addition to an already complex multilateral landscape.

As the Quad expands its engagement with the Pacific Island countries, it is important to consider how regional actors define and view key international challenges, especially when such definitions and views may differ from those espoused by Quad members. The PIF’s 2018 Boe Declaration, which incorporates traditional and nontraditional security issues into a single definition of security, is perhaps the most pertinent example.

Climate change, which Pacific Island countries see as their single greatest threat, is central to their definition of security. Quad members, in the 2023 Joint Leaders’ Statement, did expressly acknowledge the significance of climate change as it pertains to global security. However, their words have not always aligned with actions taken on the issue at home, which in turn has periodically strained relations due to perceptions that Quad members’ climate rhetoric is more talk than action.

There are diverging views on geopolitics, but a general through line is a desire to maintain peace, stability, and positive relations with external parties. This is exemplified by Fijian Prime Minister Sitiveni Rabuka’s Zone of Peace concept, which is “deeply rooted in Pacific ideas of family and relationships,” and was welcomed by many Pacific Island leaders at their 2023 PIF retreat.

The development and economic challenges facing Pacific Island countries may be similar to those faced by other developing countries, but they are exacerbated by the region’s vast maritime nature and imminent challenges stemming from climate change. Although there are notable variances between the individual countries, the common priorities include but are by no means limited to disaster management, fisheries, labor mobility, infrastructure, public health, and regional connectivity.

Current Quad-Pacific Islands initiatives

Although the Pacific Islands were briefly referenced in the 2021 Joint Statement of Quad Leaders, the focus on this expansive subregion has grown exponentially since then. A range of programmatic announcements, many of which pertain to the Pacific Islands, were made at the 2023 Leaders’ Summit, including:

  • Space: Exploring avenues to deliver Earth observation data and other space-based applications to assist nations across the Indo-Pacific in strengthening climate early warning systems.

The Joint Leaders’ Statement positively signals the Quad’s intent to work in partnership with the Pacific Islands region and to align programs with the 2050 Blue Pacific Strategy, stating that, “In these efforts, Quad Leaders will listen to and be guided at every step by Pacific priorities.” These programs are only in the preliminary stages of implementation, though, and successful delivery will be crucial to achieving long-term goals.

Policy recommendations

As the Quad looks ahead this year and beyond, it is both standing on solid ground and still finding its footing in the Pacific Islands. Moving forward, the bloc should continue to pursue achievable, practical policies that deliver on Pacific needs while ensuring the Quad is not stretched too thin. In addition, the Quad should take a forward-leaning public diplomacy approach that helps it win over public opinion and build stronger ties with Pacific Island countries.

To support these efforts, IPSI convened a February 2024 public panel discussion, “Bolstering Cooperation among Quad and Pacific Island Countries,” that featured speakers from all four Quad members and the Pacific Islands, including His Excellency David Panuelo, the former president of the Federated States of Micronesia (FSM). IPSI also convened a private track 1.5 workshop, which was attended by thirty-three government and nongovernment experts.

What resulted from the panel discussion and workshop are four broad-based, cross-cutting policy recommendations. These are by no means exhaustive; rather, they reflect the themes most frequently raised and are intended to align with the stated goals of the Quad, its member states, and the Pacific Island countries.

1.  Prioritize programs that bolster physical and digital connectivity

As noted previously, the region’s expansive maritime scale cuts across every issue facing it. Pacific Island countries are geographically isolated, and their isolation is further exacerbated by limited physical connectivity. Physical infrastructure is an issue that is frequently raised in the region, and there are urgent needs for the construction and refurbishment of new and existing facilities: ports, highways, airports, and the like.

Digital connectivity presents a crucial opportunity to circumvent geographic barriers, but most Pacific Island countries are not adequately connected to transnational undersea cable systems. Furthermore, they face challenges with building sufficient telecommunications networks within their own borders. That is why technology and connectivity emerge as one of the seven thematic areas of the 2050 Blue Pacific Strategy

Improving physical and digital connectivity would unlock opportunity across the region, especially on the economic front. The Quad has acknowledged the issue’s centrality in joint statements and laid out concrete programs to improve it throughout the Indo-Pacific. For the Pacific Islands region, this includes the Quad Partnership for Cable Connectivity and Resilience initiative (noted above), and at a country-level includes the Palau Open RAN program (also noted above).

In this and coming years, the Quad should maintain its focus on programs that improve connectivity, especially in the digital realm. The CET and infrastructure working groups are well positioned to continue their work on cables. As the digital realm increases in complexity, the Quad should consider how the space working group can help deliver satellite-based internet coverage—which is in high demand in the Pacific Islands.

It should be noted that this is an area where the Quad can capitalize on existing programs initiated by one or more member states. One example is Australian and US support for incorporating eight Pacific Island countries into US-based Google’s plans for a trans-Pacific subsea cable. Through such a mechanism, the Quad can build upon existing work rather than start from scratch. It also demonstrates the value of bringing private-sector partners into the fold to maximize impact.

2. Emphasize maritime domain awareness and enforcement

Maintaining the territorial integrity of their maritime space is a daunting task for Pacific Island countries. To illustrate, the FSM has an EEZ of almost three million square kilometers and the Solomon Islands has an EEZ of one and a half million square kilometers. Both countries face acute difficulties when seeking to monitor and enforce these EEZs owing to a wide range of resource limitations, from patrol boats to human capital.

The significance of this issue is noted in the 2050 Blue Pacific Strategy, which calls to protect “sovereignty and jurisdiction over our maritime zones and resources” and to “strengthen our ownership and management of our resources.” Yet the ability to do so is under imminent threat from foreign state and nonstate actors on matters ranging from narcotics trafficking to illegal fishing, both of which have increased in recent years.

Echoing this, the Quad announced the Indo-Pacific Partnership for Maritime Domain Awareness (IPMDA) initiative at the 2022 Leaders’ Summit, which aims to “provide near-real-time, integrated and cost-effective maritime domain data to maritime agencies in Southeast Asia and the Pacific.” This, in turn, provides each country with useful tools to help navigate responses to natural disasters and monitoring of climate patterns.

Looking forward, the Quad should consider how the resources it offers can facilitate greater enforcement capacity and enhanced monitoring for Pacific Island countries. One area worth exploring is coordinating the provision of patrol boats, which individual members have historically provided on a bilateral basis. The Quad should not duplicate existing programs; instead, it should serve as a coordination hub to ensure maximally beneficial allocation across the region.

3. Implement positive, practical programs in areas of strategic advantage

While the Quad holds a lot of promise, it should be careful to not overextend itself and become another flashy diplomatic initiative that overpromises and underdelivers. To do so, the Quad can align its strategic advantages with priorities identified by the Pacific Island countries themselves.

As outlined earlier, individual Quad members have unique histories with specific Pacific Island countries. However, the Quad itself is viewed with some skepticism due to its relatively new advent, collapse, and reemergence onto the scene. Australia, India, Japan, and the United States seem to be cognizant of this issue, and their emphasis on positive, practical programs with tangible outcomes will help allay skepticism.

In addition, Quad members should clearly and consistently communicate what they can and cannot do, and how they envision Quad-driven initiatives fitting into an already-complex donor landscape. Doing so will help manage inevitable misunderstandings that tend to come with new initiatives and allow it to focus on producing results that earn credibility and trust from Pacific Islanders.

The bloc has been met with fanfare and gained staunch support in Canberra, New Delhi, Tokyo, and Washington. However, the attention of and priorities for these capitals are becoming split in multiple directions as increasing threats across the world lead to limit the resources and time that can be devoted to the Pacific Islands. Quad and Pacific Island countries alike should be careful not to place all their bets on the Quad, lest it collapse under its own weight.

4. Take a forward-leaning approach to public diplomacy

Globally, the information domain has become more competitive, fast-moving, and fragmented. At both a regional and country level, the Pacific Islands region has a particularly unique information space due to limited digital connectivity and a geographic location that any external actor must fully comprehend in order to seek engagement with local populations.

The Quad may have started off on the right foot, but there is still much to be accomplished to maintain an advantage in the information space, especially as it becomes increasingly contested due to geopolitical competition. Ultimately, Quad members’ status as the partners of choice for many Pacific Island countries is at risk if a forward-leaning approach to public diplomacy is not implemented.

Specific recommendations for implementing this approach include the following:

  • Proactively communicate intent: Stress that the Quad is meant to complement, not supersede or replace, the existing regional architecture. Building upon the shift in its official name from the Quadrilateral Security Dialogue to the Quadrilateral Dialogue, it should make a more concerted effort to expand its focus beyond just traditional security issues. Doing so will quell apprehensions from the region regarding the true nature of the Quad’s intentions for the region.
  • Emphasize shared values: Quad and Pacific Island countries share democratic values—democracy, rule of law, freedom of speech, and more—that should be actively highlighted. But doing so requires that Quad members practice what they preach at home, lest they open themselves up to charges of hypocrisy.
  • Do not overemphasize geopolitics: Pacific Islanders are well aware of the growing geopolitical competition in the Indo-Pacific and the impact it may have on their region. Overly aggressive rhetoric about it may resonate in the capitals of Quad member states, but much less so in the Pacific Islands. It certainly should be discussed at times, but it should not be the overarching crux of public interactions.
  • Elevate branding: If the Quad is to achieve its goals, it must back up its rhetoric with concrete evidence of successful implementation of initiatives on the ground. One of the best ways to do so is through physical and digital branding that clearly indicates that the Quad or one of its member states is delivering and working with Pacific Island countries to implement a project. Although Australia and the United States have sometimes been reluctant to elevate branding alongside their individual development programs, the Quad presents an opportunity for a fresh approach.

Parker Novak, the primary author of this issue brief, is a nonresident fellow with the Atlantic Council’s Global China Hub and Indo-Pacific Security Initiative, where he specializes in Southeast Asia, the Pacific Islands, Indo-Pacific geopolitics, and US foreign policy. He previously served as the Indonesia and Timor-Leste country director for an international non-governmental organization.

Kyoko Imai, the project lead and contributor to this issue brief, is the associate director for the Indo-Pacific Security Initiative (IPSI) of the Atlantic Council’s Scowcroft Center for Strategy and Security. She spearheads IPSI’s work on US-ROK-Japan, Quad, AUKUS, and other multilateral frameworks, in addition to the Japan, Southeast Asia, and Pacific Islands portfolios. Imai’s functional expertise centers on non-traditional security including but not limited to economic security, human rights, climate security, and migration.

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The Indo-Pacific Security Initiative (IPSI) informs and shapes the strategies, plans, and policies of the United States and its allies and partners to address the most important rising security challenges in the Indo-Pacific, including China’s growing threat to the international order and North Korea’s destabilizing nuclear weapons advancements. IPSI produces innovative analysis, conducts tabletop exercises, hosts public and private convenings, and engages with US, allied, and partner governments, militaries, media, other key private and public-sector stakeholders, and publics.

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1    The Pacific Islands Forum includes eighteen countries and territories. Quad member Australia is a Pacific forum member but is excluded from the count for the purposes of this paper, as is New Zealand, a forum member that is part of the Five Eyes intelligence group along with Australia, Canada, the United Kingdom, and the United States. Included in this Pacific Islands count are forum members: Cook Islands, Federated States of Micronesia, Fiji, French Polynesia, Kiribati, Nauru, New Caledonia, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
2    The Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau are referred to as the freely associated states.

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]]> Sanctions have become a tool of first resort. But enforcement needs upgraded and updated resources. https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/sanctions-have-become-a-tool-of-first-resort/ Tue, 26 Mar 2024 17:44:30 +0000 https://www.atlanticcouncil.org/?p=749799 Enforcement remains a critical but underresourced element of economic sanctions.

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Enforcement remains a critical but underresourced element of economic sanctions. The US Congress and the Department of the Treasury should consider updates to its resources, public guidance, and policies to ensure the efficacy of sanctions enforcement as the use of the sanctions policy tool continues to expand.

Economic sanctions are often described as the foreign policy tool of first resort. The Department of the Treasury acknowledged this reality in its “2021 Sanctions Review.” Through its Office of Foreign Assets Control (OFAC), the Treasury Department administers thirty-eight different, albeit overlapping, economic sanctions programs. With only a few hundred employees, OFAC has a nearly unparalleled national security mandate with oversight of the US economy and many other facets of global economic activities. OFAC develops policies for the use of sanctions, designates sanctions targets like individuals, entities, and jurisdictions, engages with the private sector to promote compliance, and civilly enforces apparent violations by US persons and others. This latter enforcement role represents a critical but often overlooked capability. For instance, the same “2021 Sanctions Review” does not even mention the enforcement function in its assessment. (However, it did seek to ensure that sanctions are “enforceable” in the context of sanctions implementation.) Resource constraints, a lack of attention, and the prioritization of policy crises hamper this enforcement function. In 2023, OFAC only undertook seventeen public enforcement actions, including its largest settlement to date with Binance, a global cryptocurrency exchange. For perspective, the Department of Justice terminated 63,419 civil cases in fiscal year 2022, according to the most recent public data.

As the wider interagency continues to rely on sanctions as a critical tool and the United States seeks to expand partner sanctions capacity, US policymakers must fully support the sanctions enforcement function. Strengthening the internal controls for OFAC enforcement improves the rule of law through improved due process and protects OFAC from legal challenges that could existentially undermine its national security mission. OFAC enforcement urgently requires increased budgetary resources and an upskilled workforce from Congress, stronger internal procedures to avoid litigation risks, improved public guidance, and revised enforcement guidelines to promote consistency and improve compliance by industry.

Increasing necessary enforcement resources

As a first step, Congress should provide appropriate budgetary resources for OFAC and consider authorizing OFAC to create positions requiring legal and/or prosecutorial experience, and not just within the Treasury Department’s Office of the Chief Counsel, Foreign Assets Control, which is the legal office that supports OFAC.

Congress has taken necessary but incremental steps to increase the budget for the Treasury Department’s Office of Terrorism and Financial Intelligence (TFI), which includes OFAC. The resourcing of a sanctions economic analysis unit demonstrates a step in the right direction. Yet the outsized expectations from Congress and the interagency for OFAC (and other TFI components) do not correlate with its budget. For specific budgetary requests, Congress should authorize and appropriate for more OFAC enforcement officers, dedicated training and continuing education for enforcement officers, and more attorneys in the Office of the Chief Counsel, which reviews enforcement activities across the life cycle of an investigation. Sanctions can only remain an effective tool if new sanctions are paired with credible and timely enforcement actions. The yearslong lag between sanctions violations and enforcement actions would be reduced if OFAC enforcement had more personnel. Expanding the enforcement workforce would also provide sufficient staffing to allow the secondment of OFAC enforcement experts to more parts of the US government as well as the creation of overseas assignments with allies and partners to improve their sanctions enforcement competencies.

Relatedly, OFAC enforcement capabilities would be enhanced if Congress authorized attorney billets, or positions, in the OFAC enforcement function. OFAC and its sister office, the Financial Crimes Enforcement Network (FinCEN), which is the primary federal regulator for anti-money laundering and countering the financing of terrorism (AML/CFT), both have enforcement divisions that investigate apparent violations of sanctions and the Bank Secrecy Act regime, respectively. Unlike other enforcement capabilities at regulators with civil enforcement responsibilities like the Securities and Exchange Commission and Commodity Futures Trading Commission, OFAC and FinCEN enforcement officers are not required to have any legal training. On the contrary, Congress and the Office of Special Counsel in 2014 investigated FinCEN, in part, for hiring attorneys in nonattorneys roles, resulting in the suspension of FinCEN’s direct hiring authority for several years. Having attorneys in enforcement roles, rather than only as reviewers through the Office of the Chief Counsel, would raise the baseline skills and experience of the OFAC enforcement function in areas like investigative strategy, subpoena issuance, and witness interviewing. While the Treasury Department may have the unilateral authority to create these types of positions, as a practical matter, the legacy of the FinCEN hiring scandal disincentivizes senior Treasury leadership from expending time and political capital to initiate what would most likely be a major bureaucratic undertaking. Congress should do the work to get Treasury capabilities on a par with other civil regulatory agencies.

Improving internal procedures

Even without congressional action, OFAC has a number of options within its own control to improve internal procedures. These changes would increase consistency between different enforcement actions and even among different enforcement officers, which can vary wildly under existing practices. In making these changes, OFAC can both improve the quality and consistency of its enforcement practices while also improving the quality and attractiveness of its enforcement officer roles.

OFAC should articulate consistent standards for the use of subpoenas and tolling agreements.  Increased enforcement brings with it increased litigation risk from enforcement targets, and any inconsistent practices by OFAC could leave it open to charges that it has acted arbitrarily and capriciously in violation of the Administrative Procedures Act. Nonetheless, based on the experiences of a number of practitioners, OFAC seems to use subpoenas haphazardly and in unpredictable ways. Similarly, OFAC’s use of tolling agreements—which suspend the statute of limitations during an investigation—including their duration and when OFAC insists on them seem to vary from case to case. Nonetheless, OFAC enforcement officers often claim they are only using “boilerplate” terms. This can often leave parties confused about whether they are the target of an enforcement investigation or merely providing evidence for another party, and therefore whether there is genuine benefit to entering into a tolling agreement. To provide greater consistency and to give enforcement officers better guidance, OFAC should:

  • articulate a standard for issuing subpoenas and explain that standard to recipients
  • standardize the timing of subpoena responses and a subsequent reply from OFAC
  • create greater consistency on requests for tolling agreements, including a presumptive length of time for such agreements across different cases


OFAC enforcement should engage with the Office of the Chief Counsel earlier and more often in the course of investigations and enforcement actions. Often and in part due to resource constraints, counsel only becomes involved in an investigation late in the process, meaning they are not reviewing subpoenas, tolling agreements, or other practices for legal sufficiency or overall consistency. The involvement of counsel’s office earlier in the process could meaningfully improve and standardize enforcement practices, minimizing litigation risk and imposing consistency across enforcement actions.

Increasing public guidance and transparency

OFAC enforcement, working with its policy and compliance components, can improve guidance and transparency in its operations by increasing publicly available resources on its enforcement practices. OFAC should be commended for its compliance efforts, such as publishing “A Framework for OFAC Compliance Commitments” in 2019 and a 2021 companion for the virtual currency industry. These are necessary but not sufficient, and compliance documents could be enhanced with more enforcement-focused guidance. Some of these recommendations could be implemented with the current workforce, but more time-intensive initiatives would require additional personnel, as recommended above.

Within its existing legal authorities, OFAC could take several steps that would have immediate effects in improving its operations and engaging with an increasing segment of the economy that seeks to comply with OFAC sanctions. At a policy level, OFAC could articulate where enforcement has worked or failed to achieve policy goals with specific examples. As a starting point, OFAC could publish guidelines to explain the circumstances under which OFAC declines to pursue an enforcement action through so-called cautionary or no action letters. This guidance would send a powerful signal to the public, while also highlighting the ongoing work of OFAC enforcement for its exercise of discretion. Complementing this guidance, OFAC could consider publishing anonymized cautionary or no action letters, with explanations or redacted voluntary disclosures, to provide greater clarity into OFAC’s standards and practices. The other benefit would be additional data for industry stakeholders to understand the bounds of permissible as well as impermissible conduct.

The OFAC enforcement division also could publish a more detailed statement of facts with each public enforcement action and/or settlement agreement case to similarly educate the public and inform sanctions compliance programs. Similarly, the office could consider publishing all settlement agreements.

These various efforts would yield many benefits to improve OFAC’s internal operations, engagement with the public for compliance, and due process for investigation targets.

Amendments to OFAC enforcement regulations

Perhaps the lowest hanging fruit is for OFAC to revise its enforcement guidelines to provide greater clarity and transparency in how OFAC calculates penalties. OFAC’s enforcement guidelines, which appear at 31 C.F.R. § 501 Appendix A, provide the most granular framework available regarding OFAC’s calculation of a potential penalty, including the calculation of a base penalty and aggravating and mitigating factors to raise and lower the base penalty. While OFAC may have been reluctant in the past to provide more detailed guidance, concerned that it could limit its discretion to decide a penalty, OFAC would maintain broad discretion even after making extensive amendments to these regulations. The enforcement guidelines provide reasons for increasing or lowering a penalty, but do not restrain OFAC in any way with respect to the weight it gives to various mitigating and aggravating factors, meaning providing greater detail about those factors would not hamstring OFAC in the way it chooses to use them.

Below are three priority technical fixes for OFAC to provide greater specificity in its enforcement regulations:

First, OFAC should provide more specific guidance on the definition of the transaction value that it uses to establish the base penalty in a given enforcement action. Currently, the regulations define the transaction value as “the domestic value in the United States of the goods, technology, or services sought to be exported from or imported into the United States.”  [See 31 C.F.R. § 501(I)(H).] Yet as it continues, the regulation makes clear how arbitrary that definition may be, defining the value of an export of goods to be the market value of those goods and a dealing in blocked property to be the value of the blocked property. The regulations, therefore, establish the same transaction value for a person who transfers blocked funds to a sanctioned person as for the bank that inadvertently processes the transaction, or for an individual who sends equipment to a sanctioned person as for a company that provides shipping or insurance services. Relatedly, OFAC should clarify how the “transaction value” applies to facilitation cases, and whether OFAC would use the value of the transaction facilitated or merely the value of the services provided by the enforcement target.

Second, OFAC, in the course of determining the base penalty, could also consider a universal standard to value the course of the apparent violative conduct. Currently, OFAC’s regulations calculate the base penalty based on the sum of each transaction or the statutory maximum of each transaction, in some cases whichever is greater. Accordingly, the maximum penalty in egregious cases—for which OFAC uses the statutory maximum “per transaction” to calculate the base penalty—could vary dramatically if the goods or services were provided in a single transaction or split among many transactions. In the latter case, the statutory maximum would be multiplied by each transaction, potentially making it exponentially larger than the penalty for a single transaction involving the same amount of goods or money. For example, OFAC calculated the base penalty in the 2023 Binance case to be an eye-popping $592,133,829,398 (which was settled for less). OFAC could establish a universal method for considering the entire course of conduct, avoiding these wildly differing outcomes, but also considering more important factors such as the harm to the sanctions program and impact on the US financial system.

Third, just as many other enforcement agencies already do, OFAC could provide a consistent standard for crediting penalties paid to other US agencies or even foreign jurisdictions. As OFAC’s enforcement more regularly becomes part of a cross-agency enforcement effort, enforcement targets are often paying penalties to OFAC, the Department of Justice, New York’s Department of Financial Services, and other agencies for the same conduct. OFAC does take into account and credit all or part of these penalties to avoid duplicate civil enforcement for the same violations, but it has not publicized any standard for the circumstances in which it will do so. Similarly, as enforcement ramps up in the United Kingdom and within the European Union, OFAC could consider credit for penalties imposed by foreign authorities and articulate a standard for this type of credit.

Conclusion

As policymakers continue to rely on economic sanctions as a tool of first resort, sanctions enforcement must remain a central part of the policy process to maintain the tool’s efficacy. This starts with a more credible, resourced, and transparent enforcement capability. Increasing the budget, upskilling personnel, harmonizing internal protocols, expanding publicly available guidance, and revising regulations for sanctions enforcement will make meaningful improvements to the use of economic sanctions and provide a model for allies and partners to develop the full spectrum of sanctions capabilities.

About the authors

David Mortlock is a nonresident senior fellow at the Atlantic Council Global Energy Center. He is chair of the Global Trade & Investment Group at the law firm Willkie Farr & Gallagher, where he focuses on sanctions, export controls, and other international trade issues, and managing partner of Willkie’s Washington office.

Alex Zerden is an adjunct senior fellow at the Center for a New American Security. He is the founder of Capitol Peak Strategies, a risk advisory firm focusing on economic sanctions, financial regulation, and illicit finance issues.

Acknowledgment and disclaimer

This article was informed by not-for-attribution roundtable discussions with economic sanctions and other subject matter experts. The authors would like to thank those who participated, including those listed below, though we recognize they do not necessarily share all the views expressed herein:  Justyna Gudzowska, John Hughes, Michael Mosier, Britt Mosman, Maura Rezendes, and Adam Smith.

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]]> Attracting foreign direct investments https://www.atlanticcouncil.org/in-depth-research-reports/report/attracting-foreign-direct-investments/ Fri, 15 Mar 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=748368 Foreign direct investment (FDI) is a pivotal objective for countries seeking to bolster their economic development and global competitiveness. By delving into the relationship between freedom and FDI using the Freedom and Prosperity Indexes and examining institutional mechanisms to influence investment, we shed light on the dynamics that determine a country’s attractiveness to foreign investors.

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The attraction of foreign direct investment (FDI) is a pivotal objective for countries seeking to bolster their economic development and global competitiveness. Several critical factors influence a nation’s ability to draw in FDI, and among these, economic freedom, institutions, and the rule of law stand out as essential determinants. This dynamic interplay between political and economic factors not only impacts a country’s FDI inflows but also shapes its overall economic landscape and prospects for long-term prosperity.

The influence of institutional characteristics on FDI is a topic of paramount importance in the realm of international economics and global business. Institutions, which encompass a country’s legal, regulatory, and governance frameworks, significantly impact the decisions of multinational corporations when considering investment destinations. These institutional characteristics serve as a critical lens through which investors assess the risks and opportunities associated with a particular host country.

Democracy, as a system of governance characterized by political freedoms, accountability, and the rule of law, has often been associated with greater transparency and stability. Similarly, economic freedom, gauged by factors such as regulatory efficiency, property rights, and trade openness, creates an environment conducive to business activity. Institutions, including the quality of government institutions and their effectiveness in safeguarding property rights and enforcing contracts, play a pivotal role in shaping investor confidence. Moreover, the rule of law provides a foundation of legal certainty, which is essential for businesses operating within a country’s borders.

This report delves into the multifaceted relationship between freedom and FDI attraction using the Atlantic Council’s Freedom and Prosperity Indexes. By examining the mechanisms through which institutions influence investment decisions, we seek to shed light on the nuanced dynamics that determine a country’s attractiveness to foreign investors. Furthermore, we will explore the strategies that countries employ to improve their institutional frameworks, thereby enhancing their prospects for increased FDI inflows and sustainable economic growth. In doing so, we aim to contribute to a deeper understanding of the pivotal role that institutions play in shaping the global landscape of foreign direct investment. The objective is to offer recommendations and insights that can assist in achieving this overarching goal.

To begin, this paper will delve into the significance of strengthening democracy and various facets of freedom, drawing upon the Freedom and Prosperity Indexes and other pertinent evidence. This section will underscore why bolstering these elements is not only beneficial but also essential for the enhancement of FDI. In the second section, we highlight the Georgian case study to illustrate the tangible benefits of freedom in fostering an environment conducive to FDI. The final section of this report will provide actionable recommendations focusing on the practical integration of democracy and freedom-strengthening components into initiatives aimed at addressing fragility, thereby fostering a more stable and prosperous global landscape for FDI.

The freedom and FDI nexus

The Atlantic Council’s Freedom Index plays a pivotal role in assessing the intricate interplay between a nation’s freedom environment and its attractiveness to foreign investors, particularly in the realm of FDI. This comprehensive tool evaluates a country’s overall level of freedom across economic, political, and legal dimensions. The literature on FDI already has extensively discussed the impact of a nation’s institutional quality on FDI inflows.1 We aim to use the index data to further investigate this relationship.

Countries classified as “free” according to the Freedom Index exhibit the most robust FDI per capita, boasting an average of $2,200 of  FDI investment per person in 2022. This remarkable FDI per capita suggests a strong correlation between economic freedom, political stability, and foreign investment, contributing to these nations’ thriving economies and prosperity. (see Figure 1). “Free” economies significantly outperform “mostly free” economies in terms of FDI per capita. “Mostly free” countries may have various factors, such as some restrictions on economic activities or less developed legal and political institutions, which can result in a lower level of FDI per capita. “Mostly unfree” and “unfree” countries lag far behind in terms of FDI. Unfree economies often struggle with issues such as political instability, weak property rights, and high levels of corruption. These factors erode investor confidence and hinder the flow of foreign capital. As a result, these nations find themselves at a significant disadvantage when it comes to FDI.

This correlation remains if we look at FDI levels as a percentage of gross domestic product (GDP) (see Figure 1, gray line).

Europe, notably Western Europe, emerges as the preeminent region characterized by the highest degree of freedom (see Figure 2). Impressively, out of the forty-five countries categorized as “free,” thirty belong to Europe. Remarkably, the top ten nations in this category are all located within the confines of this continent. When we examine the relationship between freedom and FDI, we find that countries with high levels of freedom are associated with substantial FDI inflows. Investors are drawn to these nations due to their strong legal frameworks, well-defined property rights, and transparent governance structures, which provide a stable and welcoming environment for foreign capital.

In North America, both nations are in the “free” category: the United States and Canada. Neighboring Mexico is classified as “mostly free” and highly attractive to foreign investors, who value the stable and business-friendly climate it offers. The East Asia and the Pacific region also plays a prominent role in the context of FDI. Six out of the eighteen economies in this region, Australia, New Zealand, Japan, Taiwan, South Korea, and Singapore, fall into the “free” category. These nations have not only embraced economic and political freedom but also attracted substantial FDI, leading to economic growth and prosperity. While most regions have their share of mostly free and mostly unfree countries, Europe continues to dominate the “free” category with thirty out of a total of forty-three countries. It serves as a prime example of how a commitment to freedom, both economically and politically, can be a driving force behind attracting FDI and fostering economic development.

Economic development also plays a key role in terms of FDI attraction (see Figure 3). Low-income countries are mostly categorized as “unfree” and are less likely to attract FDI. Macroeconomic factors—trade freedom, quality of infrastructure, market size, and human capital, for instance—positively impact FDI.2 These elements create an attractive investment landscape for foreign investors seeking opportunities with strong domestic demand. Economic freedom serves as a proxy for market size and return on investment in developing economies, making it an appealing factor for FDI.3 Furthermore, the level of openness and domestic market size plays a role in FDI attraction, with trade freedom being statistically significant in certain regions.4 Moreover, some literature has highlighted that business transparency and an open economy are vital aspects that promote FDI inflows.5 These mechanisms demonstrate the intricate interplay between macroeconomic, governance, and trade-related factors in shaping the FDI landscape within different regions.

Another critical aspect of a nation’s freedom environment is the legal framework, which includes elements like the rule of law and property rights. A well-functioning rule of law serves as a bulwark for private investments, encouraging entrepreneurial endeavors.6 It significantly reduces transaction costs and mitigates the risks and uncertainties associated with future profitability. Conversely, when a government fails to establish and protect a robust legal system and safeguard property rights, as assessed by this subindex, it naturally dampens the enthusiasm of multinational enterprises (MNEs) for engaging in FDI within that particular host environment. In such cases, the prospects of MNEs participating in productive and entrepreneurial ventures are substantially diminished.7

Any restrictions imposed on international trade can result in significant operational expenses for companies.8 For MNEs to achieve their economic goals, the free flow of goods and services within and between primary, intermediate, and final markets is considered a vital necessity, as evaluated by the Freedom index. Interference with international trade through measures like tariffs, nontariff barriers, and other trade-related administrative obstacles would impede the operations of foreign branches and affiliates of MNEs in accessing and capitalizing on global networks, ultimately hampering their productive endeavors.9

In addition, the limitations placed on the international movement of capital and labor are both critical factors influencing FDI. These limitations increase transaction costs for MNEs, consequently reducing the inflow of FDI.10 Restrictive regulations in business, labor, and credit markets deter FDI. Such regulations result in additional production and transaction costs, placing significant burdens on private investment and the operations of companies, including the foreign subsidiaries of MNEs. These regulations often serve as substantial barriers to entry, leading to reduced FDI inflows.11

Finally, political freedom plays a pivotal role in fostering democratic governance, which empowers citizens to participate in the decision-making processes of their nation. This framework has been shown to positively influence FDI inflows. Empirical studies have indicated the significance of political freedom in attracting foreign investment.12 Modifications in governmental policies or political structures hold the potential to impact the investment strategies of multinational corporations. This, in turn, affects the risk premium considered in investment projects and, consequently, the decision-making process concerning the choice of location, all of which are influenced by political risk.

This suggests that a democratic and politically free system encourages foreign investors to engage with a nation.13 Furthermore, research emphasizes the long-lasting influence of political freedom on a country’s capacity to attract FDI.14 In light of this evidence, it becomes evident that political freedom is not only a fundamental aspect of democratic governance but also a crucial determinant of a country’s capacity to attract FDI.

The synergy of freedom and FDI: Georgia’s success story

Georgia, located at the crossroads of Eastern Europe and Western Asia, has experienced a remarkable transformation in recent years, becoming a magnet for FDI. Georgia is particularly relevant when studying the effect of freedom and prosperity since the country has switched from “mostly unfree” in 1995 to “free” in 2018 (see Table 1). The nation has undergone sweeping economic reforms since gaining independence in 1991, resulting in a relatively well-functioning and stable market economy.

Underpinning this transformation is Georgia’s commitment to political and economic freedom. The government initiated a series of reforms aimed at creating an open and competitive business environment. This included streamlining bureaucratic procedures, simplifying tax systems, and enhancing property rights, all of which significantly reduced the barriers to entry for businesses. Consequently, Georgia earned a reputation as one of the easiest places to start and conduct business, attracting a diverse range of investors from across the globe.

Over the period spanning from 2004 to 2019, Georgia’s average economic growth rate surpassed 5%, a testament to the efficacy of its comprehensive reforms. Simultaneously, the nation garnered accolades in global indices measuring freedom and ease of doing business. Notably, in the 2020 World Bank’s Ease of Doing Business index, Georgia ranked seventh, underscoring its commitment to creating a business-friendly environment. This success can be attributed to the government’s unwavering focus on fiscal and monetary policies aimed at maintaining low deficits, controlling inflation, and sustaining a floating exchange rate (i.e., unencumbered by government controls or limits).

Despite these achievements, it is important to acknowledge that Georgia’s economic trajectory has not been without external influences. Regional developments, such as sanctions on Russia, have exerted an impact on the country’s economic landscape. Additionally, the strength of the US dollar and other global factors have also played a role in shaping Georgia’s economic circumstances. These external forces have necessitated adaptability and resilience on Georgia’s part as it continues to progress on its path to economic prosperity.

Georgia embarked on a fresh chapter under a new government, following the peaceful Rose Revolution in 2003 (see Figure 4). Georgia’s economy began to experience growth, driven by the implementation of political and economic stabilization initiatives, but it was  significant policy shifts and reforms that accelerated its journey toward economic freedom. In 2004, the nation cut rates for existing taxes, implementing a flat 20 percent income tax and a 15 percent corporate profit tax, creating a favorable fiscal environment for businesses. This tax structure significantly reduced the financial burden on investors, promoting economic growth and entrepreneurship. Georgia introduced the “single window” system for business registration in 2005. This groundbreaking reform simplified bureaucratic procedures, enabling entrepreneurs to complete company registration and obtain necessary licenses within a few hours, making it one of the easiest places to start and conduct business. From the late 2000s through the early 2010s, Georgia embarked on a comprehensive land registry reform, significantly bolstering property rights protection. This reform secured land transactions and simplified property ownership, enhancing investor confidence. The commitment to free trade agreements, which started in the mid-2000s and continues to this day, has been emblematic of Georgia’s dedication to economic freedom. These agreements expanded market access for Georgian businesses, fostering import and export activities, and promoting international trade. The pursuit of anti-corruption measures, exemplified by the zero-tolerance policy, has been active since the early 2000s. This approach brought about heightened transparency and accountability in the public sector, further solidifying Georgia’s reputation as an attractive investment destination.

Cranes in front of buildings. Pexels/Quang Nguyen Vinh.

Georgia’s progression toward political freedom commenced in the early 2000s with significant developments in establishing democratic governance and safeguarding civil liberties. Here, too, the Rose Revolution marked a turning point as Georgia embraced democratic governance, ensuring political stability through regular elections, a multiparty system, and the peaceful transition of power. Over the years, Georgia made substantial progress in safeguarding civil liberties, particularly freedom of speech, media, and assembly. This commitment to civil liberties fostered a vibrant and open society where citizens could freely express their views and engage in public discourse. The establishment of strong and independent political institutions, which started in the early 2000s, solidified the rule of law and prevented political interference. The judiciary and law enforcement agencies operated without undue political influence. The zero-tolerance policy against corruption, initiated in the early 2000s, brought about increased transparency and accountability in the public sector, reinforcing political freedom by instilling trust and credibility in the government’s functioning.

Legal freedom in Georgia has been shaped by a transparent and efficient legal system that upholds the rule of law, protects property rights, and ensures access to justice for its citizens. Georgia’s commitment to a transparent legal system gained momentum in the early 2000s, ensuring the fair and equitable treatment of individuals and businesses. Transparency became essential in upholding the rule of law and ensuring that legal processes were just and impartial. Property rights protection received a significant boost through the comprehensive land registry reform initiated in the mid-2000s, continuing into the early 2010s. This reform enhanced the security of land transactions and simplified property ownership, instilling investor confidence. Efficient dispute resolution mechanisms were integrated into Georgia’s legal system, ensuring the timely and fair resolution of legal conflicts. These mechanisms were developed over the years, ensuring that individuals and businesses had access to justice when disputes arose. Furthermore, Georgia’s legal system was designed to enable citizens to seek legal remedies when their rights were violated. This commitment, developed over the years, upheld the rule of law, ensuring that legal processes were just and impartial, and strengthened the overall legal freedom in Georgia.

Hence, over the past two decades, Georgia’s resolute commitment to enhancing economic and political freedom has significantly impacted the evolution of FDI in the country (see Figure 4). The early wave of economic reforms and property rights protection in the 2000s created a favorable environment for FDI, with investments pouring into sectors like real estate and infrastructure. The political watershed moment of the Rose Revolution in 2003 further bolstered Georgia’s reputation as a destination for FDI, as it ushered in a more open and transparent political landscape. Georgia’s consistent improvement in economic freedom rankings has been accompanied by increased FDI, as investors seek the stability and business-friendly climate offered by the country. Its relative political stability, especially in comparison to neighboring nations, has also made it an attractive prospect for FDI. Although regional conflicts, such as the Russo-Georgian War in 2008, briefly disrupted FDI flows, Georgia’s resilience and commitment to freedom have contributed to a steady recovery. Moreover, the country’s strategic location at the crossroads of Europe and Asia, combined with its free trade agreements, has positioned it as an appealing destination for FDI, particularly in logistics and trade-related sectors. Recent trends indicate a growing influx of FDI, with a focus on tourism, manufacturing, and services, driven by streamlined regulations and reduced bureaucracy, solidifying Georgia’s status as a burgeoning hub for foreign investment. However, it is of prime importance to mention that the COVID-19 crisis has strongly affected FDI, which has not yet regained earlier levels.

Policy recommendations: Where to start?

The road map for policymakers seeking to enhance a country’s attractiveness for FDI involves multiple interconnected factors. In order to efficiently build this section, we estimate the effect of each subindex and indicator of the Freedom Index on FDI as a percentage of GDP (see Annex in the PDF version). A simplified version of the results is displayed in Table 2. The higher the number of “+”, the greater correlation between the variable of interest and FDI. In line with our argument, we first find that a higher freedom score is strongly associated with a higher level of FDI. This positive correlation underscores the pivotal role that a comprehensive commitment to freedom plays in creating an environment conducive to international capital inflow.

Economic freedom stands as a cornerstone in fostering FDI by providing an environment conducive to business growth and innovation. Nations that prioritize economic freedom often witness increased FDI due to the enhanced attractiveness of their business landscapes. For instance, countries like Singapore, renowned for its economic freedoms, have strategically positioned themselves as magnets for foreign investment. Singapore’s commitment to free-market principles, low trade barriers, and efficient regulatory frameworks has not only propelled its own economic growth but has also made it an enticing hub for international investors. Similarly, Ireland’s implementation of low corporate tax rates and favorable business policies has led to a surge in FDI, with multinational corporations establishing their European headquarters in the country. The positive correlation between economic freedom and FDI highlights the importance of embracing policies that encourage entrepreneurship, free markets, and minimal government intervention to attract substantial foreign investments.

In particular, our estimations show that property rights play a pivotal role in shaping the landscape for FDI, serving as a critical factor that influences investor confidence and security. Nations with robust protection of property rights are often more successful in attracting FDI, as investors seek assurance that their assets and investments will be safeguarded against arbitrary expropriation or infringement. Estonia’s post-Soviet era transformation, marked by a commitment to the rule of law and property rights, exemplifies this correlation. The establishment of a judicial system ensuring fair dispute resolution and robust property rights protection has positioned Estonia as a key destination for foreign investment in the Baltic region. Additionally, countries with clear and well-enforced property rights frameworks, such as Singapore, have successfully attracted FDI by assuring investors that their intellectual and tangible assets are secure. The link between property rights and FDI underscores the significance of legal frameworks that prioritize and protect the rights of individuals and businesses, fostering an environment conducive to international investment.

While political freedom is an important aspect of a conducive investment environment, its correlation with FDI is not very strong due to several reasons. First, investors, especially multinational corporations, often prioritize economic factors and market conditions over political considerations. Economic freedom, ease of doing business, and market potential tend to have a more direct impact on investment decisions. Moreover, political freedom is a multifaceted concept that includes components like civil liberties, political rights, and legislative constraints on the executive. The presence of political freedom doesn’t necessarily guarantee a stable and predictable business environment. Investors may be cautious if there is a history of political instability, frequent changes in government, or uncertainties related to policy continuity. Additionally, some authoritarian regimes with limited political freedom have managed to attract significant FDI by offering economic incentives, stable regulatory environments, and infrastructure development. China is a notable example where the government’s control is high, but its economic policies and massive infrastructure projects have made it an attractive destination for foreign investors.

In contrast, the legal subindex presents the strongest positive association with FDI. It suggests the necessity to strengthen the legal and regulatory framework. This entails creating a judicial system that assures fair dispute resolution and robust protection of property rights. Transparency and predictability in legal proceedings are key, as they instill confidence in foreign investors who need to be certain their investments are secure and enforceable. Estonia  adopted a model of democracy, political stability, and the rule of law in its post-Soviet era. Alongside its commitment to transparency and accountability, these reforms positioned Estonia as a magnet for foreign investment in the Baltic region. Estonia also streamlined administrative procedures and one-stop shop mechanisms for investors, further enhancing the ease of doing business. This practical approach has been integral to its success in attracting FDI.

Security, as an indicator within the legal subindex, emerges as one of the most determinant factors influencing FDI. Investors prioritize nations with high levels of security to safeguard their investments against various risks, including political instability, civil unrest, and threats to property. A secure environment ensures the protection of businesses, employees, and assets, fostering a sense of confidence among investors, as Estonia has experienced. Singapore, which also is renowned for economic freedoms, has invested significantly in maintaining high levels of security, contributing to its appeal as a stable and secure destination for foreign investment. Similarly, Estonia serves as a compelling example of how a strong rule of law reinforces foreign direct investment. Following its post-Soviet era, Estonia undertook comprehensive legal reforms, establishing a judicial system that prioritizes fair dispute resolution and robust protection of property rights. This commitment to transparency and accountability has positioned Estonia as a magnet for foreign investment in the Baltic region. Conversely, nations facing challenges in legal freedom and security often experience difficulties in attracting foreign investment. Countries with weak legal systems, rampant corruption, and inadequate security measures may struggle to instill confidence in investors. In such cases, the lack of legal protection and security becomes a deterrent, hindering the inflow of foreign capital and impeding economic growth.

By taking these political recommendations into account, governments create an environment that not only attracts foreign investment but also promotes political stability, transparency, and accountability. This fosters a win-win situation where foreign investors can thrive, and host countries can reap the economic benefits of increased FDI.

Mechanic fixes rocket details. Pexels/SpaceX.

Conclusion

Freedom—political, legal, and economic—is a crucial factor in attracting FDI and fostering economic growth. As we’ve seen, regions with higher levels of freedom tend to receive more FDI, driven by strong legal frameworks, well-defined property rights, and transparent governance structures. Freedom, as demonstrated by the data and the example of Georgia, plays a vital role in shaping the global landscape of FDI. Encouraging countries to prioritize and embrace freedom can be a powerful catalyst for economic development and prosperity on a global scale.

About the authors

Jérémie Bertrand, Professor of Finance and Deputy Academic Director – Master PGE, IÉSEG School of Management, France

Joseph Lemoine is a director at the Atlantic Council’s Freedom and Prosperity Center

Dan Negrea is the senior director of the Atlantic Council’s Freedom and Prosperity Center

Caroline Perrin, Research consultant, World Bank, and Postdoctoral Researcher, Utrecht University, Netherlands

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1    See, for example, J. De Haan, S. Lundström, and J. E. Sturm, “Market‐oriented Institutions and Policies and Economic Growth: A Critical Survey,” Journal of Economic Surveys 20, no. 2 (2006): 157-191; and P. L. Ghazalian and F. Amponsem, “The Effects of Economic Freedom on FDI Inflows: An Empirical Analysis,” Applied Economics 51, no. 11 (2019): 1111-1132.
2    S. Imtiaz and M. F. Bashir, “Economic Freedom and Foreign Direct Investment in South Asian Countries,” Theoretical & Applied Economics 24, no. 2 (2017).
3    A. Badri and A. Sheshgelanib, “Economic Freedom and FDI in Selected Developing Countries,” International Journal of Economics and Financial Research 2, no. 5 (2017): 82-87.
4    C. S. Ho and H.A. Rashid, “Macroeconomic and Country Specific Determinants of FDI,” Business Review 18, no. 1 (2011): 219-226.
5    Z. Drabek and W. Payne, “The Impact of Transparency on Foreign Direct Investment, Journal of Economic Integration (2002): 777-810.
6    J. L. Staats and G. Biglaiser, “Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law, International Studies Quarterly 56, no. 1 (2012): 193-202.
7    X. Wang, L. C. Xu, and T. Zhu, “Foreign Direct Investment under a Weak Rule of Law: Theory and Evidence from China,” Economics of Transition 20, no. 3 (2012), 401-424.
8    De Haan, Lundström, and Sturm, “Market‐oriented Institutions.”
9    J. Torriti and E. Ikpe, “Administrative Costs of Regulation and Foreign Direct Investment: The Standard Cost Model in Non-OECD Countries,” Review of World Economics 151, no. 1 (2015): 127-144.
10    R. Cebula and J. Clark, “Impact of Economic Freedom, Regulatory Quality, and Taxation on the Per Capita Real Income: An Analysis for OECD Nations and Non-G8 OECD Nations,” MPRA Paper 56605, University Library of Munich, Germany, 2014.
11    F. J. Contractor et al., “How Do Country Regulations and Business Environment Impact Foreign Direct Investment (FDI) Inflows?,” International Business Review, 29, no. 2 (2020), 101640.
12    M. Busse and C. Hefeker, “Political Risk, Institutions and Foreign Direct Investment,” European Journal of Political Economy 23, no. 2 (2007): 397-415.
13    Q. Li and T. Vashchilko, “Dyadic Military Conflict, Security Alliances, and Bilateral FDI Flows,” Journal of International Business Studies 41 (2010): 765-782.
14    A. Rodríguez‐Pose and G. Cols, “The Determinants of Foreign Direct Investment in Sub‐Saharan Africa: What Role for Governance?,” Regional Science Policy & Practice 9, no. 2 (2017): 63-81.

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]]> All the autocrat’s men: The court politics of Putin’s inner circle https://www.atlanticcouncil.org/content-series/russia-tomorrow/all-the-autocrats-men-the-court-politics-of-putins-inner-circle/ Thu, 14 Mar 2024 15:59:00 +0000 https://www.atlanticcouncil.org/?p=746468 A new Atlantic Council report by journalist Mikhail Zygar explores how Russia's war on Ukraine has affected Vladimir Putin's inner circle.

The post All the autocrat’s men: The court politics of Putin’s inner circle appeared first on Atlantic Council.

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Russia’s full-scale invasion of Ukraine in February 2022 challenged much of the common Western understanding of Russia. How can the world better understand Russia? What are the steps forward for Western policy? The Eurasia Center’s new “Russia Tomorrow” series seeks to reevaluate conceptions of Russia today and better prepare for its future tomorrow.

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Table of contents

Introduction

I. The prime minister and his team

II. The prince and his father

III. The strategist and his patron

IV. The far right and the Russian Orthodox Church

V. The army and its clones

VI. The former successor and Mr. Hyde

VII. Lurking liberals

VIII. A new system

About the author

There will be very little suspense surrounding Russia’s presidential election this month. Vladimir Putin will certainly win a fifth term as Kremlin leader. This is because Russian elections are not elections. Instead, they are mobilization and legitimization rituals in which the results are preordained. And even such a shock as opposition leader Alexei Navalny’s death probably won’t change this.

But the lack of suspense surrounding the result of the vote does not mean that it will not be meaningful. On the contrary, this ritual is a political watershed that will determine the landscape in Russia for years to come—and possibly what Russia will look like after Putin finally passes from the scene. That is because, in the absence of institutions, Russian politics are effectively court politics, dominated by the clan battles within the Kremlin leader’s inner circle.

What is the state of the “Putin court?” And how has Russia’s war against Ukraine influenced the clan battles that define it? Why does the Kremlin seek to leverage traditional conservative values and the Russian Orthodox Church? This report is based on extensive interviews with dozens of current and former Russian officials who spoke on condition of anonymity to discuss the inner workings of the Kremlin power elite without fear of reprisals.

The prime minister and his team

The most important question surrounding the election is not who is going to be the president, but rather who is going to become the prime minister. Once he is elected president for a new term, Putin will have an excuse to dismiss the government and form a new one. And under the Russian Federation’s constitution, the prime minister is the second in command—the one who will become the next president if Putin dies or is otherwise incapacitated. The current prime minister is Mikhail Mishustin, who assumed the role in January 2020. According to the constitution, he would become president if Putin passed from the scene.

Therefore, a key question is whether Putin will replace Mishustin. The incumbent prime minister, of course, is doing everything possible to remain in office. His main disadvantage is that he is not sufficiently connected to the war. He is too much of a technocrat, which is what Putin’s ideal prime minister in 2020 was supposed to be—a faceless bureaucrat who follows orders perfectly, knows how to deal with the economy, and has a reputation as an effective manager without political ambitions. But the past year has changed everything.

When Russia launched its full-scale invasion in February 2022, the idea was that the war should be discreet, quick, and victorious. And despite mounting evidence to the contrary, the Kremlin refused to believe that this was impossible. By 2023, however, it became obvious that the strategy had to change. Now it’s called a holy war against the West, a clash of civilizations, and a war for the survival of the Russian people. To be sure, there is a lot of exaggerated drama in this new paradigm, and initially no one took it seriously. But by the end of 2023, the Russian political elite began to assimilate it, and some even started believing it. For a Russia that is waging a holy war, Mishustin is not suitable—he is too liberal. That’s the main argument in favor of replacing him, the most prominent proponent of which is Security Council Secretary Nikolai Patrushev.

Mishustin does have an important advantage, and it is the same as his main disadvantage: He is not trying to be associated with the war, he is not trying to be in the spotlight, and he is behaving exactly as an exemplary Putin prime minister should. But many in Putin’s inner circle believe that Mishustin has been too successful a prime minister to remain in office. His government handled the COVID-19 crisis, and some argue that he helped save the country from economic collapse in 2022. Therefore, to prevent Mishustin from becoming too powerful as a political figure, according to Putin’s logic, he should be removed.

Who would replace him? Of all the members of the current government, one name stands out: Marat Khusnullin, one of the most influential political figures in Russia. Khusnullin is the deputy prime minister in charge of construction, meaning he oversees rebuilding the Russian-occupied Ukrainian regions. That means he controls large budgets and is a key patron of the new elites in the occupied parts of the Donbas. It also means that he is on the rise regardless of Mishustin’s fate.

The prince and his father

Who else could be the new prime minister? And would that figure be Putin’s potential successor? If we go by Putin’s old practices, it will be someone who is not regarded as a contender for the post of prime minister—because the Russian president is maniacally fond of surprises.

Nevertheless, there are a few influential front-runners. And the first of these is Minister of Agriculture Dmitry Patrushev, the son of a longtime Putin associate who was the head of the Federal Security Service (FSB) and now serves as the Security Council secretary. The appointment of the younger Patrushev, however, would mean only one thing—his father, Nikolai, has become so influential that he has managed to appoint his son as heir to the throne. With a sane and capable Putin, such an option is hardly possible—as this could be his last decision.

It is noteworthy that such a transition of power from Putin to Patrushev is even predicted in popular fiction. In Vladimir Sorokin’s 2006 cult novel, The Day of the Oprichnik, Russia is completely isolated from the outside world. An almost medieval monarchy has been established and is ruled by the son of Nikolai Platonovich (which is Patrushev’s first name and patronymic).

Nikolai Patrushev is indeed one of the most influential people in modern Russia. And his importance has only increased since the war began. It is often Patrushev who makes the most important foreign policy statements. Patrushev is the ideologue of modern Russian anti-Americanism. Last September he published an article entitled “The Collapse of the Parasite States,” in which he essentially laid out Russia’s new foreign policy doctrine: It should unite with the countries of the Global South and fight against the neocolonial West.

Patrushev’s influence has also recently become the subject of curious rumors: For example, a popular Russian conspiracy theorist, Valery Solovey, claims that the real Putin died in October 2023 and that Patrushev is running the country, using Putin’s doppelgänger. (Sources in Moscow, however, treat this as disinformation launched by the Russian security services to discredit the Russian independent media in exile by baiting them into rebroadcasting delusional conspiracies.)

In addition, it was Patrushev who was named in a recent Wall Street Journal investigation as the organizer of Yevgeny Prigozhin’s killing in August 2023, an account Kremlin spokesman Dmitry Peskov likened to “pulp fiction.” However, according to sources, Patrushev is not in a position to directly command the army or the FSB. His main strength lies in his influence on Putin.

The FSB, in turn, is a colossal iceberg, a state within a state, which influences everything, primarily economic processes in the country. The FSB is the most important player in any region, the most important partner for any large corporation. However, the FSB does not seem to engage directly in political initiatives. The most important generals of the FSB—its director, Alexander Bortnikov; his first deputy, Sergei Korolev; and the head of the FSB’s so-called second service (Russia’s modern secret police), Aleksey Sedov—are not independent political players. They have constant contact with Putin, and enjoy some influence over him, but will remain inside the structure.

The strategist and his patron

One Kremlin figure who is likely to be a key political player is Sergei Kiriyenko, the first deputy chief of staff in charge of all domestic politics. Kiriyenko is also responsible for the presidential elections this month. This means that Kiriyenko’s office will decide which candidates will be allowed to run, how the campaign will go, and how many votes the candidates will get.

Whether or not Putin views the elections as a success will determine whether Kiriyenko will retain his position or not. He has overseen domestic policy in the Kremlin for six years and has proven himself to be an effective and completely unscrupulous Kremlin strategist. But after this election, a variety of sources in Moscow say, he could be replaced. And that could mean the beginning of a new era in Russian politics.

Despite being just sixty-one years old, Kiriyenko is one of the most remarkable survivors in Russian politics. His career peaked in April 1998, when Russia’s first president, Boris Yeltsin, shockingly appointed the then-unknown thirty-five-year-old Kiriyenko as prime minister. It was a decision so unexpected (and ill-conceived) that the young Kiriyenko immediately earned the nickname “Kinder Surprise.” His premiership turned out to be the shortest and most unsuccessful in Russian history. His government defaulted on the government’s debts, and he resigned in August 1998.

Kiriyenko then became the head of the liberal Union of Right Forces political party. Boris Nemtsov, one of the most popular Russian democrats of the 1990s, was the number two on that party’s list. After Putin was first elected president in March 2000, Kiriyenko did not continue his political career, instead leaving parliament and becoming a bureaucrat again. For eleven years, he headed the state-owned corporation Rosatom, which manages all of Russia’s nuclear power plants. And in 2016—a year and a half after Nemtsov had been shot dead across the street from the Kremlin—Putin unexpectedly brought Kiriyenko back to the Kremlin as supervisor of Russian domestic policy.

Throughout his years in power, Kiriyenko has demonstrated that he is extremely loyal to Putin and that he is a technocrat without any beliefs or values. Kiriyenko was also keen to demonstrate that he had no political ambitions—after all, ambition was the reason why the Kremlin’s previous chief political strategist, Vyacheslav Volodin, was fired. Volodin wanted so badly to succeed Putin and made little secret of his desire; in 2016, he was demoted to the far lesser position of chair of the State Duma, the lower chamber of the Russian parliament.

Kiriyenko has a very powerful patron, Putin’s closest friend, Yuri Kovalchuk, the most powerful businessman in the country. It was Kovalchuk who lobbied for Kiriyenko’s appointment as domestic policy curator in 2016. Kovalchuk is, according to the US government, “the personal banker for senior officials of the Russian Federation including Putin.”

Kovalchuk is the only real Russian oligarch—that is, a businessman who seriously influences Putin. He became a major player in Russian politics after he managed to put his man, Kiriyenko, in a key position in the Kremlin. However, his role grew even stronger in 2020, when the pandemic prompted Putin to go into a strict quarantine while vacationing with Kovalchuk at the presidential residence in Valdai, between Moscow and Saint Petersburg.

Kovalchuk is the owner of a bank with the symbolic name Rossiya. He also manages almost all of Russia’s nominally private but de facto state-controlled media, including the Channel One television station. Kovalchuk has been close friends with Putin since the early 1990s, and in 1996 the two of them and a few friends co-founded the Ozero dacha cooperative near Saint Petersburg. By 2020, Kovalchuk had finally established himself as the most influential member of the president’s inner circle.

Although Kovalchuk owns key media outlets, the Kremlin has two officials in charge of state propaganda, per long-standing tradition. Alexei Gromov, Putin’s former press secretary, oversees traditional media (i.e., television), while Kiriyenko oversees new media (i.e., the internet). Kiriyenko’s son, Vladimir, is CEO of Russia’s most important digital holding company, VK. It is the younger Kiriyenko who oversees the process of luring Russian audiences away from YouTube to domestic platforms.

Since Russia’s invasion of Ukraine, the importance of both Kovalchuk and Kiriyenko in Russian politics has dramatically increased. Kovalchuk still communicates regularly with Putin, while many officials who were considered close to the president have lost their access to him. And Kiriyenko’s role has expanded, too. In addition to domestic policy, he is now in charge of politics in the four Ukrainian regions currently occupied by Russia.

Kiriyenko is also the Kremlin’s chief personnel officer, selecting Russia’s governors. In this capacity, Kiriyenko has cultivated a new generation of regional officials—most of whom are under sixty—a potential source of power and influence. And he established the so-called governors’ school, an ideological training center for aspiring regional elites.

Kiriyenko’s growing influence has attracted the attention of his political enemies, most notably his Kremlin predecessor Volodin and powerful players in the security services led by the elder Patrushev. They are trying to undermine Kiriyenko by suggesting to Putin that he dreams of returning to the prime minister’s post. Kremlin sources say the deputy head of the presidential administration dreams of correcting past mistakes, getting rid of the humiliating nickname “Kinder Surprise,” and proving that he can be an effective head of government. However, Kiriyenko’s chances of becoming prime minister are nil. He could lose his high post if Putin decides that Kiriyenko has become too influential—and not even Kovalchuk would be able to protect him in that case.

Just before the new year, Kiriyenko stole Volodin’s favorite topic. Previously, it had been the speaker of the Duma who usually acted as the main champion of “traditional values” and fighter against the LGBTQI+ community. But in December 2023, it was Kiriyenko who led a campaign against several pop stars who attended a controversial “naked party,” a scandalous event that dominated Russian news coverage late in the year.

The far right and the Russian Orthodox Church

Russia’s war against Ukraine has greatly increased the influence of the Russian Orthodox Church and its head, Patriarch Kirill. Though he had been akin to an ordinary head of a state corporation—the church is constitutionally separate from the state, but has become a de facto bureaucratic structure dependent on the state—Patriarch Kirill is now a member of Putin’s informal Politburo.

His elevation was symbolized by the recent World Russian People’s Council, a nationalist gathering that proclaimed the supremacy of the Russian ethnicity, called for a fight against migration, and demanded a ban on abortion—all in the same Kremlin hall where the Soviet Union’s Communist Party congresses were once held.

The World Russian People’s Council was once considered a marginal organization. It was established thirty years ago under the Russian Orthodox Church with Patriarch Kirill as its chairman. In 2019, the council tapped as its deputy chairman Konstantin Malofeyev, described by the US Justice Department as a “Kremlin-linked Russian oligarch” who personally helped finance Russia’s initial invasion of Ukraine’s Donbas region in 2014. Malofeyev, who has never hidden his neofascist views, has run the far-right television station Tsargrad TV since 2013. However, the most famous figure on the Russian far right is not Malofeyev but his ally, Alexander Dugin, the neofascist philosopher and former editor-in-chief of Tsargrad TV.

This 2023 Council included “working groups” attended by Dugin, Russian Foreign Ministry spokeswoman Maria Zakharova, more than a dozen governors, several ministers, and several leading officials of the Russian Orthodox Church. In other words, for the first time, the unofficial but de facto Russian fascist party showed its face.

For many years, Western political scientists have written about Dugin’s strong influence on Putin—even though it appears that the two men have never met in person. Nevertheless, his ideology has finally become official because it is now used by the head of the Russian Orthodox Church.

During the 2023 World Russian People’s Council, Patriarch Kirill proposed a new Russian doctrine that can fairly be described as fascist. He claimed that there are superior nations (that can create empires) and second-class nations (that cannot). He stated that today’s “Russian world,” which asserts that Russia has the right to rule over the lands of the former Russian empire, is a continuation of a long tradition following the pax Romana, pax Hispanica, pax Britannica, and pax Americana. He argued that Russia should restrict the flow of incoming migrants, because many of them do not respect Russian culture. Then he urged the banning of abortion to alleviate Russia’s demographic decline.

Contrary to conventional wisdom in the West, the Russian Orthodox Church is not an important social or spiritual institution in Russia. According to surveys by the independent sociological service Levada Center, on average only 1 percent of Russians go to church on Sundays, and more than 65 percent of the population believes that religion does not play a significant role in their lives. Yet Putin’s regime is doing everything to strengthen the church as a political institution. Earlier this year, for example, one of the most famous icons in Russia, a work by fifteenth-century artist Andrei Rublev, was moved from the Tretyakov Gallery to the Cathedral of Christ the Savior. Pilgrims are now taken by bus from neighboring regions and long lines of believers can be seen, as they wait to view the icon in the cathedral. Before the new year, however, when the icon was hanging in the Tretyakov Gallery, there was no queue.

Putin is less interested in the church as such and more interested in popularizing far-right rhetoric. In this sense, the proposed abortion ban and the campaign against the LGBTQI+ community fits a broader Kremlin political strategy of advancing an illiberal agenda to win Putin supporters in the Global South and among Western conservatives. This is a very pragmatic plan—and it basically doesn’t matter that no one in Putin’s entourage seriously cares about these issues. The Kremlin believes that liberal values are a tool of the West, so it tries to use the opposite rhetoric to fight the West, especially since so-called traditional values are gaining more and more supporters not only in the Global South, but also in Europe and the United States.

Despite this, no far-right politicians have been allowed to participate in the upcoming presidential elections. Putin is the only candidate to use this populist rhetoric.

The army and its clones

From the very beginning of the war, Putin was afraid of the growing popularity of the army. He did not want his generals to get too much social support. This was why Prigozhin and his Wagner Group got the initial assignment of a major role in the conflict. According to Kremlin sources, Putin instructed Prigozhin to neutralize Defense Minister Sergei Shoigu and his generals—to criticize them through the media, trolls, and bots under his control. However, the result exceeded expectations. Prigozhin became so enthusiastic that he himself became that very military commander who gained popularity at Putin’s expense.

Along with Prigozhin, radical supporters of the war—ultranationalists who criticized Putin for his lack of decisiveness and resolve—began to grow in popularity. After Prigozhin’s mutiny in the summer of 2023, these elements were purged. For example, Igor Girkin, aka Strelkov, the army and FSB veteran who led Russian paramilitary forces in eastern Ukraine in 2014, was charged with extremism last year and in January was convicted and sentenced to four years in prison. Prigozhin’s death in an airplane crash widely believed to have been orchestrated by the Kremlin removed him and the Wagner Group from the scene. The elite tried to forget about the troublesome mercenary leader, as if he had never existed. A new status quo has been adopted: No more private armies; everything must be under the control of the state and the defense ministry. All military spending passes through Shoigu. And no generals become public figures or folk heroes.

There is, however, an important figure with a military background who appears to be a rising political star—a possible prime minister or defense minister, and a potential successor to Putin: Aleksey Dyumin, Putin’s former bodyguard, who has served as governor of the Tula region since 2016.

In 2014, at the head of the “special operations forces” (a structure within the Ministry of Defense), Dyumin played a key role in the occupation and annexation of Crimea. As deputy defense minister, Dyumin also supervised the establishment of the Wagner Group. And, according to sources, it was Dyumin who played an important role in negotiations between Prigozhin and the Kremlin during the infamous mutiny of June 24, 2023. Notably, it was in Tula Oblast, a region controlled by Dyumin, where Prigozhin’s troops stopped their march toward Moscow and turned around.

For years, Dyumin was Putin’s personal aide, one of the president’s closest and most trusted people. He has been a governor for nearly a decade and has proven his loyalty to Putin, which means he could be in Moscow next year.

The former successor and Mr. Hyde

A man who does not aspire to be prime minister or the Kremlin’s chief ideologue but is still a prominent figure in the power structure is Dmitry Medvedev. Over the past two years, the former president and prime minister has emerged as one of the most puzzling—and disturbing—figures in Putin’s inner circle.

A onetime liberal technocrat, a fan of gadgets and high tech, and an erstwhile buddy of then US President Barack Obama, Medvedev once seemed to be a democrat. Then, suddenly, like a werewolf, he has turned into a bloodthirsty boor threatening Ukraine and the West with the language of a gangster. What happened to Medvedev? While some media reports have suggested chronic drunkenness, that is not the case, according to several informed sources. Instead, this shift is a matter of cold political calculation. Today’s Russia requires such a transformation.

While still president, Medvedev was the object of universal ridicule—his nickname on the internet was “pathetic.” Videos of him dancing ridiculously or photos showing him sleeping at public events, including the opening and closing of the Olympic Games, were circulated online.

Until January 2020, Medvedev still hoped he would be Putin’s successor. From 2012 until early 2020, he behaved like Putin’s model prime minister, much like Mishustin behaves now. Medvedev kept his head down and said nothing at all, although, unlike Mishustin, he did almost nothing.

In January 2020, Putin unexpectedly fired Medvedev as premier, inventing for him the previously nonexistent position of deputy chairman of the security council. No one knew it at the time, but the following month the COVID-19 pandemic would come, and Medvedev’s departure as prime minister saved him from wrestling with that crisis. Still, his hopes of succeeding Putin appeared to be dead.

But the invasion of Ukraine two years later awakened Medvedev from his hibernation. “Dmitry the Pathetic” suddenly transformed into “Dmitry the Terrible.” Medvedev’s once intelligent and thoughtful Telegram channel suddenly became a model of monstrous rudeness. Speaking about US President Joe Biden, Medvedev writes that he is “an old man with clear signs of progressive dementia” and that his family is corrupt. He writes that European leaders have diarrhea from fear of Russia. And here’s what he wrote on January 3: “We never liked the French. Kind of froggy, fought with us. And generally, fa**ots. And [now I’m] convinced of it. I wrote the French Foreign Ministry. They called the strike on Belgorod with cluster munition a ‘right to self-defense.’ Scum. Sons of a whore. Assholes.”

In fact, according to sources close to Medvedev, most of these posts were not written by him (probably excluding the last one). With the outbreak of the war, a huge staff of new consultants and speechwriters has been hired for him to build up his militaristic and imperialistic bona fides.

The creation of a new image of Medvedev—not as a liberal, but as an obscurantist—is linked to his hopes of regaining the presidency. Medvedev remembers that in 2011, before he departed the presidency, Putin assured him that he would be the president again. So, he believes there is a chance. In 2022, sources say, Putin again hinted to Medvedev that the plan is on track—that he just must be a strong politician who fits the historical moment. This came shortly after the April 2022 death of Vladimir Zhirinovsky, the most militant populist in Russian politics. Medvedev understood he had to take up Zhirinovsky’s mantle if he wanted to be popular.

In recent years, Medvedev has done exactly what he thought he could do to regain the presidency. As prime minister, he sat quietly and inconspicuously, not interfering with anyone, so as not to make new enemies and not to upset Putin. Then the time of inactivity passed. Medvedev now believes that he needs to be aggressive and belligerent. This is Medvedev’s cold calculation for the post-war future. Medvedev is not alone in the race; boorishness and imperialism have already become the default tone in Russian politics (Russian diplomats, for example, do not miss opportunities to swear). But Medvedev is clearly trying harder than anyone else.

It is ironic that the mouthpiece of today’s Russian fascism is a man who was once considered the hope of democracy. There is no doubt that Medvedev has no political future. He no longer has his own team, and even those who used to be close to him have turned their backs on him. He could not earn the trust of the intelligentsia even when he was president, and he cannot earn the trust of the imperialists, who consider him a weakling. And most importantly, he cannot be Putin’s successor because he would not exist politically without Putin. A puppet does not function without a puppeteer.

Lurking liberals

The largest clan in the Russian government is, oddly enough, the so-called systemic liberals. This is the name given to those who served under former President Boris Yeltsin in the 1990s or have advocated a pro-Western course for Russia, yet at the same time have broadly supported Putin. This faction, despite appearances to the contrary, still holds a very important place in the Russian political elite. The camp of “systemic liberals” enjoyed its peak of influence during the Medvedev presidency, from 2008 to 2012, but their sway has ebbed significantly in the decade since.

Liberals have never been a single clan, but rather several disparate groups that may only partially consider themselves like-minded. The most prominent liberals in Russia in the past were Anatoly Chubais (former deputy prime minister and finance minister under Yeltsin) and Anatoly Kudrin (former deputy prime minister and finance minister under Putin). After the full-scale invasion of Ukraine, Chubais left the country and Kudrin left public service, resigning as head of the Accounts Chamber to became head of Russia’s main tech company, Yandex.

However, a significant number of Russian officials in charge of the economy can still be considered liberals, most notably the current finance minister, Anton Siluanov, and the central bank head, Elvira Nabiullina. Typical of systemic liberals, they never express their opinion if it contradicts Putin’s, and they will never argue with the president. It is true that Nabiullina was going to resign after the attack on Ukraine, but Putin would not accept her resignation. After that, she is widely believed to have saved the Russian financial system from disaster following Western sanctions.

After the war began, the FSB (with the tacit consent of former liberal Kiriyenko) began a demonstrative crackdown on liberals. The arrest and eventual release of Vladimir Mau, rector of the Russian Academy of National Economy and Public Administration, the very university in which the “Kiriyenko school of governors” was established, was indicative. Ten years ago, Mau, together with Yaroslav Kuzminov, rector of the Moscow Higher School of Economics (and husband of Nabiullina), was commissioned by Putin to write Strategy 2020, an ambitious plan for the development of the Russian economy. Back then, before the annexation of Crimea, there was a strong conviction that Russia’s future lay in a liberal market economy, innovation, and overcoming dependence on raw materials. Systemic liberals rationalized Russia’s authoritarian political system, arguing that they needed to be patient and implement economic reforms first. Mau was one of the main proponents of this approach.

What do the systemic liberals believe? A key tenet seems to be tolerance of Putin, despite his authoritarian policies, for the sake of maintaining their power and influence. Even as the economy has become more and more state-centric and the political system more autocratic, “systemic liberals” have generally remained stoic.

Sometimes it seemed that the real reason for the silence and patience of the “systemic liberals” was their unwillingness to break away from the trough—their attempt to maintain their proximity to power. Perhaps they convinced themselves that they were sacrificing themselves for the future of Russia, even if that meant working side by side with the FSB.

The result of this stoic patience, however, has been escalating repression against the systemic liberals and the steady decline of their influence. In 2016, former Economics Minister Alexei Ulyukayev was humiliatingly arrested and jailed until April 2022. The campaign against the Higher School of Economics (HSE), the most popular and high-quality university in Russia, was next. Its rector, Kuzminov, was allowed to resign quietly. This is important because the HSE not only influences young minds, but is a colossal property with hundreds of buildings in Moscow and across the country. After Kuzminov’s departure, the changes began lightning fast—during the past few years, all professors who demonstrated their liberal beliefs were fired from his university.

Another battleground against the liberals has been Russian culture. In the last two years, the heads of most of the important theaters and all the most important museums have been fired in what appeared to be an effort to prevent the cultural elite from protesting the war—or to pressure them into supporting it.

Against the background of the general defeat of the liberal camp, however, there are still figures who look independent and relatively liberal. One of these is Roman Abramovich, who has been one of the most influential businessmen for more than twenty-five years. Despite his wealth, Abramovich has long shunned publicity, preferring to remain in the shadow of others—be it the late oligarch Boris Berezovsky, Yeltsin’s son-in-law Valentin Yumashev, or former head of presidential administration Alexander Voloshin. It was only with the outbreak of war in 2022 that Abramovich began to act openly and on his own behalf, becoming the most active supporter of negotiations between Russia and Ukraine. He was one of the most important mediators at the beginning of the war. Recently, he began to play a role in negotiating the exchange of prisoners and the return of children taken from Ukraine. In essence, Abramovich began his new political career out of desperation. But at the moment, he is probably the only Russian liberal who can call Putin—and whom Putin will listen to.

There is one more person who is not quite a liberal but who now looks like the public leader of that camp—and that, paradoxically, is Moscow Mayor Sergei Sobyanin. Formally, of course, he does not belong to the Yeltsin reformers, but in the 1990s he was governor of the oil-rich region of Tyumen and won several democratic elections, which distinguishes him from all other current politicians.

Sobyanin has always been seen as both a liberal ally and a technocrat. In 2020, at the beginning of the pandemic, the federal authorities withdrew and the mayor of Moscow took the initiative—while the other regions obediently introduced the same measures as Moscow. Thus, for several months, the Moscow mayor led Russia’s COVID-19 response, while Putin and Kovalchuk hid at Valdai.

When it was all over, it became clear that the Kremlin would not forgive Sobyanin for his independence and efficiency: In authoritarian countries, this is not an achievement but a crime. Then it was decided that Sobyanin would serve his last term and leave. But the war saved him. In the current situation, the last thing the Kremlin wanted was to anger Muscovites, and Sobyanin was again reelected in 2023. He is undeniably a symbol of stability. Despite the war, Moscow is becoming richer and more comfortable, and this is associated exclusively with Sobyanin. In this sense, Sobyanin is a symbol of peaceful life—a man from the past who sort of acts as if there is no war. This automatically makes him the leader of liberals nostalgic for prewar times.

A new system

For many years, there was such a thing as the “2024 problem” in Russia. It was believed that in 2024, Putin would no longer be eligible for reelection, so he would have to decide on a successor. However, in 2020, at the height of the pandemic, Putin held a referendum to change the constitution and “zeroed” his past presidential terms for the purpose of term limits. That means he is running for a “first” term this month. And legally he can remain president until 2036—when he would be eighty-three years old.

The real problem of 2024, however, has not gone away. Since the invasion of Ukraine, the old political system that was based on cronyism and corruption has become obsolete. Officials speak about a holy war and keeping the country on a war footing, so it seems the Russian state can no longer be built on cynical, corrupt hedonism. It seems like the only true idealists are those Russians who paid tribute to Navalny. They do have values they believe in.

It is true that the most influential people of this regime, Vladimir Putin and Yuri Kovalchuk, are still adherents of the old system based on cynicism and hedonism, while seeming to desire the creation of an Orthodox Christian version of an Iran-style theocracy. But this will not happen easily, because almost no one believes in these values: neither Kiriyenko’s young technocrats, nor FSB officers, nor lurking liberals. Moreover, Russian bureaucrats don’t believe in anything at all. The last decades have convinced them all that they ought to stop believing in anything. It’s safer that way.

About the author

Mikhail Zygar is a nonresident senior fellow at the Atlantic Council’s Eurasia Center. He is a journalist, writer, and filmmaker, and the founding editor-in-chief of Russia’s only independent news television channel, Dozhd (TVRain).

Under Zygar’s leadership, Dozhd provided an alternative to Kremlin-controlled federal television channels by focusing on news content and giving a platform to opposition voices. The channel’s coverage of politically sensitive issues, like the Moscow street protests in 2011 and 2012 as well as the conflict in Ukraine, has been dramatically different from the official coverage by Russia’s national television stations. In 2014, Zygar received the CPJ International Press Freedom Award.

Zygar’s bestseller All the Kremlin’s Men (2015) is based on an unprecedented series of interviews with Russian President Vladimir Putin’s inner circle, presenting a radically different view of power and politics in Russia. Time named it “one of nine books to understand Russia.” His book The Empire Must Die (2017) portrays the years leading up to the Russian revolution and the vivid drama of Russia’s brief and exotic experiment with civil society before it was swept away by the Communist Revolution. It was named a Kirkus Reviews Best Nonfiction Book of the Year. His latest book, War and Punishment: Putin, Zelensky, and the Path to Russia’s Invasion of Ukraine, was published in 2023 and was featured on the New Yorker’s list of the best books of the year.

In February 2022, after Russia’s invasion of Ukraine, Zygar authored a petition against the invasion cosigned by Russia’s most prominent writers, artists, and scholars. In March 2022, he organized the only interview of Ukrainian President Volodymyr Zelenskyy for the independent Russian media. He has also started his own Substack, where he writes regularly.

In 2023, Zygar moved to New York. He’s now a press freedom fellow at the City University of New York’s Craig Newmark School of Journalism and is a visiting professor at Princeton University’s School of Public and International Affairs.

Zygar is openly gay and is married to African-Russian journalist Jean Michel Shcherbak.

The Eurasia Center’s mission is to promote policies that strengthen stability, democratic values, and prosperity in Eurasia, from Eastern Europe in the West to the Caucasus, Russia, and Central Asia in the East.

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]]> The war in Ukraine is entering a critical phase. The heavy hits to the Russian economy, the country’s diminished energy markets position, and the hundreds of thousands Russian troops dead and wounded have not deterred Russian President Vladimir Putin’s imperialistic agenda. Meanwhile, Ukrainians have continued to confront Russian aggression, bolstered by aid from the West.

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The democratic world must take every reasonable step to ensure that Ukraine survives as a sovereign democracy with its internationally recognized territory intact. Secondarily, the forces of democracy must consider the future of energy balances in Europe and Russia’s role in global energy markets. Diversification from Russian flows is not guaranteed in perpetuity without a transatlantic strategy with realistic pathways for implementation.

To better understand how the war’s conclusion—or lack thereof—will impact the options available to transatlantic policymakers, this report analyzes European security across five general scenarios—a Ukrainian victory, a negotiated settlement, a frozen conflict, a protracted conflict, and a Russian victory—and aims to understand the impacts of the war’s potential outcomes on transatlantic energy security, in order to propose strategies for dealing with the unique fallout from each scenario.

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]]> The Scowcroft Center’s project on twenty-first-century diplomacy

In 2022, the Scowcroft Center for Strategy and Security launched a project, with funding from Dataminr, to address how US diplomacy should adapt to meet twenty-first-century challenges. The first paper produced as part of this project considered the changing context of twenty-first-century diplomacy and how US diplomacy could begin to adapt. In 2023, the center hosted a workshop that brought together diplomats, scholars, technologists, and other experts to share their insights on the challenges and opportunities presented by artificial intelligence for twenty-first-century diplomacy. This paper benefited greatly from the insights of workshop participants, with the authors drawing on their analysis and recommendations.

Introduction

Three decades after the end of the Cold War, the United States is in a new era of strategic competition. Navigating this era successfully requires the United States to leverage diverse instruments of power—diplomatic, economic, military, etc.—to deter, outcompete, and, if need be, defeat revisionist autocratic rivals.

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The purpose of the Scowcroft Center’s project on twenty-first-century diplomacy is to produce the analysis and develop the ideas necessary to strengthen US diplomacy. This project focuses particular attention on technology’s role in bolstering the exercise of diplomacy.

The first issue brief in this series, “Twenty-first-century diplomacy: Strengthening US diplomacy for the challenges of today and tomorrow,” addressed the changing context in which US diplomacy is practiced and began to point toward ways the United States could adapt its diplomacy to the twenty-first century. This issue brief will build on this body of work by outlining the challenges and opportunities that are posed by artificial intelligence (AI) in the practice of twenty-first-century diplomacy, and offering recommendations for how to efficiently leverage AI to strengthen diplomacy. Notably, this paper will focus primarily on generative AI (GAI), the subset of AI oriented to creating new content.

As argued in this first issue brief, the diplomatic domain has been a key arena of strategic competition. China has taken steps to deepen its influence in international institutions, both to shape norms and divert attention away from Beijing’s human-rights abuses. China uses public diplomacy to cultivate favorable narratives about the Chinese Communist Party (CCP), including through Confucius Institutes at universities. China has also sought to bolster its “discourse power,” defined by our Digital Forensic Research Lab colleague Kenton Thibaut as “a type of narrative agenda-setting ability focused on reshaping global governance, values, and norms to legitimize and facilitate the expression of state power.” Toward this end, China has worked to increase channels for its messaging through traditional and social media, tailor content to target audiences more effectively, and embed Chinese norms and standards regarding digital connectivity.

This challenge is not limited to China: Russia also uses diplomacy to expand its global influence, especially in the Global South. For example, while a March 2022 United Nations General Assembly resolution condemning Russia’s 2022 invasion of Ukraine received support from more than 140 countries, there were notable pockets of opposition or abstention, including much of Africa. This was due, in part, to the diplomatic overtures Russia has made since its 2014 invasion of Crimea, including signing nineteen military cooperation agreements in sub-Saharan Africa over the last ten years and a tour of Africa by Russia’s foreign minister in the weeks leading up to the vote. It is also rooted in historical relationships going back to the Soviet Union; the Soviet Union was, for example, an early supporter of South Africa’s ruling African National Congress.

The salient point is this: Diplomacy is critical in strategic competition.

While AI has received attention for years, interest in it has erupted in recent years, in both the scholarly and popular imaginations, particularly as tools like ChatGPT have grown ubiquitous. The entirety of the US government, including the executive and legislative branches, are required to meet the challenge, and fortunately, the State Department has not sat idly by while AI has advanced.

In 2021, Secretary of State Antony Blinken spoke about the modernization of American diplomacy at the Foreign Service Institute, where he highlighted five pillars guiding the transformation of US diplomacy. This included building “capacity and expertise in the areas that will be critical to our national security in the years ahead, particularly . . . emerging technologies.” He noted that the United States has a “major stake in shaping the digital revolution that’s happening around us and making sure that it serves our people, protects our interests, boosts our competitiveness, and upholds our values.”

In October 2023, the White House published an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence. The executive order offers guiding principles for the development and use of AI and outlines actions for a broad array of departments and agencies. This includes calling on the secretary of state to use “discretionary authorities to support and attract foreign nationals with special skills in AI.

Also in October 2023, the US State Department released Enterprise Artificial Intelligence Strategy FY2024-FY2025: Empowering Diplomacy Through Responsible AI. The strategy begins by stating outright that the exponential increase of easy-to-use generative AI and the “once-in-a-generation opportunity” it provides the State Department must underpin the strategy moving forward. It then outlines four objectives for the department, including leveraging secure AI infrastructure; fostering a culture that embraces AI; ensuring AI is applied responsibly; and innovating. Each objective emphasizes the importance of the State Department’s staff in this monumental effort and indicates that AI will not replace employees but rather serve as a tool that will allow them to turn from rote administrative tasks to higher-level actions like personal diplomacy.

These steps demonstrate a recognition on the part of the US government and its diplomatic apparatus that it needs to get smart on AI and emerging technologies more broadly. This issue brief will support this effort by both explaining the risks and prospective benefits of AI for diplomacy, and recommending a path forward for seizing the latter.

In brief, this paper will recommend the following courses of action for the US government.

  • Look to GAI as a critical asset in engaging the information space;
  • Work with allies and partners to shape norms around AI and cooperate to dominate the commanding heights of this technology;
  • Leverage GAI as a tool of soft power;
  • Establish standards for transparency and ethical guardrails in the use of GAI; and
  • Reorient the State Department’s workforce to integrate AI.

Opportunities presented by GAI for diplomacy

Despite its challenges, GAI holds great promise for the future of diplomacy, and it presents a number of opportunities that should be exploited prudently. This issue brief is intended to be a summary, so this will not be an exhaustive list. Some of the opportunities presented by GAI include facilitating communication and enhancing negotiations; assisting in content distillation; and augmenting strategic communications.

  • GAI and negotiations. GAI has a role to play in facilitating interactions between diplomats and enhancing negotiations. Andrew Moore, chief of staff to former Google CEO Eric Schmidt, noted last year that ChatGPT and similar tools are already helping diplomats prepare for negotiations. He writes, “As Nathaniel Fick, the inaugural U.S. ambassador at large for cyberspace and digital policy, recently quipped, briefings generated by the AI-powered ChatGPT are now ‘qualitatively close enough’ to those prepared by his staff.” He also cites the example of IBM’s Cognitive Trade Advisor, which has supported negotiators by answering questions about trade treaties that might otherwise delay talks.

    Looking ahead, Moore argues that AI could play a more direct role in shaping diplomatic agreements, adding, “As more and more parties develop their own AI, we could see AI ‘hagglebots’—computers that identify optimal agreements given a set of trade-offs and interests—take on a key role in negotiations.”
  • GAI and content distillation. GAI has an important role to play in helping diplomats sift through vast quantities of information. This even applies to internal or even classified stores of data. As Ilan Manor, senior lecturer at Ben Gurion University of the Negev, has argued, “Instead of ChatGPT, imagine a ‘StateGPT’ able to analyze decades of internal documents generated by the State Department. Diplomats could view this internal AI to track changes in other nation’s policy priorities, identify shifts in foreign public opinion, or even identify changes in how America narrates its policies around the world.”

    One caveat to this opportunity: The proliferation of AI-enabled disinformation could prove challenging to using GAI in a content-distillation capacity. Outputs generated by AI-sifted datasets should not be seen as foolproof.
  • AI and strategic communications. GAI’s information-analysis capabilities can be further leveraged to help with strategic communications. As Moore notes, the use of technology to solicit input from citizens is well-developed:

    “More than a decade ago, Indonesia pioneered a platform called UKP4, allowing everyday citizens to submit complaints about anything from damaged infrastructure to absent teachers. Although technology can be misused for manipulation and misinformation, artificial intelligence can also serve as a powerful tool to identify these misbehaviors, creating an ongoing struggle in the race between AI that will help and AI that will harm.”

    The ability to solicit input or review datasets documenting the needs and concerns of a body of citizens can be used to tailor public diplomacy campaigns. Moreover, AI can help diplomats engaged in public diplomacy to test messaging by sorting through reactions from various sources, including news and social media, to public-facing campaigns.

    Furthermore, Jessica Brandt, policy director for the Artificial Intelligence and Emerging Technology Initiative at the Brookings Institution, has argued, “We can use AI-enabled sentiment analysis tools to better understand where authoritarian narratives are taking root in target societies around the world, so that we know where to focus our attention and resources.” Does it make sense to respond to a certain bit of critical information, or would doing so “actually give oxygen to something that otherwise would not get much traction?”

    Given scarce resources, knowing where and when to devote energy to messaging and counter-messaging is just as important as knowing how to message. Using the nuance and know-how of diplomats and the data-distillation abilities of GAI in conjunction will be a boon to State Department efforts.
US Secretary of State Antony Blinken meets with Nigerian Minister of Communications, Innovation and Digital Economy Bosun Tijani during the Digital Technology Showcase at 21st Century Technologies in Lagos, Nigeria, January 24, 2024. ANDREW CABALLERO-REYNOLDS/Pool via REUTERS
  • GAI and cultural diplomacy. GAI has a key role to play in strengthening US soft power, as it can support cultural diplomacy, including preserving cultural heritage through digitization of documents, audio enhancement, and content restoration.

    Consider one example of the potential of GAI outside the realm of diplomacy: genealogy. FamilySearch, one of the foremost providers of digitized ancestral records, has collected billions of documents in need of transcription in order to be searchable. As one senior manager said last year, “In just a couple of hours, the computer can index more than you or I could do in a whole lifetime if we did nothing besides indexing for the rest of our lives.”

    The United States is a global leader in the development of GAI technology, and it could take advantage of this to bolster its soft power by enhancing its cultural restoration and preservation efforts. As outlined above, the United States could help states index cultural documents, as well as preserve and restore important audio and video files, and items of cultural significance. For example, the United States and Cambodia first signed a cultural cooperation agreement on “preserving and restoring Cambodia’s rich cultural heritage” in 2003, and since then, the United States has helped return more than one hundred antiques and assisted with preservation efforts. The use of GAI could contribute to this agreement by helping to identify stolen antiquities, determine forgeries, and restore damaged artifacts or locations. Doing so will help the United States to form and solidify positive diplomatic relations with countries in the Global South that have been victimized by the looting and trafficking of cultural artifacts.

Challenges of GAI for diplomacy

AI holds much promise for the future of diplomacy, but it is important to be clear-eyed about the risks and challenges associated with it. In particular, GAI can be harnessed toward nefarious ends, especially in the realm of disinformation and misinformation. US officials also should be wary of AI’s limits. While it can be a major asset to diplomats, caution and a healthy awareness of where AI might fall short or have negative externalities is essential. Finally, AI, broadly, is predicated on a triad of algorithms, computing power, and data. This paper will not explore all three in a technical manner, but on the latter (data), there is a risk of distrust from diplomats and the public, absent transparency and ethical guardrails.

This section will explore each of these challenges in greater detail.

  • GAI and the information space. GAI can be used to amplify disinformation and misinformation, muddying the environment in which diplomats engage in public diplomacy. For example, in late 2022, Graphika, a research firm that examines social media and disinformation, uncovered a pro-China information campaign leveraging deepfake video technology in the form of fake news anchors. The videos of AI-generated avatars were distributed by pro-China social media bot accounts and disparaged the United States while portraying China as a good geopolitical actor. While these videos were not compelling to audiences and had few clicks, the utilization of this technology quickly accelerated. A year later, The New York Times reported on a pro-China YouTube network of channels that used GAI to cast aspersions on US policy. According to the report, “Some of the videos used artificially generated avatars or voice-overs, making the campaign the first influence operation known to [the Australian Strategic Policy Institute] to pair A.I. voices with video essays.” The clips covered an array of issues in a manner designed to favor China, from advancing “narratives that Chinese technology was superior to America’s, that the United States was doomed to economic collapse, and that China and Russia were responsible geopolitical players” to “fawn[ing] over Chinese companies like Huawei and denigrat[ing] American companies like Apple.” The network was sophisticated, gathering 120 million views and 730,000 subscribers across thirty channels.

    Deepfakes, relying on AI to generate misleading audio and video content, proliferate on social media, in contexts involving state and nonstate actors. In volatile situations, GAI can be leveraged to distort the information environment, promote damaging narratives toward the United States, and potentially stoke violent action against US diplomats.

    “The affordability and accessibility of generative AI is lowering the barrier of entry for disinformation campaigns,” Allie Funk, co-author of Freedom on the Net 2023: The Repressive Power of Artificial Intelligence, told MIT Technology Review. Funk, research director for technology and democracy at Freedom House, noted that the spread of AI-generated content is “going to allow for political actors to cast doubt about reliable information.”

    GAI, therefore, increases challenges for diplomats operating in the information space, especially as autocratic rivals seek to leverage this technology to cast the United States in a bad light.
  • The limits of GAI. Diplomats should be aware of GAI’s limits and potential negative externalities. Diplomacy, especially when engaged in at a personal level, demands a high degree of skill and psychological competence. This includes understanding the idiosyncrasies that shape human-to-human engagements, and gauging potential cognitive biases shaping an interlocutor. Therefore, while GAI can augment the capacity for communication, a human touch remains essential, especially for personal diplomacy.

    There also is a risk of GAI degrading institutional expertise. Quickly generating summaries of news and conversations is a value-added capacity of GAI; however, the ease with which diplomats can scroll through an AI-generated distillation may discourage them from following up with more in-depth primary or secondary sources developed by humans. AI can often be helpful for generating a top-line summary, but it should not be viewed as a substitute for cultivating a 360-degree perspective on an issue.

    In addition, while GAI use for translation can facilitate communication, an overreliance on AI-driven tools may result in a loss of nuance or bad translations. A report by The Guardian in September 2023 observed, “AI-powered translation tools are particularly unreliable for languages that are considerably different from English or are less comprehensively documented.”

    In one example cited by that report, an individual arriving at a US Customs and Immigration Enforcement (ICE) detention center spoke Portuguese, but no one on staff did. ICE staff used an AI-powered voice-translation tool to communicate “but the system didn’t pick up or understand his regional accent or dialect. So Carlos spent six months in ICE detention unable to meaningfully communicate with anyone.” In addition, some Afghan refugees have had substantial difficulties with AI translation tools, as Dari, an official language of Afghanistan, is not an option on many of these tools.

    The lesson: while GAI is a powerful tool for facilitating communication, users of the technology should be wary of its limits, especially in life-transforming situations—or high-stakes diplomatic conversations. The State Department will need to use AI alongside its staff of technical experts and translators to ensure that it is used properly.
  • Data and distrust. As noted earlier in this paper, AI is built on a triad of algorithms, computing power, and data. A technical discussion of each of these elements is beyond the scope and purpose of this paper, but a discussion of ethical concerns surrounding the third element is warranted.

    Data is a critical component of GAI, shaping the outputs generated by these systems. In a diplomatic context, data is vital for officials seeking to leverage AI to understand more clearly how residents of a country think, perceive, and make sense of the world around them.

    Nevertheless, data also presents potential pitfalls, absent ethical guardrails. First, illegal or unethical data collection, real or perceived, can foster distrust and backlash. This could consist of illicit solicitation of private information absent consent.

    Second, transparency with regard to datasets is important so that diplomats can have confidence in the outputs generated by AI, as well as a healthy awareness of where GAI might be imperfect. The inclusion or exclusion of certain datasets will inform the outputs generated by an AI system, biasing results in a certain direction that diplomats will need to be aware of in case they need to correct them. For example, if one created a GAI system intended to generate a top-line summary of US attitudes toward race in the early nineteenth century, and it only pulled from abolitionist newspapers, the output would be misleading. In addition, the State Department should seek tools that have resolved the “black box” problem, or when it is difficult or impossible to determine how a GAI model reached a particular result. Doing so will allow for a better understanding of why errors occurred and how the model can be improved to avoid them in the future. Transparency regarding both what data has been fed and how results are reached will build trust and caution in the use of GAI in diplomacy.

Recommendations for US diplomacy

Having explored challenges and opportunities related to GAI and diplomacy, the final section of this paper will offer recommendations for the United States to mitigate the challenges, take advantage of the opportunities, and position itself in such a way that it becomes a global leader in the integration of GAI and diplomacy. In doing so, the United States will strengthen a key instrument of power, better enabling it to outcompete autocratic rivals.

Toward this end, this issue brief proposes the following recommendations for the US government:

  • Look at GAI as a critical asset in engaging the information space. US diplomats have already started to leverage tools that enable them to attain better situational awareness of changing information environments, as noted earlier.

    Moreover, elements of the State Department that directly engage publics and counter disinformation targeting the United States should see GAI as a critical tool for allocating resources. It is simply not possible to respond to every piece of disinformation proffered by a hostile state actor; the key is to respond quickly and effectively when there is the highest risk of damage. GAI can help in this regard.
European Commission Executive Vice President Margrethe Vestager delivers remarks as US Secretary of State Antony Blinken hosts the fifth US-EU Trade and Technology Council Ministerial Meeting at the State Department in Washington, DC, January 30, 2024. REUTERS/Leah Millis
  • Work with allies and partners to shape norms around GAI and cooperate to dominate the commanding heights of this technology. This is another pillar of action found in the initial paper in this series. Without recapitulating its arguments, the salient point is that efforts to integrate GAI and diplomacy will be bolstered if the United States works in concert with allies and partners.

    One component of this is working with allies and partners to lead in the development of GAI and innovative applications of GAI for the diplomatic domain. The US-EU Trade and Technology Council is still young and holds promise for overcoming transatlantic differences over technology; meanwhile, countries participating in the Quadrilateral Security Dialogue, known as the Quad, have publicly expressed an interest in working together more closely on emerging technologies. The United States should deepen those and other efforts to work collaboratively with allies and partners to maintain technological leadership in the twenty-first century.

    Another piece of this is shaping norms around emerging technologies, such as AI, and advancing a democracy-affirming approach to these technologies—in contrast to China’s efforts to export autocracy and oppression. We reiterate the call of the first paper for the United States to “export digital information infrastructure that promotes freedom, privacy, and the rule of law.” China has a leg up on the United States in Africa and other parts of the world when it comes to funding information and communication technologies. Now is the time for the United States and its allies and partners to leverage their technical know-how and wealth to become a viable alternative to countries developing their digital infrastructure and integrating AI. This includes continuing to invest in infrastructure partnerships like the Build Back Better World Partnership and the Partnership for Global Infrastructure and Investment, which are transparent and values-driven.
  • Leverage GAI as a tool of soft power. The United States generally ranks highly in assessments of soft power, but there is room for improvement. Taking the cultural diplomacy angle as an example, diplomats ought to take advantage of US technical leadership in AI to bolster its attractiveness to other countries. A concentrated cultural diplomacy campaign focused on helping countries preserve their heritage is a clear way for the United States to increase its soft power.
  • Establish standards for transparency and ethical guardrails. US officials should seek to mitigate potential distrust surrounding their use of GAI. Toward this end, the State Department should develop clear guidelines for how it will leverage GAI in a manner that respects privacy, regularly examines the integrity of datasets, allows for an understanding of errors, and ensures diplomats have sufficient technical know-how to engage GAI critically, understanding bias and other shortfalls.
  • Reorient the department’s workforce to integrate AI. This effort should be pushed at the level of the secretary, with bureau chiefs also accountable for implementing changes in their respective departments. This shift will require undertaking careful studies and applying test cases to see how AI augments the work of diplomats—and where it falls short or is limited.

    Congress has a role to play in its capacity as overseer of the government’s purse strings. It should fund initiatives that enable the modernization of the department, while discouraging wasteful spending on legacy equipment and efforts that are reflective of the diplomacy of yesteryear.

    The State Department must take the challenge seriously and work to demonstrate to Congress that it is developing a diplomatic workforce that can utilize and innovate using AI and a department built to support the leadership and staff in pursuit of national priorities. AI needs to be integrated into training, and requisite expertise should be sought through hiring, whether through new employees or rotational programs with the private sector. This latter approach has the added benefit of fostering public-private cooperation and infusing fresh ways of thinking into the government bureaucracy.

    As noted in the first paper in this series, the State Department is making some progress in this regard. We reiterate calls in the first paper in this series for the State Department to “consider tech knowledge as part of its assessment of Foreign Service Officers and other hires throughout the department,” as well as to “incentivize tech training by making professional development in this space a consideration for promotions.”

    Apart from working with the commercial sector, this space is ripe for collaboration with universities and think tanks. This could take the form of executive or management training initiatives that seek to instill both technical know-how and broader policy awareness of AI, other emerging technologies, and their intersection with diplomacy. These efforts should be undertaken with congressional support and funding and could serve as a model for collaboration in other departments and federal agencies.

    Notably, in October 2023, the State Department released its Enterprise Artificial Intelligence Strategy, which both articulates a strategy for the entire department and explains briefly how the Enterprise Data & AI Council, the AI Steering Committee, and others will work in partnership to execute and modify the strategy moving forward. This includes following the model of the Enterprise Data Strategy’s data campaign approach, which has campaign delivery teams working with staff on one mission and one management priority for a six-month period. These campaigns have served as a “force multiplier” for efforts to innovate and develop the data tools the department needs. This model, with its short timelines and whole-of-department nature, can help create an AI mindset and allow staff to determine how to meld their expertise and diplomatic abilities with the computing and generative power of AI. To truly address the importance of AI in an era of strategic competition, State Department officials at the highest levels, from the secretary on down, will need to use their influence and substantial resources to propel the effort and ensure it remains top-of-mind for the entirety of the department.

Conclusion

This issue brief has outlined the opportunities and challenges for AI and diplomacy, with a focus on GAI, and it has sought to build on the initial paper in this series through its analysis and recommended courses of action to integrate AI into US diplomacy.

This paper does not include a complete analysis of AI or GAI, but it highlights the importance of AI for strengthening US diplomacy and offers a way forward for the United States to take advantage of its technical expertise in this domain. Successfully navigating a new era of strategic competition will require diverse instruments of power, including robust diplomacy. AI can help the US State Department become more agile in its exercise of diplomacy, better positioning it to pursue US national interests in an era of strategic competition with China and Russia.

Former staff

Jeffrey Cimmino

Former Deputy Director, Operations and Fellow, Scowcroft Center for Strategy and Security

Scowcroft Center for Strategy and Security

Staff

Andrew A. Michta

Director and Senior Fellow, Scowcroft Strategy Initiative

Scowcroft Center for Strategy and Security Scowcroft Strategy Initiative

Central Europe Eastern Europe

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]]> Inside Afghanistan’s gender apartheid: Listen as women reveal the impact of the Taliban’s oppressive decrees https://www.atlanticcouncil.org/in-depth-research-reports/report/inside-afghanistans-gender-apartheid-listen-as-women-reveal-the-impact-of-the-talibans-oppressive-decrees/ Thu, 07 Mar 2024 21:49:17 +0000 https://www.atlanticcouncil.org/?p=741526 Since the Taliban's takeover of Afghanistan in August 2021, women have battled against increasingly severe restrictions on education, employment, and daily public life. This report, a joint effort by the Civic Engagement Project and the Atlantic Council’s South Asia Center, underscores their remarkable resilience and unyielding spirit in the face of gender apartheid.

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Inside Afghanistan’s gender apartheid

Listen as women reveal the impact of the Taliban’s oppressive decrees

By Sahar Halaimzai, Metra Mehran, and Marika Theros

Since retaking Afghanistan in August 2021, the Taliban has issued dozens of repressive decrees designed to systematically oppress the women and girls of the country. In the interactive audio timeline below, you can hear directly from Afghans on the profound impacts of the escalating gender apartheid in Afghanistan. These first-hand stories have been collected over the past 18 months through interviews with women inside Afghanistan. 

To protect these women from the significant risks associated with speaking out against the Taliban, we’ve taken several precautions: Their names have been changed, and, in some instances, their stories have been merged. We have also not used their real voices. Instead, the audio stories you will hear were recorded by women and girls who have been evacuated from Afghanistan since 2021. These women’s stories of endurance and resistance reveal the stark realities of life under a legal system that curtails freedom, stifles potential, and erodes dignity, yet they also illuminate the unyielding spirit and strength of each woman and girl. Their voices are a reminder of the interconnected struggles of all people globally in the pursuit of dignity, rights, and equality.

Afghan women did not have a real seat at the table in the United States’ “peace” deal with the Taliban. They are now demanding the world’s help in dismantling systems of oppression and rebuilding a society where equality and human rights are realities for all.

This initiative is a joint project of the Civic Engagement Project and the Atlantic Council’s South Asia Center.

View a chronological database of the decrees

The onslaught of decrees

In 2020, after nearly twenty years of war, the United States signed an agreement with the Taliban to unilaterally withdraw US forces from Afghanistan. The so-called peace process did not substantially include or account for Afghan women, whose concerns about the escalating, targeted violence against them and pushback against the myth of a reformed “Taliban 2.0” were largely ignored. By August 2021, Taliban soldiers were on the doorstep of Kabul; by August 15, they had taken over the city, signaling the collapse of the Afghan republic.

Ten days later, the Taliban issued its first directive, instructing women and girls in Kabul to remain indoors, justifying it on the grounds that Taliban soldiers were not trained to respect women and therefore could not guarantee their safety outside. The rise of the Taliban regime has not only marked a significant political upheaval and one of the worst humanitarian crises in the world today, but it has also ushered in a rapid regression for women’s rights in Afghanistan. Despite initial pledges of moderation, the Taliban has aggressively dismantled two decades of progress made by Afghan women and girls.

Student reads a book as she sits on a windowsill at her home in Kabul, Afghanistan.
Hawa, 20, a third-year Russian literature student at the Burhanuddin Rabbani University (which was renamed by the Taliban to Kabul Education University), reads a book as she sits on a windowsill at her home in Kabul, Afghanistan, October 23, 2021. Photo by REUTERS/Zohra Bensemra.

The group has done this by issuing around eighty decrees that directly target women and girls, demonstrating the systematic, institutionalized, and punitively enforced nature of gender apartheid in Afghanistan. In some instances, these decrees are punitive, particularly in places where women are resisting the Taliban. With about 60 percent of Afghanistan’s population under the age of thirty, the vast majority of Afghans are encountering the Taliban’s oppressive rule for the first time. “The shapes and sounds of girls and women evaporated from our streets with every new decree,” observes Malalai.

Some foreign officials distort or diminish the severity of gender apartheid in Afghanistan by framing it as a reflection of cultural or religious norms, reinforcing Taliban propaganda. However, international law unequivocally rejects the use of culture or tradition as justifications for infringing upon fundamental human rights. Moreover, Afghan and world Islamic scholars have condemned many Taliban decrees against women as un-Islamic. And prior to the Taliban takeover, women were making major strides in gender equality across every sphere of life—economic, cultural, social, and political—indicating that these decrees are not a reflection of culture so much as a mechanism of control.

These concerns are particularly acute for women from ethnic, religious, or linguistic minorities, such as the Hazara, Tajik, Hindu, and other communities. Women from these groups face compounded vulnerabilities due to their distinct identities and increased visibility, making them even more susceptible to targeted violence in Afghanistan’s current climate. This double burden borne by minority women under these decrees is a harsh reality that often goes unnoticed.

The Taliban’s movement restrictions have effectively trapped women within their homes and within Afghanistan’s borders. Prohibiting international travel without a mahram quashes any possibility of seeking refuge or opportunities abroad, leaving female activists and those in peril with no escape. The Taliban’s movement restrictions have created an environment where female-headed households face disproportionate hardships, because they cannot travel without a male guardian to sites for aid distribution. Their struggle for basic rights and survival under these oppressive decrees requires urgent international attention and support.

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A vicious cycle of oppression

The significant increase in the systematic oppression of women and girls has touched every aspect of daily life, as reported by international organizations. This includes bans on their employment with United Nations (UN) offices and non-governmental organizations. The implications of these decrees are extensive and complex, beyond immediate issues such as access to health care or economic opportunity.

In the long term, the systematic denial of basic human rights, particularly the lack of educational access for girls, exacerbates disparities in wealth, health, and education. These challenges create a cycle of disadvantages with profound ripple effects that will take generations to rectify.

The result is a severe mental health crisis among Afghan women and girls. Afghanistan has now become one of the few countries globally where suicide rates for women surpass those of men, an alarming indicator of the extreme psychological impact of the Taliban’s oppressive policies. Observations from UN representatives and human rights advocates corroborate this connection. Increasingly, UN officials and international expert assessments declare the treatment of women by the Taliban as tantamount to gender apartheid. As UN Secretary-General António Guterres said last year, “in Afghanistan, unprecedented, systematic attacks on women’s and girls’ rights and the flouting of international obligations are creating gender-based apartheid.” 

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The Taliban’s mechanisms of enforcement

Through coercion, the establishment of new institutions dedicated to policing women, and the repurposing of existing security infrastructures, the Taliban has enforced its decrees with efficiency. On their very first day in power, Taliban officials closed the Ministry of Women’s Affairs and reinstated the Ministry of Vice and Virtue, deploying Taliban soldiers to strictly enforce their decrees. Women have been arbitrarily detained, subjected to torture, and released only under conditions that their families enforce strict compliance with Taliban rules at home. The number of cases of women detained and released is not public, nor are the suicides of women after their release reported adequately.

Sahar, 17, an 11th grade secondary school student, shows Reuters her former school, where she was allowed back to sit in the classroom, in Kabul, Afghanistan, October 20, 2021. Photo by REUTERS/Zohra Bensemra.

Furthermore, the Taliban has repurposed the security infrastructure established by previous Afghan governments, turning it into a tool for the systematic oppression of women and girls. This infrastructure, once meant for public security, now perpetrates enforced disappearances, arbitrary detentions, torture, and even executions. Any organized resistance is crushed through raids, violence, arbitrary arrests, and torture, showcasing the Taliban’s unwavering dedication to maintaining their regime of gender-based restrictions.

This enforcement strategy also extends to punishing male family members for the perceived transgressions of their female relatives, compelling men to ensure the women in their families obey the Taliban’s decrees. This policy both directly subjugates women but also coerces men into participating in this oppressive system.

The Taliban has also dismantled nearly all mechanisms for legal recourse previously available to women. The Attorney General’s Office has been transformed into the General Directorate for Monitoring and Follow-up of Decrees and Directives, granting Taliban leaders unchecked authority to enforce their will without due process. By abolishing foundational legal structures, including the constitution, human rights commission, penal code, special courts, and units dedicated to combating violence against women and children, the Taliban has obliterated any legal protection for Afghan women.

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Accountability under international law

The international community should utilize its extensive network of international laws, treaties, commitments, and partnerships to find ways to counter the Taliban’s actions in Afghanistan and hold the regime accountable for crimes against humanity.

This requires a multi-pronged strategy and mutually reinforcing actions that can enable women of Afghanistan to seek justice and protection. Individuals and advocacy groups can undertake impact litigation or another nation could file a case against Afghanistan under existing legal frameworks such as the UN Convention on the Elimination of All Forms of Discrimination Against Women or the UN Convention on the Political Rights of Women. The International Criminal Court (ICC) has been examining the situation in Afghanistan following the release of its Policy on the Crime of Gender Persecution in late 2022. To date, however, the ICC prosecutor has not filed any charges against Taliban members, nor have there been any state-initiated proceedings at the International Court of Justice.

While current legal frameworks on gender persecution and discrimination provide some pathways to justice, they do not capture the full extent of the crimes perpetrated against the women and girls of Afghanistan. The Taliban is committing inhumane acts involving arbitrary arrests, imprisonment, and torture in the unique animating context of an institutionalized regime of systematic gender-based oppression and domination for the purpose of entrenching power and maintaining the regime. Therefore, Afghan women, in solidarity with international human rights organizations, gender and legal experts, and activists, have been demanding that it must be called out for what it is: gender apartheid.

Hadia, 10, a 4th grade primary school student, walks back from school through an alleyway near her home in Kabul, Afghanistan, October 20, 2021. Photo by REUTERS/Zohra Bensemra.

Today, there is a movement to expand the definition of apartheid to include gender apartheid in both international and national laws. In March 2023, dozens of women’s rights defenders launched the End Gender Apartheid Campaign. In October 2023, the Atlantic Council’s Strategic Litigation Project, with the Global Justice Center, issued a joint letter and legal brief urging UN member states specifically to codify the crime of gender apartheid in the draft crimes against humanity treaty presently under consideration by the UN General Assembly’s Sixth Committee (Legal). Codification of gender apartheid in the potential crimes against humanity treaty would open up pathways to accountability not only for individual perpetrators but also for third-party states and institutions. It would also foster international solidarity, highlighting the severity of the situation in Afghanistan and leveraging the accompanying stigma to criminalize Taliban actions.

By combining existing legal frameworks related to gender persecution and discrimination with activism for recognizing the crime of gender apartheid, the international community can formulate a coordinated and complementary response. This approach employs a range of international and domestic legal tools and recognizes that these pathways are not mutually exclusive but rather mutually reinforcing, working together to tackle the ongoing plight of women and girls in Afghanistan squarely, effectively, and holistically.

For a comprehensive list of all Taliban decrees, visit the US Institute of Peace’s Tracking the Taliban’s (Mis)Treatment of Women.

Stories of resistance

Sahar’s story

Sahar, an employee at a government institution in a northern province of Afghanistan, found her world transformed with the collapse of the republic and Taliban takeover. Today, more than 65 percent of women feel physically unsafe and 90 percent of women report high mental distress, according to UN Women. Sahar, like many, navigates the repercussions of a complete erosion of women’s rights with little or no support. Driven to improve the collective resilience of Afghan women facing adversity, she initiated psychotherapy programs in her province. These programs, tailored for women and girls, offer a sanctuary where they can share their experiences and find support.“ In the darkest hours, we find our true strength,” Sahar says “My hope is that every Afghan woman remembers her worth and the power she holds. We are the backbone of this nation.”

Aisha’s story

Despite the dire circumstances enveloping the region, women in a northern province of Afghanistan recently launched more than ten workshops focusing on sewing and carpet weaving, helping women earn an income and come together in solidarity. Moreover, several women in the group have started language and mathematics classes linked to religious schools, catering to girls beyond the seventh grade. However, as Aisha reflects on the way in which women in her community have come together, she cannot help but acknowledge the broader, alarming context. Around 20 percent of households in Afghanistan are headed by women. With the majority of job opportunities now inaccessible to women, the ramifications for Afghanistan’s fragile economy and the Afghan people are severe. Today, close to nine million Afghans are facing acute hunger. The Taliban-imposed restrictions on freedom of movement for women have exacerbated the crisis, as many vulnerable women and families are trapped and cut off from life-saving support.“ In the face of these adversities, it’s remarkable to witness the surge of determination among our women,” Aisha says. “The recent rise of workshops represents so much more than just skill-building; it’s an act of hope, a way for countless women and girls to find meaning and sustain their families. And the most incredible part? Every single one of these workshops is a testament to women’s resilience, as they are all led by women themselves.”

Hanifa’s story

Hanifa, an eleventh-grade student, confronts the stark reality of educational closures alongside other girls in the northeastern province of Takhar. Since September 2021, all Afghan girls over the age of twelve have seen their education indefinitely banned. As a result, a staggering 2.5 million Afghan girls, more than 80 percent of all school-aged girls and young women, are now out of school.“ With the schools closed, both my sisters and our neighbor’s daughters were left directionless,” Hanifa says. “We tried to establish some sense of normality by initiating language and mathematics classes, but those efforts were short-lived. As the days passed, we increasingly relied on mobile phones for a semblance of connection to the outside world. In a particularly difficult moment, I turned to my mother, sharing my fears and doubts about our future.” Acting on this concern, her parents became aware of a local woman who had set up a sewing training program, and they promptly enrolled Hanifa, her sisters, and their neighbor’s daughters. Beyond the immediate challenge of school closures, Hanifa’s dreams of further education and exploration have been challenged. She once harbored aspirations of attending university, traveling, learning new languages, and experiencing the world. Though the sewing classes are a far cry from these dreams, she says they have provided an essential ‘underground’ support system; one, however, that creates risk for all those involved.

Inside Afghanistan’s gender apartheid: Listen as women reveal the impact of the Taliban’s oppressive decrees

New Atlanticist Mar 7, 2024

Twice under the Taliban: The repeated nightmare of my generation

By Horia Mosadiq

The deepening human rights crisis under the Taliban underscores the dire need for global attention on the plight of Afghanistan’s women.
Afghanistan Human Rights
Inside Afghanistan’s gender apartheid: Listen as women reveal the impact of the Taliban’s oppressive decrees

Inside the Taliban’s gender apartheid Mar 14, 2024

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Inside Afghanistan’s gender apartheid: Listen as women reveal the impact of the Taliban’s oppressive decrees

Inside the Taliban’s gender apartheid Mar 21, 2024

Afghan women’s rights are not a lost cause. Here’s what the international community can do.

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Chronological database of all decrees

The post Inside Afghanistan’s gender apartheid: Listen as women reveal the impact of the Taliban’s oppressive decrees appeared first on Atlantic Council.

]]> Stealth, speed, and adaptability: The role of special operations forces in strategic competition https://www.atlanticcouncil.org/in-depth-research-reports/report/starling-marine-special-operations-forces-in-strategic-competition/ Thu, 07 Mar 2024 17:10:17 +0000 https://www.atlanticcouncil.org/?p=737446 Clementine G. Starling and Alyxandra Marine discuss how special operations forces enhance US readiness in an era of strategic competition.

The post Stealth, speed, and adaptability: The role of special operations forces in strategic competition appeared first on Atlantic Council.

]]> Table of contents

Executive summary

Introduction

​Background: What makes special operations forces “special”?

History of USSOF: SOF’s evolving purpose and how its history lends to competition today

USSOF today in the context of strategic competition

What’s next? Enhancing USSOF in the 2020s and beyond

Conclusion

About the authors

Acknowledgments

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Executive summary

Today, the US Joint Force grapples with an array of security challenges that transcend traditional boundaries and cut across theaters and domains. US competitors—China and Russia—conduct military, information, economic, cyber, and diplomatic activities across the globe, from the Indo-Pacific and Europe to Africa, Latin America, Central Asia, and the Arctic. Managing strategic competition necessitates the United States taking proactive measures to counter malign activities and advance US strategic objectives across multiple theaters and domains.

US Special Operations Forces (USSOF) possess distinct abilities and expertise that can greatly aid in addressing the complexities of strategic competition, yet these assets are often overlooked or misunderstood. USSOF is too often seen as the direct-action, finishing force of the Global War on Terror era. Yet, the special operator of 2024 is not just the physically imposing “trigger puller,” but also the young man or woman who is an expert at coding. USSOF has a unique position that allows it to elevate the Joint Force’s capacity to navigate the entire spectrum of competition. Its activities prior to conflict, such as operational preparation of the environment (OPE), can shape the strategic environment with US competitors. This report contends that, when leveraged effectively, USSOF has the potential to play a pivotal role in promoting US global interests, particularly in addressing vulnerabilities across the competition continuum.

A U.S. Army Special Forces Soldier demonstrates lateral marksmanship drills to U.S. and Panamanian security forces during joint combined exchange training in Panama City, Panama. Credit: DVIDS – U.S. Army photo by Staff Sgt. Osvaldo Equite.

To fully harness USSOF’s role in strategic competition, the authors of this report propose recommendations to United States Special Operations Command (USSOCOM), Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict (ASD(SO/LIC)), the Joint Force, the Department of Defense (DOD), and policymakers within the defense ecosystem. The recommendations are aimed at enhancing USSOF’s capabilities that already have utility in strategic competition, while shifting USSOF’s mindset toward this role. By implementing these measures, USSOF can better support the US interagency and promote US global interests in strategic competition. The recommendations are summarized below.

First, USSOF must adapt its mindset to play a larger role in strategic competition, expanding its non-kinetic activities and irregular-warfare concepts to counter the sophisticated capabilities of near-peer US adversaries like China and Russia. To do this, USSOF must balance its traditional tasks like countering violent extremist organizations (VEO) and weapons of mass destruction (WMD) operations, which will remain critical, with new challenges posed by strategic competitors. The latter necessitates the global synchronization of Joint Force planning to fully leverage USSOF’s capabilities across seven geographic combatant commands. Effective communication between ASD(SO/LIC) and USSOCOM is essential for articulating SOF’s strategic role across the DOD enterprise, but USSOF must be empowered by the Joint Force to proactively support competition below the threshold of conflict.

Second, USSOF’s capacity to synchronize the efforts of interagency partners, allied and partner militaries, and the Joint Force serves as a linchpin in addressing the complexities of strategic competition. There is nevertheless a gap in understanding regarding USSOF’s pre-conflict role among decision-makers. Many of USSOF’s activities can be leveraged more strategically to shape the competition environment, such as its aptitudes in special reconnaissance, foreign internal defense, civil-affairs operations, military information-support operations, unconventional warfare, security-force assistance, and foreign humanitarian assistance. By recognizing USSOF’s integral role in the competition continuum and integrating it more effectively into strategic planning, the DOD can leverage USSOF’s capabilities to their fullest extent, ensuring a proactive and comprehensive approach to strategic competition.

Third, USSOF can adapt its strengths to new challenges by enhancing capabilities in cyber, space, and undersea warfare, bolstering civil-affairs expertise for extreme environments like the Arctic, and investing in technological advancements like artificial intelligence (AI) to achieve cognitive overmatch in complex operating environments. Empowering USSOF to succeed in 2024 and beyond will require USSOF and the broader DOD enterprise to recognize that the special operator of the future includes a diverse cadre of cyber operators, culturally immersed experts, specialists in space, AI, engineering, or physics support operations, and gender-diverse teams.

Fourth, USSOF must find ways to measure its success in an unclassified setting by internally defining clear mission objectives for strategic competition and establishing tracking mechanisms to assess progress. Articulating success through deliberate campaigns to disrupt adversaries’ strategies can help communicate USSOF’s contributions and impact while safeguarding classified information.

Fifth, enhancing integration between USSOF and the US military services necessitates a better understanding of USSOF’s current capabilities and roles, improved communication, and synchronized global campaign planning to leverage USSOF’s strategic advantages effectively across multiple combatant commands and interagency partners. Clarifying USSOF’s presence and activities in regions pre-conflict, and facilitating collaboration between commands, can enhance intelligence sharing and support strategic-competition efforts.

Sixth, it is critical to leverage USSOF’s agility in identifying innovations from nontraditional defense-industrial partners. USSOF is a leader in identifying, testing, fielding, and evolving new, cutting-edge technologies that have utility across the Joint Force, DOD, and the Intelligence Community (IC). Enhancing USSOF and defense-industrial base relations involves improving collaboration between USSOF and leading-edge defense industries. Initiatives like SOFWERX and recommendations from the Atlantic Council’s Commission on Innovation Adoption can facilitate this collaboration, ensuring a culture of operational experimentation and incentivizing private-sector engagement to support USSOF’s mission success. Appropriately resourced, USSOF can continue to advance innovation adoption for the Joint Force at a time when doing so is essential for strategic competition.

Finally, USSOF must maintain effective cooperation with its allied counterparts while communicating its current and future plans, particularly regarding areas of focus, investments, and adaptations. The US interagency and DOD can learn from the experiences and models put forward by allies—such as the United Kingdom, Latvia, Lithuania, Estonia, and Norway—that have highly integrated special operations into their plans to compete with strategic challengers like Russia and China. In so doing, the United States should continue to recognize the importance of prioritizing special-forces capabilities, investing in small, specialized teams, and aligning with allies on shared priorities to facilitate multilateral operations.

These recommendations not only ensure USSOF’s relevance and effectiveness, but also reinforce its pivotal role in safeguarding US interests and promoting global stability. The US interagency and DOD should invest in USSOF’s many strengths for strategic competition. In so doing, USSOF will stand ready to navigate the complexities of the modern conflict and to serve as a formidable force in advancing US strategic objectives on the global stage.

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East-coast based U.S. Naval Special Warfare Operators (SEALs) conduct visit, board, search and seizure training with Allied Special Operations Forces near Athens, Greece. Credit: DVIDS – U.S. Navy photo by Mass Communication Specialist 1st Class Bill Carlisle

Introduction

The United States and its allies and partners face an increasingly complex security environment in the twenty-first century, with competitors China and Russia leveraging all elements of their national power—diplomatic, information, military, and economic—to undermine US and allied security and prosperity. Considering strategic competition, the US Joint Force must adapt how it operates, recognizing that today’s security threats stretch well beyond the physical battlefield, and that competition and deterrence must be shaped prior to conflict. Both China and Russia view competition with the United States as taking place on a continuum, while the United States too often draws a bright line between peace and war while underinvesting in the competitive space between, leaving the United States at a disadvantage. 

USSOF offers unique skills, competencies, capabilities, and experiences that can significantly support US goals and outcomes in strategic competition—but these tools are poorly understood. USSOF is often thought about through the lens of its past successes over the last two decades, notably in counterterrorism. But who special operators are today, where and how they operate, and the significant role they play in shaping the environment and creating successful outcomes for strategic competition remain underappreciated. 

The 2018 and 2022 National Defense Strategies—and the integrated deterrence concept—acknowledge that today’s security threats will only be deterred through “employing every tool at the Department [of Defense]’s disposal.” USSOF is uniquely positioned to model, support, and enhance the Joint Force’s ability to do this. This report argues that, if harnessed correctly, USSOF can play a central role in advancing global US interests—especially across the seams and gaps of national power and artificial geographic boundaries that US adversaries exploit. 

Some defense leaders are considering cuts to USSOF, which could dramatically alter its ability to contribute to strategic competition with China and leave an operational gap in current capabilities and future joint planning. How does USSOF support US and allied security imperatives, and how would a degradation of USSOF impact US competitive advantage in the 2020s and beyond? 

This paper examines how the US government can best employ USSOF and apply its past successes and unique and joint operational approach to the challenges present in today’s era of strategic competition. The authors examine USSOF’s background and history, how USSOF enhances the US ability to outcompete China, and areas in which USSOF can be more effectively employed. The paper benefited from consultations with and peer review from many experts and practitioners across the national security community. 

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A group of US Army Paratroopers, assigned to 20th Special Forces Group, Alabama Natonal Guard, begin to board a C27J aircraft with their MC-6 parachutes at Northeast Alabama Regional Airport, Gadsden, Alabama. Credit: DVIDS – US Army photo by Staff Sgt. Ausitn Berner

Background: What makes special operations forces “special”?

Special operators are ubiquitous across the US military services and combatant commands, yet their organization, operations, and missions are distinct from their counterparts across the Joint Force. USSOF comprises the active, guard, and reserve elements of each service component of the US Armed Forces that are designed, trained, and equipped to conduct and support special operations—“activities or actions requiring unique modes of employment, tactical techniques, equipment, and training often conducted in hostile, denied, or politically sensitive environments.” USSOF is unique from other parts of the military in its light footprint, specialized and inherently joint operations, and stealth approach. SOF typically deploys as tailored units based on an operation’s requirements, risk, and capabilities to sensitive regions of the world—often to places that conventional forces otherwise cannot access—and, in doing so, it can generate outsized strategic effects. 

Globally positioned and readily deployed, USSOF provides decision-makers with low-visibility, small-footprint, and often low-cost options to secure US interests. It does this either by directly addressing threats or by indirectly engaging by, with, and through international allies and partners, thus allowing the United States to leverage partners’ capabilities and geographical familiarity and providing unique placement and access to partners that might be otherwise unavailable across the interagency. Accounting for just 3 percent of the US DOD’s budget, USSOF expands the response options available to the United States and its allies and partners, buying decision space for US and allied leaders. This is especially important in enabling US forces to shape the environment and conditions of competition well before conflict arises. 

A crew chief with Helicopter Sea Combat Squadron 85 (HSC-85) scans the skies while on a mission to emplace US and Australian Special Operations Forces (SOF) during Talisman Sabre. Credit: DVIDS – US Marine Corps photos by Lance Cpl. Nicole Rogge

How are US Special Operations Forces organized today?

The ASD(SO/LIC) “oversees and advocates for Special Operations and Irregular Warfare throughout the Department of Defense to ensure these capabilities are resourced, ready, and properly employed in accordance with the National Defense Strategy.” USSOF is consolidated under the United States Special Operations Command, the unified combatant command headquartered at MacDill Air Force Base in Tampa, Florida. USSOCOM oversees the US Army Special Operations Command (USASOC), US Naval Special Warfare Command (WARCOM), US Air Force Special Operations Command (AFSOC), and US Marine Forces Special Operations Command (MARSOC). Within USSOCOM, the interoperability planning and equipment standardization of the various service SOF commands is overseen by the Joint Special Operations Commander (JSOC). To support the Geographic Combatant Commands (GCCs), SOCOM offers a sub-unified command per region aligned with the GCC in the form of Theater Special Operations Commands (TSOCs). 

The five SOF truths

USSOF is guided by its Five Truths—key tenets that define both USSOF and special operators. 

  • Humans are more important than hardware.
  • Quality is better than quantity.
  • Special Operations Forces cannot be mass-produced.
  • Competent Special Operations Forces cannot be created after emergencies occur.
  • Most Special Operations require non-SOF assistance.

These truths echo the fact that a small number of SOF operators—carefully selected, well-trained, and exceptionally led—offer an unorthodox or specialized approach to security challenges that cannot be replicated at a larger scale across the conventional military force. 

The special operator’s experience is distinctive—marked by high levels of adaptability, cultural understanding, and exceptional physical prowess that reflect years of specialized training, as well as global and joint experience that other servicemembers may not obtain. Special operations are joint in nature and involve liaising across the Joint Force and US government interagency organizations. As such, special operators gain unique exposure and understanding of how to execute joint operations with interagency partners during competition, and in preparation for crisis and conflict. Special operators are highly educated and uniquely trained for different environments and locales, and they possess the capability to employ unconventional thinking to achieve success.1 Furthermore, they are highly specialized, and their operational approach is characterized by cultural awareness, flexibility, and a tolerance for ambiguity, which allows them to function in complex and ever-changing conditions—a critical component when the presence of overt conventional forces may escalate tensions in any given region. These characteristics and capabilities mean that USSOF can be harnessed in creative ways to respond to strategic competitors whenever and wherever they are operating across the globe. 

Members of the Jordanian Armed Forces Special Task Force, Air Force Special Tactics Airmen with the 24th Special Operations Wing and Italian special operations forces provide security for an incoming Royal Jordanian Air Force UH-60L Blackhawk helicopter during a combat search and rescue mission at Eager Lion. Credit: DVIDS – US Air Force photo by Senior Airman Ryan Conroy

USSOF’s twelve core activities

USSOF is known for its role in US counterterrorism missions of the past two decades. Special operators played a central role in the twenty-year Global War on Terror (GWOT) via counterterrorism and counterinsurgency missions. However, USSOF executes twelve core activities (both before and during conflicts or crises) that are lesser known and crucial to strategic competition. These activities often overlap and rarely take place in isolation. Many of these activities are highly relevant to combatting China’s and Russia’s malign activity or altering their decision calculus and popular perceptions across the globe.

  1. Direct Action: Executing short-duration strikes and small-scale offensive actions to seize, destroy, capture, exploit, recover, or damage designated targets.
  2. Special Reconnaissance: Actions conducted in sensitive environments to collect or verify information of strategic or operational significance.
  3. Unconventional Warfare: Executing actions to enable a resistance movement or insurgency that is aiming to coerce, disrupt, or overthrow a government or occupying power.
  4. Foreign Internal Defense (FID): Activities geared toward supporting the host nation’s internal defense and development, including safeguarding against subversion, terrorism, insurgency, or other threats to stability and internal security.
  5. Civil Affairs Operations (CAO): Enhancing the relationship between US and allied and partner military forces and civilian authorities in areas where military forces are present.
  6. Counterterrorism (CT): Actions taken directly against terrorist networks, as well as actions to influence or render global and regional environments inhospitable to terrorist networks.
  7. Military Information Support Operations (MISO): Planned activities aimed at conveying specific, pre-selected information to foreign audiences. Such information is often aimed at influencing the emotions, motives, objective reasoning, or behavior of foreign audiences, groups, individuals, or sometimes governments in a manner favorable to US or host-nation objectives.
  8. Counter-proliferation of WMD: Activities to support US government efforts to curtain the development, possession, proliferation, and use of chemical, biological, radiological, and nuclear (CBRN) weapons by governments and non-state actors.
  9. Security Force Assistance: Organizing, training, equipping, rebuilding, or advising various components of foreign security forces.
  10. Counterinsurgency (COIN): The amalgamation of civilian and military efforts designed to end insurgent violence and facilitate a return to peaceful political processes.
  11. Hostage Rescue and Recovery: Offensive measures taken to prevent, deter, preempt, and respond to hostage incidents, which may include the recapture of US facilities, installations, sensitive materials, or personnel in areas hostile to the United States.
  12. Foreign Humanitarian Assistance: A range of Department of Defense humanitarian activities conducted outside the United States and its territories, and alongside other humanitarian entities, to relieve and reduce human suffering.

These twelve activities form a robust, interconnected, and mutually supportive framework that allows USSOF to navigate different phases of competition and conflict across the competition continuum. Rarely does a special operation occur without involving or impacting one or more core activities. For instance, an unconventional-warfare campaign might seamlessly incorporate direct action and special reconnaissance elements, highlighting the fluidity and adaptability inherent in special operations. Some special operations are carried out by USSOF’s cross-functional teams (CFTs), which combine the unique capabilities of Civil Affairs, psychological operations (PSYOP) forces, special forces, and enablers. USSOF was the first to execute and operate multi-domain command and control, and helped define what is now doctrine in multi-domain operations.

Special operations are multifaceted by design, and each service may bring distinctive skills and missions.2 Employing different specialties and tools, USSOF takes a holistic approach to threats across the competition continuum. Such an approach is critical to compete with US strategic rivals that operate in spaces beyond the military domain, including the information, diplomatic, economic, and legal realms. As such, USSOF has, and can continue to have, a tremendously valuable role in strategic competition.

USSOF’s role prior to and during conflict

Special operators are adept at shaping outcomes in response to evolving challenges, performing their core activities years before conflict breaks out and remaining on the ground in the aftermath of a crisis. For example, during pre-conflict phases, USSOF’s reconnaissance missions can provide information to the IC in key regions. USSOF can operate behind enemy lines and sometimes have access to sources and information that members of the IC do not, contributing vast amounts of intelligence to the United States.

Army Spc. Daniel Lynch, a soldier with B Company, 182nd Infantry Regiment, Massachusetts National Guard, uses a rope bridge constructed by Guatemalan special forces. Credit: DVIDS – US Army photo by Spc. Samuel D. Keenan

Meanwhile, USSOF’s security cooperation programs are dedicated to enhancing partner capability and capacity while increasing US regional access and influence. Key aspects of this relationship include fostering partner resilience against subversion and coercion—and, when necessary, resistance to occupation. A prime example of this is the significant role that USSOF played in helping Ukraine build and train a professional and capable military force after the illegal Russian annexation of Crimea in 2014. At that time, Ukrainian military forces lacked command and control and were not well-trained in operating key capabilities. Following 2014, US, United Kingdom (UK), and other allied SOF trained the Ukrainian military, supporting its evolution into the professional and capable military force we see today, which has been much better positioned to respond to and tenaciously fight Russia’s ongoing war against Ukraine.

USSOF provides a critical leg of integrated deterrence, alongside conventional and nuclear military capabilities, by executing irregular aspects of competition that remain below the threshold of armed conflict. This includes undertaking specialized reconnaissance, irregular warfare, medical support, clandestine logistics, data collection, and human intelligence (HUMINT) analysis—or military information-support operations, known as MISO—against potential adversaries before a conflict arises. SOF also bolsters deterrence by denial and punishment, demonstrating to allies and partners how to stand up to coercion from Russia, China, and other adversaries.

In the event of a crisis, USSOF is strategically positioned at the forefront, offering support across the Joint Force and US government interagency organizations in critical areas. For example, USSOF supports the development of US Embassy Emergency Action Plans, provides humanitarian assistance, and generates intelligence to establish conditions for large-scale combat operations. In essence, USSOF’s role is proactive. Instead of waiting for the onset of conflict, special operators are engaged in a region for an extended period before such a conflict ever emerges, and they set the environment for future engagement and interoperability with other military forces.

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History of USSOF: SOF’s evolving purpose and how its history lends to competition today

The creation of USSOF and its role in the twentieth century

The inception of USSOF dates back to 1942. Born out of necessity during the Second World War (WWII), the Office of Strategic Services (OSS) was created by President Franklin D. Roosevelt, establishing air, ground, and maritime SOF to meet the particular needs of warfighting theaters. These OSS forces, led by Bill Donovan, became critical to the global operations of the Allied forces in World War II, acting as elite raiding forces in Europe, enablers of Nazi- and fascist-resistance movements in the Mediterranean and Middle East, and the executors of an unconventional-warfare campaign in China and East Asia. The OSS forces were dissolved by President Harry Truman following the end of WWII, and all the special intelligence and warfare functions were then transferred to the War Department. By the time the Korean War began in 1953, there were no remaining official standing special-operations units, but their noticeable absence resulted in an accelerated effort to rebuild such capabilities during that decade.

During the Cold War, the Department of Defense recognized the value of irregular warfare to enable resistance groups in Warsaw Pact countries. This led to the 1952 establishment of the Army’s Psychological Warfare Center at Fort Bragg—later renamed the Special Warfare Center. As their capability was rebuilt, USSOF forces deployed troops throughout the Cold War, supporting covert Central Intelligence Agency (CIA) operations in Tibet, Iran, Eastern Europe, and Cuba; supporting and training south Vietnamese troops; and evacuating missionaries and other personnel from unstable regions of the Congo, among other missions.

US and Estonian Special Operation Forces prepare to board a US Air Force CV-22B Osprey, assigned to the 352nd Special Operations Wing during a training mission near Tallin, Estonia. Credit: DVIDS – U.S. Army photo by Elizabeth Pena

The true value of USSOF during the Cold War was realized when President John F. Kennedy stressed the need for the armed services to invest more heavily in guerrilla and counter-guerrilla operations as an effort to combat Soviet influence operations worldwide. As it expanded to create new units and training centers across the services, USSOF emerged as “pioneers in interagency cooperation,” collaborating with entities such as the CIA by conducting long-range reconnaissance missions and medical support missions to Vietnam.3 During this time, special operations became one of the US military’s key enablers to counter coercion below the threshold of armed conflict.

In the aftermath of Vietnam, USSOF’s capabilities—like those of other services and commands—were reduced because of budget cuts and downsizing. The failed Iranian rescue mission of 1980, known as Operation Eagle Claw, led to a flurry of reorganization efforts in Congress, culminating in the permanent establishment of USSOCOM in 1987 and the creation of an office devoted to special operations and low-intensity conflict (SO/LIC) within the Office of the Secretary of Defense, all of which resulted in the current organization of USSOF.

USSOF in the GWOT and the twenty-first century

USSOF is perhaps best known for its work throughout the GWOT. USSOF carried out a diverse range of missions worldwide, serving as the primary tool in the US fight to counter VEOs. Beyond engaging in combat operations in Iraq, Afghanistan, Syria, and the Philippines, USSOF played a crucial role in executing theater campaign plans and implementing national strategy on a global scale.

During this time, USSOF doubled in force size and more than tripled in budget to meet the growing threat environment; during some periods, its presence overseas more than quadrupled. SOF was vital in building partner capacity, providing low-cost, low-footprint options to understand and impose costs on malign adversary activity and expand US influence and access with key partners and allies. Importantly, USSOF established linkages to conceive and implement a true Joint Interagency Intergovernmental Multinational (JIIM) strategy in multiple locations—especially in areas in which the Department of Defense could not be the lead active player, such as in Africa. The value of SOF’s authorities and culture of moving quickly against a problem was clearly demonstrated during GWOT.  This entailed applying resources and focus against a challenge, but it also meant the research and development (R&D), experimentation, fielding, and application of novel—and potentially game-changing technology—tactics, techniques, and procedures.

While USSOF conducted a diverse range of operations during this time, the bulk of US public and policymaker attention was focused on the direct-action campaigns—such as the one that killed Osama Bin Laden, Operation Neptune Spear—that made USSOF better known. In some ways, USSOF suffers from its own success. USSOF faces the challenge of its media-molded image versus the reality of it being a highly expert and quiet force. As such, some still perceive USSOF’s role as confined to direct action despite the range of indirect action and other operations it conducts, ranging from training and equipping components of foreign security forces to enhancing relationships between US forces and foreign civilian authorities.

Italian special operations forces, US Air Force Special Tactics and members of the Jordanian Armed Forces Special Task Force assault a compound during Exercise Eager Lion at King Abdullah II Special Operations Training Center. Credit: DVIDS – US Air Force photo by Senior Airman Ryan Conroy

Public perceptions of USSOF

Perhaps due to its success in the GWOT, USSOF is too often viewed only as the finish force, closing the kill chain for its conventional service counterparts.4Instead, modern special operators should be understood as playing a role much earlier in the management of competition, prior to conflict. USSOF operates globally, across the entire competition continuum, and rapidly tests and employs novel or critical capabilities to enhance security operations.5 USSOF will continue to conduct CT and COIN operations, when necessary, but today’s security environment requires USSOF to prioritize its role in strategic competition—this may more closely mirror the role it played below active armed conflict in the Cold War era.6

USSOF has continued to play this role in some capacity over the past twenty years, albeit less visibly than some of its actions during the GWOT. Furthermore, if called upon, USSOF has the competencies and authorities to employ irregular-warfare concepts and gray-zone tactics in strategic competition. Nevertheless, few decision-makers think of it that way. It is time that policymakers update their understanding of USSOF and enhance the valuable role it can play in strategic competition.

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USSOF today in the context of strategic competition

USSOF’s strengths applied to strategic competition

Today, the US Joint Force confronts a pacing threat in China and an acute threat in Russia—far more sophisticated adversaries than it faced in VEOs throughout the GWOT.7 Prevailing in this era of strategic competition requires the Joint Force to shift its competitive mindset in order to effectively respond to threats spanning the competition continuum and cutting across theaters and domains. Within this three-dimensional approach to competition, USSOF is a critical operator, complementing conventional-force readiness and military dominance with a unique blend of competencies and capabilities that can be leveraged to deter, prepare for, and respond to armed conflict.

The 2023 Joint Concept for Competing defines strategic competition as “a persistent and long-term struggle that occurs between two or more adversaries seeking to pursue incompatible interests without necessarily engaging in armed conflict with each other.”8 In addition, the concept of the “competition continuum” was introduced as a Joint Concept in 2019, and describes a world of enduring competition conducted through a mixture of cooperation, competition below armed conflict, and armed conflict—a description that allows for simultaneous interaction with the same actor across different situations.9 These two concepts acknowledge that US adversaries have circumvented US conventional military dominance by competing below the threshold of armed conflict for some time. Following Operation Desert Storm in 1991, the United States celebrated a decisive battlefield win, while US competitors learned they must devise ways to compensate for unrivaled US conventional power and win without fighting through non-conventional means. USSOF is accustomed to operating across the competition continuum and cooperating with allies and partners to support US objectives, while simultaneously creating dilemmas for adversaries in an evolving threat environment. These factors make USSOF a versatile and critical instrument in strategic competition not only in the military domain, but also operating in support of diplomatic and economic objectives.

The following section outlines four key competencies USSOF brings to bear to support US strategic competition: its engagement with allies and partners, its global footprint, its ability to achieve effects across the competition continuum, and its cutting-edge use of technology.

Chile and US Special Operations Forces prepare to fast rope to a simulated objective during exercise Southern Star in Mejillones, Chile. Credit: DVIDS – U.S. Army Photo by Staff Sgt. Osvaldo Equite

I. Global and persistent engagement with allies and partners

The first major competency of USSOF is its proactive and sustained engagement of allies and adversaries globally.

USSOF is global by nature, confronting adversaries across every domain and every part of the world where China and Russia are undermining US and allied interests. Beijing leverages its influence, military, and predatory economic practices to bully its neighbors and project power far beyond the Indo-Pacific. Russia simultaneously wages a war of aggression against Ukraine, challenges national sovereignty across Europe, and undermines the security of nations globally through its cyberattacks, intimidation, and information operations. USSOF’s global role enables it to respond to China and Russia internationally.

USSOF builds and maintains authentic and multigenerational connections with allies and partners by training, advising, and assisting various countries in their security. This global presence and these relationships also enable USSOF to observe and counter Chinese and Russian influence in key regions while simultaneously engaging with and building trust with key partners. US partners may have greater access to observe Chinese or Russian activity. As such, USSOF engagement internationally not only supports partners but also creates greater options for the United States to counter adversarial influence.

USSOF approaches its relationships with allies and partners through persistent (rather than episodic) engagement, which generates a comprehensive understanding of host nations, threats to their security, and the second- and third-order effects of decisions and operations in those local contexts. USSOF’s enduring partnerships allow the United States to engage with nations in areas of strategic competition by assisting them with the problems they care about most. This is especially important for certain partners that may not view China or Russia as a threat, leaving USSOF as one of the only viable and trusted partners to discreetly engage on US foreign policy matters in certain areas.

USSOF spearheaded the by, with, and through approach for the US military, in which “operations are led by [US] partners, state or nonstate, with enabling support from the United States or US-led coalitions, and through US authorities and partner agreements.” USSOF’s approach centers allies and partners in the defense of their own nations, often leading to more successful results. This approach is better for the partner nation and also for the United States.

USSOCOM also has a USSOF Civil Affairs element, which works “by, with, and through unified action partners to shape conditions and influence indigenous populations and institutions” in support of DOD and US embassy strategies.10In this capacity, USSOF supports other parts of allied governments to leverage non-military instruments of power. In so doing, USSOF is able to gain “placement and access”—proximity to or the ability to approach an individual, facility, or information that enables one to carry out an intended mission—in geographic areas where US embassies otherwise do not have a presence. This expands the options available to US decision-makers to respond to activities by China and Russia in areas where the United States may not have much of a diplomatic or conventional military presence.

While physical presence remains important, USSOF can also support nations from a distance or virtually, which helps reduce costs and provides operators with greater flexibility by avoiding direct confrontation or escalation that may come from physical presence. Throughout the war in Ukraine, USSOF has advised and assisted Kyiv from a distance. Following the 2014 invasion, the US military brought together conventional and special-operations troops to create the Joint Multinational Training Group-Ukraine, including a “Q course.” This Army Special Forces qualification course (formally called the Special Forces Qualification Course) teaches everything from combat competencies and survival, evasion, resistance, and escape (SERE) to how to navigate in an unconventional-warfare environment. Even without a large physical footprint in Ukraine, USSOF has been able to effectively assist Ukrainians with training and logistics.11This demonstrates a valuable competency, and can serve as a model for training and supporting other countries relevant to strategic competition that may otherwise be difficult to physically operate within.

An Air Commando from the U.S. 320th Special Tactics Squadron rappels down a steep mountainside to recover a downed pilot while conducting a personnel recovery (PR) training mission during Talisman Sabre. Credit: DVIDS – U.S. Marine Corps photos by Lance Cpl. Nicole Rogge

USSOF’s relationships can be multigenerational. By operating in the same regions for decades, USSOF builds relationships that can breed mutual trust and understanding. These relationships (and the inherent trust with allies and partners that follows) are sustained through USSOF and allied counterparts participating in joint training exercises, attending each other’s training courses, and sharing tactical and strategic experience. Through such exchanges and training, US allies and partners enhance their warfighting capabilities and improve their interoperability with the United States. In turn, the United States gains a deeper understanding of the security cultures and threat perceptions of other countries. This information improves US activities and operations, and further guides decision-making by opening avenues for the United States to engage new stakeholders abroad. US engagement with regional stakeholders can complicate an adversary’s risk calculus, as it is forced to consider the potential consequences of aggression against regional actors to which the United States is tied.

USSOF’s tailored approach to its regional relationships generally produces special operators with more global and joint experience earlier in their careers when compared to their service counterparts. Through their deployments, special operators exchange tactics, techniques, and procedures with partner nations. Their cultural adeptness and multi-domain backgrounds empower USSOF to plug in quickly, adjust to varying cultural, geographic, and political contexts, and build new connections for the Joint Force for years to come.

II. Gaining placement and access across the globe 

Secondly, USSOF’s deep alliances and partnerships offer an asymmetric advantage over China, Russia, and other competitors. USSOF collaborates with allies and partners to create global impact in a way that may be outsized to its presence. Even a small USSOF unit can take localized actions that might compel adversaries to contend with widespread repercussions. For example, USSOF may work with an Indo-Pacific nation to gain increased access for the United States Air Force to operate in the region, signaling to China increased US capacity and maneuverability that could alter China’s risk calculus as it conducts maritime activities in the Indo-Pacific. Or USSOF may work with an African partner to counter Chinese or Russian local information operations that adversely affect its influence in multiple countries across the region and beyond.

USSOF’s partnerships and presence in host nations build US regional placement and access, in turn providing virtual and/or physical proximity to an entity of interest. This placement and access support the Intelligence Community by providing insights in normally inaccessible locations while also enhancing the Joint Force’s ability to compete across the globe’s farthest corners, enabling it to support allies and partners in identifying and responding to adversarial and illicit behavior. For USSOF, in particular, this proximity forms the foundation for responding to coercive or subversive activity below the threshold of armed conflict. For example, China’s Belt and Road Initiative (BRI) gives it placement and access in a range of countries across the Indo-Pacific, Africa, Europe, and Latin America. Through subversive economic practices, China has capitalized on key industries, accessed new markets, and coercively influenced local decisions in developing countries by leveraging its economic power. This all-of-nation approach buys China influence and could enable an expanded military presence—for instance, through the acquisition of ports and waterways that serve as potential maritime chokepoints. China’s BRI activities have taken place in some countries where the United States lacks a large presence or access, but USSOF can and does operate in areas where other US entities do not.

If harnessed effectively, USSOF can be leveraged in key strategic regions to educate local governments, conduct reconnaissance of local activity, employ information operations, collect intelligence, and collaborate with interagency partners. As such, USSOF can be used to mitigate or respond to Chinese and Russian attempts to expand their influence in regions that are lesser priorities for US conventional force presence. USSOF’s global access is particularly important when crises or conflicts erupt. For instance, as the Israel-Hamas conflict continues, USSOF could surge on its CT, COIN, and hostage-rescue mission sets in the Middle East, allowing the Joint Force at large to remain focused on the pacing challenge of China. Overall, USSOF global presence enables the United States to maintain strategic ground in other, less-prioritized regions, while preserving a relatively light and inexpensive footprint.

The light and relatively affordable nature of USSOF’s global presence furthers US interests in parts of the globe where the United States may not have a strong foothold, providing outsized value.

III. Operations across the competition continuum 

USSOF is adept and experienced in operating below the threshold of conflict. This “gray zone” of competition can be defined as “the space in which defensive and offensive activity occurs above the level of cooperation and below the threshold of armed conflict.” Dating back to the Cold War era, special operations were one of the few military capabilities that challenged coercion below the threshold of armed conflict. This space and time prior to armed conflict is increasingly central in modern competition, especially when adversaries employ a “win without fighting” strategy. China and Russia rely on cyber, economic, information, and other asymmetric capabilities to advance their interests, especially when they cannot outmatch US conventional military superiority or when unconventional activities achieve their objectives just as well.

The United States has recognized the need to operate more strategically along this competition continuum in order to better compete with China and Russia. The 2022 National Defense Strategy recognized the need to “campaign across domains and the spectrum of conflict” to improve the US understanding of its operating environment and to shape the perceptions and risk calculi of US adversaries.12 Through the United States’ own gray-zone activities—such as the development of partner nations’ resistance and resilience capabilities, and information and cognitive operations—USSOF can help mitigate strategic risk, support US national objectives, and buy “decision space” for US and allied leaders, while limiting exposure to political and economic risks that may come from a larger military presence or more overt action.13 

“Integrated deterrence” campaigning should rely upon USSOF activities, including (but not limited to) its ability to establish resistance mechanisms, conduct information operations, engage in Civil Affairs, and collect intelligence. Such activities impact adversaries by tying up or forcing them to reposition their resources, thus creating disruptions and dilemmas that benefit the United States.14 USSOF’s role in executing integrated deterrence is perhaps best articulated through its irregular-warfare capabilities, which offer a “critical tool to campaign across the spectrum of conflict, enhance interoperability and access, and disrupt competitor warfighting advantages while reinforcing our own.” USSOF deters adversaries’ actions across the continuum by illuminating and confronting acts of proxy aggression, information warfare, economic warfare, and subversion. This enhances the options available to US decision-makers while simultaneously sowing chaos that disrupts adversarial decision-making.

USSOF’s competencies across the competition continuum are as follows.

A U.S. Air Force KC-135 Stratotanker aircrew with the 340th Expeditionary Air Refueling Squadron, deployed to Al Udeid Air Base, Qatar, take off from Al Udeid AB. Credit: DVIDS – U.S. Air Force photo by Senior Master Sgt. Joshua L. DeMotts

Information Warfare

USSOF actively engages in the information domain by exposing and countering adversary propaganda and disinformation, as well as campaigning—that is, conducting “logically linked military initiatives”—to achieve US defense priorities over time.15 In 2019, then commander of US Special Operations Command General Richard Clarke stated that 60 percent of the special-operations community’s focus was “working in the information space,” as opposed to a 90-percent focus on “the kinetic fight” just a decade earlier. USSOF’s MISO activities have more than tripled in the past three years, with special operations contributing 60 percent of MISO activities conducted worldwide in fiscal year 2022. This trend will likely intensify in future conflict as the information domain remains a key arena for strategic competition, as China and Russia use information or “informatized” warfare to counter US strategic objectives and further their own.16 Information operations can be used to great effect. For example, Ukraine has successfully leveraged information operations to rally support for its armed forces and—tactically and operationally—to “[erode] the will of individual [Russian] soldiers,” which has partially contributed to seventeen thousand Russians deserting the military.

Recognizing the prominence of information and cognitive warfare, USSOCOM established the Information Warfare Center (IWC) in 2021. The IWC aims to enhance and consolidate USSOCOM’s psychological-operations capabilities, in conjunction with information-related capabilities in the cyber and space domains, specializing in “influence artillery rounds”—detecting adversarial activity across the globe and pushing that information to operators, who then must identify tailored informational “munitions” to match the target confronting them.

Space and cyber warfare

USSOF similarly recognizes the significance of the cyber and space domains, with the US Army spearheading the concept of a “modern triad” consisting of space, cyber, and special operations to “provide options to commanders to deter activity below the threshold of conflict.” While cyber, space, and special-operations capabilities are powerful on their own, melded together they generate vast options and opportunities for the Joint Force to rapidly influence outcomes across the competition continuum.

The triad might manifest as follows.

For example, USSOF could use its unique placement and access to enable a US Cyber Command (USCYBERCOM) operation into a remote adversary downlink site, holding its ability to conduct space domain awareness at risk and giving USSPACECOM an option during crisis or conflict. This triad, which combines intelligence threads and capabilities, offers commensurate responses to low-intensity and hybrid threats.

Cyber, space, and special operations are distinct from other military instruments in their multi-domain “global reach.” Each of these tools is not confined to operations in a traditional domain or geographic theater; rather, their application extends across all the military services and combatant commands.17 USSOF’s ability to effectively employ the triad, in turn, will integrate this response option into Joint Force campaigning and contingency response plans to fill operational gaps across domains and regions. Still today, this idea remains largely conceptual at the joint level—the space component is less natural to bring in, given USSOF has long utilized cyber and signals intelligence capabilities to track targets.

Supporting the Joint Force and interagency

The primary objectives of operating in the gray zone are to counter malign actions below the threshold of armed conflict and to ensure competition does not escalate into full-blown conflict. Should conflict break out, however, USSOF’s OPE activities will prove critical for supporting large-scale combat operations. During combat, USSOF is equally critical as an enabler for the Joint Force. USSOF is well-positioned to provide a firsthand assessment of the situation and response options given its persistent presence and engagement in key regions. For example, USSOF could play a pivotal role in capturing key terrain and securing ground lines of communication—both actions that would set the conditions for Joint Force success while disrupting adversarial military planning. During conflict, USSOF can help mitigate strategic risk for the Joint Force through supporting operations. This was demonstrated during Operation Inherent Resolve, during which small numbers of special operators, in concert with regional partners, took back territory held by the Islamic State of Iraq and al-Sham (ISIS), constrained Iranian aggression, pushed back against Russian encroachment, and limited escalation between Kurdish and Turkish forces.

Furthermore, USSOF teams can serve as a focal point for synchronizing the effects of interagency partners, allied and partner militaries, and the Joint Force. This collaborative approach is evident in the fifth “SOF Truth,” which states that “most special operations require non-SOF assistance.”18 USSOF’s effectiveness is enhanced by its integration with other DOD components and interagency partners, merging military expertise with diplomatic, economic, and informational tools. At the same time, USSOF augments joint and interagency operations, thus enabling a comprehensive approach to address strategic competition by aligning diverse capabilities toward common objectives. Decision-makers across the interagency and in the DOD may not appreciate the full role USSOF plays prior to conflict. Not only is it impossible to build USSOF capabilities overnight in the event of a conflict, but also, if USSOF capabilities are employed only at the onset of a conflict, they will not have been employed to their full effect.

A U.S. Army Special Forces soldier assigned to Combined Joint Special Operations Task Force-Afghanistan provides security during an advising mission in Afghanistan. Credit: DVIDS – U.S. Army photo by Spc. Sara Wakai

With the proper authorities, special operations can extend the scope, scale, and reach of interagency deterrent tools by both providing US government partners with the inputs required to execute operations (e.g., placement and access) and amplifying the desired output or effect (e.g., bringing together various instruments of power). This is particularly important given that USSOF has formal operational-planning experience that is not inherently a function of other government departments and agencies. For example, USSOF works with the Department of Treasury’s Office of Foreign Asset Controls to enhance sanctions support capability on the ground; it leverages MISO and Civil Affairs to amplify Department of State public diplomacy; and it convenes various stakeholders for cross-cutting human security issues such as illegal, unreported, and unregulated (IUU) fishing, and mitigating harm to civilians. JIIM partnerships are required to compete against China and Russia, and USSOF is well-positioned to support and enable them.

USSOF includes specialized teams that can bolster US security advantages below the threshold of conflict. While much of USSOF’s activity falls within the classified realm, USSOF’s cross-functional teams execute numerous SOF operations. Building upon the definitions of USSOF’s core activities provided above, this holistic approach addresses threats across the competition continuum in the following ways.

  • Civil Affairs forces “conduct preparation of the environment, support to unconventional warfare, foreign internal defense, and civil network development and engagement across the competition continuum”; 
  • Psychological Operations forces “conduct Military Information Support Operations (MISO) in permissive, uncertain, and hostile environments to change the behavior of foreign audiences—both friendly and adversarial—in support of US objectives”; and 
  • Special Forces “discretely shapes the operating environment in both peace and complex uncertainty,” with two primary missions of unconventional warfare and foreign internal defense.19

These three elements comprise a comprehensive intelligence picture and can support the Joint Force’s creation and execution of plans to counter Chinese, Russian, and other adversaries’ gray-zone activities in key regions.

IV. At the cutting edge of capability development and employment 

USSOF is creative about harnessing and experimenting with emerging technology and capabilities. USSOCOM “continues to serve as a pathfinder” for integrating data-driven technologies, such as artificial intelligence and machine learning, into the Joint Force by serving as early adopters of new technology.20USSOF have a proven track record of engaging with the US defense-industrial base and testing novel capabilities in combat effectively. Such experimentation is valuable as emerging technology enables the Joint Force to compete with an increasingly technologically advanced China. USSOF is adept at proactively identifying promising early technology from the private sector and reaching out to companies to adapt technology to suit the forces’ needs.

Due to USSOF’s smaller size, proactivity, and service-like acquisition authorities, it is often able to acquire technology more rapidly than other parts of the DOD. USSOF’s external innovation unit, SOFWERX, collaborates with various nontraditional participants in the defense innovation ecosystem through events and Small Business Innovation Research programs (SBIRs), rapidly enhancing the equipment and capabilities of special operators.21 SOFWERX, in turn, became the beta model and launch point for all the subsequent “WERX” across the services, such as AFWERX, SPACEWERX, etc. From transmitting and seeing in dark tunnels to flying unmanned aerial vehicles in denied airspace, USSOF often serves as a technological testbed for capabilities that have utility across the Joint Force and, in many cases, advances capabilities to ensure battlefield superiority. USSOF is a leader in identifying, testing, fielding, and evolving new, cutting-edge technologies across the Department of Defense and the IC. Appropriately resourced, USSOF can continue to advance innovation adoption for the Joint Force at a time when doing so is essential for strategic competition.

USSOF is a particularly impressive model for innovation because it can “turn the crank of force design, force development, and force employment faster than any other part of DoD,” which “lend[s] it an inherent advantage in generating innovative capabilities.” Able to rapidly develop, test, and implement emerging technologies at earlier points of relevance, USSOF tends to live at the cutting edge of defense innovation. For example, the Global Positioning System (GPS) was largely untested in combat until Operation Desert Storm, during which special operations forces used GPS to conduct special reconnaissance deep in enemy territory. USSOF informed GPS techniques and equipment for the entire Joint Force. This form of combat testing can help the larger military identify, transition, and adopt promising technologies for future conflicts.

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A U.S. Army sergeant, assisted by fellow soldiers, properly aligns the sight of a Common Remotely Operated Weapon Station mounted on a Mine Resistant Ambush Protected vehicle at Kandahar Air Field, Afghanistan. Credit: DVIDS – US Army

What’s next? Enhancing USSOF in the 2020s and beyond

This report has established the invaluable role that USSOF can and does play in enabling the United States to achieve its strategic objectives, including adapting to and outpacing China, the pacing threat. USSOF should be harnessed more effectively by the US policymaking community and the DOD to help achieve US strategic-competition goals. USSOF is uniquely able to operate in early phases of the competition continuum (prior to conflict) and in austere locations, while using specialized tools and methods that the rest of the Joint Force cannot. Specifically, USSOF can help realize US deterrence goals without the need for escalation to conflict, and can provide the Joint Force with preconditioned advantages if crisis erupts.

Looking forward, as the whole Joint Force adapts to meet an era of strategic competition, USSOF must also continue to evolve. USSOF should consider the following recommendations to ensure it can best support US goals in strategic competition.

Revamping USSOF’s mindset for strategic competition 

First, USSOF must continue to adapt its competitive mindset to play a larger role in strategic competition. In addition to the important role it plays in direct action, USSOF should expand its disruptive non-kinetic activities and irregular-warfare concepts with the goal of chipping away at US adversaries’ diplomatic, economic, and military strength. Those who weave USSOF capabilities into regional and global campaign plans should consider the significant utility of SOF’s indirect action. China and Russia pose vastly different challenges from VEOs, with which USSOF became well-acquainted over the past two decades. Near-peer competitors deploy sophisticated military, intelligence, diplomatic, and economic capabilities to secure their interests, and strategic competition thus creates a threat environment that is quantitatively and qualitatively distinct from the GWOT. Direct action—such as countering VEOs—will continue to be a task for USSOF, enabling the rest of the DOD to focus on other strategic priorities. However, as USSOF recommends to decision-makers how best to harness its capabilities, it should emphasize its in-depth understanding of complex problems, rather than a predisposition for immediate action.

Second, it is important that USSOF—and the Joint Force at large—recognize that the US military should most often play a “supporting,” rather than “supported,” role in conducting foreign affairs, in support of the State Department as lead.22 This necessitates flexibility and adaptability, which USSOF showcases with its ability to quickly plug into new contexts and work with interagency counterparts and country teams. However, even then, much of today’s existing USSOF-interagency cooperation is built around the GWOT era, during which non-military instruments of power primarily supported USSOF-led operations (rather than the other way around) and partnerships were based largely around information sharing. USSOF’s role as a supporting entity will be most evident below the threshold of conflict, where non-DOD levers of power are often better suited than the military arsenal. USSOF must be empowered to play a supporting role by policymakers, who should see USSOF as playing a proactive—rather than reactive—role in the management of competition, employed preemptively to avoid escalation, rather than as a last resort when nothing else works.

Third, this shift in USSOF’s role must be similarly reflected in its alliances and partnerships. While USSOF fosters partner-nation resilience against Russia and China through foreign internal defense (FID), there is more it could do. For example, USSOF could expand its support for implementing the Global Fragility Act with focus countries, applying those principles in partnership with Taiwan and European nations to further develop their reserve force capabilities and whole-of-society resilience, both of which would be crucial to inhibit China from taking over Taiwan or respond to a potential Russian invasion. Policymakers should consider revising legislation such as the foreign security force capacity-building authority in Section 333 to support USSOF’s evolving role in strategic competition and stabilization activities.

Finally, as USSOF evolves its actions and attitudes toward strategic competition, it will face hurdles in overcoming orthodox DOD culture, bureaucratic morass, budget constraints, and recruitment and retention issues, including as other services request billets back. The office of ASD(SO/LIC) offers an important voice for USSOF in Washington, DC, to help USSOCOM navigate and advocate for its mission requirements within the Pentagon and wider interagency.

Paratroopers walk together toward a rallypoint after jumping from a C-130J Super Hercules during an Airborne training exercise near Alzey, Germany. Credit: DVIDS – Photo by U.S. Army Staff Sgt. Nicholas Moyte

“Walk and chew gum at the same time” 

Operating in an era of strategic competition does not mean that threats prioritized during GWOT have disappeared—USSOF must be able to manage its more traditional tasks and its coordinating authority for countering VEO and WMD operations while executing its new ones.23

USSOF partially does this through its activities across seven geographic combatant commands; thus, globally synchronizing Joint Force planning is key to fully recognizing and enabling the value of special operations. USSOF can compete with both China and Russia in traditional and less-traditional theaters. For example, USSOF’s pre-conflict capabilities can and should be employed more extensively in China’s near abroad—the Indo-Pacific—through maritime and undersea operations, sensitive activities, and partnership building. At the same time, USSOF can play a central role by competing with China and Russia in their far-abroads, particularly in US Southern Command and US Africa Command, while other parts of the Joint Force are focused elsewhere. Both of these combatant commands are “deeply immersed in peer-competition with China” in ways that have direct implications for the United States’ overall security posture. For example, China’s base in Djibouti allows it to project power further abroad than it would otherwise be able, and China’s space ground station in Argentina enables it to monitor US space assets. In these two regions, USSOF could leverage its OPE, special reconnaissance, intelligence capabilities, and partnerships to gain competitive advantages over near-peer adversaries. Altogether, USSOF’s global footprint enables the Joint Force to target and track near-peer adversaries globally and coordinate approaches to them regionally.

USSOF is challenged to balance both future operations, such as campaigning in the information and cognitive domains, while also managing ongoing threats from VEOs, hostage rescue, and proxy wars, which simultaneously place operational demands on USSOF. While CT and COIN operations may not be as relevant for strategic competition today, SOF’s crisis response and CVEO will remain key competencies. To fit within this complex and taxing operating landscape, USSOF’s mission and priorities must be integrated across the DOD, and special operations must be viewed as an offering falling within each respective service, rather than as a separate entity. This need is complicated by the reality that USSOF components are distinctive across the military, filling disparate roles and viewed differently by their parent services.

Royal Australian Air Force (RAAF) airmen secure their C-27J Spartan from the RAAF 35 Squadron after U.S. and Australian special operations forces (SOF) conduct a high-altitude low-opening (HALO) parachute jump during Talisman Sabre. Credit: DVIDS – U.S. Marine Corps photos by Lance Cpl. Nicole Rogge 

Applying SOF’s strengths in new ways 

USSOF must play to its strengths, applying its operational approaches from the GWOT to new problem sets in the context of strategic competition. This includes operating in new domains, applying and accelerating emerging technologies, and building upon core activities that were de-prioritized over the past two decades. USSOF excels at operating in denied and niche environments. For instance, USSOF is uniquely trained to operate in underground tunnels and facilities, which otherwise pose a threat to situational awareness and target execution. The salience of this environment is illustrated by the current conflict in Gaza, where underground tunnels serve as a strategic vantage point for Hamas and complicate Israeli operations and US efforts to rescue US hostages held by terrorists. The ability to operate underground is just one example of how USSOF can fill an operational gap for the US military, as USSOF is the only component that has the highly specialized tactics, techniques, and procedures (TTPs) for operating in those environments.  

How can SOF’s strengths be applied in new ways? First, USSOF’s ability to quickly adapt to new environments could be further leveraged in strategic competition. For example, USSOF should enhance its capabilities in cyber, space, and undersea warfare—all with a foundation of flexible doctrine and tactical innovations—in order to compete with China’s approach to “informatized warfare” and its rapid technology development.24 Additionally, WARCOM (the naval component of USSOCOM) is undergoing a modernization effort in two key underwater systems—namely the shallow-water combat submersible and the dry-combat submersible, which are both critical to moving SEALS through oceans. These modernizations provide enhanced situational awareness to operators, improved range, increased payload, better speed and loitering time, and a modernized command-and-control architecture—all of which will enable USSOF to leverage undersea capabilities for strategic competition.

Another example exists in the Arctic, where MARSOC is uniquely positioned to operate in extreme weather conditions and address burgeoning security challenges that continue to arise as polar ice melts. However, to effectively operate there, MARSOC’s Civil Affairs expertise must be bolstered to fully enhance its role in support of Arctic security. USAF SOF trains in Alaska and with European Arctic countries to support extreme weather operations like search and rescue. As Chinese and Russian activity and presence above the Arctic Circle increase—including under the auspices of science, energy, and environmental missions—USSOF intelligence and access will be invaluable.

Second, USSOF’s Civil Affairs and PSYOPs components require further attention to be fully harnessed in strategic competition. Civil Affairs is a tightly stretched, low-density function, with just one brigade of USSOF Civil Affairs force structure in the entire military. That brigade houses capabilities such as economic analysis, special collections, observations and advanced intelligence gathering, penetrations of transnational criminal organizations (TCO), training and cultural immersion, and placement and access into adversarial commercial and government networks. If resourced effectively, Civil Affairs can take on more tasks, such as building civil-military reconnaissance in politically sensitive areas, helping legitimize local governing powers in contested regions, or helping respond to natural disasters and humanitarian crises (which will only become more prevalent with climate change). Additionally, MARSOC’s Civil Affairs strength is in its language and cultural skills. For instance, MARSOC has been very active in the Philippines for many years, and the expanded partnership between the United States and the Philippines is evidence of this investment paying off. Such Civil Affairs activities are worth increased investment, particularly with key partners in the Indo-Pacific.

Finally, the technological and cognitive performance solutions required for USSOF’s—and the Joint Force’s—success will continue to evolve in response to the growing arsenals of US adversaries like China. On today’s battlefield, USSOF will need to achieve cognitive overmatch—the “ability to dominate the situation by making informed decisions faster than the opponent”—which can be dramatically enhanced with the aid of advanced technologies like artificial intelligence. The hyper-enabled operator of the future must be “empowered by technologies that enhance the operator’s cognition at the edge by increasing situational awareness, reducing cognitive load, and accelerating decision making.” As such, special operators will need to operate with the support of an interconnected network of sensors, a robust communications architecture, and human-machine interfaces. Through its Preservation of the Force and Family (POTFF) program, USSOF has placed increased attention on cognitive performance and brain health, which it sees as necessary “to operate in an increasingly complex, information-rich environment.” These investments have led to demonstrated improvements in “self-regulation, cognitive processing speed, and sustained attention” for participants. At the same time, USSOF has partnered with DOD Health Affairs to improve its traumatic brain injury (TBI)-prevention efforts. Investing in the cognitive domain is critical to ensure special operators are well-prepared for, and avoid accepting undue risk in, a complex operating environment.25

Members of the U.S. Naval Special Warfare Operators and Australian Defence Force conduct training with their Armed Forces of the Philippines counterparts during Exercise Balikatan 2019 (BK19). Credit: DVIDS – U.S. Navy photo by Mass Communication Specialist 1st Class Eric Chan 

Knowing what success looks like 

One of USSOF’s biggest challenges in a transforming security environment is constructing its identity in 2024 and beyond. This requires USSOF and DOD leadership to ask and respond to ambitious questions regarding the requirements of future warfare and the role of USSOF.

Who is the special operator in 2024 and beyond? 

As USSOF’s role in strategic competition evolves, so does the face of the special operator. The special operator of 2024 may be a cyber operator gaining virtual placement and access, rather than the Hollywood depiction of the frontline operator deployed in the kinetic, physical battle. The SOF operator who is culturally immersed in a region or area that holds strategic value plays a key role in enabling US activities and intelligence. So do the SOF experts in space, AI, engineering, or physics support operations, who bring invaluable cognitive power and technological know-how. Although enablers are frequently perceived as secondary to operators, their work is often high-end and critical to mission success, making them a focal point for current investment needs. Additionally, as USSOF continues to adapt, gender may play a valuable role in military competition, education, negotiations, and training. For instance, an all-female special-operations team (Operational Detachment Alpha, or ODA), can engage with women in local populations, like Afghanistan, in different and valuable ways than an all-male team. Gender diversity allows SOF to operate in varied roles, opening up new opportunities where gender may lead to favorable outcomes. 

How can USSOF measure its own success?

Landing on clear metrics or conducting a net assessment to quantify the success of special operations is nearly impossible, as it is difficult to measure the effectiveness of preventing something from occurring over time. Despite this difficulty, USSOF must internally define a clear mission for strategic competition and establish a tracking mechanism to assess whether it is making progress toward its goals. In particular, the DOD should place emphasis on developing MISO/influence campaigns with measurable criteria that focus on output, not just input, to ensure that such activities are truly changing behavior and perceptions of the target audience. Moreover, USSOF must be able to effectively articulate its value and successes to the public, Congress, the DOD at large, and the wider interagency, while protecting some of its more unique contributions that should remain classified. For example, while the taglines of “creating dilemmas” and “imposing costs” are useful in their simplicity for describing USSOF, they do not give policymakers a clear framework to understand how USSOF achieves a desired impact. USSOF could instead articulate its success by citing deliberate campaigns to disrupt and frustrate an adversary’s strategy or operations, with the ultimate goal of undermining an adversary’s confidence that its military can win decisively. Such an articulation could mirror RAND’s 2023 “Strategic Disruption” framework for five pillars of disruption (resist, support, influence, understand, target), which helps communicate the role USSOF plays in achieving strategic effects as defined by measurable results.

How should USSOF prioritize its core activities for strategic competition?

Joint Force decision-makers should consider the myriad ways USSOF can increasingly support strategic competition and work with ASD SO/LIC and USSOCOM to re-prioritize some of USSOF’s core activities to match the needs of strategic competition. This prioritization could see an increased role for USSOF pre-conflict in China and Russia’s near-abroad—the Indo-Pacific and Europe—and a deeper role for USSOF during conflict in China and Russia’s far-abroad, such as AFRICOM, SOUTHCOM, and other areas of responsibility.

USSOF cannot establish its own priorities in a vacuum—it will prioritize what the Joint Force needs. But ASD SO/LIC and USSOCOM can align to effectively communicate their vision for SOF’s role in strategic competition within the Pentagon. This will likely include identifying where USSOF is insufficiently prepared for strategic competition and developing methodologies to test and measure the performance of various activities in the context of competing with China and Russia.

A crew chief with Helicopter Sea Combat Squadron 85 (HSC-85) scans the skies while on a mission to emplace U.S. and Australian Special Operations Forces (SOF) during Talisman Sabre. Credit: DVIDS – U.S. Marine Corps photos by Lance Cpl. Nicole Rogge 

As discussed, rebalancing to strategic competition must be done in balance—crisis response (CR) will remain a top priority for USSOF, in which countering VEOs remains key as they frequently cause crises that require response. CT and COIN missions have value, and USSOF’s ability to counter VEOs allows the broader force to stay focused on near-peer competitors. With that being said, USSOF should outwardly view its CT, COIN, counternarcotic (CN), and partner capacity-building activities in a new light, as contributing factors to competition by maintaining influence and trust with partners.

USSOF should also preemptively invest in Civil Affairs, MISO, and intelligence, which are actively engaged prior to conflict. A good example of USSOF’s leadership approach within the Pentagon is its centralization and special interest-item designation of MISO funding, which demonstrates congressional and civilian leadership exercising oversight, control, and authority over the military. The role of ASD(SO/LIC) in advocating for and prioritizing MISO efforts is important to ensure this function remains funded.

How can USSOF and the services find new opportunities for better integration? 

USSOF and the US military services need to better integrate, understanding how they can work together to achieve missions. Part of this requires the Pentagon at large and military services to better understand what USSOF looks like today and the different missions and roles it can play. It is the authors’ hope that this report helps elucidate this for decision-makers. In addition, USSOF and the military services can improve their communication to further understand the presence and activities that USSOF conducts in regions pre-conflict. USSOF’s placement and access can be a significant advantage from an intelligence perspective, but too often US military operations globally are not synchronized as part of global campaign plans. Missions conducted by USSOF in one Combatant Command’s area of responsibility could have utility and reinforce the goals of another. Improving awareness to support more synchronized global campaign planning would help USSOF to be better harnessed for strategic competition. For example, a SOF team present in USAFRICOM may be able to conduct one or two additional tasks as part of an existing mission, which could help support or supply information to another Combatant Command or interagency partner to support its intelligence and missions. In other words, USSOF teams can support linkages between geographic combatant commands, wherein strategic competition spans geographic seams.

How can USSOF and defense-industrial base relations be enhanced?  

Given the strength of USSOF as a leader in innovation and experimentation, there are opportunities to improve collaboration between USSOF and the leading edge of the US defense-industrial ecosystem. USSOF can often identify new innovations from nontraditional partners for the DOD with more agility than the department at large. However, given the specialized nature of USSOF, the traditional defense-industrial base and newer defense entrants must continue to consider partnering with the special-operations community at a much smaller scale than they might for other parts of the military services. SOFWERX has a good model for engaging with the defense-industrial base, but as the DOD strives to work with newer entrants into the defense market, including technology companies that do not have large contracting teams, SOFWERX must continue to find new ways to reach out to the private sector and inform it of its operational needs. The Atlantic Council’s Commission on Innovation Adoption provides a range of recommendations for improving the DOD’s process of absorbing innovative technology from the leading edge of the private sector. Continuing to cultivate a culture of operational experimentation and incentivizing and rewarding private-sector engagement will help USSOF remain an effective testing ground for new capabilities in support of USSOF’s mission success.

How can USSOF continue to effectively cooperate with its allied counterparts?  

Similarly critical is the need to communicate to US allies and partners where USSOF is today and where it plans to go in terms of future areas of focus, investments, and adaptations. In some cases, US allies and partners are steps ahead in realizing the critical role that their special-operations forces play in strategic competition—US decision-makers should take lessons from this. In Latvia, Lithuania, and Estonia, for example, the special forces are considered and understood to be a priority capability, as SOF allow the geographically small Baltic countries to do more in relation to their deterrence and defense against Russia with fewer troops. Norway, for its part, is a leader in developing close coordination between the Norwegian SOF, NATO SOF Headquarters, and the international SOF liaison division at USSOCOM.83 The UK, which has some of the oldest and most entrenched special forces in the world, has recognized that the nature of strategic competition necessitates investing in small, specialized teams that can operate globally, maintaining concurrent points of presence and access while also countering state disinformation campaigns, disrupting terrorist groups, protecting military deployments overseas, and countering adversaries’ cyber capabilities in the virtual domain. To learn from allied special-operations forces and integrate with them, the United States must continue to align with them on shared priorities and seek opportunities for multilateral operations.

Picture this

As we consider USSOF’s role over the last twenty years, it is helpful to see the interconnected parts that collectively comprise its unparalleled capability, which takes highly specialized selection, training, and resourcing to remain agile, innovative, and exceptional.  

Figure 1: USSOF’s four major tasks.

  • Bubble 1:  Counter-terrorism (CT)/countering violent extremist organizations (CVEO)   
  • Bubble 2:  Conflict  
  • Bubble 3:  Crisis response  
  • Bubble 4:  Competition with near-peers  

These mission areas are inextricably linked, requiring USSOF to constantly evolve and improve in an agile and efficient way by shifting resources as the threat environment changes. In the past twenty years, Bubble 1 has been the largest USSOF role, as that is what the United States has needed. But it has come at a cost to the rest of the bubbles (particularly Bubbles 2 and 4). As the Office of Cost Assessment and Program Evaluation (CAPE) and congressional discussions around budgets ensue, discussions should not focus on saving money by shaving forces historically associated with Bubble 1. Rather, budget discussions should be oriented around how to repurpose and refocus SOF as a dynamic, nimble, and culturally focused force against new priorities the United States faces. Just as SOF was refocused on CT and CVEO after 9/11, it is time to refocus USSOF on its other bubbles without overemphasizing one bubble at the cost of the others.  

In addition to a continued need for predicting, assessing, and providing the indications and warning and response capability for VEOs around the world, there are other things USSOF must continue to do.   

  • USSOF should continue to build influence and capability with allies and partners, because this cannot be surged. 
  • USSOF should be placed physically or virtually forward to understand adversary activities and create options to affect them below the level of armed conflict. 
  • USSOF should prepare the environment for major combat operations; this cannot be surged. 

Much of state-actor and near-peer activity will be expressed through surrogates and proxies. Surrogate and proxy activity is not deterred only by conventional activity of aircraft carriers or fighter squadrons. Rather, deterrence can be supported by USSOF that can create asymmetric effects and provide policymakers options up and down the escalatory ladder.   

Finally, the policy community must understand how these bubbles converge, and find ways that the United States can gain advantages and mitigate risks in certain areas by taking advantage of the work in other areas. For example, USSOF must continue its CT/VEO work, as VEOs are likely to cause regional crises. Maintaining a robust crisis-response capability helps mitigate the risk of strategic distraction as it pertains to strategic competition, allowing other areas of the DOD and the interagency to focus on mitigating risks from Russia and China.

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East-coast based U.S. Naval Special Warfare Operators (SEALs) conduct visit, board, search and seizure training with Allied Special Operations Forces near Athens, Greece. Credit: DVIDS – U.S. Navy photo by Mass Communication Specialist 1st Class Bill Carlisle

Conclusion

Conventional force is a blunt instrument—USSOF can be dialed up or down and tailored in response to competition and aggression. Looking to USSOF as the last resort or finish force diminishes the critical and unique role that USSOF plays prior to conflict, shaping competition and supporting deterrence. USSOF should continue to adapt its approach to meet the demands of strategic competition, all while maintaining its ability to meticulously train a cadre of specialized professionals who can undermine the malign influence and operations of China, Russia, and other adversaries globally. USSOF offers an unparalleled return on investment—if the national security community fails to empower and resource special-operations forces in strategic competition, it misses a significant opportunity and leaves operational gaps that play right into the goals of strategic competitors China and Russia.

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About the authors

Clementine G. Starling is the director of the Atlantic Council’s Forward Defense program and a resident fellow within the Scowcroft Center for Strategy and Security. In her role, she shapes the Center’s US defense research agenda, leads Forward Defense’s team of nine staff and forty fellows, and produces thought leadership on US security strategies and the evolving character of warfare. Her research focuses on long-term US thinking on issues like China’s and Russia’s defense strategies, space security, defense industry, and emerging technology.

Prior to launching the Forward Defense program at the Atlantic Council, Starling served as the deputy director of the Atlantic Council’s Transatlantic Security team, specializing in European security policy and NATO. From 2016, she supported NATO’s Public Diplomacy Division at two NATO summits (Brussels and London) and organized and managed three senior Atlantic Council Task Forces on US force posture in Europe, military mobility, and US defense innovation adoption.

During her time at the Atlantic Council, Starling has written numerous reports and commentary on US space strategy, deterrence, operational concepts, coalition warfare, and US-Europe relations. Starling regularly serves as a panelist and moderator at public conferences, and her analysis and commentary have been featured in Defense One, Defense News, Real Clear Defense, the National Interest, Space News, NATO’s Joint Air & Space Power Conference, the BBC, National Public Radio, ABC News, and Government Matters, among others.

Starling was named the 2022 Herbert Roback scholar by the US National Academy of Public Administration. She also served as the 2020 Security and Defense fellow at Young Professionals in Foreign Policy.

Originally from the United Kingdom, Starling previously worked in the UK Parliament focusing on technology, defense, Middle East security, and Ukraine. She also supported the Britain Stronger in Europe campaign, championing for the United Kingdom to remain within the European Union.

She graduated with honors from the London School of Economics with a Bachelor of Science in international relations and history and is a Master of Security Studies candidate at Georgetown University’s School of Foreign Service.

Alyxandra Marine is an assistant director in the Forward Defense practice at the Atlantic Council’s Scowcroft Center for Strategy and Security. Marine contributes to Forward Defense programs and research on nuclear security, strategic studies, and defense strategy and policy. Prior to her work at the Atlantic Council, Marine worked as a researcher for a New York-based nonprofit aimed at bringing truth to political advertising, where she conducted research on foreign election interference. She also previously worked for the US Senate, where she provided research support on foreign relations and US fisheries policy.

Marine graduated with distinction from a dual degree program in international history, receiving an MA from Columbia University and an MSc from the London School of Economics and Political Science. Her thesis focused on the forward deployment of intermediate-range Jupiter ballistic missiles in Turkey, exploring the non-military and unconventional value of nuclear deployments within NATO and in a bilateral diplomatic context. While completing her graduate degrees, she conducted extensive research on the comparative nuclear policies during the global Cold War, US global economic and trade policy, and Cold War crises and inflection points, with a particular focus on de-escalation at moments with the potential for kinetic or nuclear warfare. She earned her BA with honors from New York University, where she dual-majored in history and political science, focusing on international environmental politics and the effects of the Cold War in the Middle East and East Asia.

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Acknowledgments

The Atlantic Council is grateful to the Office of the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict for its support of this research project.

The authors would like to acknowledge the critical research contributions made by Julia Siegel, who contributed her thought leadership to this paper during her time at the Atlantic Council—thank you. The authors are very grateful to the many experts and practitioners who made themselves available for consultations to inform this report and to those who provided invaluable peer review.

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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1    Will Irwin and Isaiah Wilson, The Fourth Age of SOF: The Use and Utility of Special Operations Forces in a New Age (Macdill Air Force Base, FL: Joint Special Operations University Press, 2022).
2    In some cases, the distinct differences between the mission sets of each service are classified, but certain obvious differences are plain. Each service conducts foreign internal-defense operations. For example, AFSOC may work with foreign airmen to assess and improve foreign aviation capabilities, while WARSOC may support foreign forces on harbor clearance, search and recovery, and critical maritime infrastructure. For more information, see: “Joint Publication 3-22: Foreign Internal Defense.”
3    Irwin and Wilson, The Fourth Age of SOF.
4    Because of its reputation for direct action, some policymakers interviewed for this project described USSOF as being seen as the “finish force.” This concept refers to the idea that, during a conflict, USSOF can step in and conduct operations that its conventional service counterparts cannot—but this flexibility should not just be seen as adaptability on the battlefield.
5    The competition continuum describes a world neither at peace nor at war, but instead a world of “enduring competition conducted through a mixture of cooperation, competition below armed conflict, and armed conflict.” For more information, see: Department of Defense, “Joint Doctrine Note 1-19, Competition Continuum.”
6    See section above about USSOF’s history and role during the Cold War.
7    “2022 National Defense Strategy.”
8    “Joint Concept for Competing.”
9    Ibid.; “Joint Doctrine Note 1-19, Competition Continuum.”
10    Under the DOD “Directive 2000.13, Civil Affairs,” USSOCOM developed “Directive 525-38, Civil Military Engagement.”
11    Atlamazoglou, “US Special Operators Borrowed a Unique Part of Army Green Beret Training to Prepare Ukrainians to Fight Russia.” 
12    “2022 National Defense Strategy,” 8–11.
13    Individuals interviewed for this study highlighted USSOF’s ability to “buy decision space” for the United States. This is possible because USSOF is able to discreetly build placement and access in regions otherwise denied or difficult for the United States to access. By doing this, USSOF gains a holistic intelligence picture, intricate relationships, and a local understanding of actors and areas that the US government may not otherwise have, thereby expanding the range of policy options available to US and allied decision-makers.
14    A planned resistance mechanism is the well-organized resistance capability prior to a potential invasion and subsequent occupation for US allies and partners. Establishing such mechanisms prior to an invasion that could lead to a loss of territorial integrity or sovereignty provides the United States and its allies and partners a blueprint for national resilience in a pre-crisis setting, while formulating resistance requirements and facilitating planning and operations in the event of an adversary compromising or violating the sovereignty and independence of allied or partner nations.
15    “2022 National Defense Strategy,” 1.
16    Maier and Fenton, “Statement for the Record.”
17    Maier and Fenton, “Statement for the Record.”
18    “SOF Truths.”
19    “A Vision for 2021 and Beyond.” 
20    Maier and Fenton, “Statement for the Record.”
21    “Industry,” SOFWERX, last visited February 17, 2024, https://sofwerx.org/industry.
22    In this sense, the DOD will support and enable other interagency partners, like the Department of State, in achieving their goals across the spectrum of competition, rather than remaining in pole position as the lead entity of an operation. See: Cartwright, et al., Operationalizing Integrated Deterrence.
23    It should be noted that China, Russia, Iran, and North Korea all use proxy elements to achieve their objectives, some of which may include terrorist organizations or other nefarious elements that USSOF is equipped to address.
24    Dean Cheng, Cyber Dragon: Inside China’s Information Warfare and Cyber Operations (New York: Bloomsbury, 2016).
25    Maier and Fenton, “Statement for the Record.”

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]]> Not without her: A roadmap for gender equality and Caribbean prosperity https://www.atlanticcouncil.org/in-depth-research-reports/report/not-without-her-a-roadmap-for-gender-equality-and-caribbean-prosperity/ Thu, 07 Mar 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=743662 Caribbean development is intrinsically linked with women's equality. After a multi-month consultation process with Caribbean stakeholders, we offer a roadmap on how to achieve inclusive development in the region.

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Summary

The Caribbean is one of the most vulnerable regions globally. It harbors economies that are open-faced and import-dependent, making it susceptible to the ravages of climate change, fluctuating commodity prices, and inflationary pressures. While governments and financial institutions grapple with these perpetual stresses, it is the Caribbean citizens, particularly women and girls, who bear the heaviest burden.

Nestled in this uniquely vulnerable region, women and girls face a multitude of challenges, demanding comprehensive support from both governments and financial institutions to enhance their resilience and opportunities throughout society. Their integration across various sectors, including government, business, and local organizations, emphasizes that addressing gender challenges cannot occur in isolation.

The global issues looming over the Caribbean magnify the specific hurdles confronting women and girls. From gender-based violence (GBV) and economic barriers to limited political influence and the disproportionate impacts of climate change, the challenges intertwine, creating a crisis of gender inequality and inequity across the Caribbean.

This publication compiles findings from a yearlong consultative effort, revealing that the challenges faced by women and girls are rooted in societal perceptions of their roles and restricted access to tools and resources. To overcome these barriers, a fundamental reshaping of social norms, alongside political and financial institutions, is imperative. Moreover, integrating women and girls into the development model aligns with the region’s broader ambitions of achieving UN Sustainable Development Goals (SDGs), unlocking untapped human capital and fostering long-term prosperity.

In collaboration with the UN Women Caribbean Multi-Country Office, the Atlantic Council’s Adrienne Arsht Latin America Center and its Caribbean Initiative embarked on a year-long partnership. This initiative aimed to address GBV, economic empowerment challenges, limited political influence, and the disproportionate effects of climate change facing women and girls in the Caribbean. The extensive consultative process involved roundtable discussions, capacity-building sessions, and one-on-one consultations, shedding light on the preconceptions held by both men and women toward women and girls in Jamaica and Guyana during 2023. The partnership has honed in on social norms as a focal point, recognizing their impact on perceptions and discussions about the challenges faced by women and girls.

About the authors

Wazim Mowla is the associate director and fellow of the Caribbean Initiative at the Adrienne Arsht Latin America Center. He leads the development and execution of the initiative’s programming, including the Financial Inclusion Task Force, the US-Caribbean Consultative Group, the PACC 2030 Working Group, and the Caribbean Energy Working Group. Since joining the Council, Mowla has co-authored major publications on the strategic importance of sending US COVID-19 vaccines to the Caribbean, strategies to address financial de-risking, and how the United States can advance new policies to support climate and energy resilience. As part of his work on the Caribbean, Mowla was called to provide Congressional testimony to the US House Financial Services Committee on financial de-risking.

Valentina Sader is a deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Brazil, gender equality and diversity, and manages the Center’s Advisory Council. During her time at the Council, Valentina has managed the launch of the Center’s Advisory Council, a high-level group of former policy makers, business leaders, and influencers from the United States and the region. She has co-authored publications on the US-Brazil strategic partnership and coordinated events with high-level policymakers, business leaders, and civil society members in both Brazil and the US. She also provides English- and Portuguese-language commentary on political and economic issues in Brazil to major media outlets, such as Al Jazeera and BBC Brasil.

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

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]]> Policy on a spectrum: Guiding technology regulation through value tradeoffs https://www.atlanticcouncil.org/in-depth-research-reports/report/guiding-technology-regulation-through-value-tradeoffs/ Thu, 07 Mar 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=727043 In a digital era where the constant flux of technology challenges our norms, "Policy on a Spectrum: Guiding Technology Regulation Through Value Tradeoffs" is a clarion call for discernment and action.

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In a digital era where the constant flux of technology challenges our norms, “Policy on a Spectrum: Guiding Technology Regulation Through Value Tradeoffs” is a clarion call for discernment and action. Innovation and Data Ethics in the age of Generative AI is a delicate balance. Using values as a common foundation, the authors distill complex interactions between technology and society into a comprehensive framework. Concrete examples, such as tradeoffs between data protection and public security, illustrate the spectrum of policy decisions that routinely bombard our digital world.

The narrative draws on expert practitioner insights to dissect these trade-offs, providing leaders with a compass to navigate this terrain. For instance, different approaches to notice & consent in data collection are discussed, along with a spectrum of related concepts. The analysis extends to how emerging technologies, such as Generative AI are governed, debating the tradeoff between automation and human agency. The need for policies that foster ethical practices in research, innovation, and deployment is highlighted throughout.

“Policy on a Spectrum” is an invitation to proactive engagement, urging stakeholders and policymakers to shape a technology regulatory landscape that’s both equitable and accountable, measured and risk averse, and bipartisan and values based. It pushes beyond mere regulation, advocating for a future where technology amplifies our collective welfare, not undermines it. The authors aim to influence the current policy discourse while laying the groundwork for a future where tech governance is as dynamic as the technologies it seeks to manage. It’s a handbook for those ready to embrace the nuanced challenges of our times and an insightful resource for those who will architect the digital world of tomorrow and are unwilling to have an innovation tradeoff.

About the authors

Fellow

Steven Tiell

Nonresident Senior Fellow

GeoTech Center

Cybersecurity Digital Policy

Lara Pesce Ares is a Responsible Innovation consultant at Accenture focusing on the design, development and implementation of emerging technologies in a responsible way.

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]]> Cleveland, Ohio: Promoting a local and just energy transition https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/cleveland-ohio-promoting-a-local-and-just-energy-transition/ Tue, 05 Mar 2024 23:20:40 +0000 https://www.atlanticcouncil.org/?p=741789 The issue brief focuses on the decarbonization pathway of Cleveland, Ohio. Cleveland's history shows that a concerted, collaborative
effort can accomplish major conservation and decarbonization
goals.

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Introduction

Cities and states are at the forefront of US efforts to achieve decarbonization goals, manufacture low-carbon technologies, and identify opportunities to align the energy transition with economic opportunities for businesses and workers. These subnational strategies align with ambitious nationwide objectives, including reducing US greenhouse gas emissions 50–52 percent below 2005 levels by 2030, achieving 100-percent carbon pollution-free electricity by 2035, and attaining a net-zero emissions economy by 2050. Achieving these targets will require cities and states across the United States to adopt decarbonization technologies, policies, and strategies. The leadership of state, local, and tribal leaders in climate action is pivotal for ensuring the long-term and sustainable decarbonization of the US economy.

Cleveland, Ohio, a mid-sized lakefront city with a rich manufacturing history, was once the fifth-largest city in the United States. However, as was the case with many Midwestern cities, Cleveland’s deindustrialization led to its economic decline. Yet Cleveland has an opportunity to establish itself as a leader in low-carbon and equitable growth. The city is pioneering valuable lessons learned and best practices to share with other cities facing similarly challenging conditions. It provides an example of how cities can leverage the benefits of the low-carbon transition to address climate change while providing public health, social, and economic opportunities for everyday Clevelanders—and to use this transition as an opportunity to reestablish itself as an industrial powerhouse in a low-carbon economy.

Cleveland is building toward a decarbonization agenda that envisions a city and region that are more equitable, sustainable, and livable. Yet while there are important voices advocating for an environmentally and socially sustainable future, it has proven challenging to build the critical mass of support required for structural, long-term change in Cleveland. Progress toward a comprehensive decarbonization vision, therefore, has been uneven in both the city and the surrounding region, including Cuyahoga County.

Nonetheless, key stakeholders continue to press forward to ensure that the Cleveland region will have a decarbonized future for all its citizens. For that to occur, the city’s public, private, philanthropic, and civil-society leaders will have to build upon their existing efforts, expanding and deepening the coalition of groups and interests that want to transform Cleveland’s economy in a decarbonized direction.

Following his election in 2021, Cleveland’s mayor, Justin Bibb, reaffirmed his predecessor’s commitment to sustainability and climate action. He announced a goal to transition Cleveland to 100-percent renewable energy by 2030, funded an initiative focusing on the circular economy, and stressed environmental justice as a core priority of his administration, among other actions. The city launched its Climate Action Plan in 2013, and updated the plan in 2018 to provide a framework for the city’s approach to tackle climate change across five focus areas: energy efficiency, clean energy, sustainable transportation, food systems, and clean water and vibrant green space. The plan also addressed cross-cutting priorities across the focus areas of social and racial equity, good jobs, climate resilience, and business leadership. The city is currently working on updating the 2018 iteration and expects to release an updated version in 2024. Members of the Greater Cleveland Partnership, the city’s Chamber of Commerce, for example, have begun to monitor their scope-one and scope-two emissions due to increasing customer demand for sustainability. And a steering committee, consisting of representatives from leading organizations in the region, has been formed to support an update to the city’s essential targets and goals—and, ultimately, to advance a unified vision for the city.

Cleveland: Basics

The Cleveland-Elyria Metropolitan Statistical Area (MSA), defined as the core city of Cleveland plus the surrounding Cuyahoga, Geauga, Lake, Lorain, and Medina Counties, had a population of 2.1 million people in 2020. The once-thriving city of Cleveland has experienced substantial population decline, from nearly one million residents in 1950 to 364,000 in 2022. The city’s population loss was the surrounding Cuyahoga County’s gain (Cuyahoga is by far the largest county among the five in the MSA), although it too has declined in population, from around 1.7 million in 1970 to 1.24 million people in 2022. The core city’s population decline stemmed from several forces that were common to US cities in the postwar era, including net out-migration, underinvestment in public infrastructure, and a shifting economic base, especially industrial-plant closures. Many of these demographic shifts resulted from the long-term decline, starting in the 1960s, of Cleveland’s industrial and manufacturing bases, which continue to be the backbone of Cleveland’s economy.

Such changes also landed unequally on Cleveland’s population. As just one of many possible examples, the construction of highways through Cleveland starting in the 1950s split the city unevenly, and to the detriment of poorer minority communities. Today, the legacy of Cleveland’s unequal economic geography remains, in particular for the city’s Black population, which remains concentrated in neighborhoods characterized by lower incomes, employment, and educational attainment. Within the city of Cleveland, 31.4 percent of residents live below the poverty line.

Decarbonization: State and local

With respect to greenhouse gas (GHG) emissions, the city of Cleveland has made some progress in mitigating its climate impact. Cleveland’s GHG emissions stood at 11.65 million tons in 2018, down 7 percent from 2010 levels, with an 11-percent improvement in emissions per dollar of gross domestic product (GDP). Cleveland’s GHG reductions occurred as regional eGrid emissions fell on coal-to-gas switching, as well as the increased adoption of clean energy. At the state level, Ohio’s use of coal in the electricity sector halved to 59 terawatt hours (TWh) over the same time period, while its natural gas usage rose 545 percent to 46 TWh to 2018; generation from clean energy sources, such as nuclear energy and wind, also rose sharply from 2010 to 2018. As is true of other US cities, greenhouse gas emissions in the greater Cleveland region are lowest toward the city center and highest toward the region’s periphery, owing to the roles played by population density, mixture of uses, commute lengths, and housing sizes.

While at the city level, Cleveland has notched key gains toward decarbonization, it faces state-level headwinds. Policymakers in Ohio’s state government appear willing to tilt energy markets toward fossil fuels. State officials have implemented restrictive legislation concerning the transition to renewable power sources, instituting onerous property-setback requirements for wind turbines and making approval processes for wind and solar projects much more difficult. As a result, Ohio’s electricity grid fuel mix will constrain Cleveland’s decarbonization ambitions. Ohio’s electricity generation is dominated by coal and natural gas, with clean energy sources such as nuclear, wind, and solar accounting for a very low proportion of overall output. In 2022, Ohio garnered only 15.4 percent of all electricity generation from nuclear, wind, or solar sources, versus nearly 51 percent for natural gas and nearly 32 percent for coal. Because clean electricity accounts for only a small fraction of Ohio’s total generation, there will be fewer decarbonization benefits to Cleveland from the electrification of vehicles or heating of buildings.

At the same time, there are countervailing forces at work within the state. The Inflation Reduction Act (IRA) of August 2022 has already generated new investments totaling $8.03 billion and more than five thousand good-paying clean energy jobs in Ohio, per research from the nongovernmental organization Climate Power, suggesting the clean energy transition’s economic potential there. Reflective of Ohio’s industrial history, Honda, LG Energy, and EdgeEnergy have invested in the electric vehicle economy and First Solar and Invenergy have invested in solar manufacturing. Federal support also aims to reduce energy bills through the Home Energy Rebate program and energy-efficiency grants.

While investment outcomes are typically tracked at the state level, local organizations in Cleveland are attempting to catalyze clean energy investments into the city. The GO Green Energy Fund, headquartered in Cleveland, is not only the nation’s first Black-led green bank program, it is also leading an initiative to secure $250 million in funding from IRA to support residential solar uptake for low-income residents across twenty counties, including Cuyahoga. In addition to solar, the fund is also examining other clean energy technologies, such as appliances and weatherization. With state policymakers evincing little interest in advancing decarbonization, local groups are aggressively pursuing federal funding from the Environmental Protection Agency (EPA).

Cleveland: Decarbonization pillars

Despite the constraints at the state level on decarbonization parameters, Cleveland and other local jurisdictions are setting forth strategies to reduce carbon emissions where possible. Cleveland’s efforts can be summarized with four key pillars: environmental justice; industry and manufacturing; transportation; and conservation. The pillars are generally aligned with the cross-cutting focus areas outlined in the city’s 2018 version of the Climate Action Plan (these include environmental justice, the green economy including business leadership, climate resilience, clean energy and efficient buildings, transportation, land and water conservation, and food security).


The map depicts cumulative environmental justice burden index scores for each block group in Cuyahoga County, using data from the US EPA’s EJSCREEN Environmental Justice Mapping and Screening Tool, combining environmental and demographic socioeconomic indicators. The areas in red experience the highest environmental justice burden and green experiencing the lowest burden. The highest environmental justice burdens are experienced in neighborhoods located in or near former industrial facilities or interstates. Source: ArcGIS

Environmental justice

As occurred in other US cities, Cleveland’s economic development historically disadvantaged poor and minority communities. East Cleveland, a suburb, was redlined on racial grounds and now has the lowest median income in Ohio, a 50.3-percent child-poverty rate, and 40 percent of its Black population living in poverty. The city’s decarbonization strategy includes a commitment to ensure that decarbonization efforts are equitable. For example, Mayor Bibb announced a $15-million investment for three disadvantaged neighborhoods to actualize the concept of a walkable or bikeable “fifteen-minute city,” and intends to allocate $50 million from the American Rescue Plan Act (ARPA) funding to prepare a thousand acres of vacant land to attract development and revive well-paying jobs in the city.

The historical legacy of discriminatory practices has cast a long shadow over Cleveland, amplifying the adverse impacts of economic and environmental outcomes such as high energy costs. Electricity and gas bills in Cleveland consume 6.6 percent of the average household income, nearly double the national average of 3.6 percent. Within the region, there are efforts to provide relief while pursuing decarbonization. The city of Cleveland, for example, is implementing a pilot program to install solar panels on the homes of low- and moderate-income families. Such efforts overlap with those by co-ops such as the Solar United Neighbors, Cuyahoga County Solar Cooperative, and Cleveland Solar Cooperative, which also develop solar assets in low- to medium-income neighborhoods.

Industry and manufacturing

Industry and manufacturing played a pivotal role in both Cleveland’s growth and its decline, but also should play an important role in the city’s rejuvenation efforts. Industry and manufacturing are Cleveland’s largest electricity consumers, using about 60 percent of the city’s total electricity. Energy efficiency is a central pillar of Cleveland Cliffs’ environmental strategy (the company, which is headquartered in Cleveland, is the largest flat-rolled steelmaker in the United States). Its Cleveland Works plant produces hot-rolled, cold-rolled, and hot-dip galvanized sheet and semi-finished slabs, and has the capacity to manufacture more than three million tons of raw steel annually using its two blast furnaces. Working closely with the Department of Energy’s Better Plants program, Cleveland Cliffs is committed to achieving a 10-percent reduction in energy intensity over ten years and announced a target to purchase two million MWh annually of renewable power.

Transportation

The transition to electric vehicles (EVs) is a vital step in reducing the city’s emissions, but its effectiveness in achieving decarbonization goals relies on the electricity grid. The absence of signals from the state pertaining to grid decarbonization fosters hesitation regarding investments in, and adoption of, decarbonization technologies like EVs. Cleveland’s EV adoption remains limited, accounting for merely 2.2 percent of new vehicle registrations in the Cleveland-Akron metro area, in contrast to comparable cities such as Columbus (3.7 percent), Detroit (4 percent), and Indianapolis (3.1 percent). The slow growth of EVs can be attributed partly to the lack of state-level EV tax incentives in Ohio, a contrast with other states such as Washington, Oregon, and California that are offering substantial incentives, leading to higher levels of EV registration rates in cities such as Seattle (17.2 percent), Portland (13.1 percent), and San Francisco (32.9 percent).

EV-charging infrastructure in Cleveland remains underdeveloped, although the mayor’s office has initiated the installation of its first free EV-charging station in the Lee-Harvard neighborhood, with plans for multiple additional installations throughout the city. The Greater Cleveland Regional Transit Authority’s 2020–2030 strategic plans include measures to introduce electric-powered buses, integrate alternative power at stations, provide EV charging at its facilities, and support multimodal connections to its transit systems. At the state level, there are plans to install EV-charging infrastructure across a corridor of 1,870 miles, facilitating a more comprehensive charging network across the region. Additionally, the Northeast Ohio Areawide Coordinating Agency (NOACA) has identified forty-seven locations for charging stations, spanning five counties in the region.

The city of Cleveland’s Mobility Plan demonstrates a proactive approach toward improving the city’s bike and pedestrian infrastructure, a step toward realizing Mayor Bibb’s fifteen-minute city framework, which has the potential to reduce vehicular traffic and associated emissions. This plan is multifaceted, aiming to bolster transit-oriented development, inject investment into Cleveland’s neighborhoods, and encourage multimodal transportation options. Currently, the city’s bicycle lanes are disjointed, catering to pockets of the city. Bike Cleveland, a local nongovernmental organization (NGO), has identified twenty-seven miles of potential new or improved bike facilities to enhance biking connectivity and safety.

Conservation

The conservation of land resources is integral to any vision that seeks to improve Cleveland’s livability, local economy, and environmental sustainability, while contributing to climate adaptation and energy efficiency. Among other benefits, conserving land helps mitigate climate-change impacts, contributing to local air and water quality and reducing urban heat-island effects. As with so many other aspects of the Cleveland case study, its conservation story is a combination of a troubling history and promising future.

For many decades, Cleveland was known as the Forest City for the extent and diversity of its tree canopy. Trees provide shade, reducing the heat-island effect, and can thus lower energy demand and associated emissions for keeping buildings cool. Since the 1950s, the city of Cleveland has lost half its tree cover, now estimated at around 18 percent of what the Cleveland Tree Coalition estimates as a possible upper limit. The city continues to lose trees at the rate of seventy-five acres per year. Unsurprisingly, the lowest coverage levels are in the city’s poorest neighborhoods contributing to poor air quality and access to shade, a result of systematic underinvestment in the city’s tree canopy there. An Urban Forestry Commission has been reconstituted under the aegis of the city government. It has the express goal of reversing the loss of tree cover through identifying appropriate policy remedies and generating public and civil-society buy-in to reforestation of the city.

The city’s history shows that a concerted, collaborative effort can accomplish this major conservation and decarbonization goal. The Cuyahoga River, which flows through Cleveland, is an iconic example of the city’s ability to achieve such an ambitious aim. The river is known for the 1969 fire that helped spark the mass environmental movement across the United States. Over decades, the determined efforts of federal, state, and local officials—as well as industry, civil society, and the Cleveland-Cuyahoga County Port—have brought the Cuyahoga back from its near-dead status of half a century ago.

Conclusion and recommendations

For the city of Cleveland and the surrounding region to successfully decarbonize, leaders from the public, private, and philanthropic sectors, plus those from civil society, will need to sustain and strengthen the coalitions that are moving the region in this direction. There are many promising signs on this front, as shown by the growing efforts of the Climate Action Plan steering committee and efforts to update the 2018 version of the plan. The city has made progress toward ensuring a just transition to a clean energy community, promoting low-carbon industrial production, advocating for an increase in EV adoption and charging infrastructure, and conserving tree cover, but much more work is needed to realize its climate and decarbonization agenda. The city will need to overcome remaining challenges by continuing engagement with all stakeholders: at the household and business levels to promote wider adoption of low-carbon technologies such as heat pumps, EVs, and charging systems; with the city’s utility, Cleveland Public Power, to develop a clean-energy grid; and through recognition by industry and large firms that decarbonization strategies are a better way of doing business.

Despite the state of Ohio’s recalcitrant policies toward renewable energy, there is much opportunity for Cleveland in this domain. For example, the city and region have numerous synergies between onshore and offshore wind on the one hand and steelmaking on the other. Great Lakes offshore wind must overcome several hurdles, including permitting challenges, height restrictions on wind turbines, cost inflation, and more, yet the Cleveland region nonetheless has a unique opportunity to accelerate decarbonization and economic development by leveraging its existing industrial base for wind development.

Finally, an oft-repeated message in consultations with key stakeholders is that the city and region need to realize the opportunities and benefits of recent federal legislation like the Inflation Reduction Act, CHIPS Act, and Infrastructure Investment and Jobs Act, as seen by recent investments in other regions of Ohio. There is enormous public funding available for investment from these acts. Leaders will need to bring the right groups of stakeholders together to aggressively pursue federal incentives and funding.

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AUTHORS

Staff

Peter Engelke

Senior Fellow, Scowcroft Strategy Initiative

Global Energy Center Scowcroft Center for Strategy and Security

Technology & Innovation Europe & Eurasia

Staff

Joseph Webster

Senior Fellow, Global Energy Center

Global Energy Center Indo-Pacific Security Initiative

Central Asia China

Former staff

Maia Sparkman

Former Associate Director, Climate Diplomacy

Global Energy Center

Africa Climate Change & Climate Action

ACKNOWLEDGMENTS

The Atlantic Council would like to thank the Natural Resources Defense Council for its support of this work.

The authors would like to thank the following local and state stakeholders who provided valuable insights that informed this report:

  • Deepa Vedavyas, director of resiliency and sustainability, NOPEC
  • Jennifer Lumpkin, manager of local partnerships, Cleveland, Alliances for Great Lakes
  • Joel Brammeier, president and CEO, Alliance for the Great Lakes
  • Emily Keller, manager of sustainability initiatives, Greater Cleveland Partnerships
  • Jacob Schwemlein, director for Drive Electric Ohio, Clean Fuels Ohio
  • Tim Cho, senior manager of federal grants and special projects, Clean Fuels Ohio
  • Hannah Ruscin, program manager, Clean Fuels Ohio
  • Eleanor Jersild, senior manager of compliance and operations, Clean Fuels Ohio
  • Paige Lampman, Professional Services Manager of Projects, Clean Fuels Ohio
  • Joe Flarida, Executive Director, Power a Clean Future Ohio
  • Jacob VanSickle, Executive Director, Bike Cleveland
  • SeMia Bray, Co-Director Black Environmental Leaders Association
  • Elena Stachew, Northeast Ohio Strategy Consultant, Power a Clean Future Ohio
  • Kirt Conrad, Chief Executive Director, Stark Area Regional Transit Authority
  • Sarah E. O’Keeffe, Director, Sustainability and Climate Justice, Mayor’s Office of Sustainability, City of Cleveland
  • Max Zandi, former young global professional, Atlantic Council Global Energy Center
  • Grant Goodrich, executive director, Great Lakes Energy Institute, CWRU

This report was written and published in accordance with the Atlantic Council policy on intellectual independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions.

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]]> The future of democracy in the Americas https://www.atlanticcouncil.org/in-depth-research-reports/report/the-future-of-democracy-in-the-americas/ Tue, 05 Mar 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=742838 The Democracy and Governance commitment at the Ninth Summit of the Americas marked an imperative platform for strengthening the region’s democratic values and institutions.

The post The future of democracy in the Americas appeared first on Atlantic Council.

]]> The third of a six-part series following up on the IX Summit of the Americas commitments.

A report by the Adrienne Arsht Latin America Center in partnership with the US Department of State. This readout was informed by multi-stakeholder dialogues focused on facilitating greater, constructive exchange among multi-sectoral thought leaders and government leaders as they work to implement Summit commitments.

Executive summary

The Democracy and Governance commitment at the Ninth Summit of the Americas marked an imperative platform for strengthening the region’s democratic values and institutions. As the experts deliberated how to incorporate those values into practice, they stressed the importance of good governance for the advancement of human rights,
anticorruption practices, sustainable development, and citizen inclusion. Partnering with regional stakeholders will be imperative for crucial issues like civic engagement, transparency, adherence to international order, and the rule of law, encouraging Latin American and Caribbean countries to continue to prioritize their work in democratic renewal.

Recommendations for advancing and institutionalizing democratic practices in the Americas:

  1. Strengthen institutional mechanisms for democratic oversight and accountability
  • Establish a mechanism to monitor the state of democracy in the region. A systematic reporting system would provide a regular assessment of the health of democracy in the Americas and identify areas where progress is needed.
  • Create a voluntary peer review process. This would allow countries to voluntarily subject themselves to review by peer countries, providing a mechanism for feedback and accountability in a pluralistic matter.
  • Appoint an independent special reporter of democracy. This would create a dedicated position within the Organization of American States (OAS) to monitor and report on the state of democracy in the Americas.
  • Reinvigorate the Inter-American system’s programming on education, an example being the current Inter-American Education Agenda. This would provide support for education programs that promote democratic values and civic engagement.
  1. Empower civil society and foster inclusive participation
  • Engage academics, civil society groups, and the private sector in efforts to advance democracy. These groups can play a valuable role in providing expertise, advocating for change, and holding governments accountable.
  • Develop a shared definition of what constitutes a breach of the democratic order. This would provide a clearer framework for responding to anti-democratic actions.
  • Invest in training for youth and marginalized people to become effective civil society actors. This would empower these groups to advocate for their rights and participate in the democratic process.
  • Create a mechanism for informal dialogue among legislators from across the Americas. This would provide a platform for legislators to share ideas and build relationships, which could help to advance democracy in the region.
  1. Enhance preventive measures for backsliding and expand support for democratic initiatives
  • Make the Democratic Charter more preventive in nature. This would allow the OAS to take proactive steps to address threats to democracy before they escalate.
  • Increase funding for the OAS and related initiatives to support democracy in the Americas. This would provide the resources needed to carry out these recommendations to promote democracy.
  • Promote regional collaboration on democratic initiatives to share best practices, provide mutual support, and strengthen collective responses to challenges. This could include establishing regional working groups, fostering knowledge exchange, and coordinating joint initiatives.
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]]> In Europe and the South Caucasus, the Kremlin leans on energy blackmail and scare tactics https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/kremlin-info-ops-in-europe-and-the-caucasus/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=740549 Moscow tried to sow fear among Moldovans, Georgians, and Armenians that what happened to Ukrainians could happen to them.

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]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

In 2023, Russia continued to extend its information influence operations in Europe and the South Caucasus. The Kremlin has strategically capitalized on existing disagreements and developments within these areas to undermine Ukraine and enhance Russian influence on the ground, employing varying tactics based on the specific sociopolitical context for the target country. In EU countries, for example, sophisticated online operations such as the pro-Kremlin “Doppelganger” campaign advocated for the lifting of sanctions and presented Russian gas as vital for the EU economy; in Moldova, however, Russia cut Gazprom supplies and framed the pro-EU government and Ukraine as responsible for socioeconomic hardships.

We observed another common thread: the promotion of warmongering narratives, taking various forms but ultimately structured to foster domestic fears of war in targeted countries. In Poland and Ukraine, Russia attempted to sow discord in their partnership by spreading disinformation that Poland harbors hostile intentions toward Ukraine. In Moldova, Russian propaganda suggested that Moldovan and Ukrainian forces were planning to intervene in Moldova’s breakaway region of Transnistria. Similarly, since 2022, the Georgian government has exploited the fear of war with Russia as a means to diminish local support for Ukraine and advance its domestic political agenda. The DFRLab observed a similar trend in two South Caucasus countries, Georgia and Armenia. Despite Armenia’s strained relations with Russia, the country grew its trade relationship with Russia. In Georgia, the ban on direct flights to and from Russia was lifted and trade has increased since the February 2022 invasion of Ukraine, particularly in importing oil and gas. In both countries, propaganda campaigns attempted to manipulate the populace by drawing parallels with the situation in Ukraine, framing its path as leading inexorably to war. In Georgia, government propaganda went further by accusing the US Agency for International Development (USAID) of plotting a revolution, a narrative also promoted in Azerbaijan.

Case study: Russia-based Facebook operation targeting Europe

Operation Doppelganger is the largest and most persistent pro-Kremlin online information influence campaign aimed at undermining Ukraine in Europe. The DFRLab, EU DisinfoLab with Qurium Media Foundation, the Institute for Strategic Dialogue, and multiple European media outlets targeted by the campaign first investigated Doppelganger in the summer of 2022. In June 2023, French media resurfaced the ongoing campaign, citing a deeper investigation by Viginum, a technical and operational service of the French government responsible for vigilance and protection against foreign digital interference. Viginum, Qurium, and EU DisinfoLab found many technical pieces of evidence linking the campaign to Russia: the use of Russian web infrastructure to host domains involved in the campaign; the use of the Russian language in video file names; the presence of three different time zones in video file metadata, specifically finding that the videos created at GMT+8 match with the Irkutsk region in Russia and connecting some to the Telegram channel War on Fakes, a Russian news service known for using fact-checking tropes to disseminate disinformation or denials of Russian atrocities.

In September 2022, Meta took down 1,633 Facebook accounts, 703 Facebook pages, twenty-nine Instagram profiles, and one Facebook group connected to the campaign. In its announcement of the takedown, Meta wrote that, though the company had blocked posts with external links to the operation’s domains from appearing on its platforms, “they attempted to set up new websites, suggesting persistence and continuous investment in this activity across the internet.” In December 2022, Meta attributed the campaign to two companies in Russia, Structura National Technology and Social Design Agency (Агентство Социального Проектирования).

The campaign started as early as May 2022. It used over fifty domains impersonating (e.g., spoofing) existing media outlets in Germany, France, Italy, the United Kingdom, the United States, Ukraine, Latvia, Lithuania, and Estonia. Links to forged articles hosted on the spoofed domains were then shared on social media platforms, mostly Facebook, Instagram, and Twitter. The campaign employed paid advertising and seems to have bought interactions to garner engagement with the posts.

The content of the influence campaign seemed intended to undermine the Ukrainian government and people, to advocate for the sanctions on Russia to be lifted, to emphasize the worsening European economy notionally because of the sanctions, and to push for allies to stop supplying Ukraine with weapons.

Posts and articles appeared in multiple languages with often poor proficiency, indicating non-native authors or the use of a machine-translation tool. While conducting its research into Doppelganger, Qurium noticed geoblocking used for certain hyperlinks amplified via social media. For instance, if a reader connected from a German internet protocol (IP) address, the false article in German would appear. If connected from outside Germany, a text from “Old Sultan,” a German fairy tale, would appear.

The spoofed websites used the graphic design of the legitimate websites operated by the media outlets. The easiest way to determine if a website was spoofed was by looking at top-level domains (TLDs), frequently with many different, nearly identical URLs used to spoof a single outlet. Of just reputable German outlets, seemingly the priority in September 2022, Qurium identified nine TLDs impersonating Der Spiegel, eight spoofing Bild, and eight mimicking T-Online. Qurium also mentioned that French outlet 20 Minutes was similarly spoofed. In June 2023, Viginum identified additional instances of 20 Minutes being impersonated, as well as Le Monde, Le Parisien, and Le Figaro. Though expansive in terms of digital assets used and the number of languages it targeted, the campaign garnered little engagement. Similar campaigns appeared in Ukraine. Russians created websites masquerading as Ukrainian media websites to promote narratives of despair and the uselessness of resisting Russia. These webpages featured identical pages, stealing even real journalists’ names, providing their content with unearned legitimacy. While such campaigns are usually delivered via Facebook ads, they also act as parasites by laundering their disinformation through the reputations of the well-known media brands they spoofed.

Screenshots of a real story in reputable Ukrainian outlet UNIAN (top), compared with a nearly identical forgery (bottom), which was promoted in a Facebook ad. (Source: Unian, top; Unian.in/archive, bottom)
Screenshots of a real story in reputable Ukrainian outlet UNIAN (top), compared with a nearly identical forgery (bottom), which was promoted in a Facebook ad. (Source: Unian, top; Unian.in/archive, bottom)

Similarly, malign actors use the official logos and insignia of the Ukrainian government and international organizations to scam Ukrainians’ data or nudge them to subscribe to dubious Telegram channels, promising financial support. Such campaigns have multiple objectives: spreading discouraging narratives, undermining Ukrainians’ resilience and resistance, stealing personal data, or promoting narratives while using victims’ individual pages. Despite efforts to block such campaigns in Ukraine and abroad, they constantly reappear on popular platforms, promoting conspiracies or damaging Ukraine.

Case study: Poland

In 2023, pro-Kremlin actors expanded their efforts to undermine the relationship between Ukraine and Poland by sowing discord between the two nations. Russian and Belarusian actors attempted to influence Poland’s October 2023 parliamentary elections, specifically malicious activities against Poland primarily in three domains: information environment, cyberspace, and on the ground in Poland.

Since February 2022, Poland has hosted the largest number of Ukrainian refugees, causing pro-Kremlin actors to push false claims about refugees in Polish in an attempt to portray Ukrainian refugees in a negative light and to exacerbate anti-refugee sentiments within Polish society. In August 2023, Polish-language Telegram channel Niezależny Dziennik Polityczny (Independent Political Journal), which is believed to be managed by pro-Kremlin actors outside Poland, and pro-Kremlin Russian media outlet EurAsia Daily wrote that Polish authorities were allegedly hiding that Ukrainian refugees were supposedly responsible for a Legionella bacteria outbreak, which reportedly killed at least five people in the southeastern Polish city of Rzeszów in August and September 2023. Disinformation targeting Ukrainian refugees in 2023 also encompassed other false narratives, such as the notion that the Polish government cares about Ukrainian refugees more than Polish citizens, that Ukrainian refugees push Polish citizens out of the labor market, that refugees represent a burden for the Polish economy, and that they violate Polish law and undermine public order, among other distortions and falsehoods.

On the other side, pro-Kremlin actors tried to antagonize the Ukrainian people against Poland by pushing false claims about Poland’s supposedly hostile intentions toward Ukraine. In August 2023, Russian Defense Minister Shoigu falsely claimed that Poland was planning to create a Polish-Ukrainian Union with the  goal of occupying Ukraine’s territories. Anonymous Russian Telegram channels also disseminated a fabricated statement purportedly from Poland’s former ruling Law and Justice party (PiS) demanding that Ukraine give Poland the city of Lviv in exchange for Polish support in the war against Russia.

Pro-Kremlin actors also tried to intimidate Polish society by pushing fabricated content about the presence of Wagner fighters near the Polish border. After President of Belarus Aleksandr Lukashenko stated on July 23, 2023, that the Wagner Group’s mercenaries stationed in Belarus had asked for permission “to go on a trip to Warsaw and Rzeszów,” Russian Telegram channels started to disseminate forged photos that allegedly confirmed the presence of Wagner fighters on the Polish-Belarus border. It seemed that this campaign aimed to sow fear in Poland by suggesting that the Wagner Group would target Poland if the nation continued to support Ukraine.

Meanwhile, Russian security services managed to recruit spy groups on the ground in Poland, which were uncovered by Polish security services. In March 2023, the Polish Internal Security Agency (ABW) arrested twelve people, charging them with collaborating with the Russian secret service, conducting intelligence activities against Poland, and preparing acts of sabotage on behalf of Russian intelligence to obstruct delivery of weapons to Ukraine through Poland. In November 2023, Poland arrested an additional sixteen foreigners, accusing them of being part of a network spying on Poland on behalf of Russian secret services. The alleged assignments for this second group included, among other tasks, “monitoring and documenting the passage of transports with military and humanitarian aid to Ukraine, or carrying out preparations for the derailment of trains transporting aid to Ukraine.” On August 14, ABW announced the detention of two Russian citizens who had allegedly conducted clandestine activities in Poland on behalf of Russia. The ABW press release stated that the suspects distributed three hundred Wagner recruitment leaflets around Krakow and Warsaw, and they were accused of acting on behalf of a foreign intelligence agency to the detriment of Poland.

Case study: Moldova

In terms of Russian influence, the nation of Moldova is among the most vulnerable. Like Ukraine, it faces territorial issues arising from separatist movements backed militarily and politically by Moscow, and Moldovan President Maia Sandu has expressed open interest to joining a “larger alliance,” but without naming NATO specifically—the type of statement Russia considers provocative.

Since the outset of the war, Moldovan authorities have consistently and strongly denounced Russian aggression in Ukraine, and its relationship with Russia worsened once missiles targeting Ukraine repeatedly entered Moldovan airspace. Russia’s air strikes on Ukrainian energy facilities led to power outages in Moldova and halted the import of electrical energy from Ukraine, which constitutes nearly 30 percent of Moldova’s power consumption.

Blackmail for access to energy provided another source for Russia to pressure Moldova: starting in October 2022, Russia’s state-owned oil company, Gazprom, progressively reduced gas supplies to the country by nearly 50 percent. This decision was primarily aimed at exerting pressure on Moldova’s pro-European government, which had been grappling with widespread social protests triggered by an increase in gas prices. Russia also used this situation to level baseless accusations against Kyiv, claiming that the decrease in gas flows was due to Ukraine’s purported refusal to permit larger gas volumes through the Sochranivka station in the Rostov region, a claim the Ukrainian gas transit operator denied. Gazprom also accused Ukraine of diverting gas meant for Moldova, but Moldovan authorities refuted that claim too, clarifying that the gas volumes referenced by Gazprom as remaining on Ukrainian territory were actually the savings and reserves of the Republic of Moldova stored in warehouses in Ukraine.

Initially cautious about imposing extensive sanctions on Russia due to its energy dependence, Moldova later joined in the international sanctions effort after it diversified its own energy sources. In response, Russia has repeatedly claimed that Moldova lacks full sovereignty over its decisions and acts at the behest of its “Western curators,” a narrative echoed by Moldova’s pro-Russian politicians. Moscow also depicts Moldova as a NATO testing ground for geopolitical confrontation with Russia, warning that it could face a fate similar to Ukraine. By insinuating that Moldova is a potential conflict zone, Russian propaganda seeks to instill fear and cultivate distrust in the Moldovan government among its citizens, thereby diminishing public support for neighboring Ukraine.

Russian actors frequently introduce the idea of potential military intervention in the breakaway region of Transnistria by Moldova, Ukraine, or NATO, a narrative intending to raise tension and delegitimize the governments of Moldova and Ukraine. Previously, the DFRLab reported on the dissemination of alarmist narratives surrounding Transnistria, sowing discord in Moldova and providing a supposed justification for intervention.

In a continuation of the narrative, before and during the European Political Community summit in Moldova (which involved forty-five heads of state), unverified information circulated on Telegram suggesting that Presidents Sandu and Zelenskyy had agreed on a potential Ukrainian military intervention in Transnistria. According to anonymous sources, the supposed interventions were intended to divert the attention of Russian troops and take control of the ammunition depot in the Transnistrian city of Cobasna. Sandu’s office promptly denied the claim.

Moldova has implemented different measures to safeguard its information space from Russian influence and propaganda, including prohibiting the rebroadcasting of Russian news and political talk shows, blocking over fifty Russian-affiliated news websites, suspending licenses for twelve television channels engaged in disinformation, and expelling the director of Russian state news agency Sputnik in Moldova, Vitali Denisov, due to concerns about national security. On December 15, 2023, the Moldovan Parliament adopted a new National Security Strategy, explicitly naming Russia for the first time as an existential threat to Moldova. It marks a significant milestone as the first official public document in the thirty-two years since Moldova gained independence to categorize Russia formally as an adversary.

Case study: Georgia

Following the February 2022 invasion of Ukraine, Georgia increased its trade with Russia while simultaneously joining in international financial sanctions against Russia. Throughout that year, Russian products comprised a growing proportion of the oil and gas sector in the country, allowing economic-related narratives to flourish.

As the country prepares for parliamentary elections in the autumn of 2024, the ruling Georgian Dream party has heightened its rhetoric, amplifying anti-Western conspiracy theories about foreign-instigated coup attempts within the country. Following the start of the war, the ruling party intensified its anti-Western rhetoric and attempted to introduce controversial bills intended to crack down on civil society and independent media.

In May 2023, Russia lifted its ban on Georgian airline flights and abolished visa requirements for Georgian citizens. The Georgian government’s decision to resume flights to Russia drew criticism from the EU and Ukraine, as well as resulting in protests in Georgia. That same month, Tbilisi City Hall procured trucks worth more than four million GEL (approximately US$1,100,000) from the sanctioned Russian company Kamaz. On May 24, during the Qatar Economic Conference, Georgian Prime Minister Irakli Garibashvili stated that the Georgian economy would face collapse if the country were to impose broad economic sanctions on Russia, even though Georgia was already imposing narrower financial sanctions on Russia.

On September 14, 2023, the United States imposed sanctions targeting various sectors of Russia’s economy. The list also included Otar Partskhaladze, a former prosecutor general of Georgia who is part of Georgian oligarch Bidzina Ivanishvili’s close inner circle. Partskhaladze was sanctioned alongside Aleksandr Onishchenko, an officer in Russia’s Federal Security Service (FSB). In its sanctions announcement, the US Department of State noted, “Onishchenko and the FSB have leveraged Partskhaladze to influence Georgian society and politics for the benefit of Russia. Partskhaladze has reportedly personally profited from his FSB connection.”

Later that fall, Georgia’s State Security Service (SSSG) claimed, as reported by independent Georgian media outlet Civil.ge, that groups inside and outside of Georgia were “plotting to orchestrate destabilization and civil unrest in the country” with an aim of “forcible overthrow of the government” and “a scenario similar to the ‘Euromaidan’ protests held in Ukraine in 2014.” In a follow-up statement, the SSSG accused USAID of funding a program that brought Serbian trainers to Georgia in order to train local activists in violent tactics to overthrow the country’s government. Later, Russian and Azerbaijani pro-government outlets exploited these accusations to further spread conspiracies blaming the United States for arranging revolutions abroad.

Case study: Armenia

Russia’s relationship with Armenia has deteriorated in recent years, with the loss of Nagorno-Karabakh to neighboring Azerbaijan in late 2023 eventually marking a new low point.

After Armenia’s 2020 war with Azerbaijan, Russia brokered a cease-fire and stationed around 2,000 peacekeepers along the contact lines in Nagorno-Karabakh and along the Lachin corridor (which remained the only overland link between Armenia and Nagorno-Karabakh after the war) for a designated period of five years with an option to extend. With the cease-fire agreement in force, the prospect of declining Russian influence in Armenia seemed low, as it came to depend on Russia.

Azerbaijan’s invasion of Armenian territory in September 2022, however, showcased that Russia and the Russia-led Collective Security Treaty Organization (CSTO) were not fulfilling their obligations. As Russia continued its war against Ukraine, it stopped supplying weapons to Armenia, and Armenia in turn repeatedly refused to participate in CSTO drills, both of which led to a further deterioration of the relationship.

Russian propaganda, meanwhile, unrelentingly blamed the Armenian government for the souring relations. On September 8, 2023, Moscow summoned the Armenian Ambassador to Russia and warned him over what it saw as a series of “unfriendly moves,” including Armenia’s joint military exercises with the United States, a humanitarian visit to Ukraine by the wife of Armenian Prime Minister Nikol Pashinyan, and Armenia’s plans at the time to ratify the International Criminal Court’s Rome Statute. Russia also expressed dissatisfaction with Armenia’s detention of a pro-Russian Sputnik columnist and a blogger.

However, on September 19, 2023, under the watch of Russian peacekeepers, Azerbaijan initiated an offensive in Nagorno-Karabakh following a ten-month blockade, ultimately gaining complete control of the disputed territory and committing ethnic cleansing against Armenians.

This event sparked protests in Armenia, which Russia also fueled. In September 2023, the DFRLab analyzed Kremlin narratives and propaganda aimed at deflecting responsibility from its part in the crisis and efforts to portray Pashinyan as the responsible party for the sour relationship with Russia and the war with Azerbaijan. One of those narratives, spread mostly in Russian media and Telegram posts, aimed to portray Pashinyan as a traitor. At the peak of civil turmoil in Armenia, pro-Kremlin Telegram channels exacerbated public anger by disseminating false information and encouraging the overthrow of the government.

Russian propaganda also regularly targeted Armenia with anti-Zelenskyy narratives to boost the pro-Russian claim that both Zelenskyy and Pashinyan are Western puppets. This tactic aimed to exploit Armenian sentiment using Nagorno-Karabakh, drawing unfavorable comparisons between Armenian and Ukrainian leaders to undermine Ukraine. They alleged that Pashinyan had chosen to strengthen his connections with the West at the expense of Armenia’s relationship with Russia.

On October 3, 2023, despite repeated warnings from Russia, Armenia ratified the Rome Statute, which obliges the country to follow ICC rulings and warrants, including an obligation to arrest Putin should he arrive on Armenian soil. Later that month on October 25,  in an interview with The Wall Street Journal, Prime Minister Pashinyan said that he no longer saw any benefits in maintaining Russian military bases in Armenia. The interview came two days after Armenia signed a defense cooperation agreement with France that includes arms sales.

Later that same month, Russian state Channel One aired a program portraying Pashinyan as a Western puppet with mental health issues. The segment, dubbed “Nikol Pashinyan: a harbinger of disaster,” made unfavorable comparisons between Pashinyan, former Georgian President Mikheil Saakashvili, and Zelenskyy, reinforcing the narrative that all three are Western puppets. The next day, Armenia delivered a note of protest to the Russian ambassador to Armenia.

Despite worsening political ties, Armenia’s economic ties with Russia deepened, with exports tripling in 2022. Since the 2022 invasion of Ukraine, Russia has significantly reinforced its influence on Armenia’s economy. The country’s finance minister, Vahe Hovhannisyan, highlighted that most of the exports to Russia are reexports. Thus, Armenia covers some of the needs of the Russian market that arose as a result of Ukraine-reinvasion related sanctions, by exporting goods from other countries through  Armenia.

Armenia heavily relies on Russia for energy; it imported 87.7 percent of its gas in 2022 from Russia. This dependency is essential due to the favorable pricing and its limited self-sufficiency, at 20 percent to 30 percent. Given the lack of alternatives to Russian gas and Armenia’s inability to cover its energy needs locally or through imports from other countries, Russian gas supply and its pricing remain a tool for blackmail. For example, two months after Russia’s 2022 invasion of Ukraine, Armenia agreed to pay for Russian gas in rubles. Armenia was also identified as a potential transshipment point for restricted items to Russia or Belarus, which led to two Armenian companies being sanctioned in 2023.

Case study: Azerbaijan

Two days prior to the February 2022 invasion, Vladimir Putin and Azerbaijani President Ilham Aliyev signed a new agreement in Moscow, which Aliyev described as elevating the relationship to a new level, that of an alliance. The following day, a pro-government media outlet published a report arguing Russia was not imposing its will on Azerbaijan, despite the timing of the document; on the contrary, the outlet claimed, it instead showed more mutual commitments by Russia and decreased Russian influence in the country.

Following the start of the war, Azerbaijan started to import Russian gas, despite a broader international push to make Russia a pariah in the world of international finance and trade. By 2023, Russia was Azerbaijan’s third biggest trade partner.

But other tensions soon came into play. Azerbaijan has a long-standing, hard-line position regarding breakaway republics based on the principle of territorial integrity; yet when Russia officially recognized the Ukrainian regions of Donetsk and Luhansk as independent republics, Azerbaijan remained silent. Meanwhile, just a month before the new alliance agreement between Russia and Azerbaijan in 2022, President Aliyev visited Ukraine in January and signed a joint declaration with Ukraine stating the commitment of both nations to supporting their sovereignty and territorial integrity.

Since February 2022, Azerbaijan has officially sent humanitarian aid to Ukraine totaling more than US$30 million, in the form of infrastructure, energy, and reconstruction support. Throughout 2023, Russian sources spread claims that Azerbaijan secretly sent military aid to Ukraine; in response, an Azerbaijani pro-government website blamed Armenian and Russian outlets for spreading lies. In December 2023, pro-government media agency Trend published an article debunking the military aid allegations based on a statement from the Media Development Agency (MEDIA), a government agency created by presidential decree that is also being weaponized to clamp down on independent media.

Kremlin-aligned narratives increased significantly after September 2023, when Azerbaijan took full control of Nagorno-Karabakh. That month, Azerbaijan launched a military attack on the region, an internationally recognized part of Azerbaijan populated by ethnic Armenians following the war in the 1990s that resulted in the displacement of over half a million Azerbaijanis. Following one day of fighting in September 2023, Azerbaijan claimed full control over the region; over 100,000 ethnic Karabakh Armenians fled the territory, and the self-proclaimed Nagorno-Karabakh Republic ceased to exist.

A month later, after Azerbaijan’s attack, a defense cooperation agreement was signed between Armenia and France, and in November, France announced selling military weapons to Armenia. When the actual agreement was announced, Azerbaijani pro-government internet television channel Baku TV broadcasted a program with the headline “Ukraine scenario in Caucasus: What is the West forcing Armenia to do?”—suggesting that the real reason behind Western support to Armenia is to challenge Russia. Other news websites pushed similar narratives with headlines such as “Paris wants to turn Armenia into Ukraine” or “the US’s plan to turn Armenia into the ‘Ukraine of the Caucasus.’ ”

Moreover, Azerbaijani news outlets pushed similar reports based on interviews with Russian political experts. These claims in Azerbaijani media coincide with the same period that the Armenian government started to distance itself from Russia.

Karabakh-related reports by Russian sources were sometimes criticized by pro-government media outlets, however. In 2022, Azerbaijan blocked access to Russian state-owned RIA Novosti due to its interview with Artak Beglaryan, the minister of state of the self-proclaimed Nagorno-Karabakh Republic. According to local fact-checking organization Fakt Yoxla, in May, June, and July of 2023, Azerbaijani media outlets published multiple reports accusing Russia or Russian peacekeepers in Nagorno-Karabakh of allegedly helping the region’s Armenian forces to deploy illegal arms or to create provocations. Just a month later, in August 2022, four Sputnik Azerbaijan workers in Azerbaijan resigned after refusing to publish information from the Russian Defense Ministry about Karabakh, explaining that the request from management was to cover violations of the cease-fire in Nagorno-Karabakh in a way that was “contrary to Azerbaijan’s position.” It was only in October 2022, after state-run Russian First Channel called Nagorno-Karabakh an “independent state,” that Azerbaijani state-owned television channel AZTV first referred to Russia’s war in Ukraine as “Russia’s invasion.”

Azerbaijani state media also used Kremlin narratives domestically to undermine civil society groups within the country. In conjunction with government-aligned media outlets, it exploited Georgia’s accusations that USAID is trying to overthrow the government in Georgia. The DFRLab found that at least fourteen reports were published about USAID with additional narratives accusing the US agency of financing anti-government activities in Azerbaijan. A comparison of the narratives revealed that multiple Azerbaijani outlets used similar or identical text regarding Georgia’s accusation against USAID.

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]]> In Ukraine, Russia tries to discredit leaders and amplify internal divisions https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/in-ukraine-russia-tries-to-discredit-leaders-and-amplify-internal-divisions/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=740991 On the information front, Russia had two goals in year two of its war: convince Ukrainians of their government’s inability to rule the country honestly, and persuade Ukraine’s allies that investing in Ukraine would be wasteful.

The post In Ukraine, Russia tries to discredit leaders and amplify internal divisions appeared first on Atlantic Council.

]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

At the beginning of its February 2022 invasion of Ukraine, Russia expected a swift military operation that would end before Kyiv and its allies could react. But relatively quickly it became clear that its initial plan would not work, forcing Russia to switch to a long-term operational posture that continued a strong emphasis on information operations.

Russia kept its focus on eroding Ukrainian morale and the country’s willingness to fight throughout 2023. The most prevalent themes included narratives discrediting Ukraine’s civilian and military leadership, portrayals of Ukraine as an unreliable partner, messages amplifying internal domestic struggles, and scams targeting Ukrainian civil society and the public at large.

Discrediting Ukrainian leadership

To destroy Ukrainian unity and support for its wartime government, Russians used multiple narratives and tactics, mixing old narratives with new approaches. Russian narratives targeting Ukrainian politicians had previously focused mostly on President Volodymyr Zelenskyy, but in 2023, they extended to other government officials, military figures, and local authorities.

Russia and pro-Russian actors placed particular emphasis on reports of Ukrainian government corruption. While journalists have documented specific instances of corruption, Russia presented the problem as endemic to the entire Ukrainian leadership. The tactic was simple: convince the domestic Ukrainian audience of its government’s inability to rule the country honestly while simultaneously demonstrating to Ukraine’s allies that investing their own governmental resources in Ukraine would be wasteful.

While investigating these corruption narratives, the DFRLab and BBC Verify jointly uncovered a massive TikTok network disseminating corruption allegations targeting Oleksii Reznikov, the former Ukrainian minister of defense, alongside accusations against mayors, heads of draft commissions, and the Office of the President of Ukraine. While Russian narratives framing Ukraine as corrupt or a failed state are nothing new, the use of TikTok as a propaganda vector took place at an exceptional scale, involving more than 12,800 separate user accounts. As noted in our December 2023 investigation, TikTok attributed it to a Russia-based covert operation and described it as the largest information operation ever uncovered on the platform.

Videos produced for the operation followed a basic pattern, employing AI voice narration in conjunction with images of luxury items such as villas and cars, presented alongside photos of officials and those of suffering Ukrainian citizens. In numerous cases, photos of luxury villas supposedly purchased with absconded funds were sourced from online real estate listings. These videos were then published in at least seven languages by thousands of TikTok accounts, each of which uploaded a single video to the platform.

While the campaign was not extremely sophisticated from a fact-checking perspective, its employment of nearly 13,000 TikTok accounts allowed it to garner hundreds of millions of views on the platform. This exposure ultimately led to dissemination across other platforms; in once instance, a single video received more than five million views across YouTube, Twitter, and BitChute. Other videos propagated across X, including some translated by users of the platform.

While the TikTok campaign targeting Reznikov was the most notable operation involving corruption allegations, others gained traction as well. A narrative claiming that Ukrainian First Lady Olena Zelenska had purchased luxury jewelry during a visit to the United States went viral on X, receiving millions of views even though the story had been widely debunked.

Weapons-trading narrative goes international

In 2022, Russians invested heavily in the narrative alleging that Western weapons donated to Ukraine were being traded on the black market or shared with Russians. It reached a new level of operational sophistication in 2023, however, when Russia hacked Ukrainian media outlets to plant forged documents on their websites, then subsequently delete them; this effort allowed the perpetrators to present archived copies of the planted materials as evidence that Ukrainian media had reported the story then covered it up. This narrative twist subsequently received coverage in both Russian and pro-Russian foreign media.

Elsewhere, pro-Russian social media sources amplified false allegations that Ukraine re-sold Western military aid to drug cartels and terrorist groups. In one instance, they shared a video and claimed it was proof that a cartel had purchased a Western-donated Javelin missile launcher from Ukraine; in a subsequent fact-check, AFP reported that the account that shared the clip had mistranslated a video from a Mexican news outlet so it could accuse Ukraine of selling the system.

A snapshot of the viral video of a Mexican cartel member carrying weapons falsely attributed to Ukrainian origin. Source: @citizenfreepres/archive

The latest push of Russian propaganda in this vein is to promote a story that Ukraine supplied weapons to Hamas, which allegedly used them in its attack on Israel on October 7, 2023. In one instance, Russian sources used screenshots of ammunition to claim without evidence that Ukraine sponsors Hamas; they also circulated a forged BBC video discussing a nonexistent report they attributed to the open-source research organization Bellingcat in a continuation of the 2022 trend of impersonating reputable outlets to convey legitimacy.

Screenshot from an October 2023 Bellingcat tweet denying the veracity of the BBC video. Source: @Bellingcat/archive

Internal conflicts and fear fuel Russian activities

Russia is adroit at exploiting the internal problems of adversaries to their advantage. This holds true in Ukraine as well. While the whole of Ukraine suffers from missile strikes, blackouts, and air raid alerts, the damage caused by the Russian invasion varies greatly by region, with the southern and eastern parts of the country experiencing the heaviest toll. Additionally, those regions historically had a larger percentage of Russian speaking Ukrainians, the legacy of Soviet industrialization and settlement of the region. Russian actors tried to exploit these two factors to foment hostility between regions. Russia used similar tactics in 2014, when it illegally annexed Crimea and started the war in the Donbas region, and it can be traced back as far as Ukraine’s 2004 presidential election.

In 2023, Russians played up narratives regarding the relative safety of western Ukraine as a point of internal division. For example, the meme song “Fortress Lviv” sarcastically demonstrated the supposed “suffering” of western Ukraine by contrasting images of people living a relatively normal day with claims of being targets of Russian violence. Originating on TikTok, the song was subsequently amplified and republished to other platforms. “Fortress Lviv” is a satiric parody of the song “Fortress Bakhmut,” which celebrates Ukraine’s efforts to defend that city. The Ukrainian government’s Center for Countering Disinformation later claimed that “Fortress Lviv” was a psychological operation of pro-Russian operators.

Russians and pro-Russian actors also amplify harmful and pessimistic content on Telegram and other social platforms, pushing doom-laden predictions for Ukraine’s future, its struggling military counteroffensive, and the abandonment of Ukraine by its allies. While the topics vary, their general purpose is to break Ukraine’s will to resist, reduce humanitarian and military aid from Western partners, and drive tensions within the country. For instance, during blackouts in Fall 2022 and Winter 2023, Russians amplified news of the small gathering of Odesa citizens who had protested the prolonged electricity shortage, attempting to use the instance to foment wider protests. In September 2o23, pro-Russian accounts spread footage from another protest in the city, claiming that people were protesting against President Zelenskyy, even though the protests were actually an attempt to nudge local authorities not to spend budget funds on infrastructure repair but on military supplies.

Attacks on civil society organizations and media

Ukrainian civil society organizations active in countering Russian disinformation also faced numerous attacks. Multiple organizations received suspicious phishing notifications on Facebook from an account called “Meta Service,” which prompted them to perform actions that would lead to them losing access to the account.

Campaigns targeting these organizations evolved over time, returning in waves in a variety of forms. An October 2023 campaign used WhatsApp and Telegram to contact Ukrainians and promised them easy money in exchange for liking specific YouTube and TikTok videos. Effectively a marketing scam, such campaigns can be used to push specific content in order to make it trend, thus giving audiences the perception that it is widely popular or accepted as fact. Additional phishing campaigns also appeared, aiming to take control over more pages. By some estimates, these phishing attempts occur thousands of times per month. And in another instance, hackers took direct control of the Facebook page of the nongovernmental organization Ukrainer without having to resort to phishing.

Meanwhile, inauthentic websites impersonated legitimate Ukrainian media websites and their journalists to promote pro-Russia narratives with a veneer of authenticity; some of these took place under the auspices of a longstanding inauthentic campaign commonly known as Operation Doppelganger. The DFRLab identified multiple instances in which Russians or pro-Russian actors copied the look and internal structure of a legitimate website, hosting them with a similar but altered domain name. Articles on these nearly identical pages usually portrayed Ukraine’s situation as doomed and predicted to fail quickly. The pages attempted to build their audience by sponsoring provocative ads on Facebook and Instagram presenting Ukraine in a negative light, accompanied by a link to a website that then redirected users to one of the fake Ukrainian media pages.

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]]> After Prigozhin, Russia clamps down online https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/after-prigozhin-russia-clamps-down-online/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=741739 Russia rolled out a new internet surveillance system in 2023 to crack down domestically on anti-war content, while pushing false narratives to undermine Ukraine at home and abroad.

The post After Prigozhin, Russia clamps down online appeared first on Atlantic Council.

]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

Throughout 2023, Russia continued its various crackdowns to prevent its citizens from being exposed to content the Kremlin perceived as undermining its war efforts. The most significant development occurred during the June 2023 Wagner mutiny, which appeared to come as a complete surprise to the Kremlin. On June 23, Wagner Group head Yevgeny Prigozhin declared war on the Russian Ministry of Defense in a post to Telegram, where he and the Wagner Group maintained a robust online presence. Prigozhin publicly touted his actions and aims via the messaging app over the course of several days, including a highly critical June 22 post claiming that Russia had failed to articulate its reasons for the war.

The Russian government struggled to limit the spread of Prigozhin’s messages. It tried to restrict information about Prigozhin on Russian social media and search engines during the crisis, eventually shutting access to websites linked to the Wagner Group. Despite Russian internet regulator Roskomnadzor blocking access to the affected internet resources, the websites continued to publish articles critical of the Ministry of Defense following the revolt, targeting Russian officials such as Defense Minister Sergei Shoigu. Soon after the failed revolt, Prigozhin dissolved his Patriot Media Group, with independent Russian media reporting that the Kremlin was looking for a new owner for the media assets.

On Telegram, Russian pro-war channels were somewhat divided in their support to the Russian government and Wagner. A DFRLab analysis of pro-war channels found that a majority of them were consistent in their sentiment, regardless of whether they supported or opposed the revolt or tried to foster unity between both sides. In other instances, Telegram channels wavered over who to back or how to react, leaving them more or less adrift until it was clear that Prigozhin’s mutiny had failed.

Russian state-controlled media reacted to the mutiny in two phases, first attempting to discredit Prigozhin, and then shifting to not mentioning him in their news coverage. Kremlin channels showed footage reportedly displaying Russian special forces raiding Prigozhin’s villa and office, discovering piles of cash, weapons, a helicopter, and falsified passports. State media coverage also brought up his criminal history and implied that he was motivated by greed, a distinct change from generally fawning coverage prior to the mutiny; for example, Kremlin propagandists including Vladimir Solovyov previously praised Prigozhin and participated in Wagner recruitment videos.

Erasing Prigozhin

After a period of media coverage discrediting Prigozhin, the Kremlin attempted to erase him from collective memory. According to an examination of Russian TV transcripts by the nonprofit GDELT Project and the New York Times, “Prigozhin virtually disappeared from the airwaves. On most days between July 13 and Aug. 22, his name was not mentioned at all on any of the four leading state-controlled channels.” The same news report noted that following Prigozhin’s death in a plane crash, Russia’s power elite competed over his assets. The assets included the paramilitary group as well as his media empire, including the election-meddling “troll factory” in Saint Petersburg that played a significant role in Russia’s efforts to undermine democratic institutions globally.

Russia also continued to increase its efforts to censor and surveil domestically. For example, Roskomnadzor launched an internet surveillance system called Oculus that reportedly identifies content online that the Kremlin considers undesirable or unfavorable. According to the Russian outlet RIA Novosti, the system “recognizes images and symbols, given scenes and actions, and analyzes text in photos and videos” and detects “extremist themes, calls for massive illegal events, suicide, pro-drug content, LGBT propaganda,” among other topics. A massive Roskomnadzor data leak by the Belarusian activist group Cyberpartisans in November 2022 suggested that the agency was running a project named “Vepr,” which was tasked with determining the true identity of any internet user who is deemed to be spreading false information or engaging in illegal activity. The leak indicated that the agency was censoring anti-war social media posts and using a bot farm to spread official Russian narratives.

Another set of leaks investigated by Radio Free Europe/Radio Liberty showed that Russia and China had cooperated on censorship and internet control methods.
Roskomnadzor continued to block VPN services in 2023. In May of that year, VPN users received notification of a blockade of the OpenVPN protocol, which some VPN providers use. In July, Putin signed a law mandating that websites offering guidance on how to evade internet blocks in Russia be added to Roskomnadzor’s Unified Register of Prohibited Information, which allows authorities to block websites domestically.

Meanwhile, Russian independent outlet Holod reported that the Kremlin had instructed traditional and online Russian media to stop referring to Volodymyr Zelenskyy as Ukraine’s president. According to Holod, Kremlin officials asked outlets not to mention his official title and to use the phrase “Zelenskyy’s regime” when covering him. In 2022, similar instructions encouraged Russian media to minimize the damage done to the Kerch Bridge and portray the Russian army’s pullback from Kherson in a less negative light.

In the face of mounting casualties and a reluctant populace, the Kremlin also attempted to boost its fighting forces in Ukraine by digitizing conscription and creating an online system to punish individuals who ignore conscription notices sent to their Gosuslugi account, which Russians use to access public services. Authorities now have the right to suspend a person’s driving license and prohibit them from selling private property if they do not show up for service.

Exploiting online influencers

The Russian war in Ukraine has become a significant factor in cultural and political discourse around the world. Russian messaging has successfully leveraged divisions within Western society driven by skepticism, populist movements, isolationist politics, and demands for greater economic sovereignty. In numerous instances, political parties from the far right and far left that typically are on opposite sides of the ideological spectrum have found common cause with Putin’s demands for a peace agreement on terms favorable to Russia.

Along with populist leaders sympathetic to Russia, like Viktor Orban in Hungary, Marine Le Pen in France, and Sahra Wagenknecht in Germany, Russia successfully exploits so-called “useful idiots” in the West—intellectuals and influencers who downplay Russia’s regional ambitions while blaming the West and NATO expansion for causing the war.

Among the various trends throughout 2023 has been the surge in narratives favorable to Russia on X, formerly known as Twitter, which became a notable vector for Russian propaganda in the West following the purchase of the company by Elon Musk and a group of fellow investors. Numerous factors led to this shift, including massive staff reductions in Twitter’s trust and safety team, removal of state media labels for RT and other Kremlin-controlled channels, and an inversion of its “blue checkmark” verification system that now allows anyone to “verify” themselves and receive a checkmark for a monthly fee.

Blue checkmark policy change boosts Russian propaganda on X

X introduced the new system in April 2023. Dubbed X Premium, the program grants paying customers additional privileges such as higher algorithmic visibility and fewer restrictions on the number of tweets posted per day. X stated that the changes were designed to reduce fake news and untrustworthy accounts; in practice, however, researchers have documented numerous instances of X accounts with blue checkmarks amplifying pro-Kremlin narratives about Ukraine, reaching millions of users on the platform.

In one example uncovered by the DFRLab and BBC Verify, X Premium accounts amplified the Russian TikTok campaign accusing former Ukrainian Defense Minister Oleksii Reznikov of purchasing luxury goods. On July 18, 2023, a blue checkmark X account named @Resist_05 published a video of a French villa alongside claims that Reznikov had purchased it as a wedding present for his daughter for €7 million. The video garnered over 2.3 million views, 31,000 likes, and 18,000 retweets, despite featuring a fact-checking community note challenging the allegation. The villa narrative spread across X in multiple languages, posted on several occasions by other blue-checkmark accounts.

Screenshots of a blue checkmark account republishing false allegations that a former Ukrainian defense minister had allegedly purchased a villa in Cannes, France, for his daughter. The false allegation first surfaced on Russian TikTok accounts. (Source: @BPartisans/archive)

The DFRLab also identified at least two blue checkmark accounts that disseminated unsupported claims alleging that Latvia and Estonia had launched a large-scale drone attack against Russia, when the attack had originated in Ukraine. On the night of August 29, 2023, several Russian regions including Bryansk, Moscow, Ryazan, Kaluga, and Orlov were struck by drones, with Russian media reporting that Russian defense systems had intercepted most of the drones. The attack destroyed four Russian Il-76 transport aircraft at Pskov International Airport and struck a nearby oil depot.

Narratives subsequently emerged in Russian news outlets and on Telegram pointing fingers at Latvia and Estonia. Pro-Russia Telegram channels disseminated screenshots from Yandex Maps, displaying distances from the alleged launch locations in Estonia and Latvia. X Premium accounts @ElephantCivics and @MyLordBebo shared similar messages with another map graphic, claiming that the drones originated from beyond Lake Peipsi, which straddles the border between Estonia and Russia.

Screenshot of X Premium account @MyLordBebo disseminating unsupported claims that Estonia was to blame for August 2023 drone attacks on Russia. The drone attacks originated from Ukraine. (Source: @MyLordBebo/archive)

The BBC collected additional cases of X accounts with blue badges disseminating false and misleading information about Russia’s war in Ukraine. On June 26, 2023, some X Premium accounts claimed that Russian soldiers had discovered so-called “baby factories” in Ukraine where “young children are grown for child sex brothels and organ harvesting.”

In another example, “US Civil Defense News,” an X account with a blue badge, claimed that Ukrainian fighter jets had accidentally launched a missile attack on Kramatorsk, Ukraine, and hit military barracks housing foreign soldiers and mercenaries. The account claimed that the “casualties are still being counted and will be very hard due to NATO attempts to cover their troops in Ukraine!” In a subsequent thread, the same account shared an image purportedly from leaked Pentagon documents that supposedly confirmed the presence of NATO troops in Ukraine. In reality, a Russian rocket struck a pizza restaurant in Kramatorsk, resulting in the deaths of eleven people, including four children. There is no evidence to support the claim that Ukraine launched the missile, nor is there any indication that it struck military barracks housing NATO troops.

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In Latin America, Russia’s ambassadors and state media tailor anti-Ukraine content to the local context

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In the second year of Russia’s war on Ukraine, Moscow tried to sell a wider global audience on its version of events. In Latin America, Kremlin media outlets RT en Español and Sputnik Mundo were key players in this effort.
Disinformation Internet

The Atlantic Council’s Digital Forensic Research Lab (DFRLab) has operationalized the study of disinformation by exposing falsehoods and fake news, documenting human rights abuses, and building digital resilience worldwide.

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The post After Prigozhin, Russia clamps down online appeared first on Atlantic Council.

]]> Complicated history helps Russian narratives about Ukraine find a foothold in the Middle East https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/complicated-history-with-the-west-helps-russian-narratives-about-ukraine-find-a-foothold-in-the-middle-east/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=741815 Across the Arabic-speaking world, the narratives amplified by Russian state media and local media partners are framed in a way that appeals to audiences in the region and their complicated history with the West.

The post Complicated history helps Russian narratives about Ukraine find a foothold in the Middle East appeared first on Atlantic Council.

]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

More than a decade after the revolutions collectively known as the Arab Spring, several countries in the Middle East and North Africa are undergoing democratic backsliding and a return to authoritarian rule, including Egypt under President Abdel Fattah al-Sisi, Libya under General Khalifa Haftar, and Tunisia under President Kais Saied. This trend and some shifts in sentiments about the West in these and other MENA countries have given Russia openings to undercut Western influence in the region and frame Ukraine as a Western puppet, using its state media and public diplomacy to influence opinion.

This is playing out in the context of growing internal polarization in many countries in the region and, among the citizenry, rising disenchantment with the West and democracy as a workable governing system for them. These developments enable Russia to offer an alternative alliance to authoritarian leaders who aim to diversify their country’s resources and reduce reliance on the West and the United States in particular.

Russian state media has had a presence in the Arab World since the 2007 launch of Russia Today Arabic (now just RT Arabic), and its influence expanded with the 2014 start of Sputnik Arabic, which maintains a regional office in Cairo. Today, RT Arabic is one of the region’s top three most-watched news broadcasters after Al Arabiya and Al Jazeera. As reported in the DFRLab’s previous Undermining Ukraine report, Russia signed cooperation agreements with local media in Egypt, Algeria, and Morocco to formalize official cooperation on joint projects and information exchanges.

Some Arabic-speaking media outlets post the exact text of articles published on RT Arabic’s website, allowing for the spread of narratives promoted by state-run Russian media to Arabic speakers. A short RT article from January 13, 2023, pushing claims that Ukrainian soldiers were carrying chemical weapons, was posted verbatim on the news websites of Egypt’s Al-Ahram, Yemen’s Al-Ayyam, and Dubai-based news aggregator Nabd. An August 2023 RT Arabic article repeating Putin’s claim that the ban on Russian media was due to the West’s fear of the truth was also reposted by Yemen’s Al-Ayyam and Emirati newspaper Al Khaleej. An article published in state-aligned Syria’s Al-Watan and Egypt’s Al-Ahram in September quoting State Duma Member Anna Kuznetsova saying that the “Kyiv regime uses the same methods used by the terrorist organization ISIS [Islamic State group] to recruit children” was originally published in RT Arabic.

Screenshots of an article posted on RT Arabic's website and reposted by three Arabic news websites about a video allegedly showing Ukrainian soldiers carrying chemical weapons. The text of the articles was identical. (Source, left to right: RT Arabic; Al-Ahram; Nabd; Al-Ayyam)
Screenshots of an article posted on RT Arabic’s website and reposted by three Arabic news websites about a video allegedly showing Ukrainian soldiers carrying chemical weapons. The text of the articles was identical. (Source, left to right: RT Arabic/archive; Al-Ahram/archive; Nabd/archive; Al-Ayyam/archive)

By cooperating with local media, Russia is able to spread its propaganda to a broader audience in the Arab world. The narratives amplified by Russian state media and local media partners are framed in a way that appeals to audiences in the region and their complicated history with the West. In line with authoritarian Arab leaders’ statements about the West’s interest in their countries, local media amplify narratives suggesting that the West attempts to demonize Russia in order to maintain Arab nations’ reliance on the West. Additionally, narratives about Zelenskyy being a puppet of the West and Putin standing up to them appeal to many in the Arab populations who viewed their former authoritarian leaders as puppets supported by the West at their own expense. Moreover, regional audiences point to Western hypocrisy in considering Russia’s war in Ukraine with a different lens than the US invasion of Iraq or Israel’s actions in the Gaza Strip.

As Western states imposed a ban on RT and Sputnik and blocked their YouTube channels to minimize the impact of their propaganda, Russian media was further emboldened in the region as it became increasingly considered an alternative source of information after decades of Western influence in their countries. While there is some sympathy expressed online among Arabic speakers for the Ukrainian people, there is also support for Russia and Putin expressed by media and individuals, resulting from internal polarization and disenchantment with democracy and the West.

Russian media and its social media accounts capitalize on such resentment toward Western countries to gain support for Russia in the region. The X accounts of Sputnik and RT Arabic produce more content than BBC Arabic and Al Jazeera, regularly posting content that appeals to Arab audiences. For instance, on June 29, 2023, one day after an incident of Quran burning in Sweden, the three X accounts posted similar videos showing Putin holding the Quran during a visit to a mosque in the city of Derbent, Russia, while criticizing Western countries like Sweden for allowing the burning of the holy book.

Screenshots of similar posts from Russian state media accounts on X showing a video of Putin holding a copy of the Quran and criticizing Western countries for allowing incidents such as the burning. (Source: @RTonline_ar, left; @RTarabic, center; @sputnik_ar, right)
Screenshots of similar posts from Russian state media accounts on X showing a video of Putin holding a copy of the Quran and criticizing Western countries for allowing incidents such as the burning. (Source: @RTonline_ar/archive, left; @RTarabic/archive, center; @sputnik_ar/archive, right)

Arabic-speaking journalists and influencers promoting pro-Russia narratives

X also serves as a major social media platform for several Arabic-speaking Russian state media personalities as well as unaffiliated online influencers. Many of these accounts with large followings consistently post news content aligned with the Kremlin’s preferred narratives. There are differences between the two groups, however, as affiliated journalists openly state their ties to Russian media and use their real identities, while influencer accounts appear to more frequently use stolen images and show signs of coordinated posting and engagement.

The DFRLab identified and analyzed thirty accounts of influencers and self-proclaimed journalists boasting large follower counts and posting Arabic content, mostly in the form of news updates. These accounts often promoted similar pro-Russia, anti-Western messaging and celebrated partnerships between Russia and Arab nations. Specifically, the accounts created content that would resonate more with an Arab audience and sometimes expand on regional resentment toward Western countries, accusing them of double standards following their pro-Ukraine narratives.

An analysis of the accounts revealed several suspicious indicators, including similarities in how they present themselves and the content they post. The bios of twenty-three of thirty accounts highlighted interest in Russian news, Russia-Ukraine news, or general political and war news. Many of the accounts often published similar posts on the same day or within a short window. One example showed accounts attempting to attract interest from Arab and Muslim users after Russian general Sergei Surovikin visited Algeria, with six accounts using very similar text and the same photo of Surovikin reading the Quran in an Algerian mosque, all published within a two-hour period on September 15, 2023.

Screenshots of similar X posts from six accounts showing Russian General Sergei Surovikin reading from the Quran during a visit to Algeria. The posts use the same (or highly similar) text and an identical (or nearly identical) photo. (Source, left to right, top to bottom: @id7p_; @Su_35m; @russiatt; @Russianowarabic; @russiaArb4; @hadath1990)
Screenshots of similar X posts from six accounts showing Russian General Sergei Surovikin reading from the Quran during a visit to Algeria. The posts use the same (or highly similar) text and an identical (or nearly identical) photo. (Source, left to right, top to bottom: @id7p_/archive; @Su_35m/archive; @russiatt/archive; @Russianowarabic/archive; @russiaArb4/archive; @hadath1990/archive)

These X accounts routinely promoted disinformation related to the Russia-Ukraine war as well. In one example, on October 4, 2023, three accounts used identical or nearly identical text falsely claiming that Zelenskyy was attempting to recruit Islamic State fighters held in Iraqi and Syrian prisons to join the Ukrainian army in its fight against Russia.

Screenshots showing identical or almost identical textual content posted by three X accounts falsely claiming that Ukrainian President Zelenskyy was trying to recruit Islamic State group prisoners to fight against Russia. The image in the tweet at left reuses a popular meme, inserting Zelenskyy’s face over the original. (Source: @Su_3m, left; @mog_Russ, top right; @alhaarb99, bottom right)
Screenshots showing identical or almost identical textual content posted by three X accounts falsely claiming that Ukrainian President Zelenskyy was trying to recruit Islamic State group prisoners to fight against Russia. The image in the tweet at left reuses a popular meme, inserting Zelenskyy’s face over the original. (Source: @Su_3m/archive, left; @mog_Russ/archive, top right; @alhaarb99/archive, bottom right)

The DFRLab also noticed some degree of coordination between some of the accounts, such as liking, retweeting, and replying to each other’s tweets. For instance, reviewing @russiaArb4’s post engagement revealed many retweets from the same three accounts. Moreover, some of the accounts created posts to promote other accounts and asked users to follow them.

Several of the identified accounts appeared focus on retweeting other accounts, alongside retweeting specific and possibly new Arabic media accounts. This apparent coordination around retweeting could be seen in the almost identical timelines with the same set of retweets between accounts.

Screenshots showing three different X accounts with similar timelines after retweeting the same posts by @AlarabBlog. (Source: @ISTRATIJI, left; @russiatt, center; @Russian__media, right)
Screenshots showing three different X accounts with similar timelines after retweeting the same posts by @AlarabBlog. (Source: @ISTRATIJI/archive, left; @russiatt/archive, center; @Russian__media/archive, right)

Furthermore, five accounts that claimed to be either media figures or Russian citizens living in Russia or somewhere else had additional suspicious indicators. According to monitoring tool Twitter ID Finder, four of these accounts were created in October 2022: three on October 20—two of them just twenty minutes apart—and one on October 28. A reverse image search also confirmed that four of these accounts reappropriated publicly available images of attractive women as their avatars. This tactic appears to be similar to one previously used by a set of pro-Russia accounts, as documented by the Institute for Strategic Dialogue, in an attempt to target Arab male users to follow and engage with them. 

Russian public diplomacy in the region

As in Latin America, Russia uses the social media presence of its diplomatic missions in the Middle East and North Africa to promote its preferred narratives about the war in Ukraine. Most of the diplomatic missions post updates to their official Facebook and X accounts at varying frequencies, focusing on diplomatic affairs with the host country. Most repost content from other diplomatic missions and the Russian Foreign Ministry’s English, Russian, and Arabic X accounts about international affairs and the war in Ukraine, routinely posting falsehoods and exaggerations about the war. These include describing the war as a “special military operation” or fighting Nazis in Ukraine.

Screenshot from a tweet by the Russian Ministry of Foreign Affairs, as reposted by its diplomatic mission in Tunisia, claiming that Russia is in Ukraine to fight against Nazis. (Source: Ministry of Foreign Affairs of the Russian Federation, X tweet, @mfa_russia, October 20, 2023)
Screenshot from a tweet by the Russian Ministry of Foreign Affairs, as reposted by its diplomatic mission in Tunisia, claiming that Russia is in Ukraine to fight against Nazis. (Source: Ministry of Foreign Affairs of the Russian Federation, X tweet, @mfa_russia/archive, October 20, 2023)

The X and Facebook accounts of Russia’s diplomatic mission in Egypt post regular international affairs updates. The accounts posted regularly about Ukraine throughout 2023 with the hashtag #الحق_مع_روسيا (“Russia is right”). Among its posts, Russia’s embassy in Egypt posted statements to Facebook about “Ukrainian Nazis” allegedly firing missiles at a hospital in Pervomaisk, Ukraine, using US-provided High Mobility Artillery Rocket System (HIMARS) missiles. Economic and military ties between Russia and Egypt have strengthened in recent years, especially as the latter’s government seeks to reduce its dependence on the United States, which provides Egypt with $1.3 million in annual military assistance. Egypt currently imports the majority of its wheat from Russia and has been working with Russia to construct a Russian-built nuclear plant since 2022.

The increased cooperation and aligning of economic and military priorities between the governments of Egypt and Russia allows the latter to be more aggressive in promoting its narratives to Egyptian audiences through its official channels and getting positive engagement with social media users. The embassy’s messaging about the war in Ukraine sometimes plays on anti-Western sentiment among some audiences.

On February 24, 2023—the first anniversary of Russia’s full-scale invasion of Ukraine—the Russian embassy in Egypt tweeted a statement from the ambassador expressing gratitude to Egypt for “fully understanding the reasons for the confrontation over Ukraine and for supporting Russia despite the torrents of lies about our actions launched by the West.”

In September of that year, the embassy posted about a US announcement that Russia characterized as providing tanks to “Ukrainian Nazis” and depleted uranium shells to “expose our land to radioactive pollution. Exactly what they did in Iraq.” Russian diplomatic missions reference the Iraq War as part of its strategy to capitalize on anti-Western sentiment fueled by lingering distrust of the United States.

Diplomatic missions also capitalize on holidays and other public events by posting statements promoting Russian narratives. For example, the Russian embassy in Egypt evoked its fight against “Nazis” in Ukraine in a tweet on Defenders of the Homeland Day, then repeated the same rhetoric in another tweet on Russia’s Victory Day.

The Russian embassy in Algeria posted a statement from its ambassador on the occasion of Russia Diplomats’ Day, suggesting that the West was engaging in an “open anti-Russia campaign,” adding, “In a time like now when we witness tremendous pressure on Russia by the so-called ‘collective West,’ it becomes clear who our real friends are.” The ambassador also posted on Russia’s Victory Day, saying that “our great Homeland will win this time, will once again rid the world of fascism and Nazism.”

In other posts, Russian diplomatic missions in the region promoted narratives related to specific incidents of concern to Muslim audiences, such as a post from the Russian Embassy in Egypt showing a picture of a praying hand and a copy of the Quran with a tweet condemning the alleged burning of the Quran by Ukrainian soldiers. The post stated that the soldiers did so, knowing there are Muslims fighting in the Russian army, referring to a video that appears to show Ukrainian soldiers burning copies of the Quran.

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]]> In Latin America, Russia’s ambassadors and state media tailor anti-Ukraine content to the local context https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/in-latin-america-russias-ambassadors-and-state-media-tailor-anti-ukraine-content-to-the-local-context/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=742480 In the second year of Russia's war on Ukraine, Moscow tried to sell a wider global audience on its version of events. In Latin America, Kremlin media outlets RT en Español and Sputnik Mundo were key players in this effort.

The post In Latin America, Russia’s ambassadors and state media tailor anti-Ukraine content to the local context appeared first on Atlantic Council.

]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

Russia deploys various strategies to communicate its narratives and advance its interests in Latin America. State media outlets RT and Sputnik continue to be the centerpieces of Russian communications in the region. Further, Russia is using more targeted communications tailored to topics that raise more interest in each country. In this strategy, ambassadors play a role by becoming legitimized spokespersons in national media and placing their op-eds in these spaces, which enables them to articulate the Kremlin’s narratives to Latin American audiences. Likewise, the Kremlin benefits from journalists and influencers who, although not officially affiliated with Russian media, serve as disseminators of pro-Russia propaganda. The DFRLab team analyzed how these strategies played in the Latin American information space during 2022 and 2023, supporting Russian narratives concerning its war against Ukraine, as well as other topics critical for Russia’s geopolitical goals.

Russian public diplomacy efforts

In 2023, the DFRLab examined public communications of Russian embassies in Brazil, Mexico, Argentina, Colombia, Venezuela, Chile, Ecuador, Bolivia, Cuba, and Nicaragua from January 1 to October 31 of that year. Russian ambassadors frequently gave media interviews to national media outlets, which sometimes published op-eds by the ambassadors. The topics addressed by the Russian ambassadors would often vary, focusing on what is most relevant to each country and combining variations of its narratives.

The war in Ukraine was the dominant topic in Brazil, where the Russian ambassador referred to the denazification of Ukraine in 176 statements, while referring to other issues in fewer than seventy statements. During the period of our analysis, Russian diplomats in the nine Spanish-speaking countries often referred to the Ukraine war, but it was the most commonly addressed topic only in Chile and Argentina. Nineteen out of thirty-eight statements by Russian diplomats in Chile referred to the war, often portraying Ukraine as the aggressor and responsible for war crimes. And in Argentina, seventeen out of sixty-six statements referred to Ukraine as a Nazi state and to the war as a denazification operation. In the rest of the region, Russian diplomats focused more frequently on other topics that resonate with local issues, such as US imperialism, sanctions, the rise of the multipolar world, and economic matters.

Summary of the most common narratives and topics present in the communications from Russian ambassadors in nine selected Spanish-speaking Latin America countries. The numbers in parentheses represent the number of mentions during the period of analysis, January 1 to October 31, 2023.  (Source: Iria Puyosa/DFRLab)

In Argentina, the dominant Russian narrative was that the “special military operation” aimed to “denazify” and demilitarize Ukraine, which was framed as a Russophobic and corrupt country. Ambassador to Argentina Dmitry Feoktistov has been interviewed by Argentinian newswire Telam, a government-owned entity under the control of the Ministry of Public Communication, whose content is reproduced by numerous Argentine public and private media outlets. Feoktistov highlighted the importance of the multipolar world, Russia’s support for Argentina’s accession to BRICS (the intergovernmental bloc involving Brazil, Russia, India, China, and South Africa), and the common fight against colonialism, pointing specifically to “the Malvinas War,” commonly known as the Falklands War in English-speaking countries, itself a heritage of colonialism and thus an Argentine cultural touch point. The embassy constantly emphasized Russia’s solidarity with Argentina, referring in particular to its efforts supplying the country with the Sputnik V vaccine against COVID-19.

Brazilian news websites and blogs published 176 articles quoting the Russian ambassador, Alexey Labetskiy, between January 1, 2023, and October 23, 2023, according to a query conducted using Meltwater Explore, a news and social media monitoring tool. During his media engagements, Labetskiy maintained the Kremlin narrative that the invasion of Ukraine was a special operation to denazify the country. In a September 2023 interview published by the online version of the newspaper O Globo, Labetskiy accused Ukraine of neo-Nazism; five other digital outlets in Brazil also republished the interview. In the interview, the ambassador also emphasized Russia’s role as a strategic partner for Brazil to achieve its goal of obtaining a leadership role on the international stage and becoming a permanent member of the United Nations Security Council.

List of Brazilian online news outlets that quoted the Russian ambassador between January 1 and October 23, 2023. (Source: Beatriz Farrugia/DFRLab via Meltwater Explore)

In Chile, the predominant Russian narratives were that Ukraine was the original aggressor and that Russia was defending itself and fighting the resurgence of Nazism. Op-eds by Russian Ambassador to Chile Sergei Koshkin are regularly published by the left-wing digital outlet Crónica Digital. In his op-eds and interviews, Koshkin maintains that international media is plagued with “fake news” about the war, alleging that Russia is blamed for crimes perpetrated by Ukraine in Mariupol and Bucha. Other topics frequently addressed by the Russian ambassador are economic opportunities in Russia-Chile relations, the rise of the multipolar world, and the struggle against colonialism.

Meanwhile, the Russian Ambassador to Mexico Nikolay Sofinskiy maintained that the conflict in Ukraine originated from NATO aggression and that the Kremlin’s “special military operation” is intended to protect the Russian-speaking population from extermination while demilitarizing and denazifying Ukraine. According to his version, Russia reacted to the imposition of a colony controlled by Washington. In an op-ed published by influential left-wing daily La Jornada, Ambassador Sofinskiy alleged that the United States and its allies use Ukraine for the profiteering of the US military-industrial complex.

In his statements to Colombian media, Russian Ambassador to Colombia Nikolay Tavdumadze has expressed satisfaction with the “balanced” position of Colombian President Gustavo Petro and his decision to not send military equipment to Ukraine. In contrast, Tavdumadze has repeatedly complained that Colombian media coverage reflects the biased version of Western newswires and ignores reports from RT, Sputnik, and his embassy. Despite the complaints, Tavdumadze has been interviewed several times by prominent Colombian media outlets and had an op-ed appear in El Tiempo, the most influential newspaper in the country. In that op-ed, he contended that sanctions against Russia restrict food production in his country and affect global food security, while the maritime corridor initiative for exporting Ukrainian grain only benefited Western Europe without considering the needs of the poorest countries in Africa.

Finally, Russian Ambassador to Ecuador Vladimir Sprinchan frequently referred to the war in Ukraine indirectly, focusing instead on Ecuador’s economic interests. Sprinchan, however, highlighted how sanctions on Russia affect international trade and food security, and how former Ecuadorian President Guillermo Lasso’s position condemning the invasion negatively affected Ecuador’s agribusiness interests. Sprinchan’s communications during 2023 also included an op-ed in which he denied accusations of Ukrainian children being abducted to Russia, a war crime, and instead presented the version that the children had been evacuated from the war zone for their own protection.

The role of RT en Español and Sputnik Mundo

As the Kremlin deploys its global media apparatus to shape regional narratives around the war, understanding how its Spanish-language outlets target Latin American audiences becomes crucial. With millions of readers and followers on social media across the region, RT en Español and Sputnik Mundo have played an important role in disseminating pro-Kremlin narratives about the war in Spanish-speaking countries.

This analysis examines how the two state media outlets have covered the conflict, focusing on content published by the two outlets from January 2022 through August 2023. To conduct this analysis, the DFRLab gathered and analyzed news articles from RT en Español and Sputnik Mundo containing the keyword “Ucrania” (“Ukraine” in Spanish) to examine recurrent topics and narratives. According to data collection using the news monitoring platform Event Registry, these outlets published more than 6,100 articles on Ukraine during the first eight months of 2022, with the largest spikes occurring in tandem with the overall news cycle. During this period, RT en Español and Sputnik Mundo’s news articles on Ukraine centered on the ongoing conflict, frequently referring to the invasion as a “special military operation.” An analysis of the articles that received the most Facebook interactions revealed dominant narratives justifying Russia’s military actions, including alleged Ukrainian aggression, NATO expansionism, and the goal of “denazifying” Ukraine. Additionally, many articles emphasized other topics such as sanctions, energy infrastructure, weapons flows, and political issues, including actions taken by social media platforms to ban Russian state-backed media.

Line graph showing the number of news articles on Ukraine published by RT en Español and Sputnik Mundo between January 1 and August 31, 2022. Highlighted topics near peaks indicate the subjects of articles from these outlets that garnered the most Facebook interactions. (Source: @estebanpdl)

Between January 1, 2023 and August 31, 2023, RT en Español and Sputnik Mundo published over 6,300 articles related to the war in Ukraine, a 200-article increase over the previous time period in 2022. The two outlets maintained their overwhelmingly pro-Russian coverage of the war, with the most frequent narratives emphasizing alleged Ukrainian aggression, criticism of military aid to Ukraine, and the impacts of Western sanctions on Russia. Unlike 2022, when significant spikes in coverage emerged around key news events, the 2023 distribution revealed a more consistent stream of articles, typically with a daily range of between twenty to fifty published articles.

Line graph showing the number of news articles on Ukraine published by RT en Español and Sputnik Mundo between January 1 and August 31, 2023. The graph features less dramatic spikes in coverage, indicating a more consistent approach to reporting on the conflict (and thus a more consistent approach in trying to shape the narratives in Latin America about the war). (Source: @estebanpdl)

Using named entity recognition, a natural-language processing methodology used to identify and classify names of people, organizations, and locations, the DFRLab identified the most frequently mentioned names in relation to the articles that received the most engagement.

According to this analysis, the outlets placed greater emphasis on narratives criticizing Western military assistance to Ukraine in 2023, while also highlighting geopolitical themes around the “new world order,” NATO strategy, and alleged biological weapons. These narratives persisted throughout the eight-month period.

Screenshot of a network graph, created using Gephi software, showing the relationships between entities and topics discussed in news articles published by RT en Español and Sputnik Mundo between January 1 and August 31, 2023. Each circle (“node”) represents a topic discussed in the articles, while the lines (“edges”) represent connections between topics, such as both connected topics being mentioned in the same article. Spanish language versions of proper nouns are shown. (Source: @estebanpdl via Gephi)

Building on these network patterns, a detailed review of 2023 articles showed the proliferation of disinformation narratives, like reinforcing the “proxy war” portrayal of the conflict as NATO waging war against Russia through Ukraine. The topic of supplying arms to Ukraine remained a steady media focus. Allegations also abounded regarding supposed US-backed biolabs in Ukraine and around the alleged presence of uranium and biological weapons. Additionally, the outlets persistently promoted anti-NATO rhetoric, criticizing the treaty organization’s military support for Ukraine.

Graph showing the main topics related to Ukraine as covered by RT en Español and Sputnik Mundo between January 1 and August 31, 2023. Each topic is represented by horizontal lines with data points indicating the dates of publication. The graph highlights various discussed topics. In orange are narratives about support for Ukraine; in red, narratives concerning weapons, including biolabs; and, in blue, narratives related to NATO. (Source: @estebanpdl)

An examination of Facebook engagement data on RT en Español and Sputnik Mundo’s Ukraine articles showed a significant decrease in 2023. On high-volume publication days in 2022, stories on Ukraine garnered nearly 560,000 likes, reactions, and shares. In contrast, Facebook engagement dropped substantially in 2023, with articles receiving only around 18,136 interactions on peak publication days. While more research is needed, this substantial decline may reflect shifting audience interests and interaction patterns on Facebook rather than a loss of readership.

Sputnik Brazil and its impact on Brazilian websites and social media accounts

Sputnik Brazil was the main Russian media outlet operative in Brazil in 2023, as RT did not have a Portuguese version available at the time of the report. However, Sputnik Brazil’s operations changed over the year.

On March 18, 2023, Brazilian journalist Juliana Dal Piva reported on news website UOL that Sputnik Brazil had closed its office in the country, dismissing around twenty media professionals. The reason for the closure, according to Dal Piva, was the challenge Sputnik faced in processing bank transactions and paying local employees following Russia’s postinvasion ban from the SWIFT banking system. That same month, Brazilian journalist Carlos Madeiro reported that the Sputnik Brazil website had been the target of cyberattacks.

Four months later, the Sputnik Brazil website, which used to be hosted as a subdomain at https://br.sputniknews.com, changed to a new address, https://sputniknewsbr.com.br. Using a WHOIS search to review domain name registration information, the DFRLab found that the new address was created on July 8, 2023.

Screenshot of a WHOIS query showing details of the newer Sputniknewsbr.com.br domain. (Source: Beatriz Farrugia/DFRLab via WHOIS)

The DFRLab conducted a content analysis on articles mentioning the keyword “Ucrânia” (“Ukraine” in Portuguese) published by the website sputniknewsbr.com.br between August 1, 2023, and October 24, 2023, to identify the most frequent narratives spread by the outlet. The research resulted in 484 articles, according to data from Meltwater Explore.

Narratives promoting Russian military capacity were the most frequent topic covered by Sputnik Brazil within the entire period analyzed. In total, 127 pieces boasted about the skill and acumen of Russian forces and their military equipment, while an additional thirty-one articles labeled the Ukrainian forces as inefficient and unprepared for combat. Examples of this narrative also included criticism of the quality of military equipment provided by Western countries, the Ukrainian forces’ lack of skills in operating it, and Russia’s superiority in terms of strategy and military arsenal.

Another narrative frequently spread by Sputnik Brazil during the period analyzed was the possibility of Ukraine losing financial and military support, especially from the United States and EU. In total, there were seventy-eight pieces mentioning this topic. One of these articles received more engagement than any other articles about Ukraine, potentially reaching 691,000 people.

The piece, published on September 26, 2023, stated that the West was unsure about its support for Ukraine. It also highlighted how alleged Ukrainian government corruption had affected the chances of the country being successful in its counteroffensive against Russia, and how military equipment received from third parties had not improved the Ukrainian response to the invasion.

Screenshot of the Sputnik Brazil article that generated the most engagement between August 1, 2023 and October 24, 2023, with approximately 700,000 views, according to a Meltwater Explore query. (Source: Sputnik Brasil/archive)

Sputnik’s reach, however, went beyond its own website, as local media outlets in Brazil amplified the Russian outlets’ narratives throughout 2023. The DFRLab found 5,610 reposted articles both on Brazilian news websites and social media platforms between January 1, 2023, and October 30, 2023.

The website Brasil247 reposted the most content from Sputnik and quoted the Kremlin most frequently, with 645 mentions over the period. Created in 2011 by Brazilian journalist Leonardo Attuch, Brasil247 is aligned with left-wing parties, especially the Workers’ Party (Partido dos Trabalhadores), of which President Luiz Inácio Lula da Silva is a member. A search using website analysis tool SimilarWeb estimated the average monthly audience of Brasil247 to be around 9.7 million, though that number does not account for multiple visits by the same person.

Screenshot of a Meltwater Explore query showing the number of mentions of “Ukraine” and “Sputnik” together by Brazilian media outlets in 2023, with Brasil247 being the most prolific at just under 650 mentions. Investing.com Brazil was second highest, but its total was under one hundred. (Source: Beatriz Farrugia/DFRLab via Meltwater Explore)

Former RT journalists and other actors amplifying disinformation narratives

Politicians, media outlets, journalists, and organizations based in Spain and Latin America have hosted former journalists from Sputnik or RT in Spanish, allowing them to amplify narratives about Russia’s invasion of Ukraine that align with the interests of the Russian regime. While not all of these individuals and entities may be directly linked to the Kremlin, they, as information vectors, serve to amplify narratives in line with the Kremlin.

Prior to the invasion of Ukraine, Inna Afinogenova, former deputy director of RT en Español’s website and a former host of RT’s program ¡Ahí les Va!, was one of RT’s most recognizable faces for Spanish-speaking audiences. Afinogenova remained inactive during the early stages of the invasion; on May 3, 2022, she announced the termination of her ties with RT allegedly due to her opposition to the war. Afinogenova has nevertheless continued to use her personal social media accounts to disseminate content similar to the narratives propagated by Kremlin-affiliated media, often placing blame on Ukraine, the United States, and the EU for the war, as well as for economic and social challenges impacting Spanish-speaking countries. Afinogenova’s posts closely monitor the political situation of governments aligned with Putin while criticizing media outlets or journalists that report on Afinogenova or left-leaning governments.

Afinogenova has expanded her presence to other accounts associated with media outlets that either originated on YouTube or have a significant portion of their audience on that platform, and are affiliated with politicians or media groups aligned with the left-wing or progressive movements in Spain and Latin America. Since June 30, 2022, Afinogenova has been one of three presenters for the program Macondo. According to another of its presenters, Uruguayan journalist Leandro Grille, the program takes an “alternative, more progressive, left-leaning perspective” in reporting Latin American news. The third presenter is Marco Teruggi, a former Latin American correspondent for Sputnik News, who also has affiliations with left-wing Latin American politicians and organizations. This includes his work on the electoral campaign of Colombia’s vice president, Francia Márquez. Teruggi is among the former collaborators of pro-Kremlin media who, during the initial stages of Russia’s invasion of Ukraine, expressed their discontent with platforms still labeling them as linked to their former Kremlin employers.

In Spain, where she is based, Afinogenova also is a presenter on programs on the streaming channel Canal Red and the website Diario Red. These media outlets are part of a media conglomerate started in 2022 by Pablo Iglesias, the former vice president of the Spanish central government and former leader of the left-wing party Podemos. Iglesias has promoted these media outlets through crowdfunding campaigns as alternatives to what he refers to as the power of the right-wing Spanish media. These media outlets remain connected to companies associated with Jaume Roures, a television mogul who has publicly supported the left wing in Spain as well as Cuba’s Communist regime.

An analysis of Canal Red’s YouTube channel, which boasts the outlet’s largest social media audience, showed that among the most-viewed videos were those hosted by Afinogenova, including some reaching almost two million views. In these videos, she argues that the United States is responsible for the ongoing Russian invasion of Ukraine, attributing its continuation to a lack of interest in negotiating the end of the conflict and an apparent reluctance to engage in direct conflict with Russia, “the country with the largest nuclear arsenal in the world.”

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]]> Two-pronged approach to Africa pays dividends for Russia https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/two-pronged-approach-to-africa-pays-dividends-for-russia/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=742492 In the African countries with which Russia has longstanding ties, diplomats lead the way. Elsewhere on the continent, Wagner Group fighters are Moscow's more active representatives. Both official and covert approaches exploit local grievances to push Russia's narrative.

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]]> This is one chapter of the DFRLab’s report, Undermining Ukraine: How Russia widened its global information war in 2023. Read the rest here.

On August 16, 2023, Ukrainian Foreign Minister Dmytro Kuleba promised to “free Africa from Russia’s grip,” claiming that Russia’s primary “tools for its work in Africa” were propaganda and the Wagner Group.

In our previous Undermining Ukraine report, the DFRLab analyzed Russia’s use of Kremlin media and diplomatic channels in Africa to spread Russian narratives, as well as the manipulation of social media to spread content supportive of Russian President Vladimir Putin. Russia’s efforts to court African leaders did not decrease in 2023. Russian Foreign Minister Sergey Lavrov visited multiple countries on the continent throughout the year, Putin welcomed African leaders to the Russia-Africa Summit in Saint Petersburg, and the Wagner Group maintained its regional ties, despite the death of Wagner co-founder Yevgeny Prigozhin in August 2023.

Russian disinformation in Africa

Russia’s endeavors to deploy false narratives and disinformation campaigns in Africa cannot be understood in isolation: They are integral to a broader dual strategy toward Africa that has yielded substantial results over the past year. These results have facilitated the Kremlin’s efforts to bolster its influence on the continent while simultaneously undermining Ukraine on the global stage.

Russia’s approach to Africa still consists of two facets. On one hand, there are the official relationships with individual countries, characterized by trade and investment, diplomatic initiatives, public diplomacy, defense and security agreements, and engagements within the United Nations, among other official channels. On the other hand, there is an unofficial and covert aspect of the relationship involving hybrid tactics and the illicit trade of arms for resources, most notably by the Wagner Group. Alongside Wagner’s presence, there is an emphasis on disinformation campaigns and the propagation of false narratives.

Russian influence campaigns in Africa are as varied and unique as the countries they target. The two-pronged Russian strategy also has a significant impact on the Kremlin’s disinformation approach on the continent. In some countries, Moscow predominantly relies on formal engagements, including media and journalist training agreements and official diplomatic channels, particularly in contexts where Moscow has long-standing historical ties, like it has with South Africa, where relations with the African National Congress (ANC) are deeply rooted. These formal engagements serve as a means to exert influence through traditional diplomatic and media avenues.

Conversely, in countries like those in the Sahel and West Africa, Russia adopts a more covert approach. Here, the focus shifts toward nontraditional methods, including payments to local influencers, disinformation campaigns, or financial support for local political associations. In these regions, Moscow aims to exploit existing vulnerabilities and capitalize on local dynamics. This dual approach allows Russia to tailor its disinformation efforts to the specific circumstances and receptivity of individual African nations, adapting its tactics to maximize its influence and achieve its geopolitical objectives. Tied to this are successful false narratives that portray Russia as the “benevolent benefactor,” a “state unsullied by the taint of colonialism,” and a perception of Russian media as ‘independent’ sources of information.

This two-pronged approach was evident at the July 2023 Russia-Africa Summit held in Saint Petersburg. While the summit purportedly aimed to showcase the public face of Russia-Africa relations, it also harbored elements of Russia’s covert foreign policy strategy. Beyond its official foreign policy objectives, the summit served as a platform for reinforcing narratives disseminated by Russia in Africa, designed to undermine Ukraine and weaken its Western allies. These narratives have been amplified by local influencers and communication channels cultivated by Russia, capitalizing on long-standing African grievances, such as anti-French sentiments and broader anti-colonialist feelings in Sahelian countries.

Russian officials, including Putin, portray a changing and tumultuous global order where both Africa and Russia are under siege from the West on multiple fronts. In this context, Russia and Africa are portrayed as cooperative partners, reminiscent of their Cold War-era collaboration, working together to counter Western aggression and establish a multipolar world where Africa can claim its rightful place, free from the lingering legacies of colonialism and neocolonialism.

Conversely, Russia’s invasion of Ukraine received minimal public discussion at the 2023 summit, with narratives instead repeatedly blaming Ukraine and the West for Africa’s shortages of food, grains, and fertilizers. Despite encountering challenges related to its actual capacity to strengthen economic and trade ties, the messaging from the summit, as analyzed by the DFRLab at the time, confirmed Russia’s unwavering commitment to enhancing its influence on the African continent.

This aligns with additional observations concerning the Wagner Group throughout 2023. Following Prigozhin’s attempted mutiny, questions arose regarding the future of Wagner’s operations on the continent. Although the principle of plausible deniability, which had made Wagner highly effective and valuable to Moscow as an extension of its foreign policy and influence operations in Africa, appeared to have been compromised, the Wagner Group has persisted in promoting its services in Africa. The group’s representatives on the continent have reiterated their intention “not to curtail, but to expand” their presence in Africa, and evidence suggests the group is in fact expanding its presence and disinformation focus in West African coastal states.

While disavowing direct connections to Wagner’s actions in Africa may have become more challenging for the Kremlin, Russia is unlikely to forsake the network of influence and disinformation capabilities painstakingly constructed by the group in recent years. Instead, Moscow will likely continue to employ hybrid tools, albeit in different configurations, to displace Western influence, exploit natural resources, and circumvent sanctions through numerous front companies operating under the group’s umbrella.

Pro-Kremlin narratives in African media

Numerous African media outlets promoted a variety of pro-Kremlin messaging, including narratives glorifying the role of the Wagner Group in Africa and the Russian armed forces in the war, criticism of the West’s handling of the grain crisis, and presenting Russia as a humanitarian stakeholder and security provider. In each case, these narratives appeared in Russian media prior to their amplification by African outlets.

Russian and African media signed several cooperation agreements in 2023, including a reported collaboration between RT and Afrique Media TV, which influenced the latter’s coverage of the war in Ukraine and Russia’s role in global diplomacy. Afrique Media TV is a francophone Pan-Africanist television channel founded in 2011 that also operates an English news website. In a September 2023 investigation, African Digital Democracy Observatory found that Afrique Media TV is linked to Russian assets, including a Wagner front company. Reportedly, Afrique Media TV is partnering with the Association for Free Research and International Cooperation(AFRIC) and the Officers’ Union for International Security (COSI), both of which operate on behalf of the Wagner Group.

The DFRLab found that Afrique Media TV reposted content from Russian propaganda outlets RT and Sputnik that portrayed Russia’s security interests in pulling out of the grain deal, as well as its reported military successes against the Ukrainian armed forces. It also often hosts shows with RT France TV presenter Xavier Moreau, who was an observer during the illegal 2022 referendum on the annexation of the territories of Donetsk to Russia, according to the European Platform for Democratic Elections.

Screenshots from an Afrique Media TV briefing on the war in Ukraine (left) and from RT France TV Show L’échiquier Mondial (right), both featuring Xavier Moreau. (Sources: Afrique Media TV/archive, left; RT France/archive, right)

African media also echoed Kremlin narratives around Ukrainian grain supplies. The Kremlin used the continent’s reliance on Ukrainian grain as a means by which to cast blame on Ukraine and the West when supplies started to become more constricted, despite the Black Sea Grain Initiative, an agreement brokered by the United Nations and Turkey between Russia and Ukraine that helped maintain grain exports from Ukraine. Russian retaliation against Ukraine’s southern port infrastructure, however, was a leading cause of supply shortages. Narratives regarding this new “grain crisis,” first pushed by the Kremlin and its allies and then echoed in African media, arose after Russia formally announced its withdrawal from the grain deal. Russia also engaged in raiding dry grain cargo ships, which effectively resulted in another blockade of Ukrainian grain transiting the Black Sea.

Narratives originally published by the African branch of the pro-Kremlin Russian news outlet Sputnik were disseminated by African French-language media outlets. For example, Sputnik Afrique spread unfounded narratives that claimed that the West had lied about delivering grain to African countries from Ukraine; the narratives subsequently reappeared on both a Cameroonian online news outlet and a Hezbollah-affiliated outlet. Notably, these narratives spread ten days before the second gathering of the Russia-Africa Summit in Saint Petersburg, when Russia pulled out from the grain deal by letting it lapse.

Russia also expanded its media operations in 2023 by engaging in new partnerships with BRICS-based outlets. As noted by French nonprofit  OpenFacto, Russia has consistently created websites that operate as showcases for the cooperation among the BRICS countries, an operation suspected to be affiliated with InfoRos, an online outlet with ties to Russia’s main intelligence directorate, the GRU. For example, Daily News Egypt signed a new cooperation agreement with Russia-owned television channel TV BRICS in October 2023. TV BRICS also signed partnerships with the African News Agency (ANA) and Chinese press agency Xinhua.

In addition to Russian content being spread to African media, there was also evidence of local citizens repackaging and distributing Russian propaganda of their own volition. In the spring of 2022, the DFRLab investigated a small inauthentic network from Côte d’Ivoire, which used the name MARIGONEWS, that a Meta spokesperson confirmed to the DFRLab was run by a single individual “with pro-Russian sentiment.”

Following the invasion of Ukraine, Facebook assets using the MARIGONEWS name and logo, with one group maintaining over 62,000 members, promoted a Telegram channel called Opération de Dénazification et de Démilitarisation de l’Ukraine (Operation to Denazify and Demilitarize Ukraine), which was subsequently renamed Marigo News—Opération ZOV.

Screenshot of a Facebook page (left) that was part of the MARIGONEWS  inauthentic network and that promoted a corresponding Telegram channel (right), saying Marigo News supported the Russian Federation. (Source: Facebook, left; Telegram/archive, right)

While the channel claimed to have Russian correspondents, almost all of the content posted to the channel was copied from pro-Kremlin Telegram channels and websites and translated from Russian into French.

Following the DFRLab’s report and Meta’s removal of the group’s Facebook assets in the spring of 2022, it continued to post content copied from Kremlin channels to its Telegram group. Although it did lose followers and was periodically inactive for several months, the Telegram channel started posting regularly in October 2023, after changing its logo and name to MARIGONEWS. Some of the Facebook assets were also recreated, but at the time of publishing had received very little engagement.

Screenshots of the MARIGO NEWS Telegram channel rebranded with a new logo, which matches that on a Facebook page created in October 2023. (Source: Telegram/archive, left; Facebook/archive, right)

Calls for Putin’s arrest amid BRICS summit preparations

In late August 2023, South Africa hosted the fifteenth annual BRICS summit in Johannesburg. Immediately following the announcement of the summit, Putin’s planned attendance was mired in controversy because of an ICC warrant for his arrest due to alleged wartime deportation and transfer of children. Following pressure from opposition parties and nongovernmental organizations, Putin opted instead to attend the summit via video link and delivered a prerecorded seventeen-minute address.

Prior to the summit, there had been speculation regarding Putin’s attendance given the arrest warrant and South Africa’s international obligations. South Africa had previously chosen not to enforce an ICC warrant—in 2015, the South African government failed to arrest then-Sudanese President Omar al-Bashir after he attended an African Union conference in Johannesburg, despite an ICC warrant—so it was an open question in 2023. Preemptive and successful legal action instituted by opposition parties, however, obligated the South African government to arrest Putin should he attend.

Although Putin claimed that he decided to stay away from the summit to “avoid creating problems for friends,” this decision was only reached a few weeks before the summit after months of speculation—and diplomatic contortions—around his attendance.

The event underscored the complex local and geopolitical landscape in which the event took place, especially considering South Africa’s policy of nonalignment.

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]]> Undermining Ukraine: How Russia widened its global information war in 2023 https://www.atlanticcouncil.org/in-depth-research-reports/report/undermining-ukraine-how-russia-widened-its-global-information-war-in-2023/ Thu, 29 Feb 2024 11:00:00 +0000 https://www.atlanticcouncil.org/?p=741851 On the battlefield, Russia has made strategic gains. In the information sphere, it has the resources and will to outlast the West.

The post Undermining Ukraine: How Russia widened its global information war in 2023 appeared first on Atlantic Council.

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All chapters

As the full-scale war in Ukraine enters its third year, Russia has doubled down on its worldwide efforts to undermine Kyiv’s international standing in an attempt to erode Western support and domestic Ukrainian morale. Years of close monitoring of not only state-sponsored media such as Russia Today (RT) and Sputnik, but also Russian activity on Telegram, TikTok, X, and other social platforms, points to one conclusion: In the propaganda war, Russia remains fully committed to conducting information operations around the globe, playing the long game to outlast any unity among Ukraine’s allies and persist until Ukraine loses its will to fight.

Western sanctions applied in the wake of the initial invasion disrupted Russia’s ability to reach some European audiences with its state-sponsored media outlets. But Russia has since adjusted its information operations to focus more on social media; in addition to attacking Western public support to fund Ukraine’s defense, it has expanded targeted propaganda efforts in different parts of the world, including Latin America, Africa, and the Middle East.

And Western support for Ukraine is indeed wobbling, most notably in Washington, where additional aid to Ukraine has been held up for months in Congress. Many factors influence voters’ and lawmakers’ support for sending weapons and money to Ukraine. Whether or not Russian propaganda has played a decisive role, the outcome of decreasing Western material support for Ukraine’s defense is the clear goal of President Vladimir Putin’s information war. And with recent battlefield wins such as the capture of the city of Avdiivka alongside propaganda wins such as the death of opposition leader Alexei Navalny, Putin’s position at home and abroad is stronger than ever.

Russia has actively employed information operations to undermine Ukraine since at least 2014, as Digital Forensic Research Lab (DFRLab) researchers around the world have documented in detail through their ongoing monitoring efforts. In the lead-up to the February 2022 invasion, Russia employed disinformation in the form of narrative warfare to justify military action, mask its planning, and deny any responsibility for the war. And as the DFRLab detailed in its landmark February 2023 report, Undermining Ukraine: How the Kremlin employs information operations to erode global confidence in Ukraine, Russia’s information strategy began to shift following the 2022 invasion, focusing on eroding Ukraine’s ability to resist. In this follow-up to the first edition of Undermining Ukraine, we explore how Russia further entrenched these efforts throughout 2023, developing new messages and techniques while recommitting to ones that continue to prove effective.

Russian tactics in 2023

In the second year of its war, faced with international sanctions, a damaged reputation, and the ban of state-sponsored RT and Sputnik in many Western countries, Russia shifted toward more targeted and tailored influence operations, using TikTok, Telegram, and other social platforms to expand its international audience—especially in the Global South, where Russian state media are still big players. Russia also deepened its cooperation in the media and information spheres with sympathetic countries.

Throughout 2023, Russia relied on its rich toolbox for conducting information operations, including employing coordinated inauthentic networks on social media platforms, exploiting regional grievances with the West, hacking, and forging documents, among other tactics. Russia propagated a combination of old and new narratives to undermine Ukraine domestically and internationally, aiming to discredit its reputation with Western partners and neighboring countries. Additionally, Russia has continued to tighten its control over its domestic information space, spread false and misleading narratives to weaken Ukrainian resolve, and present its ongoing case for war via RT and Sputnik, adjusting its messaging to cater to regional audiences, particularly in Latin America and Africa. Russia has also doubled down on eroding cohesion within Ukrainian society.

What do those information operations look like in practice—and how have they affected the targeted countries? Drawing on the long experience and global reach of the DFRLab research team, this report breaks down Russia’s propaganda operations since the start of the full-scale war two years ago, region by region. The case studies that follow shine a light on pro-Kremlin propaganda activities in their various forms, shapes, and approaches.

In Ukraine, Russia over the past year sought to erode the country’s will to resist and sow internal discord by discrediting both the civilian and military leadership. This involved portraying Ukraine as an unreliable ally, amplifying internal conflicts, and launching scam attacks on civil society and ordinary users. For example, the Kremlin’s propaganda apparatus established the largest known influence operation on TikTok to disseminate rumors about Ukrainian political corruption.

Internally, Russia also directed its efforts toward controlling domestic audiences, primarily focusing on restricting access to information. Incidents such as the June 2023 Wagner mutiny created a quandary for the Kremlin regarding its tolerance of Telegram, which effectively served as a digital home base for Yevgeny Prigozhin and his fellow mutineers. Ongoing domestic censorship and surveillance measures also persisted, including legislation to curtail virtual private networks (VPNs) used to circumvent online restrictions. Russia’s Federal Service for Supervision of Communications, Information Technology and Mass Media, the state telecommunications regulator commonly known as Roskomnadzor, also rolled out an internet surveillance system known as Oculus designed to detect content that the Kremlin considers undesirable.

In Europe, Russia disseminated recurring claims asserting that Ukraine sold Western weapons for profit on the international black market, in an attempt to undermine European support for Ukraine. Russia also persisted in promoting the narrative that European Union member states would face hardship during the winter without access to Russian gas, unleashing an extensive online information influence campaign comprised of more than fifty fake websites impersonating reputable European media outlets.

Russian operations were not limited to European countries assisting Ukraine with arms and financial support. DFRLab researchers observed targeted messaging tactics in the South Caucasus and Moldova seemingly with the dual aim of undermining support for Ukraine while dividing societies from within and gaining local influence. For instance, pro-Russian actors capitalized on existing criticisms of Armenian Prime Minister Nikol Pashinyan after neighboring Azerbaijan conquered the Armenian ethnic enclave of Nagorno-Karabakh; Kremlin officials, propagandists, and influencers on Telegram fueled anti-government sentiment and called for the overthrow of Pashinyan and his government. In Azerbaijan, the Kremlin capitalized on Russian-language influence through academia, exchange courses, and universities while exploiting the country’s lack of independent media outlets. In Georgia, the Georgian Dream-led government expanded its relationship with Russia both politically and economically following the February 2022 invasion, exploiting popular fears of the war escalating into Georgia to further cement the government’s pro-Russia stance. And in Moldova, Russia engaged in energy blackmail and warmongering by amplifying the false narrative that Moldova, Ukraine, or NATO was planning a military intervention in the Russian-backed breakaway region of Transnistria.

In the Middle East and North Africa, Russian influence operations rely on its RT and Sputnik media empire and local amplifiers of pro-Kremlin messages and broad anti-West, anti-colonialist sentiments. Russia employs a dual strategy in Africa: an official dimension involving trade, investment, diplomacy, public outreach, defense agreements, and engagements with international organizations, alongside an unofficial and covert aspect using hybrid tools, tactics, and clandestine arms-for-resources trade.

In Latin America, RT and Sputnik serve as conduits for Russian communications, complemented by Russian ambassadors and unaffiliated journalists disseminating pro-Russia propaganda.

While some proclaimed Ukraine the winner of the information war in 2022, it was never that simple, especially in a global context; it is also far from over. If these global case studies make anything clear, it’s that the Kremlin and its supporters are still attempting to shatter Ukraine’s global standing, playing the long game by targeting countries around the world with disinformation and influence campaigns designed to decrease public support and allies’ willingness to send aid.

Russia has a long history of information and influence operations worldwide, making it a formidable opponent constantly seeking to exploit weaknesses or problems within enemy societies. Similarly, Russia abuses the idea of “neutral” media to serve its disinformation alongside reporting of real events, all with an intention to leave viewers with the impression that both versions of events have merit.

By February 2022—if not earlier—the Western world recognized that RT and Sputnik are instruments of Russian propaganda rather than legitimate media sources. However, those media are still popular and influential in parts of Latin America, the Middle East, and Africa. Moreover, even in the European Union, where those channels are technically blocked, RT circumvents limitations and continues poisoning the media space via smaller mirror sites, effectively “spitting” on Western sanctions. Some channels feature Russian propagandistic content translated into local languages. At the same time, Russia continues using its embassies and diplomats as an extension of its propaganda apparatus, promoting false information, false fact-checking, and conspiracies worldwide. Russia also uses diplomatic events, such as the Russia-Africa Summit, to spread its messages at a more region-specific level.

Russian information and influence operations inside Ukraine and abroad will likely continue to evolve, finding new rifts within societies to deepen and novel approaches to employ. On top of this, 2024 is an election year in dozens of countries where Russia may try to meddle in an effort to push support toward its allies or, at minimum, away from pro-Ukrainian parties. In the least friendly countries, Russia will likely continue to push the idea—through more covert means—that aid to Ukraine is a net loss to those residing in those countries.

Indeed, Russian efforts to date have achieved partial results, like delays in the delivery of military equipment, but they have not stopped Ukraine’s ability to fight back. Ukraine is active in its efforts to counter Russian influence, allotting significant resources to monitoring and pushing back against Russian information operations, and its successes to date might provide the world with some insight into how to counter malign influence.

Given the extent of Russia’s operations and its apparent desire to move global opinion against Ukraine, as detailed in this report, governments around the world—especially those espousing democratic values—need to consider the potential impact of their decisions around Ukraine as also ultimately being global. More assistance and aid to Ukraine will bolster global democracy, while a reduction in the same will undermine not just Ukraine but democracy as a whole.

Russia’s global information war on Ukraine is evolving, and it’s here for the long haul. Check out all six chapters of DFRLab’s report on how Moscow sought to undermine Ukraine in the second year of its full-scale war.

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In Ukraine, Russia tries to discredit leaders and amplify internal divisions

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In Europe and the South Caucasus, the Kremlin leans on energy blackmail and scare tactics

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Moscow tried to sow fear among Moldovans, Georgians, and Armenians that what happened to Ukrainians could happen to them.

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By the Digital Forensic Research Lab

In the second year of Russia’s war on Ukraine, Moscow tried to sell a wider global audience on its version of events. In Latin America, Kremlin media outlets RT en Español and Sputnik Mundo were key players in this effort.

Disinformation Internet

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Feb 29, 2024

Two-pronged approach to Africa pays dividends for Russia

By the Digital Forensic Research Lab

In the African countries with which Russia has longstanding ties, diplomats lead the way. Elsewhere on the continent, Wagner Group fighters are Moscow’s more active representatives. Both official and covert approaches exploit local grievances to push Russia’s narrative.

Africa Disinformation

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Feb 29, 2024

Complicated history helps Russian narratives about Ukraine find a foothold in the Middle East

By the Digital Forensic Research Lab

Across the Arabic-speaking world, the narratives amplified by Russian state media and local media partners are framed in a way that appeals to audiences in the region and their complicated history with the West.

Democratic Transitions Disinformation

Research coordinated by Sopo Gelava and Roman Osadchuk

Written by Eto Buziashvili, Mattia Caniglia, Valentin Châtelet, Beatriz Farrugia, Sopo Gelava, Givi Gigitashvili, Tessa Knight, Ani Mejlumyan, Victoria Olari, Roman Osadchuk, Jean le Roux, Esteban Ponce de León, Iria Puyosa, Dina Sadek, and Daniel Suárez Pérez

Additional research by Nika Aleksejeva

Edited by Andy Carvin and Iain Robertson

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The post Undermining Ukraine: How Russia widened its global information war in 2023 appeared first on Atlantic Council.

]]> Redefining US strategy with Latin America and the Caribbean for a new era https://www.atlanticcouncil.org/in-depth-research-reports/report/redefining-us-strategy-with-latin-america-and-the-caribbean-for-a-new-era/ Mon, 26 Feb 2024 20:00:00 +0000 https://www.atlanticcouncil.org/?p=741202 The strategic interest of the United States and the countries of Latin America and Caribbean (LAC) lies in strengthening their western hemisphere partnership. Shared borders, economic interests, and security alliances bind these nations, along with a common goal for prosperity. However, the perception of waning US interest and the rise of external influences necessitate the […]

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The strategic interest of the United States and the countries of Latin America and Caribbean (LAC) lies in strengthening their western hemisphere partnership. Shared borders, economic interests, and security alliances bind these nations, along with a common goal for prosperity.

However, the perception of waning US interest and the rise of external influences necessitate the rejuvenation of and renewed focus on this partnership. In May 2023, the Atlantic Council’s Adrienne Arsht Latin America Center and the Scowcroft Center for Strategy and Security established the US-LAC Future Strategy Working Group to redefine the US-LAC partnership.

This strategy promotes mutual and inclusive economic growth, renewed cooperation through enhanced commercial and investment ties, a renewed paradigm on bolstering security and reducing migration flows across the region, and a focus on preparedness in the face of natural disasters and the energy transition. Acting on this strategy could significantly benefit US economic and security interests. The United States should capitalize on immediate opportunities, like promoting nearshoring as a means to growth and prosperity across the Americas, while maintaining a medium-term strategy tailored to each country’s specific needs.

This strategy paper highlights the importance of adaptability and practicality, particularly as the global economic landscape evolves and power shifts foresee new leading economies by mid-century. In addition, the strategy advocates for the significance of the US-LAC relationship amid the recalibration of US worldwide interests.

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]]> Western Balkans must pursue more competitive energy sectors https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/western-balkans-must-pursue-more-competitive-energy-sectors/ Mon, 26 Feb 2024 15:19:14 +0000 https://www.atlanticcouncil.org/?p=740112 The EU needs to take steps to support more competition and efficiency in the energy sectors of Bulgaria and the Western Balkans to advance the energy transition and promote energy independence from Russia.

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]]> European Union (EU) officials are looking ahead to 2030 as a possible target for enlargement into the Western Balkans. In preparation, the leaders of these six aspirant countries (Kosovo, North Macedonia, Serbia, Bosnia and Herzegovina, Montenegro, and Albania) are gauging how strictly Brussels enforces it directives and regulations—with the energy sector particularly important given its significance to economic growth and social stability, and its impact on the climate. Neighboring Bulgaria provides a test case. Although an EU member now for fifteen years, Bulgaria still relies on coal to generate more than half of its electricity and its energy sector remains dominated by inefficient state-owned entities whose lack of transparency provides fertile ground for Russian meddling. Analogous problems also plague energy sectors across the Western Balkans. The European Commission should therefore set an example for EU aspirants in the Western Balkans by pressing Sofia to live up to its commitments to a competitive and efficient energy sector that advances the energy transition and is independent from Russia.

Western Balkan energy: Too little competition, too much coal, and too much Russia

Energy sectors across the Western Balkans are dominated by state enterprises whose non-transparency and mismanagement have hampered competition, enabled Russian meddling, and slowed investments in the energy transition.

Privatizations of electricity networks in Serbia in the mid-2000s and Montenegro in 2009, for example, were marred by allegations of undervaluing state assets to benefit politically connected investors and thereby defrauding state budgets. The European Commission, meanwhile, recently criticized a lack of transparency in access to North Macedonia’s natural-gas transit infrastructure, as well as the country’s illiquid gas market. And concerns about corruption, mismanagement, and environmental degradation regarding the Kalivac hydropower project in Albania have resulted in major delays and cost overruns, with the project ultimately scaled back significantly.

Russia exploits these energy-sector weaknesses for both economic and geopolitical gain. The 2007 Comprehensive Energy Agreement Between Serbia and the Russian Federation, for example, outsources much of Serbia’s energy security and fiscal control to Russia.  Under this framework, Russia’s Gazprom Neft acquired 50 percent of shares in Serbia’s national oil company, Naftna Industrija Srbij (NIS), while Gazprom gained 6.15 percent, yielding a controlling stake of 56.15 percent for Russia’s majority state-owned Gazprom group. Moreover, this arrangement grants Gazprom control over NIS revenue payments to the Serbian government that account for approximately 25 percent of national budgetary revenues.

Serbia is also a key player in the Balkan Stream pipeline, an extension of the TurkStream pipeline that exclusively carries Russian gas under the Black Sea to Turkey, then across Bulgaria to Serbia and Hungary. Moscow has pursued this project, previously called South Stream, since 2007 to resist competition from Azerbaijani gas while bypassing Ukraine as a transit route into Southeast Europe.

Today, Balkan Stream reinforces the efforts of both Serbian President Aleksander Vucic and Hungarian President Viktor Orban to balance relations between the EU and Russia.

Meanwhile, governments across the Western Balkans have also failed to make concerted efforts on perhaps the quickest and most cost-effective way to reduce carbon emissions in their countries’ energy sectors: switching from coal to natural gas as a primary fuel for electricity generation.

Though also a fossil fuel, natural gas emits only one-half to one-third the amount of carbon dioxide when burned that coal does. Moreover, switching to natural gas is a cost-effective way to maintain sufficient electricity volumes to sustain economic growth, even as countries muster the massive investments required to transition fully to renewable energy.

Germany provides an illustrative case. For the past four decades, the German government has been a global leader in transitioning to renewable energy under its Energiewende program, through which it has invested hundreds of billions of euros in wind and solar-power technologies, electricity-grid upgrades, and other elements of the green-energy transition.

Germany chose affordability over sustainability, however, when the US “Shale Revolution” took off in 2008, as new horizontal-drilling and rock-fracturing technologies unlocked vast new quantities of natural gas. This large increase in supply caused the price per unit of energy of natural gas in the United States to drop beneath that of coal. As a result, many US electricity companies switched from coal to gas as a primary fuel. This freed up US coal for export, causing its price per unit of energy in Germany to fall below that of natural gas. Many German electricity producers therefore moved in the opposite direction of their US counterparts, shifting back to “dirty” coal. Germany consequently missed its targets under the 1997 Kyoto Protocol for reducing its greenhouse-gas emissions while the United States, which never ratified the protocol, met its Kyoto targets thanks to its increased use of natural gas rather than coal.

Despite Germany’s short-term reembrace of coal but long-standing pursuit of renewable energy, German industry still chooses to depend significantly on natural gas to cover approximately 27 percent of the country’s fuel demand, second only to oil and significantly more than renewables’ share of 16 percent.

Before its full-scale invasion of Ukraine in February 2022, Russia provided 70 percent of Germany’s natural-gas supply. When Russia subsequently slashed those supplies, Berlin did not double down on renewable energy. It instead replaced Russian gas supplies with liquid natural gas (LNG), largely from the United States, after executing an unprecedentedly quick investment program to develop four import terminals to re-gasify LNG and deliver it into Germany’s pipeline network.

Western Balkan countries, however, have so far not chosen to follow Germany’s lead in relying on natural gas as a key transition fuel to a renewable-energy future. As the table indicates, Kosovo, a potential EU candidate country, uses coal for 95 percent of its power generation—primarily lignite, which is locally plentiful but the dirtiest variety of the dirtiest primary fuel. In North Macedonia, coal is responsible for generating 75 percent of the country’s electricity, while the figure is 70 percent in Serbia and 63 percent in Bosnia.

Source: Bankwatch Network

Montenegro and Albania use less coal and more hydropower. Coal is responsible for 43 percent of electricity generation in Montenegro, hydropower provides 47 percent of its electricity, and wind and solar provide the remaining 11 percent. In Albania, hydropower generates 99 percent of the country’s electricity, but the supply is insufficient, which requires electricity purchases from neighboring countries, most of which are generated from coal.*

Many climate activists are pleased that none of the Western Balkan countries relies on natural gas to generate significant volumes of electricity, and they advocate for the EU to press these aspirant countries to jump directly from coal to renewables. This is precisely what Kosovo plans to do. It is difficult to understand, however, how Kosovo will be able to attract the massive investments necessary to generate sufficient volumes of renewable electricity quickly enough to alleviate serious electricity shortfalls and affordably enough to maintain political stability, especially with 40 percent of its population living below the poverty line.

The government of Serbia, in contrast, is planning to increase the role of natural gas in its economy. Serbia has been buying Russian natural gas for decades. It now plans to increase those purchases via the Balkan Stream pipeline. In addition, Bulgaria and Serbia are finalizing a separate gas interconnection that could theoretically provide non-Russian supplies, but in practice may deliver exclusively Russian gas—albeit disguised as “Turkish gas”—via a recent agreement between the state-owned natural gas monopolies of Turkey and Bulgaria.

At the same time, Belgrade is also planning to diversify its supplies of natural gas to try to reduce its dependence on Russia.  Serbia thus hopes to purchase Azerbaijani gas via the EU-supported Southern Corridor.

The Southern Corridor consists of the South Caucasus Gas Pipeline across Azerbaijan and Georgia, which then connects with the Trans-Anatolia Pipeline (TANAP) across Turkey, which in turn feeds into the Trans-Adriatic Pipeline (TAP) across Greece and Albania and under the Adriatic Sea to Italy. The Interconnector Greece-Bulgaria (ICGB) will divert gas from TANAP at the Turkey-Greece border and deliver it into Bulgaria; from there it will soon be able to enter Serbia via a new Bulgaria-Serbia interconnection.

Albania is also weighing whether to introduce natural gas into its economy to expand electricity generation in a more cost-effective way than building new hydropower plants, which have sparked sharp environmentalist protests in the past, such as at the aforementioned Kalivac dam project. Thus, the government of Albania is considering whether to develop localized natural-gas grids in two cities, perhaps as precursors for a national natural-gas grid.

North Macedonia, Bosnia and Herzegovina, and Montenegro are also considering significant investments in natural-gas infrastructure. Moscow, however, is working to lock these countries and their neighbors into dependence on Russian natural gas, with Russia now developing seven natural gas power plants, in tandem with Chinese financing and technology, in North Macedonia, Bosnia and Herzegovina, Serbia, and Croatia.

Bulgaria: State monopolies and coal crowd out the private sector and gas

In contrast to plans by five of the six Western Balkan countries to adopt natural gas as a cost-effective way to sustain economic growth and reduce carbon emissions, Bulgaria has been moving in the opposite direction for the past thirty years. Natural-gas consumption has decreased from 7 billion cubic meters (BCM) in 1993 to approximately 3 BCM today. As a result, coal remains the primary fuel for generating 56 percent of Bulgaria’s electricity. In contrast, during the same period, natural-gas consumption increased in Greece from zero to 7 BCM, and in Turkey from 15 BCM to 70 BCM.

To make matters worse, Bulgaria’s electricity system remains so inefficient that 80 percent of the energy released by burning coal in power plants is lost before the electricity reaches customers. This creates a double blow to the EU’s greenhouse-gas reduction targets: excessive use of fuel in general, and over-reliance on the dirtiest fuel, coal.

Bulgaria, like Serbia, consequently consumes more than three times as much energy and emits three times as much carbon per unit of GDP as do the EU’s original member states, which have been consuming significant volumes of natural gas for decades. It is, therefore, no coincidence that the energy intensity of Bulgaria’s economy today is roughly equal to that of Germany and the Netherlands in the 1970s, when they first began to adopt natural gas. Rather than emulating the Netherlands and Germany in switching from coal to natural gas, however, the Bulgarian government continues to subsidize coal-fired electricity, perpetuating decades of non-transparent revenue streams acquired and distributed via state-owned energy monopolies.

Moreover, with the lowest per-capita GDP in the EU, Bulgaria’s energy investments must be affordable, which rules out the enormous capital investments required for a direct jump from coal to renewables. The most cost-effective—and therefore politically sustainable—way for Bulgaria to slash carbon emissions would be to encourage private investment in a shift from coal-fired electricity to natural gas.

Unfortunately, this is not happening. Instead, Bulgaria’s state-owned energy monopoly, Bulgaria Energy Holdings (BEH)—which includes natural-gas supplier Bulgargaz and transmission-system operator Bulgartransgaz—has been crowding out private companies that are eager to invest in Bulgaria’s natural-gas infrastructure.

In 2012, for example, BEH prevented private companies from using Bulgaria’s natural-gas transmission pipelines. The European Commission fined BEH 77 million euros for this anticompetitive behavior. BEH continues to fight that fine in court, while private companies struggle to carve out space to compete with the state monopoly.

Punished for doing the right thing

Bulgaria’s private natural-gas suppliers are under severe financial strain after obeying EU regulations to fill Bulgaria’s underground gas storage (UGS) to 80 percent capacity by November 2022 to ensure security of supply in case Russia cut off gas to the EU following its invasion of Ukraine. This required Bulgarian gas suppliers to buy natural gas last summer at all-time peak prices and inject it into Bulgaria’s natural-gas storage facility at Chiren. Once the winter heating season concluded, natural gas prices in Europe fell to a fraction of the price suppliers paid to fill Bulgaria’s UGS. Normally, Bulgaria’s gas suppliers would have purchased hedges to protect against such dramatic seasonal price shifts. In this instance, however, there appeared to be no reason to do so because the European Commission had directed member-state governments with gas in storage to take “all necessary measures” to protect gas suppliers against such financial losses, as per Regulation (EU) 2022/1032.

Unfortunately, as of February 2024, the Bulgarian government had not yet promulgated the compensation mechanism it promised in accordance with the EU regulation. Private buyers of the stored gas therefore face a brutal financial dilemma: either sell now at enormous losses or hang onto the gas until prices rise, denying them the revenues required to service their loans. Either way, private Bulgarian gas suppliers face a severe liquidity squeeze, which could bankrupt them. As a result, they would likely be unwilling and/or unable to make emergency gas purchases again for this coming winter in case of another supply crisis.

Sofia did, however, extend a highly concessional 400-million-euro loan to Bulgargaz to compensate for some of its unhedged losses. However, the government then rejected requests by the country’s private gas suppliers for an analogous loan. The government’s loan to Bulgargaz would therefore appear to be an example of illegal state aid and another example of the state crowding out private companies in Bulgaria’s energy sector. The European Commission, however, decided to permit the market-distorting example of state aid because of what it terms an “energy” crisis caused by Russia’s sharp curtailment of natural gas deliveries into the EU.

Bulgaria’s nexus among corrupt energy officials and Russia

BEH’s non-transparent and anti-competitive behavior also undercuts the EU’s geopolitical goal of reducing energy revenues on which Russia relies to finance its war against Ukraine.

Bulgaria is infamous for murky ties between its government officials and their Russian counterparts. One former Bulgarian minister of energy, Rumen Ovcharov, is sanctioned under the US Global Magnitsky Act for participating in corrupt deals with Russian natural-gas and nuclear-fuel suppliers, as are Aleksandar Nikolov and Ivan Genov, two former chief executive officers (CEOs) of Bulgaria’s Kozloduy nuclear-power plant.

Today, Russia’s enduring presence in Bulgaria’s energy sector is evident at the country’s most valuable industrial asset, the Neftochim oil refinery in Burgas, which is owned by Russia’s Lukoil. While Bulgaria’s current government may be planning to nationalize and then privatize the refinery via non-Russian investors, its predecessor caretaker government secured a derogation from the EU’s ban of Russian oil imports to feed the refinery until 2027.

Meanwhile, Russia’s role in Bulgaria’s natural-gas sector appears to be growing, thanks to a January 2023 confidential agreement between the state-owned natural-gas monopolies of Bulgaria and Turkey. That agreement, the terms of which were leaked to Bulgarian media and subsequently confirmed by the current Bulgarian government, define a thirteen-year contract that reserves the entire capacity of the gas interconnection between Turkey and Bulgaria for BOTAS and Bulgargaz, locking out all competitors. Moreover, the agreement obligates Bulgargaz to accept any gas from BOTAS without BOTAS having to disclose the origin of that gas, while obligating Bulgartransgaz to deliver that gas to any exit point from Bulgaria via the country’s transmission pipeline system.

These unusual contractual obligations by Bulgargaz and Bulgartransgaz are now reportedly under investigation by the European Commission as potential violations of EU competition rules. The commission is also exploring whether the contract provides a potential “backdoor” for Russian gas to enter the EU even after the EU’s 2027 cutoff date for ending all imports of gas and oil from Russia, a suspicion reinforced by Russian President Vladimir Putin’s proposal to establish what he termed “a Turkish hub for Russian natural gas” during his September 4 meeting with Turkish President Recep Tayyip Erdogan. Erdogan, in contrast, is pressing for a genuine natural-gas trading hub in Turkey, where supplies converge from multiple directions and prices are set by market forces.

Conclusion: Set the right example in Bulgaria for the EU’s enduring integrity

Analogous versions of these Bulgarian energy problems are prevalent across the Western Balkans. They are almost certain to persist as long as government-owned companies dominate these countries’ energy sectors. Although it will take years to eliminate these state-led market distortions, there are significant steps the European Commission can take now in Bulgaria to strengthen private-sector competition, reduce greenhouse-gas emissions, mitigate corruption, and thwart Russian meddling, thereby setting examples for the EU aspirants in the Western Balkans. The European Commission should therefore press the Bulgarian government to:

  • Encourage the Bulgarian government to end subsidies for coal-fired electricity and instead support increased use of natural gas as a transition fuel to renewable energy, while also creating an operating environment that is conducive to investments in natural gas infrastructure by non-Russian and non-Chinese parties;
  • penalize the Bulgarian government for illegal state aid that crowds out the private sector and reduces competition, such as the 400-million-euro loan to Bulgargaz;
  • enforce Regulation (EU) 2022/1032 by insisting that the Bulgarian government finalizes and implements its “necessary measure” to protect against significant financial losses incurred by suppliers that injected gas into storage ahead of the 2022–2023 winter heating season, as required by the European Commission;
  • and demand the same level of transparency regarding the origins of natural gas at entry points into the EU (such as at the Turkey-Bulgaria border) as the European Commission already requires inside the EU at interconnections between member states.

Taken together, these measures would set a powerful example for political and business leaders across the Western Balkans and stress that they must take seriously the EU’s rules pursuing more transparent, efficient, and competitive energy sectors within its member states, which are are driven by well-governed private companies that invest in the energy transition and are free from Russian influence. Absent such steps in Bulgaria, however, Brussels risks signaling to leaders across the Western Balkans that the reform commitments they make today to secure EU membership can be ignored tomorrow. Such disregard for EU requirements risks undermining the credibility, and eventually even the viability, of the European Union as the world’s premier rules-based organization.

Matthew Bryza was a nonresident senior fellow with the Atlantic Council’s Global Energy Center and the Atlantic Council IN TURKEY. Bryza was formerly the US Ambassador to Azerbaijan. Follow him on X (formerly known as Twitter) @BryzaMatthew.

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]]> South Africa needs political change to meet economic demands https://www.atlanticcouncil.org/in-depth-research-reports/books/south-africa-needs-political-change-to-meet-economic-demands/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737073 South Africa's future hinges on political changes, especially the potential shift to a coalition government in the 2024 election. Economic challenges, including rising debt, demand urgent reforms. Global alliances, notably with BRICS and China, affect trade dynamics, emphasizing the need for diversification.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The gradual deterioration of freedom in South Africa, which started in the early 2000s and is reflected in the Freedom Index, encapsulates the evolution of the country. Regarding economic freedom, the severe drop in investment freedom is very likely due to the introduction of legislation requiring foreign investors to have local partners, and to give away equity on a large scale. The application of such requirements to more and more sectors explains the continuing erosion of investment freedom up until today.

The ability to move capital in and out of the country has been static or has slightly improved. Similarly, trade freedom has not suffered big changes during the period of analysis, and that is well captured by the flat trend of this indicator. The short-run fluctuations are probably due to the changing trade agreements with the European Union (EU), but these are modest. The slide in property rights protection that started around 2012 is explained by the introduction of efforts to amend the constitution to allow for “expropriation without compensation” of agricultural land. While a strong majority favored the amendment, parties could not agree on the specific way such a policy would be carried out, and it was finally left aside. Nonetheless, it obviously continues to be a major threat in the near future, as the African National Congress (ANC) is likely to lose its majority and may revert to a populist alliance that would raise the issue again.

The significant increase in women’s economic rights, up to an almost perfect score, may be correct at a legislative level. Nonetheless, the real situation may be worse for at least two reasons: First, the levels of criminality, and particularly gender-based violence, are today at an all-time high, which clearly reduces women’s actual freedom. Second, even if there are no legal restrictions on women’s participation in economic affairs, social and traditional norms may still severely limit their opportunities in some areas of the country. Consequently, the positive push that this indicator gives to the aggregate economic freedom subindex may be somewhat artificial, implying that the real trend in overall economic freedom is probably worse than currently shown.

The political freedom subindex shows a very flat trend, but with a mild deterioration apparent in the last few years. The evolution of the indicators in this subindex can shed some light on what is going on. Elections and political rights scores are very high in South Africa, and the slight negative trend may be attributed to political polarization, but overall, the electoral process and its guarantees are not severely affected. The “legislative constraints on the executive” indicator has a clear upward bump in the 2013–19 period, which probably reflects the failure of parliament to act on allegations of state capture during the presidency of Jacob Zuma. The publication of the State of Capture report in 2016 resulted in a national scandal, and the rejection of its conclusions by Zuma, who was later chastised by the Constitutional Court, and this may explain the initial increase on this indicator. The establishment of the Zondo Commission in 2018 can account for the additional increase up until 2020. The post-2020 fall can be explained by the failure of the state to take action against the many individuals exposed for corruption before the Commission, and the impunity with which COVID-19 funds were looted by senior officials. Hence, the fall after 2020 is capturing the failure of the government to implement the recommendations of the Commission in any meaningful way. Nonetheless, the very marked upward bump shown in the data, between 2015 and 2019, seems rather unrealistic as no specific legislative changes were introduced on this front.

A second clear fact highlighted in the political freedom data is the significant worsening of civil liberties since 2019. Government actions during the COVID-19 pandemic are surely behind the initial drop. The empowerment of the army to stop and search individuals as a means of restricting the spread of the disease generated many abuses, and even deaths in some encounters. The health restrictions imposed in South Africa—such as the prohibition on buying certain goods, and the severe lockdowns and limitations on free movement—were probably among the strictest in the world. It is not surprising that, even after lifting the COVID-related restrictions, South Africa’s score on civil liberties protection has not rebounded and has actually worsened. This is because, in recent years, there has been a strong move against civil society in proposed legislation. For example, legislation is planned that would require nongovernmental organizations to apply for state security clearance to prove that they are not acting in favor of foreign powers.

The visible deterioration of legal freedom in South Africa since 2008 is notable. In 2009 Jacob Zuma acceded to the presidency and, very early in his mandate, he started to appoint close collaborators to senior positions across the criminal justice system in an effort to protect himself and his cronies against prosecution. The indicator on bureaucracy quality and corruption adequately shows the erosion and capture of the state apparatus. Judicial independence being relatively high and constant throughout the period of analysis may be faithfully reflecting the fact that the High Court and the higher levels of the judicial system have been able to prevent their capture by the executive. But it is also very true that the judicial system in South Africa is not as efficient for the average citizen, and this fact may not be fully captured by this indicator. It could be that the decline in the clarity of the law since 2010 is picking up the overall uncertainty and opacity of the judicial process in regular cases, due to inefficient and very slow courts.

From freedom to prosperity

The Prosperity Index seems to portray a picture that is the complete opposite of my reading of South Africa’s recent development trajectory. The Index shows a fall in prosperity between 1995 and the global financial crisis of 2007–08, followed by a recovery in the last fifteen years. Instead, I believe that the first half of the period of analysis was relatively positive for the country, while the last ten to fifteen years saw a clear deterioration. A closer look at the indicators that make up the Prosperity Index shows that it is mainly the evolution of the health indicator that is shaping overall prosperity. Therefore, it is probably more enlightening to analyze each indicator separately than to rely on the aggregate score.

The evolution of income per capita somewhat vindicates my argument. Gross domestic product (GDP) growth was strong and stable up until 2007, thanks to a substantial reordering of the public sector budget. On the one hand, there was some fiscal tightening and consolidation through reduced overspends. On the other, President Mandela (in power 1994–99) introduced several social programs that had an important redistributive effect. President Mbeki (1999–2008) continued this policy path and South Africa achieved positive GDP growth rates for several years in the early 2000s. Another crucial factor that fueled South Africa’s economic success in this period was a substantial decline in the cost of borrowing. With the election of Nelson Mandela in 1994 and the transition to a fully democratic system, South Africa’s credit rating was upgraded from close to junk to AAA. The increased borrowing capacity of the South African government helped create a quite substantial movement into the middle class, especially among black South Africans, who gained access to public sector jobs with rising wages. The resignation of Mbeki and the accession to power of Jacob Zuma, together with the worsening international environment during the 2007–08 financial crisis, halted abruptly the positive economic growth rates of the previous decade, and started a period of stagnation. The rating of South African debt deteriorated again and made further pay increases for public servants and other redistributive policies unsustainable.

The drastic dynamics of the health indicator are driven by the extremely different approaches to AIDS of Thabo Mbeki and Jacob Zuma. The former was a denialist and refused to deal with AIDS for most of his term, relenting only once the courts ruled against him near the end of his presidency. When Zuma took office, the government finally accepted that AIDS was a major problem, and a comprehensive health policy was instituted to begin fighting the disease. This shift—combined with the United States President’s Emergency Plan for AIDS Relief (PEPFAR), which began in 2003—played an important role as well in the dramatic increase in life expectancy from 2006. The severe impact of COVID-19 in South Africa, clearly greater than the average for Sub-Saharan Africa, does not necessarily imply a worse handling of the pandemic in the country. This is because COVID-19 disproportionately affected individuals with preexisting conditions, who represent a much greater share of South Africa’s population than is the case for the rest of the region. South Africa has a relatively higher cohort with so-called “first-world diseases” like diabetes, heart disease, hypertension, and so on, all of which contributed to higher mortality rates during the pandemic.

South Africa is a very unequal country, and the significant deterioration in terms of inequality during the first half of the period of analysis is very plausible. The main reason for such poor numbers is the dysfunctional labor market, including high levels of unemployment. There is a great divide in South Africa between those with a job and those without one. The expansionary policies of Mandela and Mbeki were intended to reduce inequality; they succeeded in expanding middle-class wealth but failed to deal with the growing number of people “outside” the labor market. Today South Africa has roughly three million civil servants, which represent close to half of the total number of taxpayers in the country. This somewhat artificial middle class that emerged since 1994 pulled away from those with limited job opportunities, worsening inequality. There were also some cases of incredible wealth creation among a very tiny elite, which widened the distribution even further.

The improvement in environmental quality is not impressive, clearly slower than the rest of the region. This is probably due to the fact that fossil fuels and solid fuels are still heavily used, especially among poorer households with no access to cleaner energy sources, as electricity generation has foundered. South Africa still operates a large fleet of coal-fired power stations and a fleet of carbon-intensive diesel generators, as the country has been unable to effectively transition to renewable sources of energy. So, the rise in this indicator may be more attributable to the fall in large industrial operations in the country than to a comprehensive policy focus towards a cleaner environment.

The important increase in the education indicator, of more than 20 points in the last twenty-five years, captures the massive push to increase enrollment rates at all levels of the educational system. Preschool has been an important policy focus, but also there has been a very substantial increase in fee subsidies for university students, so years of schooling are increasing at the intensive and extensive margins. Nonetheless, when we look at the quality of education, the assessment is not so positive. The standards required to pass to the next grade have been dramatically lowered. The deterioration in the quality of the education received by pupils is evidenced by the scores in global benchmarking tests, which paint a very different picture to the steady rise shown when measuring years of schooling.

The future ahead

The near future for South Africa will be determined by the evolution of the political situation. It is all about getting the politics right. The upcoming election in 2024 is going to be crucial for the country. It is very likely that we are going to see a change from a dominant party system to a coalition system. This may lead to some political instability in formal politics and parliament, but it will also lead to greater accountability and more political competitiveness. The direction the country will take is not obvious and will depend on which party or parties enter into coalition with the ANC, which is likely to remain the single largest party. The risk of the radical left party entering government is clear, with its support for arming Russia with South African weaponry, expropriation of whole sectors of the economy, and so on. If the ANC continues looking to the Communist Party and the trade unions for support, and builds a coalition with the populist left, there is a substantial risk of heading towards a downward political spiral, a rise of populism, and a sharp fall into a situation similar to that of Venezuela. Instead, if the political center is able to hold its electoral territory and becomes a suitable partner for the ANC, it would offer a completely different trajectory for South Africa. There is, for the first time, a serious effort to build a pre-­election pact between opposition parties, which may change the overall political calculation in favor of the center. Therefore, the electoral results of 2024, and the coalition outcomes, will be the key determinant of where South Africa will be in ten years.

South Africa’s fiscal situation is also a pressing problem that needs to be addressed if we are to avoid a major crisis. We are now on the verge of a fiscal cliff, with rising debt that will soon further constrain government spending. This will likely lead to a deterioration of the social climate, with worsening outcomes in areas like health and education. Again, a sensible government that can introduce structural reforms in the public sector and stabilize the fiscal situation, is of fundamental importance for South Africa.

Finally, South Africa’s global alignment will play a crucial role in its evolution in terms of freedom and prosperity. The importance given to being part of the BRICS group (Brazil, Russia, India, China, and South Africa) is not helping South Africa as it weakens the country’s standing with other nations with whom it has a more favorable trade balance and to which it exports more finished products. The expansion of the BRICS group to include Iran, Saudi Arabia, the United Arab Emirates, Argentina, and Ethiopia reinforces this negative trend. Moreover, China’s economic slowdown is leading to falling external demand for South African goods, especially minerals, threatening foreign exchange earnings. And being close to Russia and China is negatively impacting South Africa’s relations with other democracies—in the West and elsewhere—and making it more difficult to develop an exporting sector that is not so heavily dependent on China.

Greg Mills heads the Johannesburg-based Brenthurst Foundation, a think tank that seeks to strengthen African economic performance. He has directed numerous reform projects with African heads of state across the length and breadth of Africa. His latest books include Rich State, Poor State (2023), The Ledger: Accounting for Failure in Afghanistan (2022), and Expensive Poverty (2021), as well as a volume on South African scenarios, The Good, the Bad and the Ugly (2023).

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]]> China’s authoritarian trend meets resistance in East Asia and the Pacific https://www.atlanticcouncil.org/in-depth-research-reports/books/chinas-authoritarian-trend-meets-resistance-in-east-asia-and-the-pacific/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737440 China's influence shapes political and economic dynamics in East Asia and the Pacific. Despite resistance, its practices hinder freedom across the region. Youth movements demand responsive systems. Weak institutions and challenges like inequality persist, requiring diversified economic strategies and strengthened democracies to navigate regional complexities.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The trends shown in the Freedom Index match some key historical events that impacted the region’s trajectory. The wave of democratization that followed the Soviet Union’s fall in 1988–89 peaked during the Asian financial crisis of 1997–98, before stagnating for several years afterwards. Despite, or perhaps because of Indonesia’s transition to democracy in the years after 1998, the overall regional political picture remained relatively constant, with democratic nations sustaining their democratic status and authoritarian countries largely doing the same. This relative stasis led to a plateau in the Freedom Index between 2000 and 2010. The visible improvements in political and economic freedom from 2012 onward are attributable to the quasi-democratic transition in Myanmar, a country previously governed by a military junta for seven decades, as well as greater political dynamism in Malaysia and the region’s overall continued economic liberalization.

The early 2000s also marked an era of substantial economic growth in China, accompanied by limited political liberalization. This trend toward liberalization has taken a dramatic downturn since 2013, which is associated with the rise of Xi Jinping as the paramount leader of China and his hardline approach to governance. This reversal, together with the 2021 coup in Myanmar, has exerted significant downward pressure on freedom across the region. This downward pressure, if weighted by China’s economic and demographic size, would show up even more clearly on the Freedom Index during this period. It is also crucial to acknowledge that the aggregate figures may actually understate the extent to which overall regional freedom was and is under pressure due to China’s internal policy shifts and its external influence over the democratic and economic development of neighboring countries.

On economic freedom, it is striking to observe the remarkable progress made on women’s economic freedom, emerging as a significant positive trend within the broader context. This progress has been led by several countries that recognized the economic potential inherent in women’s participation. This was a priority of the White House-led Women’s Global Development and Prosperity Initiative—that I was a part of—emphasizing the benefits of enhancing female workforce involvement and dismantling regulatory barriers. Such measures were projected to foster substantial economic growth, and by some metrics nearly all economic growth in the region can be attributed to the dramatic increase in women’s economic participation.

Comparatively, other factors like trade freedom, property rights, and investment freedom have shown only marginal improvements over the sample, underlining the pivotal role of women in propelling economic prosperity. This aspect becomes even more profound when considering the exponential economic growth experienced by these countries in the past thirty years. This warrants similar scrutiny to determine if this trend remains consistent on a global scale. There seems to be an undeniable correlation between women’s participation in the workforce and the stimulation of economic growth and prosperity worldwide. While this trend is an overall positive one, given the regression of women’s rights in China under Xi Jinping—a phenomenon that has accelerated in the past five years—we should expect to see a correlating loss of economic momentum across the region. Again, if these numbers were weighted by population and size of economy, China’s regression would wipe out most—if not all—of the recent and projected gains made by other countries in the region.

Overall, recent developments in China reveal a concerning pattern of exerting downward pressure on women’s rights, both politically and economically, in response to demographic challenges. This realization underscores the fragile nature of women’s economic progress, particularly when subjected to external pressures or anti-freedom regulatory changes. The potential impact of these trends could manifest as a significant downward force, consequently jeopardizing decades of progress. The adverse implications could extend to critical areas such as poverty alleviation, health outcomes, environmental sustainability, and educational attainment for entire economies, given the historically strong correlation between these socioeconomic indicators and the economic advancement of women.

On legal freedom, the graph shows periods of marginal improvement followed by stagnation and subsequent regression. Notably, while there appears to be a regional convergence around “legal clarity” and “bureaucracy and corruption” between 2014 and 2018, China sees a sharp divergence on these two issues starting around 2014. These trends coincide with Xi Jinping’s far-reaching anti-corruption campaign at home and the launch of the “Belt and Road” initiative abroad. This period also witnessed a simultaneous shift in China’s legal landscape, namely the reversal of prior, admittedly modest, efforts to cultivate nominally independent judicial and legal institutions that were somewhat separate from the influence of the Chinese Communist Party (CCP). With China’s explicit shift from “rule of law” to Xi’s “rule by law” since 2013, law is increasingly utilized as a tool for the CCP to control people and institutions, rather than establishing an independent legal space. This reconsolidation of party control over state institutions wiped out twenty years of progress, with widespread consequences for the rule of law—particularly around the sanctity of contracts and other foundations of economic progress. This increasingly unpredictable legal and policy environment in China has had economic consequences, including a dramatic decline in foreign direct investment and an increase in capital flight.

In many countries in the region, legal freedom is intricately linked to political freedom, particularly in nondemocratic nations. Several of the region’s economies have attempted—with varying degrees of success—to disaggregate economic freedom from political freedom while maintaining a stable and predictable business climate. Singapore is by far the most successful example, but its success is generally considered an anomaly attributable to its small size and the highly competent nature of its ruling elite. Singapore’s long-ruling People’s Action Party (PAP) prizes the country’s reputation as a rule-of-law jurisdiction that maintains high standards and predictability in its banking, legal, and other economically important sectors. It is also worth noting that Singapore has benefited from a loss of confidence in Hong Kong as a regional financial hub. Even as the PAP has allowed a greater degree of personal freedoms in recent years—and maintains the formal aspects of democracy, such as multiparty elections and a functioning legislature—the Lee family dynasty continues to wield enormous influence on politics and policy. By contrast, in Myanmar, promising economic reforms that spurred dramatic economic growth during the 2012–21 “hybrid period” were also aimed at undoing decades of mismanagement by successive military regimes that ruled through extraction, corruption, and violence. Since the February 2021 coup however, the combination of political repression and armed conflict in Myanmar, together with the return of extractive military mismanagement of the economy, has wiped out a decade of substantial economic growth and plunged the country backwards across all freedom and prosperity metrics.

On security, the anomalies in certain periods can be attributed to global events such as the “war on terrorism” which drove legal uncertainties in countries like Indonesia and Malaysia. The period between 1998 and 2002 witnessed particularly intense geopolitical shifts in the region, including the establishment of Timor-Leste and Indonesia’s overall positive trajectory. However, while there have not been similarly earth-shaking transitions in recent years, the region has experienced an increased level of volatility from military coups in Thailand and Myanmar, political disruption in the Philippines and Malaysia, increasing authoritarianism in Cambodia, and China’s military adventurism towards Taiwan and grey-zone antagonism in the South China Sea, all of which have negatively influenced the overall political and legal landscape.

From freedom to prosperity

Consistently maintaining a 3-point lead over the global average in terms of overall prosperity from 1995 to 2019, the East Asia & the Pacific region has shown a remarkable level of economic resilience despite an often tumultuous political environment. With significant progress since the early 2000s, the average income score in the region has surged, positioning the region 5.5 points ahead of the global average by 2022, when the two had been roughly equal in the year 2000.

But it is also worth noting that, despite the frequent invocation of “the East Asian miracle,” the overall prosperity score for the region is parallel to the global trajectory, displaying a proportionate trend rather than a significant disparity. We know that over the past three decades China alone has contributed close to three-quarters of the overall global reduction in the number of people living in extreme poverty, but looking at overall prosperity brings a new light to that progress in the region. As in other regions, there is a complex interplay between economic growth, inequality, educational attainment, and minority rights that defies easy categorization or explanations.

As we see in the data, rapid economic expansion in nondemocratic countries can lead to progress on education and health indicators, but often coincides with growing income inequality. Environmental sustainability also appears to be a critical area for attention, as the region shows much slower progress than the global average on the environment indicator. This issue deserves a greater focus given the region is home to some of the largest and fastest-growing carbon emitters in the world and some of the planet’s most important and vulnerable areas for biodiversity, climate risk, and the blue economy.

The region also features a notable trend in the context of minority rights, where we see a lot of fluctuation. After a significant positive surge in recognition and protection following the end of the Cold War and the dissolution of the Soviet Union, events such as the 9/11 attacks, the war on terrorism, and global financial crises appear to have contributed to periods of stagnation and eventual regression. While international efforts to bolster human rights mechanisms focusing on minority rights intensified, the global trend in terms of actual impact remained mostly negative, and we see only minimal and isolated improvements in the region. Yet a closer examination reveals the intrinsic connection between minority rights and inequality. Looking at these two indicators together allows for a more nuanced understanding of the challenges faced by marginalized groups within societies experiencing rapid economic prosperity, and raises a number of interesting questions about sustainability and internal stability for both developing and developed countries in the region.

On education, the fact that the region is in line with the global trend is surprising, and could be considered something of a failure for a region that has been prioritizing progress on educational attainment for decades. Understanding this phenomenon would require a more nuanced evaluation of the region’s educational policies and practices, as well as the impact of social mobility and other economic factors.

The future ahead

The impact of China’s actions within and beyond its borders holds significant sway over the political and economic dynamics of the region. While the unweighted data offers a tantalizing glimpse of this impact, a weighted analysis that reflected China’s economic and demographic heft would likely further reveal its profound influence on political and economic freedoms across East Asia & the Pacific. The practices emerging from the People’s Republic of China, particularly the establishment of Beijing-facing economic infrastructure along the Belt and Road, contribute to a discouraging feedback loop. China’s mercantilist approach, both in its direct relationships with other countries and as articulated in Xi Jinping’s Global Development Initiative, is clearly geared towards replicating China’s securitization of governance and its state-led model of economic development across China’s near abroad. While other regional powers such as Japan, South Korea, and Australia are attempting to push back on this overall trendline—and there are indications that China’s economic weakness may inhibit its ability to project both power and ideology going forward—the sheer mass and momentum of the past decade’s efforts will continue to impede the expansion of freedom in the region.

One powerful force that could potentially counteract Beijing’s authoritarian trend is the persistence and consistency with which the region’s youth population has demonstrated its rejection of authoritarian governance models. From the revolution in Myanmar to the uprising in Hong Kong, and the May 2023 electoral results in Thailand, there has been a clear regional demand from young people for more responsive political systems and more sustainable and equitable growth. This youth wave dovetails with the region’s vulnerability to climate-related challenges, notably in Pacific Island states and littoral nations affected by extreme weather events, and many are calling for a concerted focus on environmental preservation and pragmatic solutions. Beyond the existential threats faced by the most vulnerable states, the general pursuit of cleaner air and water, fewer plastics, lower carbon emissions, and protection of biodiversity, has gained momentum across societies in the region as they progress, modernize, and move up the value chain.

Persistent challenges such as inequality, weak protection of minority and women’s rights, underdeveloped political institutions, endemic corruption, and regression in the rule of law are likely to continue to impede the region’s pursuit of both freedom and prosperity. While China’s influence contributes to these challenges, its success is largely derived from taking advantage of long-standing institutional weaknesses within individual countries. The persistence of weak institutions in developing Asian countries, despite substantial aid from various international donors and entities over a period of decades, deserves greater attention. Internal political instability, highly consequential elections, and ongoing armed conflicts within the region add further pressure, creating an environment of uncertainty and turbulence.

The slow growth of prosperous mature economies like Japan, Australia, and South Korea, coupled with the struggles of middle-income and low-income countries, underscores the need for diversified economic strategies toward this complex region. The persistent downward pressure on political freedom likewise highlights the imperative for stable democracies and allied partners to prioritize reinforcement of effective and pluralistic governing institutions in the region. Acknowledging the time and effort required to build political and economic resilience is crucial, especially in anticipating and effectively managing a potential conflict over Taiwan. The global implications of such a conflict are vast, as are the threats to regional and global stability and prosperity posed by the rogue regime in North Korea.

The more stable Southeast Asian countries continue to struggle with efforts to evade the middle-income trap. Recent trends in supply chain diversification away from China could prove to be an important opportunity for countries like Indonesia, Thailand, Vietnam, and Malaysia. This diversification has opened up new prospects for these countries, leading to an increasing focus on value-added production. Notably, countries such as Indonesia are actively striving to enhance their domestic production capabilities and move up the value chain, reducing reliance on the export of raw materials and commodities to China. This shift has garnered interest from affluent countries in the region, including South Korea, Japan, and Australia, which are extending support in critical areas such as critical minerals supply chain capabilities.

Amidst these developments, it is evident that positive economic prospects persist, although the sustained pressure on political freedom remains a concern. As such, stable and prosperous democracies in the region, along with their allied regional and global partners like the United States, Europe, and Canada, must continue their concerted efforts to strengthen institutions within these countries. It is crucial to recognize that progress in this domain may not be immediately visible, but the resilience and robustness of these countries’ institutions when faced with inevitable pressures and shocks—whether of the “black swan” or “grey rhino” variety—will be the ultimate measure of success.

Amb. (ret.) Kelley E. Currie is a nonresident senior fellow for the Atlantic Council’s Freedom and Prosperity Center and Scowcroft Center for Strategy and Security. She is also a founding partner of Kilo Alpha Strategies, a boutique geopolitical advisory firm. In addition, she currently serves as a senior adviser to the Krach Institute for Tech Diplomacy at Purdue University and as a member of the board of directors of the National Endowment for Democracy, the board of governors of the East-West Center, and the advisory boards of Spirit of America and the Vandenberg Coalition.

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]]> China must spread its wealth to reach equality https://www.atlanticcouncil.org/in-depth-research-reports/books/china-must-spread-its-wealth-to-reach-equality/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=735929 Despite phenomenal growth in GDP, Chinese people have seen only modest gains (if any) across a range of freedom and prosperity indices. The Chinese Communist Party has failed to share the benefits of the country’s upward economic trajectory equally among its citizens.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

Examining the Freedom Index overall, which combines economic, political, and legal freedom subindexes, the differences between China and the rest of the region are striking: not only does China underperform compared to the regional average (in 1995, the beginning of the Index, China’s freedom score was just over 40 compared with just under 60 for the East Asia & the Pacific regional average) but it shows an overall decline in freedom over the Index time span. Overall freedom improved slightly between 2000 and 2009, but since President Xi Jinping took office in 2013, it has been slowly declining. 

Consideration of freedoms in China needs to be put in some context, since much of the movement on the Freedom Indexes reflects tensions between the Chinese Communist Party’s (CCP’s) efforts to promote economic growth and its need to manage social dissent. The first decade of this century saw an intense focus on economic growth in China, in which the government undertook significant and rapid economic reforms to liberalize the economy. For example, prior to these reforms practically all Chinese industries were state-owned. Chinese leaders realized the economic gains to be made from privatizing China’s industries and enabling foreign joint ventures. China’s admission to the World Trade Organization in 2001 provided another huge economic boost. The country’s export-driven economic development flourished because of its preferred trading status with—and then integration into—most of the major world economies.  

The first period on the graph, from 1995 to roughly 2010, which shows gradual improvement on the Freedom Index, tracks closely with this period of economic growth. State control over citizens’ private lives decreased, while many citizens experienced dramatically improved standards of living. In stark contrast to an earlier era of state-controlled housing assignments and goods allocations, everything from housing to basic commodities to healthcare became available in commercial markets.  

Chinese civil society, which had not really existed before 2000, began to expand during this time as well. From the time of the founding of the People’s Republic of China (PRC) in 1947, citizens and government operated under a system of social management known as “the iron rice bowl,” under which the CCP and the government provided for all of the needs of citizens from cradle to grave, and also controlled all aspects of people’s lives. As a result, throughout most of the 1990s, there were virtually no nongovernmental organizations operating in China. However, around 2001, China’s economic liberalization began to affect the country in multiple ways. Economic success and prosperity empowered Chinese citizens with more access to information. Citizens became more confident in themselves and less reliant on the government as they began to realize that the government either was not taking care of, or could not take care of, all their needs. Chinese civil society organizations (CSOs) emerged in part because the government’s promise of the “iron rice bowl” became impossible to fulfill; these CSOs became a channel for people to both voice their discontent and develop solutions to the challenges they faced.  

Between 2000 and 2008 was a dynamic period, especially in terms of civil society. People began to voice their needs, priorities, and grievances, pushing back against the party’s controls. During this time, though the CCP ostensibly controlled nearly every aspect of life, the system allowed for some experimentation. Local officials, tasked with achieving ambitious economic targets while maintaining social order, and beyond the scrutiny of the center, realized they had considerable room for flexibility. For nearly a decade, local officials experimented with a range of approaches, such as increasing women’s participation in politics, participatory budgeting and other types of local governance reform, and opening limited space for public advocacy on some issues. This was no golden age: restrictions persisted and controls were particularly oppressive for China’s ethnic minorities and people living in Tibet and Xinjiang. However, the period marked a gradual increase in overall freedom in China. It corresponded with a time when ordinary Chinese citizens had a greater say in decisions affecting their daily lives. Civil society activity combined with local governments’ eagerness to deliver economic targets created space in which people could associate, voice their concerns, and even actively seek redress from the government, such as compensation for losses in land disputes. 

Around 2008–09, a number of events were precursors to a significant shift in the CCP’s approach that had an impact on political freedoms: the 2008 Sichuan earthquake, the Beijing Olympics, and an impending change in the senior leadership of the party. While the party continued to prioritize economic growth, its actions indicated an intention to limit growth and openness to only that sector, and to reassert party control of the social and political space, particularly at the grassroots level. Post-Olympics, there was a noticeable decline in enthusiasm for direct external influence in China. Avenues for free expression and civil society began to systematically close, and new laws restricting civil society activities emerged.  

Overall, it is striking how, despite massive economic advancement, China achieved very little progress in overall freedom during this period. When these data are compared to the East Asia & the Pacific regional average, China’s performance is truly underwhelming. The CCP missed the opportunity to leverage China’s economic growth to bring substantial improvements in the lives of its people and across various indices.  

The Index shows a very modest aggregate increase in economic freedom from 1996 to 2022. Economic freedoms increased quite dramatically from about 2002 to 2008. The relatively higher score on economic freedoms in China, compared to political and legal freedoms, corresponds with the government’s focus on economic development during this period, as described above, and the challenge faced by the CCP in maintaining its previous systems of control. As noted earlier, the privatization of state-owned industries, combined with newly opened commercial markets, provided Chinese citizens with a range of choices not previously available to them. Other factors contributing to the positive trend during this period included the protection of property rights and an increase in women’s economic freedom. Two things are striking in the data: First, after a sharp decline in overall economic freedom around 2009–10 (corresponding with the global financial crisis), economic freedoms did not reemerge—even as the Chinese economy grew to be the second largest in the world after 2010; Second, three of the four economic freedom trend lines remained quite static for several years after about 2004. Despite astounding economic growth, there was no significant subsequent change in the trajectory of economic freedom. This lack of progress is indeed noteworthy. 

In terms of political freedom, China starts on a lower score than for economic freedom, then remains relatively static until a sharp and consistent decline after Xi Jinping assumed power in 2013. It is worth noting the trends among the four indicators of the political freedom score; until about 2005, they each remain static or show modest improvements. After 2005, only legislative constraints on the executive improves while the other scores decline, civil liberties and political rights dramatically so. These trends again reflect the CCP’s manipulation of citizens’ rights to serve the party’s broader need for social control. As economic growth accelerated from the mid-1990s, the central government faced challenges in fulfilling the promise of the “iron rice bowl,” and had to delegate authority to local officials who themselves lacked clear solutions. The need for solutions to growing social challenges provided an opening for the rise of an independent civil society in China. The slight increases in the scores for civil liberties and political rights until 2005 reflect the extent to which ordinary citizens took matters into their own hands, working within their communities and networks to address local issues. This approach served the CCP’s needs: People saw solutions being delivered, which reduced discontent. The party could showcase its fulfillment of promises to provide support from cradle to grave. And the whole process served as a release valve for societal pressures, such as increasing inequality.  

However, this level of agency by citizens became untenable to the CCP, because it posed a threat to the party’s legitimacy and thus its level of control in the broader society. The fate of local elections in China exemplifies how this situation was handled by the center. The CCP had tolerated limited elections at the village level as part of the era of experimentation, but ultimately became concerned that this channel for popular opinion posed a threat to party power. Couching its concerns in nationalism and relying on long-standing suspicion of outside influence, the CCP branded elections as a foreign concept imposed on China with the purpose of destabilizing the country. As it sought to address internal threats to its authority, the CCP closely watched external developments as well, reacting strongly to the “color revolutions” that were altering the political landscape in Eastern Europe. By the mid-2000s, the party determined that the color revolutions stemmed from domestic CSOs manipulated by foreign actors, and determined to block this threat in China. The CCP instructed local authorities to regain control of the activities of CSOs, sharply reducing the civic and political space. Once Xi assumed power in 2013, the antagonism of the CCP to civil society in general, and its anxiety about the influence of “Western liberal ideas,” was articulated to party officials in an instruction known as “Document No. 9”. The CCP began to redefine the idea of civil society: no longer was it to be independent and separate from government, but instead it became a sector that was required to meet specific government criteria. The introduction of laws around nongovernmental organizations in 2017 further tightened the space, specifically banning political and religious organizations that did not meet government approval, and creating limitations that left little space for independent civil society to function.  

While the practice of rule of law in China has generally improved over the period of review, legal freedom has always been harnessed to serve the political goals of the CCP. The Chinese government has been particularly successful in using the legal system to support its political objectives, and will revert to “rule by law” when necessary. There were glimpses of judicial independence and effectiveness in the 1990s, largely as part of broader experiments occurring during that time. In particular, the CCP was aware that trust in the legal system played a crucial role in economic development. China’s early legal experiments aimed to address important questions: How could China achieve economic growth? And how could it attract companies and reassure people that China was a favorable place for doing business and supporting economic development? Yet even within the awareness of the need to foster legal trust, the party’s interpretation of the law always took precedence.  

The tightening of control by the CCP over various aspects of civic and political life from the mid-2000s also affected overall legal freedoms. The modest improvement in the corruption score reflects ongoing efforts by the party to address this issue. Corruption was a significant concern at all levels in China, touching almost all aspects of peoples’ daily lives and well-being. The party recognized this as “low-hanging fruit” and made tackling corruption a priority. With ample space to work at the local level, they aimed to bring this under control, resulting in positive outcomes. However, even this social good serves the CCP’s political ends, as seen in the most recent anti-corruption campaign targeting entrepreneurs such as Jack Ma, whose wealth and independence posed a threat to the party’s authority. Regarding security, it is notable that, while China devotes significant resources to its domestic security, the overall score on this indicator has remained unchanged. Despite the extensive use of surveillance technology to control the potential for political violence and terrorism, Chinese society remains restive. Official metrics present the appearance of security and stability, but ignore the underlying discontent, evidenced by the thousands of protests that occur regularly in China. This unrest does not imply complete insecurity, but it underscores the complexity of maintaining social order in the country. 

From freedom to prosperity

The data show that overall prosperity in China gradually increased until about 2014, after which it has remained basically static. Unsurprisingly, the most dramatic and sustained improvement has come in economic prosperity, with the data on income reflecting the country’s rapid economic growth. This should be recognized as a remarkable achievement by the CCP and the Chinese people. However, the reality is more complex, since this impressive aggregate achievement obscures the stark inequalities within the country that the data manifest in different ways. China’s economic growth has been uneven as urban areas were given priority and preferential treatment over rural areas. This has caused great and growing inequality; while gross domestic product (GDP) per capita may average out to an appearance of growth due to the immense scale of the Chinese economy, beyond the major cities and coastal areas China is a nation where many people still face significant poverty. And it is not only on economic metrics that China’s population experiences inequalities. The data from other charts underscore how disparities persist across different segments of the population. For an individual who falls outside the party’s accepted norms—such as belonging to a religious or ethnic minority group—quality of life is significantly worse than for the average person. While lack of progress on various forms of freedoms might be explainable by the party’s instincts to restrict liberties to maintain social controls, the inability of the CCP to deliver more equitable prosperity to all its citizens seems a squandered opportunity. 

For minority rights, while the Indexes only use religious discrimination as a proxy, broader classifications of “minority” would likely reflect similar trends. Looking at the trends on religious freedom, the modest improvements seen until about 2008 diminish considerably to the present day. Since the founding of the PRC, the CCP has made concerted efforts to assimilate religious communities, which has had a significant impact on the rights and well-being of religious minority groups. While the Chinese Constitution guarantees freedom of religion, in practice the party implements a “Sinicization” of religion, requiring that religious groups adhere to the prescribed rules and guidelines set by the state. This approach means that the state exerts considerable control over religious practices, limiting the freedoms and rights of religious minorities. The CCP utilizes a range of interventions, primarily using state-controlled religious organizations to redefine how religious practices are conducted, including censorship of religious texts, and managing how religious leaders are chosen. Deviations from the prescribed framework are met with reprisals such as closure of places of worship, harassment, and detention. The systematic detention of one million Uyghurs in “reeducation centers” in the Xinjiang Uyghur Autonomous Region represents the most extreme example of the CCP’s efforts to control the cultural and religious identities of minority groups.  

The provision of healthcare in China is one of the few measures in which the PRC has outperformed its regional peers. The party included healthcare as part of the services that the state provided under the concept of the “iron rice bowl.” Starting from a low baseline, the PRC experimented with a variety of approaches to improve the quality of and access to health across the country, including the use of “barefoot doctors” at the rural level. Improving healthcare and access to medical services was a relatively straightforward way for the party to demonstrate its dedication to the well-being of its citizens; reforms introduced in the early 2000s expanded healthcare coverage to almost all Chinese people. However, the PRC’s healthcare system must still serve the party’s interests: the suppression of information and miscommunication about the early phase of the coronavirus outbreak in 2019 revealed ongoing systemic flaws in the country’s health services. Persons with disabilities and those living with mental health disorders remain underserved in most of the country. 

China’s environment score reflects another issue on which the country has seen only limited improvement, despite the leadership’s grand commitments in policy and its investment in green technologies. China signed the 2015 Paris Agreement on climate, and the government expressed its intent to address environmental issues, including through pledges to cut emissions. However, the negative effects on citizens of pollution and environmental degradation result in ongoing protests and petitions against the government at all levels. There has been a significant crackdown on environmental activists and against any efforts to highlight environmental problems. CCP officials also seek to “manage” environmental indicators to suit the party’s needs. One striking example of this occurred during the 2008 Beijing Olympics, when officials in Beijing were concerned that air quality measurements would not meet international standards. A decision was made to suspend the activity of coal plants around Beijing, reduce the number of cars on the roads and shutter factories around the capital. These measures not only showed the seriousness of the pollution but also an utter disregard for the human cost associated with these efforts.  

In terms of education, China started from a relatively low base and has made significant investments and progress. Since the founding of the PRC, the government has focused on promoting literacy and access to education, somewhat mirroring its emphasis on health. This focus was a critical factor in the country’s economic success, producing an educated workforce that could drive economic modernization. However, as in other aspects of China’s development, there are significant in­equalities in the education system. Disparities follow existing lines of inequality in the country, for example between rural and urban areas, and this affects recruitment of teachers, access to education, and therefore future opportunities. The highly structured and competitive process for educational achievement creates tremendous pressure for students and their families, and leaves little room for independent, creative development. This may pose a challenge for the country as it seeks to move its economy beyond manufacturing to more advanced industries. 

The future ahead

As has been noted, the conclusions drawn from the data, overall, are underwhelming: despite phenomenal growth in GDP, Chinese people have seen only modest gains (if any) across a range of freedom and prosperity indices. Meanwhile, other East Asian and Pacific countries have improved their freedoms considerably, even with slower income growth; overall, they seem to do more with fewer resources to enhance their societies and systems. When viewed through this lens, it is hard not to lament a significant missed opportunity by the CCP to create a more modern and dynamic society, one that reflects the “Chinese dream” Xi Jinping asserts is within grasp. 

Of course, the CCP can argue that prioritizing economic growth over other factors was and remains the right choice for China, and that China’s citizens must continue to follow the party’s lead to ensure continued success in the future. If we accept that position, the question we need to address is whether the choices being made are sustainable. The data clearly point to a broader implication of China’s economic and social development: it has become more socially, economically, and politically complex. As the scores above demonstrate, the party has failed to share the benefits of the country’s upward economic trajectory equally among its citizens. The task of doing so will only become more challenging as the wants and needs of its citizens continue to diversify.  

I have major reservations about the viability of the current model, and several factors contribute to my skepticism. The economic turmoil during the COVID-19 pandemic has raised doubts about the effectiveness of the model, even though we lack sufficient data to draw definitive conclusions. But the most striking aspect of the data is the CCP’s commitment to an inherently unequal form of governance, particularly when it comes to individual and subgroup rights. The CCP frequently touts its collectivist approach, where the well-being of the collective outweighs individual freedoms. However, the data suggest a more selective approach: in this model, certain groups are favored at the expense of others. 

This type of inequality is not a new phenomenon within the CCP system. Historically, there have always been winners and losers, with the party elite and affiliated businesses reaping the rewards of extraordinary economic growth while the general population experienced more modest improvements. Yet, in the past, the wealth gap in China was often characterized as urban versus rural. What the data reveal is a shift towards absolute, rather than relative, inequality. There are clear losers in this system, including individuals and groups who have experienced a significant loss of freedoms. These groups include ethnic and religious minorities, the LGBTQ+ community, and those who advocate for more liberal—seen by the CCP as dangerous and foreign—ideals. 

This discrimination is not solely identity based; it is also about values and alignment with the CCP’s objectives. As we look forward, the situation appears to be deteriorating. As the CCP sees growing threats to its authority and control, pressure will increase on individuals and groups to conform to a more limited definition of acceptability or face forced assimilation. This trend is exemplified by the genocidal “reeducation” of Uyghurs in Xinjiang, and in calls by party leaders in October 2023 for Chinese women to focus on family and traditional values. This shift towards a more rigid societal framework could lead to individuals being excluded from the benefits of society or, in the worst case, losing their social freedoms. The rapid expansion of surveillance technology and its use in determining the status of a “good citizen” provide the state with powerful tools to enforce its will. While these tactics have succeeded in managing dissent, they are likely only temporary fixes. Without substantial, systemic reform, the diverse wants and needs of Chinese people will continue to drive demands for change. 

Johanna Kao is the senior director for Asia-Pacific at the International Republican Institute and is concurrently a senior nonresident fellow with the Atlantic Council’s Global China Hub. Her work is informed by more than twenty-five years’ experience in international political development, living in some of Asia’s most challenging and dynamic countries. Johanna is a graduate of the University of Chicago and received her LLM from the University of Hong Kong.

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]]> Climate crisis fuels change in MENA region https://www.atlanticcouncil.org/in-depth-research-reports/books/climate-crisis-fuels-change-in-mena-region/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737453 The region faces economic and political transitions amid geopolitical risks, climate change, and energy market shifts. Escalating conflicts are exacerbating instability. Climate change poses existential threats, intensifying water crises and domestic tensions. Socioeconomic transformation will be vital to meet youth aspirations and tackle polarization.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The countries of the Middle East and North Africa (MENA) region are stuck in economic and political transitions toward more open economic and political markets. The lack of economic freedom has long echoed the lack of political freedom in the region. To maintain the status quo, political elites have for many years sought to cultivate an enduring social contract wherein economic and political elites capture economic rents—including from oil revenues—and citizens receiving patronage spending have tended to look the other way.

That is evident from the overall freedom score for the region, which has remained considerably lower than the global average. Indeed, the MENA region’s freedom score in 2022 is the same as two decades before (around 46.9), 15.4 points below the global average. That said, an increase in the freedom score is evident at the beginning of the period of analysis (from 1995 to 2002) which coincided with a wave of both economic and political reforms.

While there are important cultural and legal similarities among MENA countries, the region is also heterogeneous in many ways. Three distinct groups have progressed at different speeds in their economic transitions: the high-speed group, mostly composed of Gulf Cooperation Council (GCC) countries; moderate-speed, mostly composed of North African countries plus countries like Jordan and Lebanon; and the low-speed group, which includes conflict or post-conflict countries. Indeed, the GCC countries, which are mostly nonpopulous economies with vast wealth, have outperformed the other two groups, increasing their average freedom score by 6.7 points over the sample (1995–2022). The “moderate-speed” group of countries in North Africa, plus Jordan and Lebanon, includes both oil-importing and oil-exporting states, with a mixed record of economic reforms. Most of these countries are populous, with Egypt home to the largest population in the region. The conflict and post-conflict group includes Iraq, Libya, Syria, and Yemen, each with a complex history of civil wars coupled with foreign invasions.

The diversity of circumstances is evident when considering the evolution of the economic freedom score. The regional score has increased by 5 points throughout the period, driven by improvements in women’s economic freedom and, recently, investment freedom. This increase is mainly driven by progress in the GCC group of countries, where economic freedom went up by 14.5 points. The GCC is now led by Saudi Arabia, which has embarked on an important economic and social transformation agenda. In the “low-speed” group, we see an overall decline over the period (−3.7 points). Across the region, trade freedom presents a significant negative trend since 2011, losing almost 15 points.

On the political freedom front, the region is home to the world’s last absolute monarchies, whose transition to constitutional monarchies has been slow, and at times reversed. Military involvement in politics is all too common and has been on the rise. The wave of protests that spread through almost the entire region and which came to be known as the Arab Spring is apparent in the data. The Arab Spring erupted in the early 2010s from the frustration of a young and educated population aspiring to more political and economic freedom and prosperity. The hope raised by the Arab Spring proved, however, to be temporary. Indeed, protests ended up either tamed by autocrats or resulted in internal conflicts, with foreign interventions supporting opposing sides. The political freedom score shows an increase starting in 2010, which has vanished by 2014. All indicators of the political freedom subindex have been affected. This shows that countries in the region are stuck in political transitions toward democracy. 

Legal freedom is relatively low in the region, with all its indicators except informality scoring below 50 in 2022. Most indicators of legal freedom have had a flat trend in the last decade, showing no signs of improvement. Here as well, the GCC countries score higher than the other two groups, with a stable score over the sample. In the other two groups, legal freedom is declining. Just as on the political front, legal reforms toward more fair and inclusive systems have stalled. 

From freedom to prosperity

The prosperity score of the MENA region has clearly diverged from the global average during the period 1995–2022. Overall scores mask important differences between countries in MENA, especially along economic lines. Indeed, the MENA region has the largest reserves of oil and other hydrocarbons in the world.1 But not all countries in the region are rich in oil. The region is host to both oil importers and oil exporters, and the impacts of oil shocks far outweigh any policy intervention. Evidently, persistently high oil prices—albeit remaining volatile—have been good news for oil exporters and somewhat bad news for oil importers in the region. However, the reality is not always so straightforward, as high oil prices result in large and positive spillover effects from oil exporters to oil importers, especially in terms of remittances and foreign aid, and these have tended to mitigate the differences between the two groups.

While the consequences of oil market fluctuations continue to play a dominant role in driving prosperity in the region, that situation is clearly not sustainable as the world economy is firmly embarking on a transition away from fossil fuels. The MENA region scores higher than the global average in income, health, and environment, but the gap in the last two decades has been narrowing. Countries in the region should not be complacent and should transform their economies by supporting more (genuine) private sector development. The success of the economic and social transformation agenda led by Saudi Arabia is vital for the region. Yet the ultimate test of that transformation is whether it would be sustained and financed through (domestic and foreign) private investment instead of state funds, which will eventually run out.

Education is the best performing indicator for the region, with a score that has doubled in the period of analysis. Nonetheless, there is still room for improvement, as the level is still low (close to 45 points), relative to the global average. Educated but unemployed youth have been the drivers of the Arab Spring. That situation is a source of worry for leaders who want to keep the status quo, and has led them to place limits on political freedom and civil liberties.

The region scores significantly below the global average in inequality and minority rights, and the gaps have not been reduced in the last twenty-five years. Persistently high inequality is a source of further tensions. The need to promote equality of opportunity in the region—through free enterprise and curbing cronyism—has never been greater. Failure to address deficiencies in economic but also political freedom will hamper prosperity in the region and lead to further instability.

The future ahead

Over the next decade, countries in the MENA region will have to grapple with economic and political transitions in a world in mutation. To achieve freedom and prosperity, countries in the region will have to face up to risks linked to geopolitics, climate change, and the transformation of energy markets, as well as social polarization.

The region is at a tipping point when it comes to conflict escalation. Indeed, the alarming intensity and casualties resulting from the conflict between Israel and the Palestinian territories risk engulfing the whole region. This new phase of escalation of violence brings not only tragic loss of lives but also physical destruction, fear, and uncertainty. That new spread of violence will have far-reaching economic and social consequences. What is more, the Palestinian issue is an important fault line between the Global North and the Global South that could have global repercussions and tear the region further apart.

The region is also extremely exposed to the existential threat posed by climate change. Climate change is simply making the Middle East and North Africa unlivable at a faster rate than any other region. Specifically, temperatures have reached record highs and a water crisis is looming in the region, which could lead to heightened domestic tensions and interstate conflicts. The crisis is made worse by the inadequate governance of the water sector and other utilities, which has exacerbated the frustration of the citizenry over poor public services.

The region also needs to transition away from fossil fuels. Oil prices have been persistently high and this has provided some respite to the many oil-exporting countries in the region. Yet, as the world moves away from fossil fuels, the vast reserves of oil and natural gas with which MENA is endowed will eventually become stranded—and so will the capital investment in the sector. With these considerations in mind, several MENA countries have embarked on ambitious diversification programs to move away from oil, although success has, so far, been elusive. As we have said, Saudi Arabia’s ambitious economic and social transformation agenda could be a game changer for the region and perhaps offer a model for other countries to emulate.

A credible economic and social transformation agenda is long overdue, to meet the aspirations of an educated youth and to absorb millions of young people—females and males alike—into the labor market. The aborted political transitions have, however, polarized societies in the region: the people on the streets who continue to protest on the one side, and the political elites and crony capitalists on the other. The political and economic transitions are interlinked and failure to address both could result in further social tensions and instability.2

Rabah Arezki is a former vice president at the African Development Bank, a former chief economist of the World Bank’s Middle East and North Africa region, and a former chief of commodities at the the International Monetary Fund’s Research Department. He is now a director of research at the French National Centre for Scientific Research and a senior fellow at the Foundation for Studies and Research on International Development and at Harvard Kennedy School.

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1    Hereafter the terms “hydrocarbon” and “oil” are used interchangeably. The region is host to the largest oil and natural gas exporters in the world.
2    Editors’ note: This chapter was written before the start of the 2023 Israel-Hamas war

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]]> EU’s future prosperity will be marked by war in Ukraine https://www.atlanticcouncil.org/in-depth-research-reports/books/eu-future-prosperity-will-be-marked-by-war-in-ukraine/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736145 The EU’s freedom and prosperity dynamics will be marked by the war in Ukraine. The indexes provoke philosophical reflection: Is Europe's prosperity dwindling due to an extensive social safety net? Is the strength of European integration declining with new members, while the strength of EU federalism diminishes?

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Evolution of freedom

International comparisons recognize that Europeans enjoy the highest quality of life in the world. European society benefits from great equality in income, excellent healthcare and basic education, good infrastructure, and eminent rule of law.1 However, the past decade has presented an array of challenges to European Union (EU) nations. Europe’s gross domestic product (GDP) in 2016 had only just returned to its 2008 level—before the eurozone crisis—and it has been losing market share in the global economy. Russia’s annexation of Crimea in 2014; the 2015–16 migrant crisis; the UK’s secession from the EU; COVID-19; and Russia’s full-scale attack on Ukraine, the EU’s ensuing sanctions, and complete reorientation of its foreign policy toward helping Ukraine—by any historical standards, the past decade has been trying.

The EU is also the freest region of the world in the Atlantic Council’s Freedom Index, 20 points above the global average throughout the period of analysis. The increase in aggregate freedom was sustained until 2014 but has stagnated in the past decade. The main reason is the changing priorities in the aftermath of the eurozone crisis, which diverted politicians’ attention towards reducing social vulnerabilities.2 The ensuing decade brought several other challenges, starting in 2015–16 with a wave of migration from northern Africa that divided public opinion and engulfed the EU in heated debates about migration policy. These debates brought about political change in a number of European countries too, shifting the focus further from expanding freedoms and on to defining a narrower European identity. Just as this changing political landscape started to stabilize, the COVID-19 pandemic hit Europe hard, resulting in more demands for government participation in the economy and putting the emphasis on security rather than freedom. In sum, the past decade in Europe has been one of crisis abatement.

Crisis abatement has brought about new politics in Central Europe in particular, a region which was for a quarter century (1989–2014) at the forefront of increasing political freedom in Europe. The governments of Hungary and Poland, and to some degree Slovakia, have followed a path of what Viktor Orbán calls “illiberal democracy,” concentrating powers in the hands of few political leaders. This concentration has come at the expense of media freedom, judicial independence, and institutional development. The European Commission and other European institutions have responded with concerned actions to limit the loss of freedoms, with some success.

Economic freedom increased by more than 10 points until 2014, leveling off since then due to the various crises that emerged. However, there are some bright spots. Women’s economic freedom has increased continuously during the whole period, up 25 points. Investment freedom increased substantially during the period 2005–15, and has seen another upswing since as governments have tried to keep their economies competitive. This reflects the response of many EU countries to the pandemic, including significant subsidies to particular sectors of the economy, enlarging the role of the state, and crowding out the private sector. This effect continues to evolve, particularly in the energy sector where the war in Ukraine has given a jolt to Europe’s desire to be independent from Russian oil and gas.

The level of political freedom is very high in the EU, although “legislative constraints on the executive” receives a clearly lower score than the other three components of the political freedom subindex. All components of political freedom decrease slightly after 2016, coinciding with the reverberations from the migration crisis and the rise of populism in a number of European countries. The most prominent of these have been in Central Europe, where Hungary’s Viktor Orbán has been particularly outspoken on the need to curb political freedoms. The trend, however, runs deeper, with nationalist parties gaining popularity in Austria, Finland, Italy, Germany, and Sweden, among others. Europe is a more closed society now than it was thirty years ago.

From freedom to prosperity

Prosperity in the EU is around 17.6 points higher than the global average, and this gap has been stable since 1995. The trend is positive until 2019, but has stagnated since the pandemic struck. This is broadly consistent with the global pattern, suggesting that Europe is finding ways to maintain its edge in prosperity over its competitors.

The superior outlook on prosperity, coupled with geographic proximity, has made Europe a magnet for migrants from Africa, Asia, and the Middle East. The pandemic reduced this inflow, as have various country-level policies to prevent migrants from entering Europe. Still, 2022 saw a significant new wave of migration from Ukraine, reaching a total of 6 million refugees towards the end of the year. And a new wave of non-European migrants has posed challenges for Italy and Greece in 2023.

The effects of the eurozone crisis of 2008–10 and the COVID-19 pandemic of 2020–22 are evident in the income component data. Fortunately, financial assistance to vulnerable groups was quickly dispensed during both episodes, reducing social tensions. Europe’s social safety net expanded, increasing budget deficits but allowing the crises to pass with minimal losses in welfare. Reflective of these policies, inequality is relatively low compared to the global average.

Finally, the data show sustained improvements in health and education for the EU, probably driven by countries in Eastern Europe. These countries saw social supports deteriorating at the beginning of the post-communist transition period in the 1990s. Heavy government spending, assisted by EU funding since their accession in the 2000s, has reversed these losses and led to convergence in health and education indicators across the EU.3

The future ahead

The next decade of EU freedom and prosperity dynamics will be marked by the war in Ukraine. The EU has committed enormous financial resources, nearly €100 billion across 2022 and 2023, in supporting Ukraine’s fight against the aggressor. It has also imposed a dozen rounds of sectoral and economy-wide sanctions on Russia. These sanctions also have negative implications for some industries in Europe, which have traditionally relied on resources from Russia. The war, in other words, has a slowing effect on Europe’s economy.

Another major impact of Russia’s war in Ukraine is that it has forced the EU to rethink the Green Deal, which the European Commission has championed for the past decade. Given Russia’s threats to Europe’s energy security, a decision was taken in 2022 to sever the dependence on Russian energy products. With only two countries—Bulgaria and Hungary—receiving postponement of these measures to 2024, Europe has quickly weaned itself from Russian oil and gas. However, this change has come at a cost: a number of countries have increased their use of coal and other high-polluting sources of energy.

The war has also sped up the process of EU integration for Moldova and Ukraine, and this will occupy the attention of Brussels institutions in the years to come. Such integration provides for a larger European market: a welcome development. The past decade has shown that Europe cannot multitask—perhaps the inevitable result of gradual consensus building among twenty-seven member states—preferring to focus on one issue at a time. The clear task at hand is helping Ukraine win the war.

The two case studies in this volume on Ukraine (by Professor Yuriy Gorodnichenko from the University of California at Berkeley) and Russia (by Professor Konstantin Sonin from the University of Chicago) demonstrate what is at stake for these countries in terms of freedom and prosperity. In this chapter I suggest that, for Europe as a whole, what is at stake in the conflict is the further development of freedoms and the ensuing prosperity of Europe. Only with a free and victorious Ukraine can the EU refocus on its prosperity agenda.

In the face of Ukraine’s resolute response to Russia’s invasion, President Putin has escalated the economic warfare against its citizens by incessantly attacking the country’s energy infrastructure and cutting off vital trade channels. These acts have severely hampered the prospects for economic recovery in 2024.

A large part of Ukraine’s civilian population, an estimated 6 million refugees, is awaiting a ceasefire that would allow them to return to their homeland, as the frequent bombings and power outages have forced them to take temporary shelter in other European countries.4 These immigrants look forward to reuniting with their families and continuing with their jobs or finding new economic opportunities. In both cases—whether Ukraine’s refugees stay abroad or return home—massive European help is needed to jump-start the economy. The needs are enormous: rebuild infrastructure, provide financing for entrepreneurial activities as many old enterprises are razed to the ground, open new export opportunities, and invest in the training of workers and in new technologies.

Europe’s prosperity agenda

This prosperity agenda is fourfold. First, there are wide disparities across regions within Europe. These are seen within countries, for example southern versus northern Italy, and across countries, for example Scandinavia versus Eastern Europe. A significant portion of the EU budget is directed to reducing these disparities, through investments in infrastructure, agriculture, and regional economic development. Such financial aid needs to be coupled with policies that increase economic freedom at the regional level. For example, decentralization of some tax policies combined with explicit subsidy schemes will keep more resources in underdeveloped regions and thus attract businesses and individuals who would otherwise look for opportunities in more advanced parts of the EU.

Second, increased prosperity in the EU comes from completing the internal markets for energy and financial services. These topics were discussed even prior to the 2014 annexation of Crimea, which started a series of crisis years for the EU. 2024 is a good year to go back to the original design and create a single energy market in Europe, as well as a single financial market, with a single set of regulators. Much has been written and discussed about how to achieve these goals; now is the time to act.

Third, migration has been at the forefront of European politics in the past decade. It promises to remain an issue in the decade to come. On the one hand, Europe’s demographics are such that the labor market benefits from human capital coming into European countries and putting their labor and talents into productive use. On the other hand, social tensions have risen in the countries that have received large numbers of migrants. Even in countries with few actual migrants, the specter of competition for social services and jobs has boosted the fortunes of nationalist parties that have promised to erect barriers to further migration. This issue, more than any other in Europe, inflames public opinion.

Finally, prosperity in Europe emanates from open markets. While the European market itself is large, many innovations and technologies come from either the American or Asian markets. The two other superpowers—the United States and China—have been on a collision course in asserting their economic dominance, leaving Europe to choose how to align in the global picture. So far this path has meandered, with some calling for greater protections for Europe’s own market. Such an isolationist approach is counterproductive. Europe has to remain as open as possible, assimilating leading innovations and creating the space to implement these new ideas into better production processes and products.

The Atlantic Council’s Indexes also raise some philosophical questions regarding European identity: Has the golden age of European prosperity passed, weighed down by the heavy fiscal burden of an unwieldy social safety net? Has the energy of European integration through the accession of new member states tapered off? Is federalism, in the shape of the EU, losing momentum? The past decade has not given many indications of a clear reform agenda, as Europe has stumbled from one crisis to another. The existential crisis of a war in Europe has strained the abilities of European institutions to act, yet it has demonstrated a unity that has been largely absent in previous decisions Europe has faced. This unity leads to strength and such strength is needed to overcome the many challenges that lie in Europe’s path.

Simeon Djankov is policy director of the Financial Markets Group at the London School of Economics. He was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. Prior to his cabinet appointment, he was chief economist of the finance and private sector vice presidency of the World Bank.

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1    Anders Aslund and Simeon Djankov, Europe’s Growth Challenge (Oxford: Oxford University Press, 2017)
2    Simeon Djankov, Inside the Euro Crisis: An Eyewitness Account, (Peterson Institute for International Economics, 2014)
3    Anders Aslund and Simeon Djankov, The Great Rebirth: The Victory of Capitalism over Communism (Peterson Institute for International Economics, 2014).
4    Oleksey Blinov and Simeon Djankov, “The all-out aggression requires an all-out response” in Supporting Ukraine: More critical than ever, eds. Yuriy Gorodnichenko and Vladyslav Rashkovan (London and Paris: CEPR Press, 2023), https://cepr.org/publications/ books-and-reports/supporting-ukraine-more-critical-ever.

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]]> Sub-Saharan Africa grapples with development imperatives https://www.atlanticcouncil.org/in-depth-research-reports/books/sub-saharan-africa-grapples-with-development-imperatives/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737465 Sub-Saharan Africa confronts urgent development challenges, including the imperative for democratization and institution building, amid critical security concerns. With declining foreign support and China's Belt and Road Initiative rising, worries arise over debt and politicized financing. Despite potential through regional integration, diverse political interests and institutional weaknesses remain obstacles.

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The evolution of the Freedom Index for Sub-Saharan Africa closely resembles that of the global average since 1995, with a very mild convergence. The same is also true for the subindexes of economic, political, and legal freedom. This is already good news for the region, as the trends are positive, but this does not capture the full story of freedom development in Africa. This is because the big movement towards liberalization, especially in terms of economic freedom, took place during the 1980–2000 period, so largely before the starting point of the Freedom and Prosperity Indexes data set.

In 1970, all dimensions of economic freedom were extremely low in most of the countries of Sub-Saharan Africa. Figure 1 below shows the evolution of trade freedom back to 1970, obtained from the same source used in the Freedom and Prosperity Indexes (the Fraser Institute’s Economic Freedom of the World index). The average score for the region at the beginning of the period was around 3.8 out of 10, significantly lower than the rest of the world (5.5). In the 1970s, governments were following counterproductive policies such as overvalued exchange rates or quantitative restrictions on trade. These policies were destroying any possibilities to develop an exporting sector because, with an overvalued exchange rate, exports were simply uncompetitive. Exporters would have to turn in their dollar earnings at an artificially low rate and, in many cases, they would have to resort to the black market to buy their imports. The number of countries in Sub-Saharan Africa with a black market premium above 40 percent was very substantial.

A big wave of economic liberalization took place in the 1980–2000 period, with governments correcting the artificial distortions in their exchange rates and opening trade and financial flows. So, this first dramatic movement towards a more economically free environment is not captured by the economic freedom subindex, which mainly shows what we could call a second wave of liberalization after the year 2000. This has been mainly driven by increasing women’s economic rights, which have clearly improved in some countries of the region, but certainly not all. Investment freedom has also improved in the last ten years, making capital movements more efficient. This is evident when you observe that there are no countries today in Sub-Saharan Africa with black market premiums above 20 percent.

Figure 1. Trade freedom in Sub-Saharan Africa, 1970–2022

Note: Simple average of the scores of all countries in the region with available data in the Fraser Institute’s Economic Freedom of the World index, “Freedom to trade internationally”.

Property rights also show a mild improvement in recent decades, but the weak institutional environment portrayed by the legal freedom subindex probably represents the biggest constraint to further improvement nowadays. The very low and stagnant levels of all indicators of legal freedom, especially that of bureaucracy and corruption, impose a significant drag on Sub-Saharan Africa’s development. A critical aspect of legal freedom is security, a very unstable area in Africa. Religious and ethnic conflicts are always a risk in the region, and this generates a high level of uncertainty, which can have negative effects on investment and economic development.

The development of political freedom in Sub-Saharan Africa was not so great as economic liberalization, and the democratic institutional framework is rather weak in those places that transitioned to more inclusive political regimes. This is well captured by the fact that legislative constraints on the executive are significantly lower than the rest of the indicators of the political freedom subindex, and judicial independence is also low, suggesting that proper systems of democratic checks and balances are still not fully developed in most countries.

Overall, the story of the development of freedom in Sub-Saharan Africa has so far been very uneven, in two senses: First, there is large variability across countries in the region. Second, there is large variability among dimensions of freedom. Economic freedom really took off after 1980, but legal and political institutions have not really improved. And this situation imposes a constraint on development because there is complementarity among different areas, so reforms in one aspect need supporting reform in others if they are to be successful in the long run. Moreover, further progress in legal and political freedoms are not just means to achieving higher levels of material prosperity, but are in themselves a measure of well-being, which emphasizes the need for continuing liberalization in these areas.

From freedom to prosperity

The Prosperity Index shows a parallel evolution of the Sub-Saharan African region and the global average. Even if we would hope to see a stronger process of convergence, so that Sub-Saharan Africa would catch up with the rest of the world, parallel trends are already good news for the region. Compared to the situation before the 1980s, where Africa was significantly falling behind the global average, the fact that, in the last three decades, the region has been able to develop at a similar pace to other regions is a clear sign that the economic liberalization of the 1980–2000 period has paid off.

An extreme example of the trends of both freedom and prosperity is Ghana. Figure 2 shows what was happening with exchange rates and black market premiums over the last sixty-two years. By 1982, the real exchange rate had appreciated to a level that was more than one thousand percent higher than it is today. The black market premium on foreign exchange was also above a thousand percent. The consequences were disastrous. Ghana used to dominate the world market for cocoa. By 1982, Ghanaian cocoa growers were receiving only 6 percent of the world price, and cocoa exports had collapsed. Facing famine, Ghanaian leader Jerry Rawlins began reforms in 1984. The government devalued sharply the nominal exchange rate and thereby reduced the black market premium.

Figure 2. Black market premium and real exchange rate index in Ghana, 1960–2022

Source: Real Exchange Rate Index is the author’s calculation based on nominal exchange rates and consumer price inflation from World Bank World Development Indicators for Ghana and the United States. Black Market Premium is from William Easterly, In Search of Reforms for Growth: Stylized Facts on Policy and Growth Outcomes, NBER Working Paper, September 2019.

The economic liberalization coincided with a turning point for Ghana’s economy. As shown in Figure 3, Ghana experienced a sharp decline in per capita income from 1960 to 1983. After the reforms, Ghana registered a steady rate of economic growth that has continued ever since.

Ghana also undertook some political liberalization in 2000, and since then Ghana has had an unbroken series of competitive elections. This may also have contributed to Ghana’s steady growth in the new millennium.

Getting back to Sub-Saharan Africa as a whole, indicators like health and environment show a very rapid improvement throughout the period of analysis. It is true that the starting point was really low, and thus there remains ample room for improvement in the future. Foreign aid, which has clearly been ineffective in other areas, may have helped improve health and sanitation conditions, especially in rural areas. For example, early life mortality has significantly decreased in recent times, which accounts for an important share of the progress in overall life expectancy.

Figure 3. Cumulative logarithmic growth in per capital income in Ghana since 1960

Source: Author’s calculation based on per capita growth from World Bank World Development Indicators.

Some progress has also been occurring in education, in terms of convergence with global averages in primary and secondary school enrollment. However, the education indicator of the Prosperity Index, which measures average years of education, does not fully show the region’s convergence towards the rest of the world. This may be due to faster expansions in college enrollment in other regions like Asia and Latin America compared to Sub-Saharan Africa. But the growth in the number of people enrolled in early levels of education in Africa is substantial. Nonetheless, another aspect of education not captured by the Prosperity Index is quality, and this is obviously an issue in Sub-Saharan Africa. When you consider quantity and quality, it is clear that there is still a lot of progress to be made.

The future ahead

The different dimensions of the Freedom Index very well identify the constraints and challenges of Sub-Saharan Africa’s development in the medium and long term. Economic liberalization has borne fruit lately, although further financial and trade integration of the region with the rest of the world should continue. But today the big challenge is to strengthen the process of democratization and institution building, and the necessary reforms in these areas are much harder to accomplish. The recent wave of military coups is not a promising sign, and there is ongoing conflict associated with Islamic movements in some areas. So, the situation regarding security and the maintenance of peace is a necessary condition for Sub-Saharan African development.

I think there is probably not going to be as much support for African development from international institutions and foreign countries as there was in the past (particularly in the 2000s), because there is a shift of focus towards other regions, like Ukraine and Eastern Europe. Also, I assume that the Israel-Hamas War will continue to focus attention towards the Middle East. Usually, things tend to go in cycles. I do not think that foreign support was all that successful in achieving economic growth, but aid probably deserves some of the credit for the progress on health and education, especially.

In relation to foreign influences in the region, I do not think that China’s Belt and Road Initiative will have very different results than the significant amounts of funds received by Sub-Saharan African countries from Western nations during the 1980–2010 period. Moreover, I think the same problems of debt repayment and default are likely to be repeated, this time with China’s investments. At the end of the day, for foreign investment and aid to successfully affect Africa’s economic development, it has to be directed to some productive uses. And this is not usually the case with this kind of heavily politicized financing.

Finally, the efforts to deepen economic and financial integration within the region are probably a good idea, as within-region trade is unusually low for neighboring countries in Sub-Saharan Africa. But it is certainly not an easy task, as the several unsuccessful attempts to promote free trade areas or common currencies in the region in the last several decades prove. This failure may be due to Africa’s burden of having too many countries, some of them very small states. This generates great difficulties in reaching agreements because there are multiple strong political interests. Institutional development and democratic reform may help in this sense, as deeper integration among African nations would probably benefit the majority of the population.

William Easterly is professor of economics at New York University. He is the author of The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (2014), The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006), and The Elusive Quest for Growth (2001). He has published more than 70 peer-reviewed academic articles.

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]]> Russia will suffer decreases in every dimension of prosperity https://www.atlanticcouncil.org/in-depth-research-reports/books/russia-will-suffer-decreases-in-every-dimension-of-prosperity/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736420 Over fifteen years, Russia's economy stagnated with low growth and persistent inequality. Challenges include minority rights restrictions, healthcare issues, and an educational crisis due to teacher exodus.

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Table of contents

Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

For many years, I have had issues with discussing various graphs and indexes illustrating what is going on in Russia, because the picture on the ground was very different from what those indexes showed. But the Freedom Index very closely represents what I felt was happening in my country over the last ten years: basically, a gradual deterioration of all dimensions of freedoms, but especially political freedom. This process started even before the war in Ukraine, and accelerated after the war started. The deterioration in economic and legal freedoms is not so evident, but this is because the starting points were already low in 1995.

Thirty years ago, Russia was a competitive democracy. Of course, an unstable democracy, as we can see from the way it has unraveled in the twenty-first century, but it was really competitive. Opposition (i.e., those not aligned with the president) controlled the parliament, incumbents would lose elections at the subnational level, and measures of democratic standards would agree that the country could be labeled as a democracy. But the system has gradually deteriorated until today, when there are no longer any competitive elections at any level above small municipalities. Every reasonably sized city or town is already fully controlled from the political center; even in cases where officials are formally elected, they are still appointed.

Civil and political rights are at a minimum. Think of freedom of expression. Nowadays you can get arrested for just mentioning the word “war” when referring to the Russia-Ukraine conflict. I myself am a fugitive of Putin’s “justice,” and by the time this book is published I will probably have been sentenced in absentia to nine years in prison for my social media posts. So, in terms of freedom of the press or individual freedom of expression, Russia today is as close to a perfect score of zero as you can possibly imagine.

The fall into autocracy is also evident in the legal freedom subindex, especially in the components of clarity of the law and judicial independence. A clear example that connects both indicators is the passing of several laws by parliament that clearly contradict the Constitution. The criminalization of any comment on the war that contradicts the story told by the Ministry of Defence obviously contravenes the Constitution, which protects freedom of expression. There cannot be any clarity of the law when day-to-day legislation contradicts the Constitution. And citizens cannot try to defend their rights through the judicial system, as it is completely controlled by the executive.

Economic freedom has never been high in Russia, and the data confirm this. But economic freedom has further deteriorated in the last few years, especially since the beginning of the war. Future updates of the Indexes will surely reflect this evolution, as they will capture the outright expropriation of western-owned property that has been taking place. Foreign companies’ assets have been seized without compensation, and those who were lucky enough to sell their assets have done so at 80 percent discounts and with a 50 percent tax rate imposed. So, trade and investment freedom are surely lower than reflected in the data right now. Even the score on women’s economic freedom is likely to drop in the short run, as Putin’s government propaganda is already pushing the idea that women should marry and bear children at a very young age, because this is good for the nation, and this directly impacts women’s economic rights.

Overall, the picture portrayed by the Freedom Index and its subindexes is consistent with my view of the situation in Russia, and I believe things may be even worse than is currently captured in the data due to lags in the underlying sources.

From freedom to prosperity

The income component of prosperity clearly shows the stagnation of the Russian economy in the last fifteen years. Economic growth was extremely low until 2018, and Russian gross domestic product (GDP) has even contracted in the last few years. Moreover, the Russian economy appears in this graph to perform reasonably well, as it somewhat follows the European trend—but this is misleading. Russia’s income in 1995 was significantly lower than the European average, so the country should have grown faster and caught up with its neighbors, as did Poland and the Baltic countries. This process of convergence is clearly not happening for Russia, and we can even observe a divergence between Russia and the rest of Europe in the last decade.

The inequality indicator is very noisy. There is likely to be significant measurement error at short-term frequencies, but the big-picture situation is clear: Russia was a very unequal country in 1995, and that inequality remains at a similar level. Looking forward, some respectable economists argue that we may see an improvement in the in­equality measure. I think there are several forces at play. On the one hand, the government is providing very substantive wartime payments to the families of killed soldiers, and these are disproportionally going to the lower quantiles of the income distribution, which can improve inequality measures. But on the other hand, wartime profits are increasing, and these are captured by the top 1 percent of the distribution. So basically, it is the middle class that is being squeezed. The inequality indicator in the Prosperity Index is the share of income going to the top 20 percent of the distribution, so I think it very likely that this will deteriorate in the coming years as inequality increases.

Regarding minority rights, the worrisome negative trend is obvious in the graph, despite the fact that the indicator only captures religious liberty. The government is now persecuting anyone whose faith is not compatible with the heightened militarism of the Russian state. Even priests of the Orthodox Church, usually in favor with government officials, are being prosecuted if they utter words against the war. Religious minorities whose faith is incompatible with military service, such as Baptists and other minority Christian denominations, face criminal prosecution and extra-legal harassment.

It is not only religious minorities who are persecuted. Think about LGBTQ+ citizens, who are now criminalized to the point where even holding hands in public may see them prosecuted. The current situation is probably worse than in Iran, in some senses. Legally, there have not been any changes in the status of—or official attitude toward—different ethnicities, but it is evident that ethnic minorities in the poorest regions of the country have been disproportionately recruited for the war. Therefore, deaths among minority ethnic groups are significantly higher than, for example, for Muscovites.

The health indicator is one of only a couple in the Freedom and Prosperity Indexes that I do not think paints a fully accurate picture of reality, especially for the past few years. Russia was one of the worst performing countries during the COVID-19 pandemic, with more than a million deaths. The total number is similar to that of the United States, where the population is 2.5 times larger, so Russia performed significantly worse. Also, the indicator is probably not yet showing the thousands of deaths since the start of the war, and the deterioration in terms of mental health for a large share of the population due to post-traumatic stress disorder and the like. In 2023, the birth rate in Russia dropped to the level of the worst years of the economic crisis that resulted in the collapse of the Soviet Union. We will likely see further drops in health indicators in the short run.

In terms of environmental quality, it has always been the case that whatever is good for Russian industry is bad for environmental indicators. And vice versa. For many years Russia was one of the best performing countries with respect to the Kyoto protocol, but this was due to a dramatic drop in industrial output. I forecast further decreases in industrial production, so on that side environmental indicators may improve. But at the same time the government is currently removing several regulations and laws that were passed before the war, so this may have an offsetting effect. The effective ban on any public protest and many civil society organizations, including those working on environmental protection, will further erode the existing protections.

Another important process that is probably not fully captured by the data above concerns the educational system. I refer to the exodus of teachers and professors from all levels of the educational system that have left the country in recent years, and especially since the war in Ukraine began. Many have fled the country, others have relocated, some are looking for a way out. This is a huge blow to the Russian educational system. Moreover, tens of thousands of students who should be increasing their human capital through further education are being mobilized and sent to the battlefield, or have become refugees in neighboring countries due to their fear of being called up to fight. This reality is not yet visible as a fall in years of schooling, but as statistics update it will most likely emerge. Furthermore, this issue is not only about the quantity of schooling as measured by the average years of schooling of Russian pupils, but the quality of the education they receive, which then translates into skills and human capital. If the best professors and teachers are leaving the country, it is clear that the quality of the educational system will suffer significantly.

The future ahead

The short- to medium-term prospects for Russia and Putin’s regime are undeniably going to be determined by the evolution of the Russia-Ukraine war. Putin’s regime entered a declining stage even before the beginning of the war, which is typical of authoritarian and personalistic regimes: following a period of stagnation, the regime reaches its final stage, in which every effort is devoted to maintaining power. Even before 2022, political repression was very substantial. Tens of thousands of people were leaving the country every year because they feared arrest if they said something wrong on social media, for example. Yet the repression has dramatically increased since the war began.

I do not think there is an easy way out of the war, nor from Putin’s authoritarian rule. Change in any personalistic regime is always dramatic and turbulent, and even if a lot of the same people still hold power, it always engenders substantial changes. It was the same with the death of Stalin. I think there is always an upside to this, because if and when Putin is gone, the new leadership will be able to do some things that will immediately improve Russia’s situation. I believe any new leadership would withdraw the Russian troops from the newly occupied territories. Talks about lifting economic sanctions and reopening trade will immediately follow. Some companies that left Russia will quickly return. These steps might not generate sustained economic growth, as the loss of growth potential due to the war is substantial. Nonetheless, they will represent an immediate improvement over the status quo. But for now, until this change in leadership takes place, everything will be defined by the evolution of the war, and, as long as the war continues, Russia will suffer further decreases in every dimension of prosperity.

Konstantin Sonin is John Dewey distinguished service professor at the University of Chicago Harris School of Public Policy. He studies political economics. Previously, Sonin has served as faculty and a vice-president of NES and HSE University in Moscow and guest-lectured in dozens of schools across the country. Now he is on the federal wanted list in Russia for posting information about atrocities committed by the Russian occupying forces in Ukraine.

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The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

The post Russia will suffer decreases in every dimension of prosperity appeared first on Atlantic Council.

]]> Foreword: Creating another wave of democracy https://www.atlanticcouncil.org/in-depth-research-reports/books/foreword-creating-another-wave-of-democracy/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737937 The best way to counter the current pernicious trends is to create another wave of democracy, similar to the one witnessed after the collapse of military dictatorships in Southern Europe in the 1970s. This requires reinstating democracy support, institutional trust, and empowering civil society appropriately.

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Democracy and freedom are in crisis. Freedom House reports that democracy around the world has been in constant retreat for seventeen consecutive years.1 In 2021, sixty countries experienced declines in their democracy score, while only twenty-five showed improvement. Today, the world is less democratic than it has been at any time since 1997. Concurrently, there has been a steep decline in support for democracy. In international surveys, 60 percent of respondents reported a positive view of democracy in the mid-1990s; the number now stands at 50 percent.2

The erosion of democracy is intertwined with a crisis of freedom. The most common path toward democratic decline is via the election of authoritarian leaders who then clamp down on media, dissent, and opposition forces.3 Censorship is on the rise and freedom of expression is in decline around the world, led by China, where government surveillance has intensified, aided by controls over media, social media, the Internet, and all kinds of nongovernmental organizations, including businesses.4 Similar trends are visible not only in countries like Iran and Russia, similarly recognized for their repressive regimes, but also in the Middle East, Hungary, Turkey, India, Pakistan, Mexico, and several countries in Africa. There is growing demand for Chinese technologies for surveillance, exports of which are growing around the world.5

The chapters in this handbook summarize these worrying developments in rich detail. While many of them also point in hopeful directions, there are reasons to worry that even worse times may be ahead for freedom and democracy. Wars in Ukraine and the Middle East have already intensified controls over free expression.6 The COVID-19 pandemic provided an excuse for many governments to further tighten the screws, and in several cases these controls have remained in place even after the pandemic subsided.7 All of this could be made worse if, as forecasted, refugee and immigrant flows increase rapidly as a result of global climate change and domestic politics in destination countries shifts further in a nativist-populist direction.

Even more worrying are two major economic and technological developments which will likely continue to push toward more intense authoritarianism. The first is the growing sense that millions (or even billions) of people are being left behind while a global elite are benefiting from economic growth and technological progress.8 This grievance has been central to the rise of left-wing and right-wing populist regimes in both established and nascent democracies, and this worrisome trend shows no sign of subsiding.9 The second is the rapid pace of advances in artificial intelligence (AI), which has been used for data collection on a massive scale by many governments and multinational corporations, and which has also enabled large-scale surveillance, as in China, Russia, and Iran. Although AI technology could be developed in less repressive ways, its current trajectory is concerning for democracy and liberty.

A simple framework

There is still much we do not know about the consequences for prosperity, inequality, and the future of democracy and freedom. I argue in the rest of this foreword that a simple framework—building on my 2019 book The Narrow Corridor, jointly written with James Robinson—may be useful to shed light on the problems of democracy and freedom, and point to pathways for developing institutions, norms, and practices for democratic rejuvenation.10

The main thesis of this framework can be summarized by Figure 1 below, which I borrow from the book.

This figure exposits some of the key social and political forces shaping state-society dynamics and their implications for democracy and freedom. The centerpiece of this approach is the relationship between the powers of the state and society. By the “power of the society,” which is depicted on the horizontal axis of Figure 1, we mean the ability of society to organize collective action, act according to its norms and values, and participate in politics, even against opposition and repression from state institutions and elites (by “elites,” we refer to groups that wield disproportionate economic or political power). The vertical axis depicts the power of the state, which represents the relative capacity of state institutions and the power of economic and political elites who control the state and command the key roles in politics and the economy. State power has a repressive element, as it enables state institutions and elites to overwhelm and silence opposition and society at large, but also some positive aspects—because a more powerful state may provide better public services, collect useful information, resolve disputes, and handle societal problems.

In our framework, state-society relations determine the nature of political power. This is summarized by the three regions depicted in the figure. The region on the left is the “basin of attraction” of the “Despotic Leviathan,” which signifies a state that is despotic in the sense that it can implement policies or impose its wishes without input from society. The implied dynamics, reminiscent of a simplified version of Chinese political history, are inexorably toward lower levels of societal power. This is the reason why the trajectory indicated there moves gradually toward the vertical axis, where society’s power against the state reaches a minimum. 

The polar opposite of the despotic path is one where the state and its institutions are weak and society’s traditions and organizational capacity are strong. At first, this might appear as a remedy against state repression. In reality, it is also inimical to freedom. It impedes the development of political hierarchy, a precondition for the emergence and evolution of state institutions, including a legal system and regulatory rules that are essential for protecting individuals against predation, expropriation, and intimidation. Even when states do appear within this context, they are weak and, in fact, often absent from large parts of the territory they are supposed to control. James Robinson and I thus labeled them as “Absent Leviathans.” These dynamics lead toward even greater state weakness.

More interesting is the region in the middle: “the narrow corridor.” This corridor is defined by a balance of power between state and society. The trajectories in this region look very different than those outside of it. This, we argue, is the hallmark of a different type of state and different nature of political power. We label it the “Shackled Leviathan” to capture the notion that the state is still strong, but it is monitored, challenged, and controlled by society—and, ultimately, by democratic institutions.

The heart of our theory is that true democratic participation and liberty, as well as economic incentives encouraging innovation and experimentation, can only flourish within the corridor. The corridor itself, though precarious at the best of times, can be bolstered by societal mobilization and participation. Institutions matter, but neither a cleverly designed constitution nor the correct set of institutional guardrails are sufficient by themselves to protect the corridor, nor are they a true bulwark against threats to democracy. Put simply: democracy is seldom given to the people, and it is often taken; thus, democracy is almost always in need of defense by the people.

There is another important aspect to the corridor, emphasized by the direction of trajectories within it, contrasted with those outside. Outside of the corridor, historical dynamics are likely to weaken one party as they strengthen the other. Inside of the corridor, however, the capacities of both state and society can rise in tandem. There are two synergistic reasons for the mutually beneficial dynamics within the corridor. First, state and society are locked in a fairly balanced competition. As state institutions become stronger—for example, because of new exigencies—society strives to increase its own capacity in order to control the emboldened state. Second, when balanced in terms of their capacities, state and society can cooperate. For example, when institutions and societal mobilization mean that an upstart politician cannot immediately hijack the public budget or misuse information that state agencies collect, people will be more willing to allow greater taxation and information collection. The centerpiece of this state-society cooperation is a degree of trust between state institutions and the population at large.

Both the positive-sum state-society competition and the trust in institutions are fragile, however. Competition can easily spin out of control, and trust is easier to destroy than to build.

This framework also highlights why societal norms are so important. These norms determine the boundaries of what elites and the agents of the state are expected to do, and how much trust they can command. These norms also shape how society mobilizes and resolves its own differences in the service of organizing against elites and impositions from the state.

Norms themselves are shaped by broader cultural trends, and while The Narrow Corridor did not study cultural dynamics in detail, our more recent work has proposed a complementary framework for doing so.11 This framework starts from the observation that no human society possesses an unambiguous and unchanging cultural structure. Rather, different human communities have a reservoir of “attributes,” which gel together in distinct ways to create different underpinnings of political and social behaviors. The importance of this perspective is that we should not think of culture as a hard constraint on democracy or freedom, but rather as the language through which ideas related to democracy, liberty, and inequality can be articulated. Nevertheless, there is persistence in culture. Once freedoms start to be sidelined, it becomes more difficult to build the cultural tools to defend them. Once trust between state and society is destroyed, it also becomes harder to generate the ideas and coalitions needed to rebuild it.

In The Narrow Corridor, James Robinson and I trace the history of many historical polities via these trajectories and explain what sorts of events can place a society inside or outside the corridor and what shapes its boundaries. Most importantly, the historical account reveals how the process of entering and traveling within the corridor is a slow, conflict-ridden process, and how trust between state and society develops gradually and often painfully over time—but also how this trust can be easily destroyed, and how competition can quickly turn zero-sum. 

The eclipse of democracy and freedom

What does this framework imply for the current difficulties and future prospects of democracy and freedom? Two complementary processes can be identified. First, societies inside of the corridor have experienced weakening democracies and intensifying clampdowns on freedoms. Second, Despotic Leviathans outside of the corridor have become more adept at defending their nondemocratic regimes against the counterbalancing powers of society, thanks to China’s rise, the use of AI and related technologies, and also because democracies themselves have become weaker. I now focus on the first process, returning to the second process later in this foreword.

The fact that support for democracy among the people has declined—rather than authoritarian leaders merely clamping down on democratic rights and freedoms against the people’s wishes—provides an important clue about the problems of democracy and freedom. The causes of this deteriorating support for democracy are explored in my joint work with Nicolás Ajzenman, Cevat Aksoy, Martin Fiszbein, and Carlos Molina.12 We find that people who have experience with democratic institutions tend to support them. Hence, a history of democracy should boost people’s willingness to defend the regime. But a more detailed look at the data reveals that the relationship between democratic experience and support for democracy is far from unconditional. It is only people who have experience with successful democracies—meaning democracies that deliver the kinds of economic performance, public services, and outcomes that they desire—that support democracy. In fact, we found that people who live under unsuccessful democracies do not increase their support for these institutions at all. 

So, what is it that people want from democracies? Our results suggest several important dimensions of success: economic growth (democracies that get mired in economic crises do not garner support); peace and political stability (wars or instability are of course not what people want); control of corruption; good public services; and low inequality. These last three are particularly important, because they underpin one of the important pillars of trust between state and society, as emphasized by the framework in Figure 1. The cooperative, positive-sum relationship between state and society collapses when trust in democratic institutions is eroded. This becomes much more likely when democratic institutions malfunction, and especially when they enable malfeasance by public officials, fail to deliver basic public services, and cannot (or choose not to) control inequality.

I believe it is these dimensions in which democracies, and more generally societies, in or near the corridor, have failed in recent decades. There are several reasons for this failure. Some of them are technological, some of them economic, and some of them political. New technologies have favored the very well-educated elite both in industrialized and developing nations, and governments have not taken steps to redress these inequities. Economically, the rapid drive toward globalization, transmogrified by the rapid accession of China into the global trading order, has contributed to the same trends.

But even worse for democracy’s reputation has been the policy response to these trends. Neither technology nor globalization are acts of nature. They are choices that societies make about how to use existing scientific know-how, what types of new technologies to develop, and what kind of globalization to implement. In the case of industrialized nations, led by the United States, these were choices made by political and economic elites. Trust among the people was markedly undermined—especially for people who were not among the winners from these processes—because these decisions were made by an insular technocratic elite who kept claiming (with very vocal support from the mainstream media) that everybody would benefit from unlimited technological growth and expansive globalization. In the United States, nothing of the sort happened. For example, low-education households have seen their real incomes collapse since 1980. In several other industrialized nations, the trends are less clear-cut, but people in the bottom half of the income distribution did not receive much of the promised benefits. At the same time, the technocratic elite became more and more integrated with the business elite, convincing many that corruption was on the rise (whether this was true or not).

This collapse of trust in public institutions and public servants is inimical to life in the corridor, and it has been a major driver of eroding support for democracy. It has also been an important force toward declining respect for democratic rights and broader freedoms.

As democracy’s reputation has become tarnished in the West, this has created an opening for authoritarian regimes, led by China and Russia, to solidify control over their populations, with disastrous effects for freedom around the world.

If this account is correct, it is the failure of democratic institutions that is threatening the balance within the corridor. The corresponding declines in trust and support for democracy make the implications for future political regimes and myriad freedoms and rights especially dire.

Will it get worse?

There are at least three reasons to worry that the trends we are seeing could get worse.

First, there is no obvious end to the slide of demo­cratic norms around the world. As demo­cracies continue to perform poorly on many dimensions that their citizens care about and as powerful auto­cracies, such as China and Russia, expand their global reach and propaganda, it would be quixotic to hope for an immediate turnaround. Historical evidence is consistent with the idea that, once waves of democracy start, they go on for a while.13 Likewise, once the decline of democracy is underway, we may see further slides for quite some time.

Second, the key forces that have led to the benefits of prosperity not being shared equally are still present. As Simon Johnson and I argue in Power and Progress,14 the main factor leading to growing inequality and lack of wage growth around the world has been the use of digital technologies to drive workplace automation and worker disempowerment. With recent advances in generative AI, these forces may have gone into overdrive. While there is nothing inherent in the nature of AI that should make it always eliminate labor and increase inequality, our current technological trajectory is toward automation and a reduced role of labor across diverse sectors of the economy.15 If this technological trend continues, it will exacerbate the failure of democracies to create shared prosperity. Although certain aspects of globalization may have slowed down, the role of multinational corporations and other dimensions of global integration are likely to increase, which could create another set of forces toward unshared prosperity.16

Third, AI also has direct impacts on democracy, which will likely exacerbate democratic tensions in the years to come. As mentioned above, this is both because AI is being used increasingly skillfully by autocratic regimes to quell discontent and demand for democratic rights,17 but even more fundamentally, it is because AI is distorting political communication and discourse in electoral democracies around the world.18 The role of Facebook and other social media platforms in fostering filter bubbles and polarization and fomenting partisanship and misinformation during the 2010s is now well understood. There are concerns that, with advances in generative AI, even worse practices will take root in the new social media ecosystem.19

While several political, economic, and technological trends may augur hard times for democracy and freedom, there is one small silver lining suggested by the framework in The Narrow Corridor: leaving the corridor is not permanent, and countries that have recently lost the balance between state and society will also be the ones where this balance is still partly present. As conditions change, and as pro-democracy forces and measures strengthen the demand for democratic and civil rights, it is possible to reenter the corridor. For example, after the murderous, totalitarian Nazi regime in Germany, the country was able to rebuild a balance between state and society and develop fairly healthy democratic institutions in the postwar era.20 The same perspective provides some hope that, even as we are witnessing the slide of democratic norms and institutions, rebuilding them is a possibility.

What to do?

Almost all of the chapters in this book suggest ideas to rejuvenate freedom. Let me add to these valuable insights by summarizing some perspectives from the framework presented here.

To put it simply, the best way to counter the current pernicious trends is to create another wave of democracy, similar to the one witnessed after the collapse of military dictatorships in Southern Europe in the 1970s. But how?

There is no surefire way of achieving something so ambitious. But I would like to briefly present a couple of ideas.

  • Rebuild support for democracy. Democracy is nothing without people’s support. The first step in improving the future of democracy and freedom is to rebuild support for democracy within democratically governed populations, then hope that these ideas will spread around the world. In my assessment, the only way this can be achieved is by democracy performing better, at least starting in a number of key places, such as the United States, Western Europe and Latin America. Democracies in these ideological battlegrounds need to show that they deliver in terms of economic growth, shared prosperity, control of corruption, and responsiveness to people’s needs and wishes. The role of shared prosperity here cannot be overemphasized. Democracy will continue to lose support if it is seen as the handmaiden of a two-tiered society in which a small group of elites benefits from economic growth and technological change while the rest become increasingly dependent.
  • Trust in institutions. Concurrently, democratic institutions need to foster people’s trust. This again starts with performance. But procedures matter too. One of the reasons why democracies started losing people’s trust and support is because of an error of “technocracy.” Increasingly, many segments of the population are becoming disillusioned with democracies because they think that, under the veneer of democracy, a small group of technocrats, in cahoots with economic and political elites, runs the show. This state of affairs is not conducive to trust in institutions or support for democracy. To get out of this situation is certainly not easy, especially after democratic norms have become weakened. Sidelining experts and expertise from policy making, or enabling the emergence of a tyranny of the majority that could damage civil rights and minority rights, would certainly be disastrous for broad freedoms. The solution then must be sought in democratizing procedures subject to well-articulated constraints. The alternative to technocracy should thus not be viewed as “mob rule,” but as institutions that are truly responsive to people’s needs and concerns. These institutions should be built and should function within well-defined and communicated constraints, set by constitutions, and a firm commitment to minority and human rights.
  • The right kind of empowerment for civil society. The framework in The Narrow Corridor puts special emphasis on the role of civil society. The weakening of democratic norms and freedoms around the world has coincided with civil society becoming either weaker, as in many autocratic regimes, or more polarized, as in the United States and Western Europe.21 We need the right kind of empowerment for civil society, which means civil society becoming a true bulwark in the defense of freedoms and democracy. This must start with civil society organizations (CSOs) themselves recognizing that they should not be an instrument to suppress rights and freedoms. The tragedy in much of Western Europe and the United States today is that several CSOs have become active participants in banning free speech or silencing alternative voices.22 The right kind of civil society empowerment must start with a strong commitment to freedom of speech. All other concerns, including the fact that some groups may feel uncomfortable when certain ideas are expressed, must be subservient to this principle. It is only then that CSOs can be a true force against state repression and elite dominance and can help rebuild freedom and democracy.

Daron Acemoglu is an Institute Professor at the Massachusetts Institute of Technology. He is also a fellow of NAS, APS, BAS, AAAS; the winner of BBVA Frontiers of Knowledge Award, Nemmers Prize, Global Economy Prize, A.SK Prize, CME Prize, and John Bates Clark Medal; and the author of New York Times bestseller Why Nations Fail (with James Robinson); The Narrow Corridor (with James Robinson); and Power and Progress: Our Thousand-Year Struggle over Technology and Prosperity (with Simon Johnson).

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1    Yana Gorokhovskaia, Adrian Shahbaz, and Amy Slipowitz. Marking 50 Years in the Struggle for Democracy. Freedom House: Freedom in the World 2023, March 2023, https://freedomhouse.org/report/freedom-world/2023/marking-50-years.
2    Daron Acemoglu, Nicolás Ajzenman, Cevat Giray Aksoy, Martin Fiszbein, and Carlos Molina, “(Successful) Democracies Breed Their Own Support.” Working paper, Review of Economic Studies, (2023, forthcoming). https://economics.mit.edu/sites/default/files/2023-10/Successful%20Democracies%20Breed%20Their%20Own%20Support.pdf; Daron Acemoglu, Nicolás Ajzenman, Cevat Giray Aksoy, Martin Fiszbein, and Carlos Molina, “Support for Democracy and the Future of Democratic Institutions,” VoxDev, December 19, 2023, https://voxdev.org/topic/institutions-political-economy/support-democracy-and-future-democratic-institutions.
3    Grzegorz Ekiert, Democracy and Authoritarianism in the 21st Century: A Sketch, Harvard Kennedy School, Ash Center for Democratic Governance and Innovation, Policy Briefs Series, December 2023, ash.harvard.edu/sites/hwpi.harvard.edu/files/ash/files/democracy_and_authoritarianism_in_the_21st_century-_a_sketch.pdf; Larry M. Bartels, Ursula E. Daxecker, Susan D. Hyde, Staffan I. Lindberg, and Irfan Nooruddin, “The Forum: Global Challenges to Democracy? Perspectives on Democratic Backsliding,” International Studies Review, 25, no. 2 (June 2023); Robert R. Kaufman and Stephan Haggard, “Democratic Decline in the United States: What Can We Learn from Middle-Income Backsliding?” Perspectives on Politics, 17, no. 2 (2019), 417–32.
4    Sarah Cook, “Freedom of Expression in Asia: Key trends, factors driving decline, the role of China, and recommendations for US policy,” Freedom House, March 30, 2022, https://www.freedomhouse.org/article/testimony-freedom-expression-asia; Gary King, Jennifer Pan, and Margaret E. Roberts, “How the Chinese Government Fabricates Social Media Posts for Strategic Distraction, Not Engaged Argument,” American Political Science Review 111, no. 3 (2017), 484–501; Gary King, Jennifer Pan, and Margaret E. Roberts, “How Censorship in China Allows Government Criticism but Silences Collective Expression,” American Political Science Review 107, no. 2 (May 2013), 326–43; Zhizheng Wang, “Systematic Government Access to Private-Sector Data in China,” International Data Privacy Law, 2, no. 4 (2012), 220–229.
5    Martin Beraja, Andrew Kao, David Y. Yang, and Noam Yuchtman, “AI-tocracy,” The Quarterly Journal of Economics, 138, no. 3 (2023) 1349–1402.
6    Anton Troianovski, Yuliya Parshina-Kottas, Oleg Matsnev, Alina Lobzina, Valerie Hopkins, and Aaron Krolik, “How the Russian Government Silences Wartime Dissent,” New York Times, December 29, 2023, https://www.nytimes.com/interactive/2023/12/29/world/europe/russia-ukraine-war-censorship.html; Dasha Litvinova, “The Cyber Gulag: How Russia tracks, censors and controls its citizens,” Associated Press News, May 23,
2023, https://www.apnews.com/article/russia-crackdown-surveillance-censorship-war-ukraine-internet-dab3663774feb666d6d0025bcd082fba.
7    Sarah Repucci and Amy Slipowitz, Democracy Under Lockdown: The Impact of COVID-19 on the Global Struggle for Freedom, Freedom House, October 2020, https://freedomhouse.org/report/special-report/2020/democracy-under-lockdown; Richard Youngs, “COVID-19 and Democratic Resilience,” Global Policy, Policy Insights 14, no. 1 (2022), 149–56; Jacek Lewkowicz, Michał Woźniak, and Michał Wrzesiński, “COVID-19 and erosion of democracy,” Economic Modelling 106 (January 2022), 105682.
8    Daron Acemoglu and Simon Johnson, Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (Hachette, PublicAffairs, 2023).
9    Sergei Guriev and Elias Papaioannou, “The Political Economy of Populism,” Journal of Economic Literature 60, no. 3 (2022), 753–832; Dani Rodrik, “Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-Wing Populism,” Annual Review of Economics 13 (2021), 133–70.
10    Daron Acemoglu and James Robinson, The Narrow Corridor: States, Societies, and the Fate of Liberty (Penguin Random House, 2019).
11    Daron Acemoglu and James Robinson, “Non-Modernization: Power-Culture Trajectories and the Dynamics of Political Institutions,” Annual Review of Political Science, 25 (2022), 323–39.
12    Acemoglu et al., “(Successful) Democracies Breed Their Own Support.” 
13    Samuel P. Huntington, “Democracy’s Third Wave,” Journal of Democracy 2, no. 2 (1991), 12–34; John Markoff, Waves of Democracy: Social Movements and Political Change (SAGE Publications, Inc., 1996). 
14    Acemoglu and Johnson, Power and Progress.
15    Acemoglu and Johnson, Power and Progress.
16    John G. Ruggie, “Multinationals as Global Institution: Power, Authority and Relative Autonomy,” Regulation and Governance 12, no. 3 (2017) 317–33; In Song Kim and Helen V. Milner, Multinational Corporations and their Influence Through Lobbying on Foreign Policy, Brookings Institution, December 2, 2019, web.mit.edu/insong/www/pdf/MNClobby.pdf.
17    Martin Beraja, David Y. Yang, and Noam Yuchtman, “Data-intensive Innovation and the State: Evidence from AI Firms in China,” Review of Economic Studies 90, no. 4 ww(2023), 1701–23; Beraja et al., “AI-tocracy,” (2023).
18    Allie Funk, Adrian Shahbaz, and Kian Vesteinsson, “The Repressive Power of Artificial Intelligence,” in Freedom on the Net 2023, eds. Adrian Shahbaz et al. (Freedom House, 2023) https://www.freedomhouse.org/report/freedom-net/2023/repressive-power-artificial-intelligence; Daron Acemoglu, “Harms of AI,” The Oxford Handbook of AI Governance, eds. Justin Bullock, Yu-Che Chen, Johannes Himmelreich, Valerie Hudson, Anton Korinek, Matthew Young, and Baobao Zhang (Oxford University Press, 2024); Jessica Brandt, “Propaganda, Foreign Interference, and Generative AI,” testimony prepared for the US Senate Artificial Intelligence Insight Forum (Brookings Institution, November 8, 2023), https://www.brookings.edu/articles/propaganda-foreign-interference-and-generative-ai.
19    Jonathan Haidt and Eric Schmidt, “AI Is About to Make Social Media (Much) More Toxic,” The Atlantic, May 5, 2023 https://www.theatlantic.com/technology/archive/2023/05/generative-ai-social-media-integration-dangers-disinformation-addiction/673940; Daron Acemoglu, Written testimony prepared for the US Senate Committee on Homeland Security and Government Affairs hearing on “The Philosophy of AI: Learning from History, Shaping Our Future,” (November 8, 2023), https://www.hsgac.senate.gov/wp-content/uploads/Testimony-Acemoglu-2023-11-08.pdf; Valerio Capraro et al., “The Impact of Generative Artificial Intelligence on Socioeconomic Inequalities and Policy Making,” SSRN Working Paper No. 4666103, December 15, 2023; Daron Acemoglu, Asuman Ozdaglar, and James Siderius, “A Model of Online Misinformation,” The Review of Economic Studies (2024, forthcoming).
20    Acemoglu and Robinson, The Narrow Corridor, Chapter 13.
21    Amber Hye-Yon Lee, “Social Trust in Polarized Times: How Perceptions of Political Polarization Affect Americans’ Trust in Each Other,” Political Behavior 44 (2022) 1533–54; Nicholas Charron, Victor Lapuente, and Andrés Rodríguez-Pose, “Uncooperative Society, Uncooperative Politics or Both? Trust, Polarization, Populism and COVID-19 Deaths Across European Regions,” European Journal of Political Research 62, no. 3 (2022), 781–805; Shanto Iyengar, Yphtach Lelkes, Matthew Levendusky, Neil Malhotra, and Sean J. Westwood, “The Origins and Consequences of Affective Polarization in the United States.” Annual Review of Political Science 22 (2019), 129–46; Jennifer McCoy, Tahmina Rahman, and Murat Somer, “Polarization and the Global Crisis of Democracy: Common Patterns, Dynamics, and Pernicious Consequences for Democratic Polities,” American Behavioral Scientist 62, no. 1 (2018), 16–42.
22    Brenda Dvoskin, “Representation Without Elections: Civil Society Participation as a Remedy for the Democratic Deficits of Online Speech Governance.” Villanova Law Review 67, no. 3 (2022), 447–507; Robert Corn-Revere, “The Anti-Free Speech Movement,” Brooklyn Law Review 87, no. 1 (2021) 145–93; John Shattuck and Mathias Risse, Freedom of Speech and Media: Reimagining Rights & Responsibilities in the United States, Harvard Kennedy School, Carr Center for Human Rights Policy, 13 (2021), https://www.carrcenter.hks.harvard.edu/files/cchr/files/free_speech.pdf.

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]]> Ukraine’s recovery hinges on allied support https://www.atlanticcouncil.org/in-depth-research-reports/books/ukraines-recovery-hinges-on-allied-support/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736438 Ukraine faces challenges with its judicial system and war aftermath, including destruction, displacement, and educational setbacks. Recovery will require allied support and strategic policies.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The flat trend of the Freedom Index between 1995 and 2004 mainly reflects the presidency of Leonid Kuchma, a “red” premier with a Soviet mentality who was not particularly interested in building democracy. The Orange Revolution and the new presidency of Viktor Yushchenko, which began in 2005, brought significant change towards democracy, political freedom, and economic liberalization. These reforms are clearly picked up by the political freedom subindex. In particular, the indicator concerning legislative constraints on the executive seems to be reflecting the substantial changes in the Constitution introduced during this period, that reduced the power of the president in favor of the parliament.

The Freedom Index, and especially the political freedom subindex, starts declining in 2010 with Viktor Yanukovych as president. This period represents a clear backsliding in terms of democratic reform, which intensified in 2013–14 when the government tightened the screws on civil society and the economy. The subsequent recovery is attributable to the Revolution of Dignity (also known as the Euromaidan), with several positive changes towards liberalization in political and economic terms. For example, the press became much freer and more independent. Nowadays, in the midst of the Russian invasion, it is hard to measure the degree of freedom in Ukraine because martial law imposes many restrictions.

The economic freedom subindex reflects the ups and downs of Ukraine’s economy in the last three decades. Generally, the level of investment freedom in Ukraine is significantly lower than in other countries of the former Soviet bloc that introduced much more radical reforms upon independence (e.g., the Baltic states). This low level is consistent with other measures of openness; for example, the Chinn-Ito index of restrictions on capital accounts paints a similar picture. Although Ukraine tried to open up, various steps toward liberalization were rolled back when the country faced economic and security crises. For instance, the government introduced stricter capital controls during the global financial crisis of 2008–09 to tame the panic. At the same time, Ukraine’s external trade has been a success story. Not only did Ukraine become much more integrated in global markets, but it was also able to redirect trade away from Russia after Russia annexed Crimea and occupied parts of the Donbas in 2014. Ukraine generally has few barriers to cross-border flows of goods and services. These very divergent trajectories for capital openness versus trade openness are also shown in the components of the economic freedom subindex.

The lack of improvement in legal freedom from 1995 to 2014 could be explained by the fact that, unlike other Eastern European countries, Ukraine did not institute a radical reform of its legal architecture on independence. Instead, there were small incremental changes from the Soviet system. For example, the labor code was written in the 1970s, and only sporadic, piecemeal changes have been made since then to make it a little more modern. As a result, the Ukrainian legal system is fraught with contradictions and inconsistencies. The history of the Constitution illustrates the complexity and ever-changing nature of the legal system. After being adopted in 1996 (which is a slow start relative to peer countries), the Constitution was amended in 2004 to limit presidential powers. President Yanukovych cancelled these amendments in 2010 before they were reinstated after the Revolution of Dignity in 2013–14. The big drop in legal freedom in 2014 is mainly driven by a plummeting security component, which reflects Russia’s annexation of Crimea and partial occupation of the Donbas.

These dynamics are consistent with Figure 1 below, which shows the evolution of two indexes produced by the V-Dem Project—on judicial constraints on the executive and on political rights—since 1985. Upon the fall of the Berlin Wall in 1989, the path toward free institutions is markedly different for Ukraine than it is for other nations in the orbit of the USSR. While Latvia, Lithuania, and Poland quickly reached very high scores on both indexes, Ukraine followed the much weaker Russian reform path until the year 2000. With the turn of the century, Ukraine departs from the declining trend of Russia, but it still lags behind its more successful neighbors.

Figure 1. Institutional reform in selected countries (1985–2022)

Note: For the period 1985–89, the scores of Russia, Ukraine, Latvia, and Lithuania are those of the USSR.

Source: V-Dem Dataset’s Judicial Constraints on the Executive Index (left), and Political Civil Rights Index (right).

One can see how the low level of legal and economic freedom generates inefficiencies and deters economic development in Ukraine by looking at the sectors and firms that are thriving. For example, the IT sector in Ukraine is very competitive and successful in the global market because it does not require a lot of physical capital. Instead, the IT sector is based on human capital which is much harder to expropriate than physical capital. This means that the sector does not need to rely on the judicial system as much as other sectors. Similarly, the agricultural sector, another highly successful part of the Ukrainian economy, is very decentralized, which creates competition and limits the power of oligarchs or other vested interests.

From freedom to prosperity

The evolution of the income component for Ukraine is very positive from 1995 up until the global financial crisis of 2008. During this period, the country experienced a fast recovery from the initial shock of transitioning from the Soviet system. A giant economic boom was fueled by easy credit and inflows of foreign direct investment. This economic expansion was halted by the global financial crisis. The banking sector was hit particularly hard and accumulated a large share of nonperforming loans. With no political will to reform the financial sector, banks became “zombie” institutions, weighing down the broader economy. Weakened by the financial crisis, the economy went through another massive upheaval after the Russian aggression of 2014. Although Ukraine implemented many reforms since 2014, and was thus more prepared to withstand the COVID-19 shock, security concerns weighed heavily on the country, depressing investment and consumption. In short, since 2008 the country has not been an attractive place to invest and produce, leading to the stagnant income we can see over the last fifteen years. The full-scale Russian invasion of Ukraine in 2022 obviously made the economic landscape even more difficult.

Data on inequality are always difficult to analyze, especially so for Ukraine because of its large informal sector. Although this factor distorts the level of inequality, examining changes in this component can still be a revealing exercise. For example, the distribution of income becomes more equal during the 1990s because incomes contracted deeply for nearly everyone due to the collapse of the previous system, hyperinflation, and so on. Inequality rose in the early 2000s as the economic recovery benefited some people more than others. The so-called oligarchs were clear winners, and this was the period in which they consolidated their economic and political power. From 2008 on, it is very hard to unpick the true evolution of inequality because of the deep crises the country faced: The global financial crisis of 2008–09 affected the population highly unevenly. The Russian annexation of Crimea and partial occupation of the Donbas displaced millions of people. The COVID-19 pandemic had heterogeneous effects on the economy and on different groups within the population. And then the fog of the current war makes any estimates of inequality tentative at best.

The very clear negative evolution of the minority rights component of the Prosperity Index, which measures religious freedom, is surprising. There is little indication that any ethnic or religious group is persecuted in Ukraine. Perhaps this dynamic reflects the fact that Ukraine was trying to limit the influence of a Russian “fifth column.” For example, Ukraine established a Ukrainian orthodox church, independent of Moscow, and has encouraged communities to switch from the Moscow patriarch to the Kyiv metropolitan. This may create formal signs of reduced rights of minorities but there have been hardly any objective impediments to citizens practicing their faith, or exercising their religious freedom. Indeed, religious and other minorities are well represented at the highest levels in Ukraine: President Zelenskyy is himself a Jew and Minister of Defense Umerov is a Crimean Tatar.

Regarding education, the divergence from the European average that seems to have started in 2005–06 does not have an obvious explanation. The capacity of universities in Ukraine exceeds the size of the graduating classes from high school. Therefore, anyone who wants to go to college can do so without problems. Surprisingly, this trend was not reversed by the economic crisis of 2008–10, because people delay entering the labor market in recessions and pursue further education in order to wait for better employment prospects. The trend away from the European average is perhaps partly explained by the fact that many more Ukrainians study abroad (the number more than tripled from 2007 to 2019) and it is possible that their educational attainment is not being properly recorded. Unfortunately, Ukraine has not had a census since 2001 and thus reliable data on socioeconomic outcomes are scarce.

The improvement in the environmental indicator in the 2004–14 period is most likely capturing the fact that Soviet-era heavy industry was clearly declining, and losing ground relative to other sectors of the economy like services. For example, the improvement in the indicator begins in 2007–08. This timing is consistent with the fact that the metals industry, a heavy polluter, was decimated during the global financial crisis (production declined by approximately 60 percent) and even after recovery, production stood at roughly 60 percent of its pre-crisis level. However, some of the improvement in the environment indicator is in line with a deliberate, but modest government policy to tighten environmental standards.

The initial level of the health indicator was very low. Heavy pollution, high consumption of alcohol, widespread smoking, and the low quality of healthcare services are clear contributors. From its low base, Ukraine could and did improve health outcomes through effective policies, a stronger economy, and a changing culture. For example, successive governments in Ukraine have consistently increased taxes on tobacco and alcohol, and higher incomes have helped to improve diet and access to food. The public healthcare system was largely unreformed until 2014, but after the Revolution of Dignity, the government pushed different measures to make the healthcare system more patient-centric, improve access, and reduce corruption. The system remains largely government run but there has been some entry of private providers in large cities.

The future ahead

The future of Ukraine will be shaped by its accession to the European Union (EU) and NATO. Joining the EU requires a lot of convergence—and hence upgrades—in terms of the legal structures, economic conditions, and environmental/health standards. The experience of Poland and other former communist countries suggests that Ukraine will see radical improvements after accession, in labor productivity, market access, infrastructure and other key metrics of economic progress. Joining NATO will be critical for addressing security concerns. To put it bluntly, if Ukraine were to join NATO, Russia would not be able to attack it again. NATO can guarantee peace and thus make Ukraine an investable country and allow refugees to return.

Obviously, with the ongoing war, any outlook is highly uncertain. However, one should flag two challenges for Ukraine.

First, there is a widespread perception that the Ukrainian judicial system does not adequately protect private property or the individual rights of citizens, and does not act as an effective check on executive power and corruption. This is a fundamental challenge that needs to be addressed in the next five to ten years if the country is to become a success story.

Second, the war will leave many scars on the country. These will be destroyed factories and homes (although rebuilding these could allow the country to modernize its infrastructure and productive capacity), and also huge swaths of land will have to be de-mined. Millions of Ukrainians are displaced; many (likely more than a million) will be veterans who will need reintegration into civilian lives, and hundreds of thousands will need medical attention (lost limbs, post-traumatic stress, etc.). Furthermore, there will be a whole generation of children who have not received a proper education through the years of COVID-19 and war. The losses of human capital are enormous and hard to reverse. Ukraine will need the help of its allies and deliberate policies to recover from these adversities.

Yuriy Gorodnichenko is Quantedge Presidential Professor at the Department of Economics, University of California – Berkeley. He received his B.A. and MA at EERC/Kyiv-Mohyla Academy (Kyiv, Ukraine) and his Ph.D. at the University of Michigan. He is broadly interested in macroeconomics and issues related to transition economies (especially, labour markets and firm performance). Gorodnichenko serves on many editorial boards, including Journal of Monetary Economics and VoxUkraine. He is also affiliated with NBER and IZA.

EXPLORE THE DATA

Trackers and Data Visualizations

Jun 15, 2023

Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

The post Ukraine’s recovery hinges on allied support appeared first on Atlantic Council.

]]> Regaining trust in government https://www.atlanticcouncil.org/in-depth-research-reports/books/regaining-trust-in-government/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=737939 Crises like COVID-19 prompt increased government control, challenging liberal values. Declining trust in governments clashes with security needs, urging policies to balance freedom and prosperity. Energy security challenges hinder net-zero goals, posing economic challenges globally, alongside privacy dilemmas amid surveillance tech in China, Russia, and the Middle East.

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Likely issues in the next decade around the world

Four worrying trends for prosperity

Open questions

In his treatise The Road to Serfdom Friedrich Hayek argues that the abandonment of classical liberalism leads to a loss of freedom, the creation of an oppressive society, and in some cases the tyranny of a dictator. Several contemporary political leaders fit with Hayek’s foreboding picture, among them Vladimir Putin of Russia and Xi Jinping of China. In times of crisis, as during the recent COVID-19 pandemic, societies naturally demand new protections from their governments. These protections enhance security at the expense of freedom. The history of previous crises—be they economic, social, or due to wars and natural disasters—teaches us that such limits to freedom tend to remain in place long after the original purpose of regulation or state intervention has abated, and that this sometimes leads to the path Hayek predicted.

The world has experienced a sequence of significant crises in the past dozen years—the Great Recession in 2009–12, the Russian annexation of Crimea in 2014, the COVID-19 pandemic, and most recently the war in Ukraine and the Israel-Hamas war—and governments have substantially increased their reach in economic and social life during these years. This expansion of the role of government challenges traditional liberal views on the foundations of freedom, and necessitates a new look at basic questions.

In designing policies to increase prosperity, one must also acknowledge challenges to standard economic theory, which predicts that, as societies become richer, more educated, and economically more developed, they should also experience a particular path of political institutional developments—that is, they become more democratic, increase respect for civil and human rights, and develop several other societal features we commonly associate with Western democracies. China is the most obvious challenge to this theory, but there are others, even in relatively prosperous European societies like Hungary, Poland, and Slovakia, as well as Latin American countries like Venezuela.

There is another worrying issue, too. The effectiveness of public institutions depends on the trust that citizens and businesses bestow upon them. However, in the last two decades trust in government has continuously fallen around the world, including in the advanced economies (Figure 1). Civic engagement helps people extend their trust from their familiar circle to include public institutions as well. While there is a long history of civic engagement at the local level in many developing economies, disruptions due to decolonization and war have made it difficult to replicate Europe’s results in participatory democracy to these economies.

Figure 1. Trust levels, global results (2020)

Source: Wellcome Global Monitor 2020: COVID-19

Note: Percentage of people who answered ‘a lot’ to the question: “How much do you trust each of the following?
Do you trust them a lot, some, not much, or not at all?”

The concern that comes out most often in country studies is over personal security. This concern comes through in countries at war like Ukraine or parts of Africa; in countries with high levels of gang violence, as in Brazil or several Central American nations; and in countries where political polarization brings about crimes and discrimination against minority groups, as in China or India. This dichotomy—between declining trust in government while requiring more government to ensure security—is the principal trade-off that has evolved in recent times. New technologies are increasingly used by governments to analyze individuals’ behavior, in the name of enhancing security. Such analyses disrupt the standard concept of personal privacy and can easily become tools in an oppressive society. Examples in China and the Middle East suggest that social protest or dissent, even as benign as views expressed on social media, is identified through the use of spying technologies, and is quickly stifled.

The importance of the Atlantic Council’s Freedom and Prosperity Center is in identifying policies that build trust in government institutions while protecting personal freedom. Such policies are couched in political, economic, and legal reform. The task for governments is to disseminate the reasons for these policies being implemented and their likely impact on prosperity. This analysis helps policymakers and influencers in developing countries, as well as other organizations and individuals who are trying to expand freedoms through incremental or fundamental change towards prosperity.

This volume brings together the insights of some of the world’s leading economists and diplomats into how countries and regions pursue steps towards prosperity. Often these steps to prosperity ignore the role of freedom, but there is always an implicit association or algorithm connecting policies to freedoms—or the abandonment of those freedoms—and prosperity. This is precisely the goal of the Atlantic Council’s project: to document this algorithm and derive the success stories associated with it. In doing so, we hope to identify the roads politicians travel to attain prosperity. 

This chapter is organized as follows: First, we summarize the views of eminent economic scholars and foreign policy experts on what the future may hold for some large countries and regions. We have chosen case studies where we see interesting dynamics that may affect global prosperity—be it because those countries and regions are large and home to significant portions of the world’s population, or because their policies affect neighboring countries and regions. Second, we describe four worrying trends related to raising prosperity. Finally, we suggest some directions for future work to convince politicians and influencers of the link between freedom and prosperity.

Likely issues in the next decade

In this section we summarize the views of contributors to this volume on the likely direction of change towards freedom and prosperity in the next decade. We list countries and regions alphabetically, though their respective dynamics may be quite diverse. These countries and regions are chosen for analysis as they represent a large share of the world’s population. Their policies often affect the global consensus on significant prosperity-related debates too.

Africa 

Economic liberalization across Africa has borne fruit in the past decade and further financial and trade integration with the rest of the world would have continued benefits, argues William Easterly. The big challenge is to strengthen the process of democratization and institution building. The necessary reforms in these areas are harder to accomplish. The recent wave of military coups in countries like Burkina Faso, Gabon, Niger, Mali, and Sudan is a worrying sign, and there is ongoing conflict associated with Islamic movements in some areas, for example, in Nigeria. The resolution of conflict and the maintenance of peace and security are crucial necessary conditions for further development in Sub-Saharan Africa.

It is unlikely that international institutions and foreign countries will provide as much support for African development as in the past. Things tend to go in cycles: there was a lot of support and attention for African development in the 1990s and 2000s, though foreign support was not all that successful in achieving economic growth; foreign aid did receive some of the credit for the progress on health and education, however. Since then, the focus has shifted to other parts of the world, like Ukraine and Eastern Europe, and the situation in Israel and Gaza is also drawing attention towards the Middle East.

In terms of Sub-Saharan African development, the Belt and Road Initiative, led by China, is having similarly disappointing results to the significant funding received from Western nations during the 1980–2010 period. The same problems of debt repayment and default are likely to be repeated with China’s investments. At the end of the day, for foreign investment and aid to successfully affect Africa’s economic development, it has to be directed to some productive uses. And this is not usually the case as this kind of financing is heavily politicized.

Finally, within-region trade is unusually low for neighboring countries in Sub-Saharan Africa. But increasing it is certainly not an easy task, as the several unsuccessful attempts to promote free trade areas or common currencies in the region in the last couple of decades attest. This failure may be due to Africa’s burden of having so many small states, creating divisiveness. This generates great difficulties in reaching agreements because there is a multitude of strong political interests that do not trust each other.

Argentina 

The economic situation has materially worsened in recent times. Weekly inflation at the end of November 2023 is running at 3.1 percent, which implies an annualized rate of 230 percent. That is, Argentina is experiencing in a week the level of inflation that normal countries see in a year. Related to this, Argentina’s poverty rate in 2023 was close to 42 percent of the population.

It is understandable that the Argentinian people are frustrated, and are looking for someone new, outside of the traditional parties, argues Guido Sandleris. It seems like a revival of the mantra “¡Que se vayan todos!” (They all must go!) of 2001. And the new man that Argentinians have chosen as president is Javier Milei, an outsider to the traditional political system of Argentina. His ascent makes the prospects for the next few years highly uncertain.

Like many other politicians, Milei has identified real problems in the country (inflation, high and inefficient public spending, political capture, corruption, and so on), and has proposed a series of easy-sounding solutions. And the Argentinian people have voted for this project. Nonetheless, it is obvious that solutions will be anything but easy, and Milei has already walked back on some of his positions. Dollarization is the obvious example, as there are just not enough dollars in the Argentinian Central Bank to dollarize the economy, at least in the short run. Furthermore, Milei’s position in the national congress is weak, so to enact legislation, he needs to build consensus with the traditional parties around more moderate proposals. Cutting public spending is always unpopular, so it is highly uncertain whether President Milei can get enough parliamentary support on that front to push forward proposals.

The touchstone of President Milei’s administration is going to be the macroeconomic situation, which is extremely delicate. Argentina is on the verge of hyperinflation, and a situation in which the economy basically stops. It is likely that some of Milei’s reforms to tackle inflation in the medium term, like the correction in utility prices and the exchange rate, will actually generate a rise in prices in the short run. He will only be successful if he can offer a fiscal anchor to the economy, and make credible the commitment of the Central Bank to stop printing money to finance the Treasury; this is not an easy task.

Brazil 

The private sector in Brazil faces a huge number of hurdles, according to José Scheinkman. Taxes are high and inefficient. Firms are more worried about paying less tax than producing in a more efficient way, because it does not pay. Regulations in Brazil are especially inefficient and there are important difficulties regarding long-term financing, related to the legal risks and fiscal deficits in the country. The labor market is rigid and President Lula announced plans to impose new labor regulations in 2024. If adopted, such regulation dims the overall economic prospects for Brazil.

Security is a fundamental challenge for Brazil. In particular, this concern refers to the opening of a new route for drug trafficking—from Latin American producers in Colombia, Peru, and Bolivia into Europe—through Brazil. As a result of this illegal activity, some Brazilian gangs are becoming powerful and fight with each other for control of the routes, increasing crime. For the first time in decades, paramilitary groups are appearing. These groups are more organized than the gangs and they have started to harass legal businesses. Paramilitary groups also control part of the logistics and construction sectors.

Some policies ease the burden on legal businesses, like the tax reform that the government is preparing for 2024. It is hoped that this reform will simplify the tax code and eliminate various exceptions and loopholes that benefit businesses with links to politicians. Brazil has the cleanest energy mix of any large emerging economy, thanks to its abundant water and solar resources. The government is dealing effectively with the illegal deforestation going on in the Amazon. This can make Brazil the biggest exporter of goods that have a positive climate footprint. Finally, the largest corruption scandal in Brazil’s history—surrounding the Brazilian multinational Odebrecht, which admitted guilt in a cash-for-contracts corruption scandal in twelve countries—has resulted in more trust in prosecutorial authorities and cleaner public procurement.

Chile 

Chile has two big challenges in the coming decade, one economic and one political, writes Andrés Velasco. The big economic challenge is that Chile is not a fast-growing economy anymore. That is a big structural break. Productivity growth, which was very fast late in the twentieth and early twenty-first century, has gone down. Investment rates have not dropped, but nor have they increased. Chile was a country with a large diversification of exports, and that diversification process has come to a halt. When it comes to prosperity, the big question is: Why was the fast-growth period in Chile so short-lived?

Economic theory predicts that, as a country becomes richer, its growth slows due to a convergence process. But we would have expected fast growth in Chile until the country’s standards of living had reached the level of South Korea, for example. Instead, fast growth seems to have stopped with living standards only at the level of Greece. 

Regarding inequality, the country has slowly improved in the last few decades, despite the really poor initial level of this indicator. But there is high uncertainty regarding the potential medium-term effects of the events of recent years. In particular, the very lengthy school closures that Chile imposed during the COVID-19 pandemic seem to be exacerbating inequality of opportunity. Most Latin American countries closed their schools for longer than European countries, but even within the region, Chile’s restrictions lasted longer than most. And this decision worsened inequality. If you had a good internet connection and your school could teach online, then the loss of learning was minimal. But if all you had was one bad internet connection via somebody’s cell phone, and the school was not well equipped to teach online, then nearly two years of school closure is clearly detrimental for the development of human capital and for equality in the future.

The big political challenges have to do with the sociopolitical climate. Chile was a consensual country in the years between the return of democracy in 1990 and around 2010. Since then, politics has become polarized. Power has become a lot more fragmented. Chile went from having seven parties in Congress to twenty-two. If you look at indices of satisfaction with the performance of democracy, or indices of trust in government, political parties, the judiciary, the police, the media, business lobbies, unions, and so on. they have all deteriorated. It seems that Chileans do not trust anyone anymore. That is a worldwide trend, but in Chile it might be a little more pronounced. The big question is: How do you restore politics?

Chile’s answer has been to try to rewrite the social contract: the Constitution. Politicians have tried twice already and failed, and the third time is not looking good. President Bachelet drafted a new constitution in her second term, but she ran out of time to get it approved. A constitutional convention was chosen in 2021, which wrote a terrible text that was rejected by 62 percent of voters a little over a year ago, and a new convention was elected. And Andrés Velasco’s prediction was correct. In December 2023, Chileans rejected again the proposed changes to the Constitution.

China 

China is missing the chance to create a more dynamic society—the “Chinese dream.” Meanwhile, other East Asian countries have improved their freedoms considerably, despite slower income growth. They seem to do more with fewer resources to enhance their societies’ prosperity, argues Johanna Kao.

The primary question the Chinese government needs to address in the next decade is whether the policy choices being made are sustainable. The economic turmoil during the COVID-19 pandemic has reduced public trust in the effectiveness of the Chinese growth model. The most striking aspect of the evidence is the government’s commitment to an inherently unequal form of governance, particularly when it comes to individual and subgroup rights. While China is often described as having a collectivist approach, where the well-being of the collective outweighs individual freedoms, the data suggest a more selective approach to collectivism. In Xi Jinping’s model of government, certain groups are favored at the expense of others.

This type of inequality is not a new phenomenon in China. Historically, there have always been winners and losers, with the party elite and affiliated businesses reaping the rewards of extraordinary economic growth while the general population experienced more modest improvements. Yet, in the past, the wealth gap in China was often characterized as urban versus rural. In the past decade there has been a shift towards absolute, rather than relative, inequality. There are clear losers in this system: individuals and groups that have experienced a significant loss of freedoms. 

As we look into the next decade, equality seems likely to deteriorate, with the Chinese Communist Party’s (CCP’s) representation of the collective shrinking. These dynamics put pressure on individuals to conform to a more limited definition of acceptability or face forced assimilation. The trend is exemplified in regions like Xinjiang, where the Uyghurs are subject to extreme reeducation efforts. The rapid expansion of surveillance technology in the name of security, and its use in determining whether people meet the imposed standard of a “good citizen,” are likely to make things worse.

East Asia and the Pacific 

The region unveils a narrative deeply intertwined with historical events and ongoing geopolitical shifts writes Amb. (ret.) Kelley E. Currie. Following the collapse of the Soviet Union in 1988–89, a wave of democratization swept through East Asia and the Pacific. However, progress stagnated thereafter, with democratization efforts in countries like Indonesia not significantly altering the overall political landscape at a regional level. 

The period from 2012 onward witnessed visible improvements in political and economic freedom, primarily attributed to Myanmar’s quasi-democratic transition and increased political dynamism in Malaysia. However, China’s economic growth, accompanied by limited political liberalization, took a downturn after 2013 with Xi Jinping’s ascension to power, exerting downward pressure on freedom across the region. This pressure is exacerbated by China’s internal policy shifts and its external influence on neighboring countries’ democratic and economic development.

Notably, the region saw significant progress in women’s economic freedom, driven by efforts to enhance female workforce involvement and dismantle regulatory barriers. This progress, spearheaded by initiatives like the Women’s Global Development and Prosperity Initiative, has played a pivotal role in driving economic growth in the region.

Despite economic resilience, challenges persist in areas such as inequality, minority rights, weak political institutions, corruption, and regression in the rule of law. The region’s youth population increasingly demands responsive political systems and sustainable growth, highlighting the need for environmental preservation and pragmatic solutions.

In navigating the complex landscape of freedom and prosperity, regional cooperation and support from global allies are paramount. Strengthening institutions and building political and economic resilience remain imperative, ensuring stability and prosperity amidst evolving geopolitical dynamics and internal challenges.

Egypt 

Egypt will have to navigate difficult macroeconomic challenges in the next few years. The country is heavily indebted, and that may tilt the scales of an already worrisome sociopolitical situation, says Rabah Arezki. In the December 2023 elections, President al-Sisi will be reelected and there will be no appetite for political reforms. While his reelection should give him a mandate for reform, it is unlikely that al-Sisi will make any changes that affect crony or military interests. Instead, al-Sisi might have to resort to further devaluation of the currency, which would ignite further inflation and hurt vulnerable households. What is more, this would create a fatal currency mismatch when it comes to Egypt’s external debt denominated in foreign currency. 

Al-Sisi will have to find external sources of financing outside of capital markets, given the prohibitive spread on external borrowing. Financial aid from Gulf countries, which typically provided a lifeline, is no longer forthcoming. Gulf countries are looking to invest in strategic assets but also want to see reforms before doing more to support the country. Gulf partners are counting on the International Monetary Fund to push for more market-oriented reforms. 

While political reforms are unlikely given the current circumstances, deep economic reforms also seem improbable. Indeed, the militarization of politics and of the economy is so entrenched as to make reform of either one unlikely. This stalled situation will likely continue to limit Egypt’s potential. It is imperative that the country re-embarks on a balanced economic and political transition, to avoid the youth becoming frustrated and creating domestic instability. 

The geopolitical situation is also tense. The renewed escalation of violence between Israel and Gaza is spilling over into Egypt. That could destabilize the country and in turn spill over to the whole Middle East and North Africa region.

The European Union

The next decade of European Union (EU) freedom and prosperity dynamics will be marked by the war in Ukraine, writes Simeon Djankov. The EU has committed enormous financial resources to supporting Ukraine’s fight against the aggressor. It has also imposed sectoral and economy-wide sanctions on Russia. These sanctions have negative implications for some industries in Europe, which have traditionally relied on resources from Russia.

The main influence of Russia’s war in Ukraine is the rethinking of the Green Deal that the European Commission has championed for the past decade. Given Russia’s threats to Europe’s energy security, a decision was taken in 2022 to reduce the dependence on Russian energy products. With only two countries—Bulgaria and Hungary—receiving postponement of these measures to 2024, Europe has quickly weaned itself off Russian oil and gas. This change, however, has come at an environmental cost: a number of countries have increased the use of coal and other high-polluting sources of energy. 

The past decade has shown evidence that Europe cannot multitask—perhaps the hallmark of gradual consensus building among twenty-seven member states—appearing to focus on one item at a time. When it comes to increasing freedoms, the clear task at hand is helping Ukraine win the war.

Europe’s prosperity agenda is fourfold: First, there are wide disparities across regions within Europe. This disparity is seen within countries, for example southern versus northern Italy, and across countries, for example Scandinavia versus southeastern Europe. A significant portion of the EU budget is directed to reducing these disparities, through investments in infrastructure, agriculture, and regional economic development. Such financial aid needs to be coupled with policies that increase economic freedom at the regional level. For example, decentralization of some tax policies, combined with explicit subsidy schemes, will keep more resources in underdeveloped regions and thus attract businesses and individuals who would otherwise look for opportunities in more advanced parts of the EU.

Second, increased prosperity in the EU comes from completing the internal markets for energy and financial services. These topics were discussed even before the 2014 annexation of Crimea, which ushered in a series of crisis years for the EU. 2024 is a good moment to go back to the original design and create a single energy market in Europe, as well as a single financial market, with a single set of regulators. Much has been written and discussed about how to achieve these goals; now is the time to act.

Third, migration has been at the forefront of European politics for the past decade. It promises to remain an issue in the decade to come. On the one hand, Europe’s demographics are such that the labor market benefits from human capital coming into European countries and putting their labor and talents to productive use. On the other hand, social tensions have risen in the countries that have received large numbers of migrants. Even in countries with relatively few migrants, the specter of competition for social services and jobs has boosted the fortunes of nationalist parties that have promised to erect barriers to further migration. This issue inflames public opinion in Europe to a degree that no other issue does.

Finally, prosperity in Europe emanates from open markets. While the European market itself is large, many innovations and technologies come from either the American or Asian markets. The two other superpowers—the United States and China—have been on a collision course in asserting their economic dominance, leaving Europe to choose how to align in the global picture. So far this path has meandered, with calls for protecting Europe’s own market. Such an isolationist approach is counterproductive. Europe has to remain as open as possible, assimilating leading innovations and creating the space to implement these new ideas into better production processes and products.

India 

The evolution of political freedom in India is worrisome, posits Pratap Bhanu Mehta. There is a high probability that political freedoms might decline even more in the next decade. The way in which the Modi government has empowered hate speech against minorities and co-opted the judiciary is concerning.

It is the first time since 1975 that we must ask the question: Will there be a smooth transition of power? If it looks like this government is struggling and could lose the election, will it accept that transition of power as smoothly as India is used to? There is a catch-22: if this government wins, the majoritarian consolidation will be a continued threat to political freedom. But if it looks like it could lose, then the chances of it resorting to extra-legal means to either hold on to power or making sure that the successive government is not able to function have risen considerably. There is already evidence of this behavior in state elections which the ruling party has been losing. In many of them, the Bharatiya Janata Party (BJP) is deploying the central government’s power to break up the state governments that have been elected.

On the prosperity front, there are reasons to be optimistic. Large sectors of Indian capital and foreign investors have learned to live with limits to political freedom. If they can make money, they will continue operating in India. An open question is whether improving prosperity will be enough to overcome the structural problem of the middle 40 percent of the population in terms of income distribution. This conundrum makes the politicians’ jobs harder. The opposition is struggling to align deep economic discontent with voting in elections.

Kenya 

One of the critical issues that Kenya faces in the next decade is how to keep improving productivity, says Robert Mudida. An obvious area for improvement is manufacturing and its share in gross domestic product (GDP), which in 2023 was slightly below 10 percent. Kenya should double that share. There is a big opportunity in Africa with the implementation of the African Continental Free Trade Area. It would create tremendous opportunities for countries like Kenya, which have some manufacturing bases. Bigger markets can generate productivity improvements.

An important challenge for Kenya relates to the large share of informal employment. Moving some of these workers and firms towards formalization will ensure that economic opportunity and development are more stable. Higher levels of formal employment and production generate larger and more stable sources of government revenue. This will buttress the already firm fiscal consolidation path that Kenya has followed in recent years.

The current account deficit has also been declining in the last decade, partly because of reduced imports, but also due to stronger and more competitive exports. This is a very promising path for Kenya, which needs to take advantage not only of regional value chains, but also global value chains in areas like tourism. It helps that Kenya is perceived as peaceful and secure in comparison with some of its neighbors.

Mexico 

Mexico continues to maintain key technical and autonomous institutions, which have made it resilient to affronts to political, legal, and economic freedoms, writes Vanessa Rubio-Márquez. These institutions have helped sustain a basic level of prosperity. However, the negative developments in some of the indicators serve as early warning signs for the country. Some point to the uneven path forward if the country wants to advance towards the next stage in democratic consolidation and progress in well-being standards. These can be summarized in three clear pillars: strong institutions, high sustained growth, and well-articulated redistribution policies.

Mexico remains a bastion of free trade in Latin America and is in a strategic position, being the United States’ largest trading partner. Amid US-China decoupling, gains from nearshoring could be significant. This has mostly materialized into expectations, however, and only very recently into actual investment commitments. Expectations cannot materialize into more significant commitments if the institutional framework continues to weaken. In many ways, Mexico has de jure maintained the institutions and legal framework to support political, economic, and legal freedoms—including an independent central bank, an autonomous Supreme Court of Justice, and an independent National Electoral Institute. But a de facto deterioration is clearly occurring in the form of political appointees to key autonomous institutions, budget and staff cuts, and a centralization of power under the president, all of which are impacting growth and prosperity.

In this sense, pendular politics remains a significant risk to institutions and continuity of sound evidence-based policy making. The country heads to the polls in June 2024 and the signs of polarization have not wavered. While disagreement and debate are essential components of a healthy democracy, the current discourse in the country is all but constructive, and radical shifts in policy put at risk the possibility of high sustained growth and well-being improvements more broadly.  

High sustained growth and strong institutions are therefore prerequisites before considering redistribution policies; if they are not in place, the country is likely to continue on a path of uneven progress. After unlocking high sustained growth, the country can turn to enhancing institutional capacity to deliver and redistribute gains—and the country has a good track record of institutional capacity for infrastructure and redistribution policies. The risk here then is that the country continues on a path of discontinuity, with every incoming administration embarking on pet infrastructure projects and unfocused social policy.

The Middle East and North Africa

Over the next decade, countries in the Middle East will have to grapple with economic and political transitions in a world in mutation. To achieve freedom and prosperity, countries in the region will have to face risks linked to geopolitics, climate change, and the transformation of energy markets, as well as social polarization, argues Rabah Arezki.

The region is at a tipping point when it comes to conflict escalation. Indeed, the alarming intensity and casualties resulting from the conflict between Israel and Hamas risk engulfing the whole region. This new phase of escalation of violence brings not only tragic loss of lives but also physical destruction, fear, and uncertainty. This renewed violence will have far-reaching economic and social consequences. What is more, the Palestinian issue is an important fault line between the Global North and the Global South, one that could have global repercussions and pull the region further apart.

The region is most exposed to the existential threat posed by climate change. Climate change is simply making this region unlivable at a faster rate than any other. Specifically, a water crisis is looming in the Middle East, heightening domestic tensions and interstate conflicts. Temperatures have reached record highs. And the crisis is made worse by the inadequate governance of the water and other utilities sectors, which has exacerbated the frustration of the citizenry over poor public services.

The region also needs to transition away from fossil fuels. Oil prices have been persistently high and provided some respite to the many oil-exporting countries in the region. Yet, as the world moves away from fossil fuels, the vast reserves of oil and natural gas with which the Middle East is endowed will become stranded—and so will the capital investment in the sector. Several Middle Eastern countries have embarked on ambitious diversification programs to move away from oil, though as yet there is little to show for these efforts. Saudi Arabia’s ambitious economic and social transformation agenda, if successful, could be a game-changer for the region and offer a model for other countries to emulate.

A credible economic and social transformation agenda is long overdue to meet the aspirations of an educated youth and to absorb the millions of young women into the labor market. The abortive political transitions have, however, polarized societies in the region. Two sides stand in opposition, with the people on streets who continue to protest on one side, and the political elites and crony capitalists on the other.

Pakistan 

The defining question for Pakistan’s near-term future will be around political stability, comments Ali Cheema. Even though the country has been involved in a transition towards democracy since 2013, it has been full of political instability. The 2013 election results were not accepted by the opposition, leading to protests in the streets, and the same happened after the 2018 election. This political instability is concomitant with the deterioration of political freedom in the country, making Pakistan a much more repressive society. And political tensions generate policy instability, with politicians’ and bureaucrats’ incentives to reform and create state capacity being significantly diminished. The ensuing uncertainty around the regulatory framework represents a major constraint on Pakistan’s development. Today we observe a breakdown of the consensus over the electoral process, which sometimes means that transitions of power do not take place within the timeframe mandated in the Constitution.

Russia 

The prospects for Russia are determined by the evolution of the war in Ukraine. Putin’s regime entered a declining stage even before the beginning of the war, which is typical of authoritarian and personalistic regimes, argues Konstantin Sonin. It is the last stage, after a period of stagnation, where every effort of the regime is devoted to maintaining power. Even before 2020, political repression was very substantial. There were tens of thousands of people leaving the country every year because they feared arrest if they said something “wrong” on social media, for example.

For Russia, there is no easy way out of the war, nor from Putin’s authoritarian rule. Change in any personalistic regime is always dramatic and turbulent, and even if a lot of the same people still hold power, it always implies substantial changes. It was the same after the death of Stalin.

There is an upside to dramatic change, because when Putin is gone, the new leadership will be able to do some things that will represent an immediate improvement for Russia. For example, any new leadership can withdraw the Russian troops from the occupied territories. And talks about lifting economic sanctions and reopening trade will immediately follow. Some companies that left Russia will quickly return, but this return may not generate a huge economic boom, as the loss of growth potential due to the war is substantial. Nonetheless, it will represent an immediate improvement over the status quo. But in the near term, as long as the war continues, Russia will suffer further decreases in every dimension of prosperity.

Saudi Arabia 

The Kingdom’s transformation agenda is a form of state-led capitalism. The political structure remains unchanged while the leadership focuses on reforming the economy, writes Rabah Arezki. There is no tolerance for any dissent, including on social media, where users are monitored closely using surveillance technology. The notion that economic transformation can happen independently of political transformation is certainly taking a page out of China’s book. This approach may badly backfire.

Despite the absence of political freedom, Mohammed bin Salman (MBS) has managed to rally the population behind him. Unlike many other leaders in the Middle Eastern region, MBS is popular. In fact, he enjoys a level of popularity that was last experienced by leaders immediately following independence. Such cohesiveness could create momentum for the Kingdom to enact further bold reforms. Yet the escalation of violence between Israel and Hamas risks derailing the transformation agenda, as a result of the heightened uncertainty. While MBS has thus far navigated the new geopolitical environment, it is unclear whether Saudi Arabia’s situation in the region will remain tenable. 

Most if not all investments pertaining to the transformation agenda are financed with public money. That public money will eventually run out, as the world economy moves decisively away from fossil fuels. A true test of the sustainability of the economic transformation agenda is whether reforms will attract (domestic and foreign) private investments instead of public investments. All in all, the Kingdom’s unbalanced transformation, focused on the economic (and social) dimensions, may prove short-lived as more and more educated youth will demand more political freedom.

South Africa  

In South Africa, the response to the COVID-19 pandemic brought about stringent health restrictions, arguably among the strictest worldwide, including severe lockdowns and limitations on movement. The measures, intended to curb the virus’s spread, led to a notable decline in civil liberties protection, compounded by proposed legislation aiming to curtail civil society’s activities, argues Greg Mills. This decline in legal freedom has been accentuated since 2008, marked by efforts to consolidate power within the criminal justice system, raising concerns about bureaucracy quality and corruption.

South Africa’s recent development trajectory has seen a decline in prosperity, particularly evident in the health sector. The initial post-apartheid years were marked by positive economic growth fueled by redistributive policies, but subsequent years witnessed stagnation, exacerbated by political changes and the global financial crisis. The health indicator’s dramatic dynamics reflect shifts in government approaches to healthcare, with notable impacts on life expectancy and COVID-19 response effectiveness.

South Africa grapples with significant inequality, driven by a dysfunctional labor market and expansionary policies that failed to address unemployment. While initiatives aimed to expand the middle class, they widened the gap between those with secure employment and those without. The country’s environmental progress remains sluggish, attributed to reliance on fossil fuels and slow transition to renewable energy sources. Despite strides in education enrollment, concerns persist regarding declining educational quality, evidenced by global benchmarking tests.

Looking ahead, South Africa’s political landscape will shape its future trajectory, with the 2024 election holding crucial significance. A shift towards a coalition system could foster greater accountability but also bring political instability. Addressing fiscal challenges and reevaluating global alignments, particularly with BRICS nations, will be imperative for South Africa’s journey towards sustained freedom and prosperity.

United States of America

The United States formal political and civil institutions remain relatively stable, offering a semblance of continuity amidst escalating public discord, write Edward Glaeser. However, the domain of public discourse has undergone a decline, veering sharply from the norms expected within a stable democracy. This is characterized by heightened polarization and a surge in confrontational rhetoric, exacerbated by erosions in civil liberties and legislative constraints, particularly notable since the year 2016.

On the economic front, the United States is holding up well overall, but it’s not without its flaws. Issues like inequality and a growing national debt pose potential challenges for future prosperity. Notably, there are noticeable shifts in how free trade and property rights are perceived, indicating changing attitudes and uncertainties around regulations. However, despite some minor adjustments at the state level, there hasn’t been a significant push for widespread reforms.

On the prosperity front, the United States remains relatively stable, thanks to its strong economic foundation. However, problems persist in areas such as healthcare and entrenched inequalities, exacerbated by the impact of the COVID-19 pandemic. While there have been some improvements in environmental and educational sectors, significant hurdles remain, necessitating concerted efforts towards reform and fostering more constructive political discussions.

Looking forward, addressing the mounting national debt and navigating the challenges posed by political polarization are critical priorities. Reforms aimed at simplifying regulations for small businesses, improving procurement processes, and enhancing overall government efficiency are essential for sustaining economic growth. Yet, fostering civil discourse presents a formidable challenge, given the deep divides and identity politics shaping contemporary debates. This underscores the complexity of forging a cohesive national vision amidst evolving challenges.

Ukraine 

The future of Ukraine will be shaped by its accession to the EU and NATO, writes Yuriy Gorodnichenko. Joining the EU implies convergence in terms of the legal structures, economic conditions, and environmental and health standards. The experience of Poland and other former communist countries suggests that Ukraine will see radical improvements after accession—in labor productivity, market access, infrastructure, and other key metrics of economic progress. Joining NATO will be critical for addressing security concerns. NATO can guarantee peace and thus make Ukraine an investable country and bring refugees back to Ukraine.

There is a widespread perception that the Ukrainian judicial system does not adequately protect private property or the individual rights of citizens, and that it does not act as an effective check on executive power. This is a fundamental challenge that needs to be addressed in the next decade if the country is to become a success story.

The war will leave many scars on the country. These will be not only the destroyed factories and homes (although rebuilding these could allow the country to modernize its infrastructure and productive capacity), but also the huge swaths of lands that will need to be de-mined, the many millions of displaced Ukrainians who will return, and the many (likely over a million) war veterans who will need reintegration into civilian lives, including hundreds of thousands who will need medical rehabilitation.

Furthermore, there is a generation of children who will not have received a proper education, during COVID-19 and then the war. The losses of human capital are enormous and hard to reverse. Estimates of Harmonized Learning Outcomes due to this length of school closure show a fall from 481 to about 420 points, well below the lowest-performing countries in Europe: Moldova and Armenia. The long-term effect could be substantial, with future earning losses of more than 20 percent a year per student.

Privacy is the first worrying trend for prosperity. Some of the most prominent economists and foreign policy experts contributing to this book highlight the trade-off between strengthening security and increasing freedoms. The topic of security comes up in three-quarters of the country and regional studies: be it security from war and civil unrest or security of property and political freedoms. Enhanced technology tilts this trade-off heavily towards fewer individual freedoms, as more and more possibilities arise for individuals to be closely monitored in their daily routine. The rise of surveillance technology in curtailing freedom is seen in various locations, for example, China, Russia, and the Middle East.

Do technologies that reduce freedom nevertheless serve the common good? Big technology companies make precisely that claim: the more information they have, the better data analysis is possible to decipher consumer needs and increase prosperity. The same data can be used, and perhaps are used, to spy on individuals or groups deemed “of public interest.” The EU has taken recent steps to limit the use of facial recognition technology in public spaces. Various other countries are considering similar regulations.

The second worrying trend is the loss of human capital during the pandemic and the lasting effects that this loss has on productivity and equality of opportunity. In Ukraine, approximately two years of education was lost due to the pandemic, followed by Russia’s invasion. Estimates imply that these losses amount to about 20 percent of the future earnings of this generation of children. In Chile, one of the countries that imposed the strictest pandemic measures, the loss could be about 10 percent of long-term earnings. In several Middle Eastern countries, the losses are similar. More worrisome, the lack of access to online education among the poor meant that some children dropped out of school altogether, for example in Egypt.

The third worry is the changing goalposts on the transition to net zero. Prior to the war in Ukraine, the world had, with some effort, approved the Paris Agreement—a legally binding green deal. In this regard, the main impact of Russia’s war in Ukraine is the rethinking of the Green Deal in Europe. Given Russia’s threats to Europe’s energy security, a decision was taken in 2022 in Brussels to reduce the dependence on Russian energy products. This change, however, has come at an environmental cost: a number of countries have increased the use of coal and other high-polluting sources of energy. Other countries have also rolled back their commitments, for example, the United Kingdom.

The fourth worrying trend for prosperity is declining productivity growth. This comes in two flavors: demographic decline, implying fewer workers in China and Europe over the next decade; and rising social tensions, as we are already witnessing in Argentina, Chile, India, and the Middle East, for example, implying that young adults may not be joining the labor force as quickly as in previous decades. Stagnant productivity directly affects prosperity and is the focus of many government programs. Saudi Arabia’s 2050 program, for example, targets new high-value-added sectors as a response to the likely decline in natural resource sectors. So far, however, the investments in these new sectors are primarily public. To shift sufficient resources towards new industries, the private sector also has to believe that the returns will be there. 

Open questions 

Throughout the chapters in this volume there is a common underlying belief, supported by evidence, that a higher degree of freedom is consistent with a faster path to prosperity. There are some politicians who do not share this belief, and hence further work is needed to convince them.  

Not a perfect fit 

The first issue that arises in discussions of the link between freedom and prosperity is that the correlation is not perfect. The R2 statistic of the univariate regression implies that 63 percent of the variance in prosperity can be explained by differences in freedom across countries (Figure 2).

Figure 2. The correlation between freedom and prosperity in 2022 

If we conclude that there exists a close relationship between freedom and prosperity, this raises a methodological question: namely, that we are pooling together countries from all continents, and thus disregarding significant differences among regions. However, a strong positive association between freedom and prosperity scores is also present within regions. The correlation coefficient is above 0.6 for all regions, except South and Central Asia (0.41), which is probably due to the small number of countries (twelve) in that region. So across all regions, we observe that countries with higher freedom scores also have higher levels of prosperity.

Perhaps prosperity explains freedom 

In a nutshell, freedom and prosperity are closely associated, but is there a causal link? And in which direction does it run? Does freedom today lead to prosperity tomorrow, or is the demand for freedom a consequence of societies becoming more prosperous? To be sure, this is a question that has received extensive attention from economists and political scientists and is still a matter of heated debates. 

One can start by noting that freedom in 1995, the start of the sample period, is positively correlated with prosperity in 2022, the end of the sample period. This association is statistically significant at the one percent level. The time lapse between the explanatory variable (freedom) and the dependent variable (prosperity) is sufficiently long to ensure that no feedback loop—from higher prosperity to increased freedom—is responsible for the result (Figure 3). When running the reverse regression (freedom in 2022 on prosperity in 1995), the R2 statistic is lower, at 0.553, which provides some support for the argument that the direction of causality runs from freedom to prosperity.

Figure 3. The causal relation of freedom level in 1995 and prosperity level in 2022  

We look for outliers in the data to see whether some countries defy this long-term pattern. Yemen is such a country. In recent years, it has become a failed state and regional powers vie for a dominant position at the expense of the prosperity of the population. These dynamics are consistent with Yemen’s relative standing: more freedom and less prosperity relative to the sample trend line in Figure 3. In essence, past freedoms were insufficient to lead to prosperity in 2022—as the civil war (engulfing the country since 2014) undermined the country’s progress.

The case of Yemen demonstrates a general pattern: countries in civil war or countries involved in other recent conflicts tend to be below the trend line. Examples include Burkina Faso (2015–16 conflict), Chad (2005–10), Mali (2012–present), and South Sudan (2013–17).

At the other end of the spectrum, the United Arab Emirates stands out as having a high level of prosperity in 2022 and fewer freedoms at the start of the sample period. This seeming discrepancy can be explained by the able management of natural resources.

Time lags mask the relation  

To be sure, changes in freedom do not immediately bring about changes in prosperity. The size and scale of the lag depend on various place-specific factors, and also factors related to the condition of the global economy. The relationship between changes in freedom and changes in prosperity can be disrupted by events such as civil conflict or war, a shift toward dictatorship, or closed economic policies. Over time, such shifts will become evident in prosperity measures. The remainder of the explanation lies in sudden shocks such as war and civil conflict, the rise of dictatorships, and the advent of global crises, be they economic, financial, or health related.

One can, for example, speculate that the increased levels of freedom in Taiwan have not yet resulted in a commensurate increase in prosperity due to the effects of the COVID-19 pandemic, which severely limited global trade and investment. Conversely, the limits to freedoms in Mali may yet reduce prosperity as the effects of the protracted civil war are only now manifesting themselves in reduced social and economic indicators.

Based on the data, one can also speculate that the imperfect relation between a change in freedom and change in prosperity is asymmetric. Losses in freedom result in swift losses in prosperity, as illustrated by Yemen, Venezuela, and Syria. In contrast, improvements in freedom take a longer time to result in improved prosperity. In other words, it takes a longer time to build than to destroy. 

The latter finding is particularly relevant for politicians, as their time in office is usually limited and they would like to see results fast enough that they are reelected, or at least so that the ultimate increase in prosperity is attributed to their work. Alas, such attribution is sometimes not possible. This delay likely results in some “good” reforms not taking place.

Reversals of fortune 

Should political freedom take too long to evolve, the gains from economic and legal reforms may be reversed. Russia in the 1990s and 2000s is a prime example of such a reversal. And China seems to have been following the same path in recent years: economic freedom and legal freedom have remained stable in our sample, but political freedom has declined by 26 percent since Xi Jinping took office in 2013. Prosperity had increased 17 percent from 1995 to 2013, but has since plateaued.

Reversals significantly affect the overall correlation between freedom and prosperity, as the pace of change in the two sets of indicators differ, and hence the relationship appears weakened or even lost. The use of longer-term time series would fix this disparity, another reason why the Atlantic Council is investing in the construction of these Indexes.

It’s something else 

The final counterpoint to advancing policies that improve freedoms and, from there, have a positive effect on prosperity is the argument that freedom indicators proxy for some other social dynamic that underlies changes in prosperity. In this narrative, an enlightened central planner, be it the government or political parties or global institutions, designs social change in a way that both increases freedoms and enhances prosperity. Freedom and prosperity are both the result of some other force. As the leading comparative legal scholars Konrad Zweigert and Hein Kötz note, “the style of a legal system may be marked by an ideology, that is, a religious or political conception of how economic or social life should be organized”.1 In this conception, freedom and prosperity are central to understanding the varieties of capitalism.

Hayek traces the differences between common and civil law to distinct conceptions of freedom. He distinguishes two views of freedom directly traceable to the predominance of an essentially empiricist view of the world in England and a rationalist approach in France: “One finds the essence of freedom in spontaneity and the absence of coercion, the other believes it to be realized only in the pursuit and attainment of an absolute social purpose; one stands for organic, slow, self-conscious growth, the other for doctrinaire deliberateness; one for trial and error procedure, the other for the enforced solely valid pattern”.2 To Hayek, the differences in legal systems reflect these profound differences in philosophies of freedom.

This hypothesis sounds plausible, until one runs down the list of possible candidates. An enlightened government can simultaneously affect political, economic, and legal freedoms, as well as impact directly the various components of prosperity like health, education, income, and equality between women and men. Such social revolutions are not present in the data, however. Progress tends to be gradual or cyclical with few discrete jumps. To the extent that such upward jumps are seen in the data, they are present in the former communist countries like Croatia and Georgia. Even there, it takes years for the effects on prosperity to become apparent. Improvements in both freedom and prosperity tend to follow a slow, methodical pattern; evolution rather than revolution. This evidence contradicts the idea of an all-out reformer. 

There are many arguments for global convergence, one of which offers a simple explanation: globalization leads to a much faster exchange of ideas, including ideas about laws and regulations, and therefore encourages the transfer of legal knowledge. Globalization also encourages competition among countries for foreign direct investment, for capital, and for business in general, which must also apply some pressure toward the adoption of good legal rules and regulations.

This explanation—of centrifugal global forces at play over large parts of the sample period—fits well the reversal in freedoms that we see towards the end of the sample period. Globalization has stalled and even reversed, and with it the trends in freedom and prosperity have changed too. But even globalization is a proxy for the collective political philosophies in the major world economies. Hayek, as is often the case, could see further than most of us.

Simeon Djankov is policy director of the Financial Markets Group at the London School of Economics. He was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. Prior to his cabinet appointment, Djankov was chief economist of the finance and private sector vice presidency of the World Bank. 

Joseph Lemoine is the director of the Atlantic Council’s Freedom and Prosperity Center. Previously, he was a private sector specialist at the World Bank. He advised governments on policy reforms that help boost entrepreneurship and shared prosperity, primarily in Francophone Africa and the Middle East. 

Dan Negrea is the senior director of the Atlantic Council’s Freedom and Prosperity Center. He was the State Department’s Special Representative for Commercial and Business Affairs between 2019 and 2021. In that capacity, he pioneered and led the Deal Team Initiative, a coordination mechanism between US government agencies. The initiative promotes business relations between US and foreign companies around the world. 

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1    Konrad Zweigert and Hein Kötz, An Introduction to Comparative Law, third edition (Oxford and New York: Oxford University Press, Clarendon Press, 1998), 72.
2    Friedrich A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), 56.

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]]> Economic challenges are a barrier to Argentina’s prosperity https://www.atlanticcouncil.org/in-depth-research-reports/books/economic-challenges-are-a-barrier-to-argentinas-prosperity/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736489 In Argentina's recent election, libertarian economist Javier Milei won by 11 percent, tapping into economic discontent. His platform stressed freedom and spending cuts, but facing challenges like hyperinflation and fiscal deficits, he may need to moderate his approach for success.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The aggregate Freedom Index for Argentina correlates very well with the political events that have taken place in Argentina since the 1990s. Following the hyperinflation of 1989, Carlos Menem, from the right wing of the Peronist Party became president. He introduced significant market-friendly reforms embracing the Washington consensus and, in 1991, a currency board (known as the “convertibility regime”). This policy mix managed to lower inflation and generate almost a decade of growth. However, insufficient fiscal adjustment, the rigidities in the economy, and the overvaluation of the real exchange rate under the currency board pushed unemployment upward. The situation worsened following the Asian crisis in 1997 and the Brazilian Real devaluation in 1998. The convertibility regime, with its fixed exchange rate, made it difficult for Argentine exports to remain competitive. The economy fell into a recession and unemployment continued climbing. In 1999 the opposition, led by Fernando de la Rúa, won the elections but was unable to solve the economic puzzle created by the exchange rate overvaluation under the convertibility regime and an economy in stagnation. The recession turned into a deep crisis by 2001. The 2001–02 crisis was the equivalent of the Great Depression for Argentina, with output falling by around 20 percent. The crisis included a sovereign debt default, bank runs that forced the government to introduce a corralito (restrictions on the withdrawal of funds), and deep social unrest. These events led to the resignation of President Fernando de la Rúa in December 2001, and, after a few weeks of political upheaval, a more centrist Peronist government led by Eduardo Duhalde replaced him. The convertibility regime was abandoned and a backlash against the market-friendly reforms of the 1990s ensued.

The left wing of the Peronist party won the 2003 presidential elections under Néstor Kirchner. He governed from 2003 to 2007, and was succeeded as president by his wife Cristina Fernández de Kirchner who took office until 2015. Néstor Kirchner managed to reestablish the credibility of the political system, which had been severely affected by the 2001/02 crisis. However, he and his wife ran typical left-wing populist administrations that benefited from a very favorable international economic environment with high commodity prices (between 2002 and 2008 the price of soy, Argentina’s main commodity export, went from US$189 per ton to US$453 per ton) and low US interest rates. They used the commodity windfall to significantly increase public spending, from 22 percent of gross domestic product (GDP) in 2003 to 41 percent of GDP in 2015. Such a policy, though unsustainable, made Néstor Kirchner and Cristina Fernández’s governments popular, and allowed them to build a new political dynasty. However, in the process, the high public spending seriously damaged the ability of the economy to grow. Between 2012 and 2015, as the commodity boom ended and the effects of the imbalances of the previous years started to show up, the economy stagnated, the fiscal situation worsened, and inflation continued to increase. The government introduced a series of restrictions and distortions, in particular in terms of the ability of citizens and firms to access foreign exchange. We can clearly observe how the deteriorating economic environment is reflected in a decline in the overall economic freedom sub­index during these years.

President Mauricio Macri, leader of the political coalition Cambiemos, took office in December 2015. He took the reins of an economy that was in default and with a large primary fiscal deficit (around 4 percent of GDP in 2015). In addition, there were a number of significant problems and distortions to address. The real exchange rate was overvalued and, in spite of the presence of import restrictions, the current-account deficit was significant. Exports had declined in the four previous years and net international reserves at the Central Bank were negative, despite the capital controls. Annual inflation was 30 percent and there was a large excess supply of pesos due to the monetary financing of the fiscal deficit in the previous years. And the prices paid for public utilities prices were severely distorted, covering only a quarter of their cost of production. However, the narrow runoff electoral victory (51 percent to 49 percent) did not provide President Macri with a mandate to overhaul the Argentine economy. Besides, the governing coalition was in the minority in Congress and had little territorial power. In spite of these political weaknesses, Macri’s government immediately implemented a number of market-friendly reforms: restrictions on capital flows were eliminated, policies that increased competition in several sectors of the economy were put in place, and the institutional framework was strengthened. At the same time, the government gradually began to balance the budget, which meant taking unpopular measures. The overall Freedom Index increases sharply over these years, capturing the impact of these reforms.

The slow pace at which the fiscal imbalance was corrected—together with the strict monetary/exchange rate regime adopted—implied that the government had to rely on international credit markets to finance the fiscal deficit. This strategy made the economy vulnerable if external financing were to dry up. This is precisely what happened in early 2018 when the US Federal Reserve increased its interest rates, causing a sudden stop in international lending to emerging economies. At the same time a severe drought hit the country. These external factors, together with the strong resistance of the opposition in Congress to the needed fiscal adjustment reforms, triggered a run on the currency in April 2018 and drove the economy into recession again.

Although Macri’s administration improved the macroeconomic fundamentals and corrected the imbalances and relative price distortions of the Argentine economy, the results were not felt by the average citizen by 2019. Inflation was still high, around 50 percent, and the economy had been in recession in three out of the four years Macri held office. In the 2019 elections Kirchnerism came back to power. This time former president Cristina Fernández de Kirchner was vice president and Alberto Fernández the president. The new government rolled back most of the economic reforms introduced to favor free and competitive markets, and attempted to curtail the independence of the judicial system. Strong opposition from Juntos por el Cambio (formerly Cambiemos) in Congress prevented this from happening. On the macroeconomic front the situation worsened significantly. Argentina’s response to the COVID-19 pandemic, like that of many other countries, included a sharp increase in the fiscal deficit and lax monetary policy. However, contrary to what happened in the rest of the world, this policy stance was reversed only very slowly once the pandemic ended. Besides, a new debt restructuring in 2020 meant that Argentina lost access to international credit markets, so the large fiscal deficit was financed with a combination of domestic debt and money creation. Capital controls and import restrictions were reintroduced, making access to Forex for firms and individuals a Kafkaesque experience. Both freedom and prosperity have suffered. After recovering from the pandemic, the economy fell back into a recession in the fourth quarter of 2022, and a new drought made things worse. The economy is expected to contract by 2 percent in 2023, the Central Bank has exhausted its international reserves, and inflation is expected to reach 210 percent in 2023. The overall Freedom Index again captures well the events of the last four years.

The sustained decrease in the political freedom subindex, starting in the early 2000s, can be explained by the fact that the Peronist governments of the Kirchners also benefited from a majority in Congress. Between 2002 and 2015, Congress imposed no real restrictions on the executive, hence the very low score on this indicator. Instead, congressional constraints became very relevant for President Macri, because with a minority in Congress, it was hard to pass the legal reforms that his government sought. The fall in civil liberties since 2014 is probably capturing the social unrest of the time, but it is somewhat erratic, so probably it is also influenced by perceptions generated by very extraordinary events, such as the murder of Alberto Nisman, an attorney who had been leading the prosecution of government officials.

Regarding legal freedom, it seems that the component of bureaucracy and corruption captured well the changes in government, and the different approaches to public service. The score worsens in the 2003–15 years, improves slightly during the President Macri years, and again falls with the current government. A similar pattern is clear in the judicial independence indicator.

Overall, the graph of the Freedom Index shows very clearly the changes in economic and institutional policies that the Macri administration tried to implement, but also shows that many of those policies have been short lived.

From freedom to prosperity

The overall trend of the Prosperity Index generally resembles the evolution of income in the country. In the first decade of the century, the country grew thanks to very favorable external conditions (low global interest rates and high commodity prices). The effect of these conditions on growth became stronger as government spending also increased and monetary policy was lax. However, this policy mix proved to be unsustainable and the economy has more or less stagnated since 2011. On the contrary, sustainable economic policies usually involve short-term costs, and require time to exert their positive effects on the economy, but their fruits last longer.

The inequality indicator improved during the first decade of this century as growth and higher public spending reduced poverty. Of course, as argued above, the problem was the unsustainability of the policy mix. As expected, the situation has worsened since 2018, with the economic crisis and then the pandemic. Since 2021, the significant increase in inflation has increased poverty markedly.

The evolution of the health and education indicators clearly reflects the overall economic performance of the country. In emerging economies, growth tends to correlate very highly with other social outcomes. Among all Latin American countries for the last thirty years, the worst economic performer has been Venezuela, but Argentina follows closely behind. This poor evolution of GDP affects other measures, such as health. Moreover, while other countries in the region used the windfall of resources of the early 2000s to build a more resilient and sustainable economy, balance the budget, and control inflation, Argentina did just the opposite. The populist government increased government spending significantly, and did not invest in projects with high long-term social or economic returns in the areas of health or education. This is why Argentina now has the same GDP per capita that it had fifteen years ago.

Aside from a small increase in 2016, the environment indicator has remained virtually flat for the past twenty years. Around 2016 the government attempted to alter the country’s energy mix in favor of renewable energies, but the effect was negligible.

Finally, although the education indicator shows that Argentina has improved more rapidly than the regional average, PISA1 scores for Argentina actually show a deterioration of the country’s educational system. This contradiction might be the result of the methodology used to build the Index. The indicator included in the Prosperity Index only measures average years of education, and this trend may have improved. But the quality of the educational system is most likely worsening, which again may hamper future economic growth.

The future ahead

At the time of writing this commentary, Argentina has just held the runoff of the 2023 presidential elections. In a surprising outcome, Javier Milei, a libertarian economist turned politician just four years ago, has been elected with a clear 11 percentage point gap over Sergio Massa, current finance minister of the incumbent Peronist government.

Milei’s election largely reflects the frustration that Argentines feel with the state of the economy. Kirchnerism dominated Argentine politics for sixteen of the last twenty years and the economic results have been disastrous for the country. The Macri administration (2015–19) corrected the fundamental macroeconomic imbalances, but could not generate positive results in terms of growth and inflation. Furthermore, the economic situation has worsened in the last four years. Monthly inflation in November 2023 was 12.8 percent, which implies an annualized rate of more than 300 percent, and in December monthly inflation was expected to be well above 20 percent. To put this in context, Argentina is experiencing each week the level of inflation that most countries would see in a year. Hand in hand with inflation, the poverty rate is now close to 42 percent of the population and the economy is in a recession.

Milei’s campaign slogans can be basically summarized in four words: freedom, caste, chainsaw, and dollarization. The reference to freedom seems a reaction to the restrictions imposed during the COVID-19 pandemic, which were particularly stringent in Argentina. The calls to remove the political “caste” are similar to those made by populist leaders in other countries, as a generalized way of blaming the country’s problems on the political elites. The metaphor of the chainsaw was used by Milei to illustrate his aim to severely cut public spending. And finally, he proposed dollarization and the closure of the Central Bank of Argentina as a solution to the unbearable levels of inflation. This strategy allowed Milei to channel people’s anger with the economic situation.

Like other political outsiders around the world, Milei has accurately identified many of the country’s real problems (inflation, high and inefficient public spending, political capture, corruption, and so on), and has suggested who should be blamed and a series of easy solutions. And the Argentinian people have voted for this project. Nonetheless, just ten days after the elections, it was obvious that the solution is not going to be that easy, and Milei had already walked back on some of his positions. Dollarization was the first to go, as there are just not enough dollars in the Argentinian Central Bank to dollarize the economy, at least in the short run. To some degree, he is also walking back on the issue of the political caste, as he lacks an effective team of his own, forcing him to rely heavily on former officials of Juntos por el Cambio (Macri’s coalition) and the moderate wing of the Peronist party to advise and form his government. Moreover, Milei’s party, La Libertad Avanza, is in a weak position in Congress so he will need to build consensus with the traditional parties in order to pass legislation. Overall, it seems that Milei will be forced by the internal and external situation to moderate his plans.

The litmus test of Milei’s administration in the coming months will be the macroeconomic situation, which is extremely delicate. Argentina is on the verge of hyperinflation. To make things even worse, some of the reforms needed to rebuild the international reserves of the Central Bank and correct the fiscal imbalances, like a devaluation of the official exchange rate and an increase in utility prices, will actually generate a rise in prices in the short run. Milei will only be successful if he can swiftly reduce the fiscal deficit, make a credible commitment that the Central Bank will stop printing money to finance the Treasury, and reset people’s inflation expectations. A stabilization plan will be needed to achieve these difficult tasks.

If Milei manages to stabilize the macroeconomic situation without going through a major crisis and introduce some market-friendly reforms in Argentina’s overregulated economy, he could be a very successful president. This is because some fundamental positive forces and opportunities still exist for Argentina, giving hope that the sustained economic growth of the past can be recovered. The country is rich in some natural resources that have become increasingly valued in world markets and that are yet to be exploited: The Vaca Muerta region contains one of the largest nonconventional reserves of oil and gas in the world. There are large amounts of lithium in the north of the country. And there are mining opportunities in the mountains, to name a few. If Milei manages to handle the macroeconomic situation, the potential for growth is significant.

Besides the economic front, it seems unlikely that Milei’s more extreme positions on social issues and civil liberties will ever be approved by Congress. Although some people have voiced concerns regarding a potential authoritarian vein among Milei and his followers, so far he has been respectful of the democratic process and institutions. It is worth noting that, unlike Jair Bolsonaro and other populist leaders who have been elected elsewhere, Milei does not have a military background. In addition, his weakness in Congress makes it extremely unlikely that he could pass any measures that may weaken the democratic order. Although he may try to govern by issuing executive orders, there is an established process to be followed and Congress can always reject the orders. The initially painful effects of the necessary economic policy changes may encourage Milei to move the political focus to social and cultural issues, and it is not clear how the Argentinian people would respond to such a shift. But, right now, the crucial challenge that he faces is fundamentally economic.

Guido Sandleris is a professor of international economics at Johns Hopkins University School of Advanced International Studies (Europe) and at Universidad Torcuato Di Tella (Argentina). Between September 2018 and December 2019, he was governor of the Central Bank of Argentina. In 2017 he became chief economic adviser and in 2018 secretary of economic policy at the Ministry of the Treasury of Argentina.

EXPLORE THE DATA

Trackers and Data Visualizations

Jun 15, 2023

Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

1    PISA is the OECD’s Programme for International Student Assessment. PISA measures 15-year-olds’ ability to use their reading, mathematics, and science knowledge and skills to meet real-life challenge

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]]> Economic reform is crucial for growth in Brazil https://www.atlanticcouncil.org/in-depth-research-reports/books/economic-reform-is-crucial-for-growth-in-brazil/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736501 Brazil's economic prospects are hindered by high taxes, inefficient regulations, and security concerns, particularly in drug trafficking routes. Reform efforts, including tax and fiscal reforms, along with leveraging Brazil's strengths like clean energy, are crucial for growth and education opportunities.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The evolution of the aggregate Freedom Index in Brazil is clearly hump-shaped. During the first half of the period of analysis, from 1995 to 2013, the freedom score either increased or was relatively stable, driven mainly by improvements in just two indicators of the economic freedom subindex.

The first of these is the women’s economic freedom, which shows a clear step-change in 2002, although the reasons for this are not clear. During that year, there was a change in government, and the Worker’s Party (Partido dos Trabalhadores) took office. They were very much committed, at least in rhetoric, to increasing women’s economic freedom. In 2003, some parts of the civil code were reformed, which did lead to an improvement in women’s rights. However, it seems unlikely that this one legislative change can explain the 17-point increase in this indicator. Around the same time though, married women’s property rights improved, and punishments for sexual harassment—especially in the workplace—increased.

The second positive trend began in 1996, an important year for the stabilization of the economy. The liberalizing reforms introduced by the government of President Fernando Henrique Cardoso led to significant improvements on the trade freedom indicator. Sectors such as telecommunications and energy were opened to competition. There were also proposals for trade liberalization, even if some of these did not pass into law. Even the early years of Lula’s (Luiz Inácio Lula da Silva’s) government were very favorable to trade freedom, and the data seem to suggest that trade freedom did not decrease until after 2018, with the election of President Jair Bolsonaro. Bolsonaro did not create any barriers to trade, but very soon it became apparent that European countries did not want to continue negotiations on a trade deal with Bolsonaro.

In terms of political freedom, elections in Brazil are superb, and this is well captured by the elections indicator. They are fast, efficient, transparent, and the system is very secure. Even in locations where the electoral process is computerized, it is completely offline, decreasing the security risk. There is a slight fall on this indicator, starting in 2015, which is possibly attributable to polarization: when society is very politically polarized, you will always hear claims about the “unclean” electoral process. This is something we have seen recently in the United States and other countries.

Similarly, the political rights indicator shows a decline in recent years that is hard to identify in reality. It may be that, when the level of polarization is high, there are always segments of the population that can feel disenfranchised. And perhaps the indicator is capturing the repression of protests against President Dilma Rousseff’s government in 2015–16, or President Bolsonaro’s rhetoric regarding the Supreme Court, both of which may have caused anxiety about political freedoms. But there has been no obvious objective fall in political rights. The same applies to civil liberties. For example, when President Bolsonaro was elected, he publicly attacked journalists and other groups, but he took no concrete action against them. So, the feeling that political and civil rights have been reduced is understandable, but there have been no substantive changes that would allow us to say that people in Brazil were less free—and certainly not enough to justify a 33-point fall in the score.

Legislative constraints on the executive increased in the last few years, and here the indicator score is an accurate reflection of reality. However, while progress on this indicator is generally intended to be read as a positive shift, in Brazil’s case there are reasons to see greater legislative power as problematic. In 2016, President Rousseff was impeached. People connected to the Worker’s Party would say it was a “legislative coup,” a common accusation in many Latin American countries when similar situations arise. I am not of that opinion, but it is clear that a nontrivial share of the population is. During the President Bolsonaro years, a group of legislators, mostly interested in pork-barrel projects, gained a lot of power, to the point that the Supreme Court had to intervene to shut down their “secret budget”—effectively a slush fund for paying off supporters. The same group of legislators has continued to hold power after Lula’s election. This situation may have increased the impression that political rights were deteriorating, because presidents elected by the people seem, in reality, to be constrained by Congress.

The evolution of legal freedom, especially concerning judicial independence, is easier to agree with. The judicial system has been affected by executive interventions, justifying a deterioration of judicial independence scores. Moreover, the same indicator also measures judicial effectiveness, and here too the worsening situation has been very evident since 2014. Even before this, Brazil’s scores—of between 85 and 90—seem unjustifiably high because the country has long suffered from an ineffective judicial system. Only 10 percent of murders in Rio de Janeiro end up with a trial, and the numbers have been bad since at least the 1990s, when I was looking at crime and social interactions in the city. The fact that the accused do not receive any punishment until the appeals process has been exhausted means that some court decisions are only implemented ten years (or more) after they are handed down.

On top of this structural problem, in the last decade the judicial system in Brazil has become very influenced by politics. As a result, we see the Supreme Court making a decision, only to completely reverse it two or three years later, with essentially the same set of judges. This appears to be captured by the clarity of the law indicator. Laws in Brazil are very badly written—a lawyer’s dream. To give just one statistic, the value of all the unresolved tax claims in Brazil’s judicial system equates to 75 percent of Brazil’s gross domestic product (GDP). The macroeconomic impact of the low level of clarity in the law is serious, but there are always those interested in the obscurity of the law.

From freedom to prosperity

The evolution of the Prosperity Index, and in particular the fall in Brazil’s score in the last decade, seems to be driven by the minority rights indicator, which is proxied by religious freedom. Brazil has been experiencing fast growth in the percentage of its population identifying as evangelicals and, in particular, neo-Pentecostals. This has created at least two sources of friction. Neo-Pentecostals complain about persecution from the Catholic establishment, liberal legislators, mainstream media, and tax authorities. For example, even though there is no income tax on the profits of religious organizations in Brazil, nonprofit organizations are not exempt from paying social security or taxes imposed on purchases. Neo-Pentecostals feel they should enjoy full exemption from tax and regulations such as city codes. Second, Catholicism and Afro-Brazilian religions are often thought to be connected to “progressive” politics in Brazil, while evangelicals are usually more right wing, so the increase in political polarization may also partly explain the evolution of this indicator. As evidence of this tension, there have been attacks on followers of African-rooted religions by some neo-Pentecostal groups, occasionally allied to local drug gangs.

There is no question that income in Brazil stagnated in the last decade. But Brazil’s economic performance has been mediocre for the last fifty years. In the early 1980s, labor productivity was around 55 percent of the US rate. Now it is less than 25 percent. An exception is the agricultural sector, which has experienced remarkable productivity growth. Development means catching up with the technology frontier, and that is something Brazil has been unable to do. Japan, South Korea, Spain, and many others were able to do so. India and China are doing it now. But not Brazil; we can say the country is, in fact, un-developing.

President Cardoso’s government (1994–98) implemented programs to help the poorest in the country. The effort was amplified during President Lula’s administration (2002–06), which explains the overall positive trend in equality. The problem is that Brazil started from a very high initial level of inequality. Short-run fluctuations are likely to be explained by the fact that inequality is counter-
cyclical: when the economy goes down, inequality goes up. Since the COVID-19 crisis, there has been some temporary expansion of social programs, which has helped decrease inequality, but the long-run fiscal sustainability of these programs is by no means clear.

There has been an improvement in health in Brazil since 1995, mainly due to programs aimed at ensuring that the very poorest have access to regular check-ups and vaccinations. These efforts bore obvious fruit during the rollout of COVID-19 vaccines, because the whole system was already in place, so the vaccine program was relatively effective and fast. Health often requires a small marginal investment to generate large benefits, as was the case here.

Finally, it is undeniable that there have been some improvement in terms of years of education and enrollment in Brazil, and these are the metrics captured by the education indicator in the Prosperity Index. However, with the exception of very few states, there has been very little improvement in educational achievement—something that is not captured in the indicator. Progress is even lower in terms of preparing youth for the labor market. This explains why labor productivity is falling despite years of schooling increasing, which may otherwise seem a puzzle. It is worth highlighting one state in particular, Ceará, which clearly outperforms all the others in terms of educational spending effectiveness, despite its relative poverty. My advice to everyone involved in education in Brazil would be to simply copy whatever Ceará is doing, because the results are encouraging. The current minister of education was the governor of Ceará, so we may see some improvements across the country. However, there is reason to remain skeptical because education leaders usually prefer to reinvent the wheel instead of just replicating whatever is working in other places. This seems to be a universal law of decentralized public systems of education.

The future ahead

Labor productivity in Brazil is a clear signal of the economic prospects for the country—though I think it is a symptom of those prospects rather than a cause. Businesses in Brazil face a huge number of hurdles: We have very high and inefficient taxes. Firms are more worried about paying less tax than producing in a more efficient way. Regulations in Brazil are also especially inefficient, and there are important difficulties regarding long-term financing, related to the legal risks and fiscal deficits in the country. The labor market is very rigid, and even if President Temer and President Bolsonaro tried to remove some of these frictions, President Lula has announced plans to impose more labor regulations. These regulations would hurt firms and the overall economic prospects for Brazil.

A second important challenge for Brazil is security. A special concern is the relatively new route for drug trafficking from producers in Colombia, Peru, or Bolivia to Europe, which goes through Brazil. It is similar to a negative technological shock. Gangs fight with each other for control of the new routes, and this increases crime. Some paramilitary groups are also gaining strength, and these are more organized than the gangs and often affect legal businesses. For example, Rio de Janeiro’s largest electricity company, Light SA, may go bankrupt due to the amount of electric supply that is stolen and then resold to consumers and firms. These groups also control the transportation and construction sectors in some urban areas. All these things have large economic effects. And many states in Brazil lack an efficient police force. The police in the states of Rio de Janeiro and Bahia are particularly violent and inefficient. Unless the security situation improves, it is hard to foresee improvements in other dimensions.

What is going to happen with Brazil? Well, some things will help, like the proposed tax reform, which hopefully will simplify the tax code and curb exceptions, loopholes, and litigation. The finance minister is also committed to tackling the fiscal deficit. It is not clear how he will do it, but an improvement of the fiscal situation inherited from President Bolsonaro would greatly help the country.

Top firms in Brazil are excellent and, if the cost of doing business in the country was smaller, they could truly contribute to growth. Brazil has the cleanest energy mix of any country, and should be able to deal effectively with the illegal deforestation in the Amazon. Reforestation of the Amazon forest could be a source of cheap carbon capture at scale. This could make Brazil a big exporter of goods that have an excellent climate footprint—an exceptional opportunity for the country. Brazil missed an opportunity in the 1980s, when they could have educated their growing labor force, and now it is presented with a similar opportunity again. But the country needs to deal with all of the challenges discussed here.

José A. Scheinkman is Charles and Lynn Zhang Professor of Economics at Columbia, professor of economics (emeritus) at Princeton, and research associate at NBER. Scheinkman is a member of the National Academy of Sciences, recipient of a Guggenheim Fellowship, docteur honoris causa from Université Paris-Dauphine, and board member of Cosan S.A. Scheinkman’s current research focuses on the economics of forest preservation in the Amazon.

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]]> Chile struggles with economic stagnation https://www.atlanticcouncil.org/in-depth-research-reports/books/chile-struggles-with-economic-stagnation/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736515 Chile grapples with economic slowdown and political polarization. Growth has stalled, and trust in democratic institutions has waned as parties have multiplied. Despite failed attempts to rewrite the constitution, polarization persists, complicating Chile's political future.

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

The economic freedom subindex suggests that Chile is a country with open markets and a very open economy, but at the margin it has become less so over the last ten years. This decline has mostly been driven by policy decisions that increased government regulation of markets. Greater regulation was mostly welcome, but there may have been areas—like the length of time required to obtain approval for investment projects—where the trend has gone too far.

Most of the decline on the economic freedom subindex is attributable to changes in the trade freedom and investment freedom indicators. But the obvious measures of trade freedom, such as tariffs and nontariff barriers, have all been relatively flat or even improved over the last decade, and the last remaining capital controls were abolished fifteen years ago. Perhaps the explanation for this puzzle can be found in the property rights indicator, which has decreased in a mild but sustained fashion since 2010. Judicial procedures in Chile have become longer and more unpredictable, while processes related to obtaining permits have become maddeningly lengthy. As a result of these and other changes, the investment environment has deteriorated. Perhaps these measures partly explain the change in the trade and investment freedom indicators.

Regarding political freedom, the data presented seem like an inaccurate reflection of reality and are very hard to rationalize. Yes, Chile has become more politically fragmented and volatile, but civil liberties have not worsened. Perhaps a mild change in this subindex since 2019 could follow from the heavy-handed reaction to street unrest late that year, followed by the relatively stringent restrictions introduced in 2020 to fight the COVID-19 pandemic. But the data suggest a decline starting in 2015, which makes very little sense.

On legal freedom, the deterioration in the corruption indicator during the last fifteen years is attributable to a series of corruption scandals reported in the country. Here, as ever, it is hard to discern whether corrupt practices are now more prevalent or whether legal changes mean that more cases are being reported. Both could be true: It is possible that certain corrupt practices have indeed become more prevalent. But also keep in mind that the last decade-and-a-half has seen a number of changes in competition law and campaign finance regulations, which do make it easier to detect such practices.

In terms of security, it is clear that Chile has experienced a sustained deterioration regarding crime and safety on the streets. There is an active debate in Chile about the drivers of this trend. Some blame it on immigration, although there is limited evidence to support such a claim. Or, rather, immigration may have changed the nature of certain crimes (an increase in the use of firearms, for instance) but not the overall incidence of crime. Other factors, like a growing drug trade and the presence of foreign drug gangs, may also have had an impact. Whatever the cause, it is likely that security in large cities has worsened, even though Chile remains one of the best performers in the region when it comes to crime and citizen security.

From freedom to prosperity

Chile is a more prosperous nation than most others in the region. Its economy grew faster than most of its neighbors between the end of the last century and a decade ago. But recently growth has slowed. It is surprising that the data seem to show a larger decline in prosperity for Chile than for the rest of the region during the 2008–10 financial crisis, when Chile was undoubtedly the country with the smallest recession and experienced the most limited impact on economic activity in the whole of Latin America. This is, once again, a case in which the data presented make very little sense.

There is little doubt that Chile is an unequal country. But again, the data presented in this report tell a story that can scarcely be believed. The data suggest a sharp deterioration in income distribution, while the Gini coefficient computed by the government of Chile (and by the World Bank), shows a steady improvement since 1990, followed by a predictable deterioration during the pandemic and a slight recovery in the last two or three years. The inequality indicator of the Prosperity Index shows a completely different pattern. It may be due to the fact that the indicator measures the share of income of the top 10 percent of the distribution, which is a very partial view of income distribution.

The minority rights indicator has not shown much movement in recent years, though Chile’s score is reasonably high. However it is important to stress that this is largely because the indicator uses religious liberty as a proxy, whereas the real conflict in Chile is not religious but ethnic. If one had some measure of the situation of indigenous minorities, especially that of Mapuches in the south of Chile, the picture might look different.

Regarding the environment, Chile has a serious air pollution problem, both in big cities and smaller ones, but for different reasons. In the former, the number of cars per capita has increased substantially, and the move away from coal in the generation of electricity has been slow. In the smaller cities in the south of the country, by contrast, wood-burning stoves are the principal method of domestic heating. This is very polluting, especially if the wood is not fully dry.

There have been several educational reforms in Chile in the last twenty-five years, some more successful than others, but it seems unlikely that any of these could explain the complete stagnation in years of schooling in the 2007–11 period. There was a reform at the time that generated a movement of pupils among different types of schools, but not a decrease in enrollment. Moreover, spending per student increased significantly around this time, and the share of each cohort going to university reached the 50 percent mark in this period.

The future ahead

Chile faces two big challenges in the coming years, one economic and one political. The big economic challenge is to restore growth, which has slowed substantially in the last decade. Productivity growth, which was very fast late in the twentieth century and in the beginning of this century, has also petered out. Investment rates have not dropped, but nor have they increased. Chile was once a country experiencing rapid diversification of exports, and that process has also come to a halt.

So, when it comes to prosperity, the big question is: Why was the fast growth period in Chile so short-lived? Standard economic theory predicts that, as a country becomes richer, its growth slows due to convergence with high-income economies. So one might have expected fast growth in Chile until the country’s standards of living had reached the level of South Korea. Instead, fast growth seems to have stopped with the country still short of the income level of Greece or Portugal.

The big political challenge relates to the quality of politics and of democratic decisionmaking. Since 2010 politics has become more polarized and a great deal more fragmented. Chile went from having seven parties represented in Congress at that time to twenty-two today. Indices of satisfaction with the performance of democracy—and also indices of trust in government, political parties, the judiciary, the police, the media, business lobbies, unions, and so on—have all deteriorated. It seems that Chileans do not trust anyone anymore. That is a worldwide trend, but in Chile it might be a little more pronounced than elsewhere.

Chile’s answer has been to try to rewrite the Constitution. We have already tried twice, and failed, and the third attempt is also looking like a failure. Former president Michelle Bachelet drafted a new constitution in her second term (2014–18), but ran out of time to get it approved. A constitutional convention, dominated by the far left, was chosen in 2021, and wrote a questionable text that was rejected by 62 percent of voters in a referendum in 2022. A new convention was then elected, this time controlled by the far right, which produced a similarly partisan text that is similarly failing to attract widespread support. Polls suggest that the text will be again rejected by voters when it is put to a referendum in December 2023.

Andrés Velasco is a former finance minister of Chile, and a current professor of Public Policy and dean of the School of Public Policy at the London School of Economics and Political Science.

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]]> Mexico’s vital institutions face decline https://www.atlanticcouncil.org/in-depth-research-reports/books/mexicos-vital-institutions-face-decline/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736531 Mexico's institutions are vital for freedoms, but face decline. To advance, it needs strong governance, growth, and redistribution. Despite potential growth from favorable conditions, risks persist. Strengthening governance and productivity is crucial for prosperity.

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Evolution of freedom

The Freedom and Prosperity Indexes have served as a useful tool for observers and policymakers alike to identify trends and historical evolution of countries. In the case of Mexico, the Indexes rank the country as “mostly free” and “mostly prosperous”. However, recent declines in several indicators are early warning signs of an erosion occurring, at least on some fronts. Complementing the findings of the Indexes with qualitative insights can provide a nuanced understanding of the drivers, trends, and challenges that Mexico is facing.

Between 2018 and 2022, Mexico’s overall freedom score dropped from 66 to 61, placing it 90th out of 164 countries. This decline in ranking is unique among Latin American nations, which maintained an average aggregate score of 65. During this period, the most significant declines came in Mexico’s legal freedom score, which fell from 53 to 47 (now ranked 117) and its political freedom score, which fell from 74 to 65 (now ranked 102). In contrast, the economic freedom score remained relatively stable at around 70 (ranked 52). While various political and economic factors likely contributed to these trends, it is worth noting that significant changes have occurred since President Andrés Manuel López Obrador (AMLO, by his acronym), assumed office in December 2018, which have had a notable downward impact on these freedoms.

When it comes to legal freedom, the subindex records significant declines with respect to judicial independence, clarity of the law, and bureaucracy and corruption that are attributable to previous governments, but which have been exacerbated since 2018. While legal institutions such as the Supreme Court of Justice and regulators remain relatively autonomous overall, a large driver of the declining trends stems from the current government’s direct and tacit attempts to undermine their functioning and independence.

For instance, the decline in judicial independence scores, from 60 to 47 between 2018 and 2022, is largely due to ongoing attempts to influence the Supreme Court and control their key decisions. Since taking office, AMLO has appointed four of the nine Supreme Court Justices. Notably, two of them have aligned with the president’s political agenda, and the other two, in the words of the president himself “turn out to be conservatives,” meaning that they are independent—as they should be—and do not abide by his mandates. Most recently, the president directly appointed a new Justice to a vacant seat on the Supreme Court—a political loyalist and former Morena party activist. The interference in key decisions is overt at times: for example, AMLO said it would be an “act of treason to the country” if the court ruled against the Electric Industry law, despite serious concerns over the law’s constitutionality. Two key rulings regarding this law were expected in September 2023, but have been delayed as the energy ministry introduced a legal complaint regarding potential conflicts of interest of two Justices of the court. The law prioritizes the state-owned utility CFE, undermining private sector participation (among other issues) but it is a key plank in the president’s nationalistic energy agenda.

The government is also attempting to undermine the Supreme Court in other ways, for instance by engaging in confrontational and polarized criticism of the court’s president, including endorsing public protests against her, underscoring and increasing the political pressure on Justices. The government also seeks to exert financial pressures over the court. On October 25, 2023, Congress approved cuts of US$815 million to the Supreme Court’s budget—granting the court 18 percent less than had been requested for the 2024 budget (and representing a 2.7 percent reduction compared to the 2018 budget, according to México Evalúa). Moreover, the party in government presented a bill (September 2023), supported by the president, to eliminate the Judicial Power’s trust funds, which was eventually suspended by the Supreme Court itself, proving that the measure would undermine the labor rights of workers, who were the final owners of the resources: the cuts aimed to eliminate fourteen trusts specifically earmarked for employees’ pensions and healthcare, as well as implement recent judicial reforms that have expanded the responsibilities of the High Court.

The decline in the clarity of the law score, from 48 in 2018 to 34 in 2022, is a result of several policy shocks which take a toll on business confidence. The current administration has created persistent uncertainty, especially regarding the enforcement of crucial regulations governing contracts, tariffs, and prices, that are necessary for maintaining a competitive market. This ranges from the cancellation of the Mexico City airport project, despite it being 70 percent complete, to hindering competition in the electricity and renewables market. As a result of this, on July 19, 2022, the United States and Canada initiated a consultation under the United States-Mexico-Canada Agreement (USMCA) to discuss Mexico’s energy policies, in particular claiming a violation of competition and clean energy commitments. The consultations are ongoing, though dispute settlement mechanisms have not been triggered as the parties are expecting the Supreme Court to rule on the constitutionality of the Electric Industry law.

The administration recently delivered yet another significant blow to business confidence. On October 5, 2023, the Federal Civil Aviation Agency unilaterally altered the tariff base regulation for the concessions of nongovernment airport operators—without any previous consultation. Ultimately, this uncertainty makes it difficult to assess the regulatory risks, and results in added costs for companies and cancellation of investments in the country.

Since 2018, there have been budget and staff cuts to key ministries and autonomous institutions, jeopardizing Mexico’s bureaucratic structure and redirecting resources to the president’s favored projects. In addition to the budget reductions to the Supreme Court, the 2024 budget proposes cuts for the health, economy, and tourism ministries (21 percent, 56 percent, and 77 percent respectively, compared to the 2019 budget, the first of AMLO’s presidency). Instead, resources are being redirected to ministries overseeing the president’s social programs and fiscally unviable pet projects, resulting in significant increases in funding for the energy, well-being, and defense ministries (609 percent, 266 percent, and 176 percent respectively). These shifts in spending reflect a broader trend towards centralized decisionmaking and an enormous role for the military—a tendency that has adversely affected the “bureaucratic effectiveness” indicator of the Index. The centralization of government procurement contracts is one example, which, together with a lack of delivery capacity, led to a severe shortage of medicines in 2021, according to an independent audit by Auditoría Superior de la Federación (ASF).

And while these changes have been justified on the grounds that they would reduce corruption, Mexico has not made much progress on this front, ranking 126 of 180 countries in Transparency International’s Corruption Perceptions Index in 2022, with a score of 31 out of 100, a decline from 35 in 2014. Particularly worrisome has been the involvement of the military in many economic activities, including managing ports and customs, executing the president’s infrastructure projects, and even owning a commercial airline. Citing national security concerns as a justification, these changes have led to opacity in the disclosure of government contracts and an increased practice of direct assignments instead of public and transparent bids—worsening rather than abating corruption concerns.

Most recently, before the year end of 2023, the president has raised the stakes: he has indicated that the autonomous institutions will be disbanded altogether, as (in his own words), “they don’t serve the people and are at the service of minorities.”

Another notable aspect contributing to the decline of legal freedom in Mexico since 2018 is the shifting security landscape, characterized by an increasing reliance on the military for day-to-day law enforcement activities, and the “hugs not bullets” policy, which essentially advocates for a nonconfrontational stance towards organized crime. The traditional presence of civil police has been superseded by the emergence of military police, or in some instances, direct military intervention in street-level security operations throughout the country, creating human rights concerns. And the lack of actions against organized crime has allowed it to become more powerful in certain parts of Mexico, resulting in a rise in violence and insecurity across the country. According to the Executive Secretariat of the National System of Public Security, homicides during the five years of AMLO’s government have reached 156,479 (as of November 2023), more than the whole six years of the previous administration.

On political freedom, the executive has sought to undermine the National Electoral Institute (INE), not only by attempting several constitutional and legal reforms, but also by significantly slashing its budget. The INE was established in the 1990s and serves as a crucial pillar of Mexican democracy, organizing elections and ensuring fair electoral processes. Although attempts to reduce the institute’s independence and power have so far faced congressional and wider public rejection, the president plans to present a new bill during his last year in government (2024), arguing—without proof—that the institute shows a “lack of independence and impartiality.”

On yet another metric, the decline in the legislative constraints on the executive score, from 54 in 2018 to 36 in 2022, also contributed to the overall decline in political freedom. AMLO’s landslide victory in 2018 gave his ruling Morena coalition a significant majority in Congress and, although it shrank in the 2021 midterm elections, the coalition still holds 55 percent of the seats in the House and 59 percent in the Senate. The pressure on ruling coalition legislators to vote as a bloc has, in most instances, allowed the president to capture Congress and enabled major reforms in education, labor, and energy. These reforms have been approved with little or no input from the ruling party, coalition partners, or opposition legislators, undermining the process of checks and balances. The Senate has remained an important counterweight, particularly with regard to constitutional reforms; and Congress too has recovered some of its balance, since the ruling party lost its absolute majority during the 2021 midterm elections.

The active undermining of the legislative processes and political pressure on opposition legislators to vote in line with the president’s priorities have also become more common. For instance, the reform of the electoral system was ruled unconstitutional (June 2023) by the Supreme Court due to violations of the legislative process. These included not giving legislators adequate time to debate and consider the bill, as significant last-minute amendments were submitted less than three hours before the vote, and further changes were unlawfully incorporated after its approval. This and similar incidents highlight the overt sidestepping of procedure that has become more common in this legislature. Overall, this undermines the proper functioning of the legislative body and weakens the separation of powers enshrined in the Constitution.

On economic freedom, the transformation of the relationship between the state and the private sector has been a defining characteristic of Mexico’s economic landscape since 2018. Central to this shift is the government’s altered perception, wherein the public sector is not solely viewed as a regulatory entity but as an active participant in economic activities, thereby fostering a growing inclination towards statization. Though property rights are granted in the Constitution as an individual freedom, this ideological shift has put such individual rights on a weaker footing.

In this evolving climate, several endeavors to assert state influence over private enterprises have been initiated, although not all have materialized into full-fledged nationalizations. Notably, instances have arisen where the government intervened in the decisionmaking of private companies, effectively nudging them to relocate their operations according to the state’s regional development agenda. An example is the relocation of a beer factory from the north to the underdeveloped south of the country. This is a concerning trend, wherein the state’s vision for regional development takes priority over the autonomy of private enterprises. This heavy-handed approach not only undermines the principles of competitiveness and private decisionmaking but also poses a direct threat to the fundamental tenets of property rights. Such coercive tactics, veiled under the guise of state-driven development, demonstrate a fundamental disregard for the traditional mechanisms of incentivization and market forces, creating an environment of uncertainty for private property holders.

Companies in the transportation sector, in particular railway concession holders, have recently been the target of government aims to influence private decision making. In May 2023 an attempt was made to expropriate rail infrastructure owned by Grupo Mexico’s Ferromex, to be repurposed for the Trans-Isthmic Corridor project; and in October 2023, the president issued a decree to pressurize concession-holders to invest in passenger trains and being obliged to change their business models to offer passenger services. These events are a window into the government’s approach to the private sector, offering some explanation for the deteriorating business climate and challenges to property rights reflected in the Index.

Preceding the recent developments, the challenges to property rights have long been exacerbated by the pervasive influence of organized crime, particularly through extortion and illegal impositions. This unfortunate reality has only been intensified by the implementation of the “hugs, not bullets” policy, inadvertently providing illicit entities with greater leeway to perpetrate their exploitative activities.

The erosion in freedoms is neither linear nor universal, but the examples above clearly point to some worrisome trends that have contributed to an overall decline in freedoms in Mexico, and which present clear warning signs for the way forward.

From freedom to prosperity

Mexico’s prosperity score has been stagnant since the start of the Index, oscillating between 61 and 63 since 1996 (ranking 90 out of 164 countries in 2022). Its aggregate score is now 4.1 points below the Latin America & the Caribbean regional average. The income indicator is virtually flat at 66.3, while the inequality score is remarkably low (at 15.7, falling from a high of 37.4 in 2002)—23.4 points below the regional average. This is a result of structural low growth, but also of the fact that Mexico had the worst post-pandemic recovery in North America and among the main economies in Latin America.

Mexico’s growth trajectory has not been volatile but rather the challenge has been stubbornly low growth relative to its potential. Data from the International Monetary Fund show an average 2.08 percent year-over-year (YoY) growth since 1990; this compares to 4.3 percent for Chile, 4.2 percent in Peru, 3.4 percent in Colombia, 2.6 percent in Argentina, and 2.3 percent in Brazil—some of whom have experienced very volatile growth trajectories. Unleashing further growth has come as a challenge, despite a sophisticated export sector, sound macroeconomic policy and a resilient private sector. This can be partly explained by the fact that investment as a percentage of gross domestic product (GDP) has for many years lagged behind its regional peers, remaining below 25 percent for most years since the 1990s, even dipping below 20 percent in 2019, according to the National Institute of Statistics and Geography (INEGI). However, some positive signs have emerged, with investment reaching 24.9 percent of GDP in the second quarter of 2023, and a more favorable external environment and positive trends such as nearshoring leading to an increase in private sector investment of 18.1 percent YoY in the first half of 2023, the largest increase since 1993.

Productivity is also an issue. Economy-wide labor productivity and overall productivity lag behind other emerging market G20 economies such as South Korea, Turkey, and Thailand.

The economic liberalization of the country in the 1980s and 1990s—which led to North American economic integration, a sound financial sector, and a much more complex economy—has greatly benefited Mexico, but its impact has not been felt by all regions, sectors, and groups. To put this in perspective, the average growth of the northern and central parts of the country reached 3.1 percent YoY between 2010 and 2019 according to Banxico data, and only 0.06 percent in the south, where most of the country’s marginalized population lives. At the same time, the large proportion of informally employed workers—55 percent of the labor force according to the 2023 labor force survey, only a slight decrease from the 2005 figure of 59 percent—is also a key driver of the inequality gap. Regional gaps in growth and informality contribute to drastically different levels of vulnerability and access to services. For example, states in the north like Baja California Sur, Baja California, and Nuevo León had the lowest percentage of multidimensional poverty as a share of their population in 2022 according to the National Council for the Evaluation of Social Development Policy (CONEVAL) (13.3 percent, 13.4 percent, and 16 percent respectively), while multidimensional poverty rates are significantly higher in the southeast with Chiapas, Guerrero, and Oaxaca (67.4 percent, 60.4 percent, and 58.4 percent respectively) topping the list.

That said, Mexico has made advances with respect to specific social indicators. For instance, the Index highlights significant improvements in education since 2000 (from 27.7 points to 48.1), although health has experienced an enormous decline of more than 5 points since then, dropping back to 78.1 points. Moreover, as the CONEVAL chart in Table 1 shows, the reduction of access to health between 2020 and 2022 happened at the worst possible time: the COVID-19 pandemic.

If we understand prosperity as the absence of social “lacks” (i.e., people’s needs are met), according to the country’s multidimensional measurement of poverty, Mexico has seen relevant improvements for several years, in spite of its low average growth. One of the reasons this has been possible is that there is now an anchor with which to assess the evolution of access to a “sufficient” income, to food and nutrition, health, education, social security, housing and services. Being capable of rigorous measurement helps align institutional aims and policies, which are in turn a prerequisite to effectively address lacks or shortfalls, and promote inclusion and prosperity. The other two vertices of the “prosperity triangle” are strong and sustained economic growth, and sound policies, which have not always been present.

While economic growth over the last five years has averaged just 0.63 percent per year, Mexico has managed to reduce poverty significantly. It has done so by almost quadrupling social program spending from US$8 billion in 2018 to US$30 billion in 2024, and increasing the minimum wage across the country (2018–24) by 182 percent—and by 324 percent in the “free border zone.”

Table 1. Change in deprivations in Mexico (2000-2022)

Source: National Council for the Evaluation of Social Development Policy (CONEVAL)

The future ahead

Mexico continues to preserve key technical and autonomous institutions, which have so far made it resilient to various affronts to political, legal, and economic freedoms, and which have helped the country sustain a basic level of prosperity, as reflected by the Index. However, the negative developments in some indicators should serve as early warning signs, while also pointing to the path forward, if the country wants to advance towards the next stage in democratic consolidation and progress in well-being standards.

The insights above suggest there is a clear path toward Mexico’s advancement on both the freedom and prosperity fronts. These can be summarized in three clear pillars: strong institutions, strong and sustained growth, and well-articulated and effective redistribution policies.

Mexico has a unique opportunity to capitalize on the current favorable external environment and attract investment that can serve as a pull factor for growth. Its sustainability will largely depend on productivity improvements, including to education, reskilling, infrastructure, and energy. The country remains a bastion of free trade in Latin America and holds a strong strategic position, being the United States’ largest trading partner. Amid US-China decoupling, gains from nearshoring could be significant. For the time being, this trend lays more in the expectation than the materialization front. According to Alfaro and Chor, Mexico is sixth in the list of countries to have derived the most market gains from the decoupling of the United States from China between 2017 and 2022. It should be in the top two.

Enormous expectations cannot cohere into more significant material investment commitments if the institutional framework continues to weaken, and this is one of the key risks that could lead to a further deterioration in Mexico’s Index rankings. In many ways, Mexico has de jure maintained the institutions and legal framework to support political, economic, and legal freedoms, including an independent central bank, an autonomous Supreme Court, and an independent National Electoral Institute. But a de facto deterioration is clearly occurring—in the form of political loyalists being appointed to key autonomous institutions, budget and staff cuts, a concentration of power, and a militarization of strategic economic activities. This cycle of deterioration is a risk to freedoms and prosperity in the near term.

In this sense, pendular politics also remains a significant risk, both to institutions and to sound evidence-based policymaking. The country will head to the polls in June 2024 and the signs of polarization are increasing. While disagreement and debate are essential components of a healthy democracy, the current discourse in the country is anything but constructive; and uncertain and ad hoc shifts in policy risk squandering the opportunities to attain strong and sustained growth, as well as improvements in prosperity more broadly.

Undermining institutions, pendular policies, militarization, the absence of solid foundations for strong and durable economic growth, and growing fiscal pressures, are a recipe for failure. On the contrary, policies aimed at strengthening and perfecting our institutional scaffolding, delivering good and sustained policies, ensuring the rule of law, improving competitiveness, enhancing productivity, and maintaining a sound fiscal stance, could make Mexico a success story, grounded on improved freedom and increased prosperity.

Vanessa Rubio-Márquez is professor in practice and associate dean for extended education, at the School of Public Policy, London School of Economics; associate fellow at Chatham House; consultant and independent board member. She is a member of the Freedom and Prosperity Advisory Council at the Atlantic Council. Vanessa had a twenty-five-year career in Mexico’s public sector, including serving as three-times deputy minister (Finance, Social Development, and Foreign Affairs) and senator.

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Jun 15, 2023

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The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

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]]> Egypt grapples with political uncertainty under El-Sisi https://www.atlanticcouncil.org/in-depth-research-reports/books/egypt-grapples-with-political-uncertainty-under-el-sisi/ Mon, 26 Feb 2024 14:00:00 +0000 https://www.atlanticcouncil.org/?p=736581 Egypt faces economic challenges with heavy debt and political unrest. President Abdel Fattah El-Sisi's reelection may not prompt reforms, exacerbating inflation and currency devaluation. Gulf aid hinges on reforms, while militarization impedes change. Regional tensions heighten instability risks.

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Table of contents

Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

Egypt has experienced a political roller-coaster in the decade following the Arab Spring. The militarization of power in politics has been a key feature of contemporary Egypt. At the end of 2010, massive demonstrations broke out against poverty, corruption, and political repression. These led to the ousting of President Mubarak, a former military officer. This was despite the important economic reforms Mubarak had embarked upon in his last few years in office, which had been lauded by the international community. President Morsi of the Muslim Brotherhood movement succeeded Mubarak after free and fair elections in 2012. A year after Morsi’s election, Army General al-Sisi took power in a coup and has since ruled Egypt with an iron fist.

The evolution of the Freedom Index for Egypt is indeed marked by the events of 2011 and 2012. The Freedom Index experienced a steep increase—reflecting the Arab Spring and the free elections that followed—before falling sharply by almost 10 points, a result of the counterrevolution led by General al-Sisi. The political freedom subindex visibly drives the movements in the overall freedom score. The 10-point increase on this subindex in 2011 vanishes, with a subsequent plummeting of almost 15 points, evident in all indicators, but especially in political rights. Al-Sisi has repressed brutally all political opposition and activism.

Economic freedom shows a somewhat erratic evolution, echoing the country’s political instability. Economic freedom seems to improve after 2014 as al-Sisi embarked on a series of reforms. Nonetheless, al-Sisi’s tenure has seen numerous economic problems: The scores on property rights and women’s economic freedom were still extremely low in 2022, and there has been a renewed acceleration toward military control over the economy. Al-Sisi embarked on large infrastructure investments, hoping that these would stimulate durable economic growth. These investments have turned to bad debt. Add to that the fact that the Gulf Cooperation Council countries have significantly reduced their aid to Egypt, making it nearly impossible to repay its ballooning debt and associated interest payments. The country is now at risk of a debt crisis.

Legal freedom presents a clear negative trend in Egypt since 2000, with this subindex losing around 10 points in that time. Clarity of the law, one of the most basic elements of the rule of law, receives a very low score throughout this period. The situation is echoed in the degradation of political freedom and the instrumentalization of the judicial system.

From freedom to prosperity

Just as on the freedom front, Egypt’s prosperity has been a roller-coaster. In what has become a familiar cycle, Egypt typically goes through periods of delayed macroeconomic stabilization followed by a balance-of-payments crisis. The country then calls on the International Monetary Fund (IMF) for a bailout in exchange for drastic reforms. These so-called structural reforms often consist of cutting consumer subsidies (food and fuel), which helps consolidate budgets in the short run but leaves the structure of the economy—including vested interests and cronyism—unaltered. This, in turn, can lead to social instability and repression. The current episode is no different and does not augur well for addressing the social deficiencies affecting Egypt.

The control of the economy by the army is impeding its rapid and deep transformation.
Egypt’s prosperity score remains significantly below the regional average, although it has seen a sustained increase over the last twenty years, suffering only a small regress in 2013–15. There is still a 3-point gap between the country’s prosperity score and the MENA average.

There has been some limited progress in education, health, and the environment. The evolution of the income and education indicators in Egypt has been somewhat better than the average for the MENA region. In the latter case, Egypt has overcome a differential of 6.4 points with respect to the regional average in 2006 and is now almost 2 points above it. In terms of the health and environment components, the country scores visibly below the regional average, and the gap has actually widened since 1995. Minority rights protection dropped by almost 8 points after 2012, coinciding with the period of political turmoil, but most of that fall seems to have been recovered in the last three years.

The future ahead

Egypt will have to navigate very difficult macroeconomic challenges in next few years. The country is heavily indebted, adding to the already worrisome sociopolitical situation. Egypt is gearing up for elections in December 2023. It is likely that President al-Sisi will be re-elected, and although this would theoretically hand him a mandate for reform, it is unlikely he will do anything that would affect crony or military interests. Instead, al-Sisi might have to resort to further devaluation of the currency, which will ignite further inflation and hurt vulnerable households. What is more, it would create a damaging currency imbalance, adding to the cost of servicing foreign debts that are held in foreign currency.

Al-Sisi will have to find external sources of financing outside of capital markets, given the prohibitive spread on external borrowing. Financial aid from Gulf countries, which typically provided a lifeline, is no longer forthcoming. Gulf countries are looking to invest in strategic assets but also want to see reforms before doing more to support the country. Gulf partners are counting on the IMF to push for more market-oriented reforms.

While political reforms are unlikely given the current circumstances, deep economic reforms also seem doubtful. Indeed, they would be difficult as the militarization of politics and of the economy is entrenched. This stalled situation will continue to limit the country’s potential. It is imperative to re-embark on a balanced economic and political transition to avoid the domestic instability that could result from a frustrated youth. What is more, the geopolitical situation is also tense. The renewed escalation of the Israeli-Palestinian conflict risks spilling over into Egypt. That could destabilize the country and spread to the whole region.

Rabah Arezki is a former vice president at the African Development Bank, a former chief economist of the World Bank’s Middle East and North Africa region, and a former chief of commodities at the the International Monetary Fund’s Research Department. He is now a director of research at the French National Centre for Scientific Research and a senior fellow at the Foundation for Studies and Research on International Development and at Harvard Kennedy School.

EXPLORE THE DATA

Trackers and Data Visualizations

Jun 15, 2023

Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

The post Egypt grapples with political uncertainty under El-Sisi appeared first on Atlantic Council.

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