Europe

Tensions between China, Russia and the West will shape a quarter marked by wars, trade disputes and consequential elections.

Quarterly

Global Trends

The European Union and the United States will <a href="/article/chinese-electric-vehicles-prepare-hit-great-wall-western-tariffs">place restrictions</a> on China&#39;s green and strategic technology sectors, eventually leading to Chinese retaliation and to other, primarily Western, governments placing similar restrictions on China due to fears that the tariffs will divert Chinese goods to their markets. Western governments hope the restrictions will shield and boost domestic production and limit China&#39;s growth in international green and strategic technology supply chains. The United States will start implementing tariffs on Chinese electric vehicles, batteries, semiconductors and several other strategic goods Aug. 1 following the June implementation of tariffs on Southeast Asian bifacial solar panels. In July, the <a href="/article/what-expect-during-xis-trip-europe">European Union</a> will begin placing up to 38.1% tariffs on Chinese EVs; China has already hinted that it could place tariffs on imported vehicles and agricultural products from Europe. China meanwhile has opened up a probe into certain thermoplastics, and during the third quarter could formally announce that it will implement tariffs on those products against the European Union and/or the United States. U.S. and EU tariffs on Chinese goods and U.S. tariffs on Southeast Asian solar panels will increase concerns in other Western countries that Chinese EVs and EV batteries and Southeast Asian solar panels will now be destined for their markets instead, increasing pressure on leaders in countries such as Canada, Mexico the United Kingdom and Australia to protect their markets from the trade diversion effects of U.S. and EU tariffs.

The West Takes Aim at China's Role in the Clean Energy Industry 

The West will place more sanctions on Russia (and potentially even China) as Russia makes gains in Ukraine and Moscow expands its hybrid warfare campaign in Europe, both of which will lead to more military and financial support for Ukraine. Russia&#39;s <a href="/article/russias-new-front-kharkiv-raises-stakes-ukraine-and-west">offensive in Ukraine</a> will put more pressure on Western governments to rush support for Kyiv, such as more advanced weapons and financial aid. The United States will implement expanded secondary sanctions on Russia that target foreign financial institutions, likely leading to the eventual sanctioning of some Chinese, Emirati or Indian institutions. The United States will also place more Russian <a href="/article/new-sanctions-package-us-squeezes-russian-trade">entities on its sanctions list</a>. China&#39;s exports of electronics and other dual-use equipment to Russia violating Western sanctions will lead to more frequent sanctions on Chinese entities, though sanctions are only likely to ensnare Chinese companies with limited exposure to the West unless Beijing decides to ramp up support for Russia. The secondary sanctions will lead to major Middle Eastern, South Asian and even some Chinese financial institutions further reducing their transactions with Russian entities. In response, Russia will likely increase operations inside Western countries, including cyberattacks and even potential sabotage targeting critical infrastructure, government buildings and civilians, in an effort to push back on Western support for Ukraine and the sending of more advanced weapons to Ukraine that Western governments are now allowing Ukraine to use for attacks inside Russia. Finally, the risk of NATO-Russia confrontation will rise this quarter as Western militaries consider sending advisers and military staff to Ukraine, where they might die in Russian attacks even when not deployed in combat roles.&nbsp;

Russia Expands Its Hybrid Warfare in Europe

Houthi attacks on commercial shipping in the Red Sea and Indian Ocean will continue to divert ships to longer routes, which will exacerbate the ongoing supply chain crisis, leading to congestion, higher shipping costs and more delays as shipping demand ramps up ahead of the busy holiday season. Although Houthi <a href="/article/what-western-strikes-houthis-mean-yemen-and-region">attacks on vessels</a> have decreased since their February and March highs, the threat remains high and the Houthis are likely to launch more frequent attacks targeting ships farther at sea in the Indian Ocean, occasionally hitting them. Holiday shipping from Asia to Europe and the Americas typically ramps up in the third quarter in order to ensure products hit store shelves by the fourth quarter. This will keep shipping prices, which have already doubled since late 2023, at elevated levels and congestion high at Western European ports, where transshipment is occurring to ship goods throughout the rest of Europe and in Singapore, Dubai and India as shipping companies rely on more transshipment to fill larger ships making the longer trek around Africa. The global shipping crisis may get some relief from the Panama Canal, as high rainfall is allowing canal operators to remove some restrictions on traffic, easing some of the congestion on Asia-Americas routes.&nbsp;

The Houthi Threat to Shipping Persists as Holiday Season Shipping Ramps Up

In response to inflation that did not fall as far as expected, the Federal Reserve is now less likely to lower interest rates in the third quarter, which will make for tighter global financial conditions, particularly for developing and emerging economies. Higher than anticipated U.S. inflation data during the second quarter make the Federal Reserve more likely to start lowering interest rates in the fourth quarter rather than in the third quarter. High <a href="/article/global-economic-fallout-us-and-europes-inflation-woes">U.S. interest rates</a> will help keep the <a href="/article/us-strong-dollar-risks-renewing-calls-protectionist-trade-policies">dollar strong</a> and international interest rates high, which will translate into continued challenging financing conditions, especially for economically weak and financially distressed developing economies. To the extent that countries depend on access to international private capital markets to refinance their debt, they will be forced to issue more expensive debt &mdash; if they are able to raise private sector financing at all. Continued high U.S. interest rates will also reduce private capital flows to emerging and developing economies, leaving them less space to lower interest rates to support economic growth. This will be especially painful for countries currently experiencing <a href="/article/increasing-threat-sovereign-debt-default-emerging-and-developing-economies">financial distress</a>, such as Ecuador, Egypt, Pakistan and various sub-Saharan African countries. High U.S. interest rates will also make it harder for countries like Sri Lanka, Ghana and Ethiopia to make progress on <a href="/article/politics-developing-economy-debt-restructuring-part-1">debt restructuring</a> even though it is unlikely to prove an insurmountable obstacle, as the recent experiences of Zambia and Suriname have demonstrated.

High U.S. Interest Rates Will Fail to Provide Financial Relief to Developing Economies

Middle East and North Africa

Iran&#39;s June 28 <a href="/article/2024-elections-iran">presidential election</a> will not alter Tehran&#39;s regional strategy of supporting proxies against Israel, which will keep regional tension and hostilities with Israel and the United States high. Iran&#39;s <a href="/article/irans-president-raisi-has-died-what-now">Guardian Council</a> will tightly manage the election process to try and ensure that a hard-line conservative wins, resulting in <a href="/article/irans-approved-presidential-candidates-portend-continuation-status-quo">virtually no changes</a> to the country&#39;s national security strategy in the third quarter and prolonging Tehran&#39;s lack of willingness to negotiate with the United States for sanctions relief. Tehran will maintain its support for proxies like the Houthis, Hezbollah and Iraq&#39;s Popular Mobilization Forces, ensuring that tensions &mdash; as well as violence targeting commercial ships and Israel &mdash; remain high. Iran&#39;s new president, inheriting an economy plagued by high inflation and an Iranian rial that has repeatedly set record lows in recent years vis-a-vis the dollar, will focus on domestic economic policies. Despite these economic challenges, none of the conservative candidates is likely to back meaningful economic liberalization. This coupled with high foreign sanctions means that Iran&#39;s next president will not solve the country&#39;s economic woes. And this means that economically motivated protests will remain frequent during the quarter and beyond. If the lone reformist candidate in the election, Masoud Pezeshkian, garners significant support, the security apparatus might crack down on his supporters and manipulate the vote to ensure he does not win. This would give rise to a low probability but high impact scenario where his supporters erupt in widespread anti-government protests similar to the 2009 Green Movement that lasted for months. If Pezeshkian wins without protests, he could support talks with the West, but his room to do so will be limited next quarter.

Iran's Presidential Election Maintains the Status Quo

Israel&#39;s regional campaign will shift northward to Lebanon, where Israel and Hezbollah will escalate military pressure against one another as Israel attempts to establish a buffer zone, while the Gaza conflict transforms into an insurgency, Saudi-Israeli normalization remains frozen and the Israeli government destabilizes. With the fall of Rafah, Israel&#39;s strategic imperatives will change, shifting to a raid-and-withdraw strategy in Gaza that involves fewer troops and smaller battles as it attempts to set the conditions for a possible cease-fire that will not see a full Israeli withdrawal from the strip as the Israel Defense Forces <a href="/article/dilemma-gazas-post-war-future-puts-israel-tight-spot">maintain buffer zones</a> in Gaza. With its frontline combat brigades steadily freed up from Gaza, Israel will shift its attention to its second major goal, a <a href="/article/israel-and-hezbollah-prefer-diplomacy-risks-war-remain-elevated">buffer zone</a> in southern Lebanon. Here, Israel will increase military pressure on Hezbollah, up to limited ground incursions, throughout the quarter, in an attempt to force Hezbollah to pull back from the border. But Hezbollah is likely to resist, responding with escalations of its own against Israeli military and civilian targets in a pattern that might see tensions between the two skyrocket should either side hit a politically sensitive target. In the course of this campaign, Iran will have an incentive to use allies in Syria, Iraq and Yemen to increase their attacks on Israeli and U.S. targets, and in a less likely scenario, might launch another direct strike on Israel. Meanwhile, <a href="/article/assessing-saudi-arabias-foreign-policy-during-israel-hamas-war-and-beyond">Saudi Arabia</a> will hold out against U.S. lobbying to normalize with Israel absent a clear path to a Palestinian state in the quarter. Meanwhile, as the unifying force of the Gaza war ebbs, Israeli political parties will start to plan for possible early elections, weakening the government&#39;s cohesion and presaging its eventual collapse.&nbsp;

Israel's Campaign Turns Toward Lebanon 

To consolidate power and win new nationalist allies, Turkey&#39;s government will advance a new espionage law and begin negotiations for constitutional reform, while potentially expanding its military operations in northern Iraq against the Kurdistan Workers&#39; Party, or PKK. After a weak electoral performance in the March 31 <a href="/article/strong-performance-opposition-turkeys-municipal-elections-bodes-ill-erdogan">municipal elections</a>, the governing Justice and Development Party, or AKP, will further embrace nationalist and populist policies to try to win back drifting support. As a result, the AKP will try to pass a so-called foreign influence agent law popular among nationalists, but likely to be used against critics and increase the operational risk to foreign-funded organizations, media outlets and businesses. This will take place against the backdrop of new negotiations for <a href="/article/whats-stake-turkeys-municipal-elections">constitutional reforms</a> designed to favor the AKP including a judicial overhaul, but the AKP efforts are unlikely to reach the threshold for change in the quarter because opposition parties will lack the incentive to make concessions after their strong results in municipal elections. To further appeal to right-wing nationalists, Turkish President Recep Tayyip Erdogan will likely expand Turkey&#39;s military operations against the PKK; airstrikes against the group have already increased. Without strong Iraqi cooperation, Ankara would likely only increase airstrikes along the Turkey-Iraq border. A more expansive operation will become more likely in the event of a major PKK attack on Turkey in retaliation for these operations.

Turkey Advances Domestic Reforms and Potentially Expands Military Operations in Northern Iraq

Egypt&#39;s new Cabinet will implement International Monetary Fund-requested reforms for fiscal consolidation, but Egypt will struggle to meet its energy consumption demands, portending business interruptions and extended blackouts. Ahead of the Sept. 15 IMF review of Cairo&#39;s $8 billion loan, Egypt&#39;s new Cabinet will likely continue its <a href="/article/how-will-gaza-war-impact-egypt-jordan-and-lebanons-economies">fiscal consolidation</a> through cuts to public spending, slashing and <a href="/article/what-another-el-sisi-term-would-mean-egypt">consolidating subsidies</a> further and increasing tax revenues. Egypt will also pay down some of its outstanding debt, improve its foreign exchange reserve balance through potential Gulf Cooperation Council investment agreements and increase private sector participation in the health care and education sectors. Despite agreements worth about $50 billion from an investment deal with the United Arab Emirates, the expanded IMF loan, and agreements with the World Bank and European Union in the first half of 2024 that boosted Egypt&#39;s foreign reserves and have given Cairo flexibility to increase liquefied natural gas imports, Egypt will still struggle with <a href="/article/egypts-energy-crisis-isnt-going-anywhere">energy shortages</a> as the summer causes energy demands to spike. Shortages will likely lead to expanded blackouts, increased anti-government sentiment and business interruptions, but are unlikely to cause unrest, as Egypt&#39;s security apparatus retains control of public spaces and the Egyptian opposition remains divided and leaderless.&nbsp;

Egypt to Align with IMF Reforms, but Will Face Energy Shortages 

Amid a Continent-wide political and institutional realignment, the new European Commission will outline its strategic priorities for the next five years, with a focus on enhancing the bloc&#39;s strategic autonomy, competitiveness and defense capabilities, while implementing economic security measures. Following the June <a href="/article/despite-far-right-gains-centrists-retain-control-eu-parliament">European Parliament elections</a>, EU member states will negotiate top appointments for the bloc throughout the quarter, including the new president of the European Commission, the bloc&#39;s executive arm. The new European Parliament will then vote on these decisions. The new commission will lay out its strategic priorities for the next five years with a focus on enhancing the bloc&#39;s competitiveness and strategic autonomy, reflecting calls for a more assertive industrial strategy for the bloc, a reduction in the regulatory burden for EU businesses, greater support for investments in strategic sectors and strengthening of Europe&#39;s defense capabilities. Brussels will remain committed to the Green Deal, but attention will shift from approving to implementing legislation, balancing environmental ambitions with economic growth and competitiveness concerns. The transition process in Brussels, as well as the European Parliament&#39;s summer recess, means EU legislative activity will be very low during the quarter. Still, the commission will impose <a href="/article/chinese-electric-vehicles-prepare-hit-great-wall-western-tariffs">provisional duties on Chinese electric vehicles</a> (which is likely to result in Chinese retaliation), issue guidelines to member states to carry out a review of supply chains and outbound investments in <a href="/article/eu-advances-its-economic-security-strategy">strategic technology sectors</a>, present member states with options to increase joint borrowing to finance <a href="/article/goals-and-limits-eus-new-defense-industrial-strategy">common EU defense projects</a>, and initiate negotiations with member states to draft national debt reduction plans under the <a href="/article/look-eus-revised-fiscal-rules">new Stability and Growth Pact</a>, with eventual excessive deficit procedures likely to begin in fall.

The New European Commission Takes Shape in a Quarter of Transition

Early legislative elections in France will likely result in policy paralysis, greater uncertainty and financial market instability while in Germany government infighting will increase amid difficult budget talks ahead of state and federal elections. France will hold early legislative elections between June 30 and July 7 after President Emmanuel Macron announced the dissolution of Parliament <a href="/article/french-early-legislative-elections-risk-policy-paralysis">following a heavy defeat</a> at the European Parliament elections. The vote will likely result in another hung parliament that struggles to pass legislation or, should the far-right National Rally succeed in forming a majority, a so-called cohabitation between a president and a prime minister from different parties. Either scenario would lead to prolonged policy paralysis, in turn resulting in greater uncertainty surrounding fiscal policy and financial market instability just as Paris is under growing pressure to <a href="/article/frances-budget-troubles-bode-ill-macron-ahead-eu-elections">implement fiscal adjustment measures</a> needed to bring down the country&#39;s soaring budget deficit. In Germany, the low popularity of the three members of the coalition government will <a href="/article/what-poor-performance-eu-elections-means-germanys-coalition-government">increase tensions</a> between them, even though the collapse of the government and early parliamentary elections are unlikely. Government infighting over spending priorities will likely intensify as the coalition finalizes a federal budget proposal for 2025 amid weaker than expected tax revenue projections, reluctance to increase taxes and <a href="/article/where-germanys-budget-crisis-headed">constitutional borrowing limits</a>. Tensions will increase as the three coalition partners seek to harden their stance on sensitive issues such as defense, climate and fiscal prudence ahead of state elections in eastern Germany in September (where the far-right Alternative for Germany is expected to perform strongly) and federal elections next year.&nbsp;

France and Germany Face Political Turbulence

Labour will likely take over the British government and prioritize policies such as bolstering workers&#39; rights, cutting red tape and minor fiscal adjustments amid financial constraints. The Labour Party will likely win the <a href="/article/2024-elections-united-kingdom">general election July 4</a>, allowing it to install Keir Starmer as prime minister. A Labour government will result in a greater state presence in the economy, higher spending on social policies and public services and a more ambitious energy transition agenda. But the new government will face fiscal and economic constraints, meaning that spending increases will be limited until growth accelerates and borrowing costs decrease. During the quarter, the new government will thus likely focus on impactful yet lower cost policies such as bolstering workers&#39; rights, reforming the planning system, raising tax revenues through measures such as fighting tax evasion and ending tax credits for private schools, and repealing the Conservatives&#39; <a href="/article/uk-sunaks-rwanda-migration-bill-survives-its-first-vote-divisions-remain">Rwanda refugee deportation plan</a>. The new government will also outline medium-term plans to accelerate the country&#39;s energy transition and <a href="/article/uks-post-brexit-economic-struggles-look-set-linger">stimulate private sector investment and growth</a> through state-driven supply-side policies. Foreign policy will not see major changes, and while Labour will seek closer relations and regulatory alignment with the European Union, a reversal of Brexit will not be on the agenda. On Gaza, a divisive issue for Labour, Starmer will likely maintain a cautious approach during the quarter, seeking to align its stance with that of its Western allies despite calls from within his party for a tougher line on Israel.&nbsp; &nbsp;

A New Labour Government Takes Over in the United Kingdom

Polish Prime Minister Donald Tusk&#39;s strategy of taking a tougher anti-immigration stance and investigating opposition members for alleged links with Russia will exacerbate domestic political and social tensions. Following a strong showing for his party at the June European elections, Tusk will seek to increase pressure on the opposition and mobilize its electoral base ahead of presidential elections in 2025. The government&#39;s increasingly aggressive stance toward the former ruling Law and Justice, or PiS, party will <a href="/article/rough-power-transition-thrusts-poland-political-crisis">exacerbate political polarization</a> in the country, slowing policy implementation and undermining the stability and functioning of key institutions in the country. This could increase uncertainty and negatively affect market sentiment. A controversial commission tasked with investigating Russian influence in Poland (initially established by PiS and recently revived by Tusk) will begin investigating PiS politicians and allies while the government will strengthen migration controls amid an upsurge in illegal crossings at the Polish-Belarusian border. Still, this is unlikely to draw significant criticism from the European Union given greatly improved relations between Warsaw and Brussels under Tusk. Internal divisions may also emerge within the ideologically diverse governing coalition, particularly on polarizing issues such as migration, abortion and climate as the three ruling parties begin to harden some of their stances in preparation for presidential elections. Still, their shared goal of preventing PiS from returning to power makes a government collapse unlikely. &nbsp;

Poland's Power Struggle Intensifies Between Elections

Eurasia

Fighting in Ukraine will intensify as Russia continues small-scale advances at multiple locations, but Kyiv will use increasing manpower and equipment to prevent a Russian strategic breakthrough. Russian forces will continue to prioritize gaining ground in the Donbas region, in particular the areas around Chasiv Yar, the most strategically significant part of the front, as well as around Ocheretyne, where Ukraine&#39;s defensive lines are less well-established. Gains in these locations would threaten Ukraine&#39;s remaining stronghold in the Donbas, the Slovyansk-Kramatorsk urban area, as well as Niu-York, Kyiv&#39;s last position still along the prewar 2015 line of contact. Russia will also continue gains in the Kharkiv region, <a href="/article/russias-new-front-kharkiv-raises-stakes-ukraine-and-west">from around Kupyansk</a> and the new front it opened in May. Russia could similarly open new fronts in Ukraine&#39;s Sumy and Chernihiv regions in order to spread out and more quickly drain Ukrainian resources to pressure the Ukrainian and Western governments to enter negotiations. Still, such incursions are somewhat unlikely because they are not strictly necessary for <a href="/article/bracing-protracted-war-ukraine-ukraines-challenge-2024-and-beyond">Russia to continue gaining ground</a> and degrading Ukrainian forces. While Russian forces will likely enjoy momentum during the first part of the quarter, Ukraine&#39;s manpower will increase as a result of its mobilization law and weapons deliveries authorized in the second quarter. This will help stabilize Ukraine&#39;s overall strategic position toward the end of the quarter, ultimately pushing Russia to raise signing bonuses and monthly pay for volunteer soldiers, fueling Russia&#39;s inflation and labor shortage, and forcing it to consider more mobilization beyond the quarter. Meanwhile, Ukraine&#39;s electricity grid will likely come under increasing strain during the quarter as Russia continues its campaign against the country&#39;s power generation and transfer infrastructure.&nbsp;

Russia Gains Ground as Ukraine Gathers Strength 

Ukraine will secure greater predictability in NATO support, while Russia will secure continued economic and military support from China to fuel its war industries and civilian economy. Western financial and military support for Ukraine will continue during the quarter, and the July 9-11 NATO summit in Washington will result in an agreement for NATO countries to supply at least 40 billion euros worth of military support annually, &nbsp;though this will not significantly increase Ukraine&#39;s ability to <a href="/article/implications-russian-victory-ukraine">continue fighting the war</a> or its negotiating leverage vis-a-vis Russia because progress on Ukraine&#39;s membership and long-term weapons procurement will remain vague, despite political pledges on these topics. Some Western support initiatives may become active during the quarter, such as expanded Western training missions in Ukraine, Ukrainian strikes inside Russia with Western precision weapons and perhaps even the first deliveries of F-16 aircraft, but these will not fundamentally alter Ukraine&#39;s battlefield prospects in the coming months. Meanwhile, Russia will receive economic support from its key partners, most importantly China, which will continue to <a href="/article/reassessing-russias-ability-finance-its-war-ukraine">supply key inputs</a> for Russia&#39;s civilian economy and military industry. At Russia&#39;s Eastern Economic Forum on Sept. 3-6 in Vladivostok, Russia will push Beijing for greater energy and Arctic investment cooperation, for Chinese banks to increase their presence in Russia, and for the construction of the Power of Siberia 2 pipeline. Progress on these issues is unlikely, however, except on China&#39;s terms. Chinese military support for Russia, primarily in the form of dual-use goods, could increase and test Western red lines, raising the prospect of an <a href="/article/new-sanctions-package-us-squeezes-russian-trade">increased U.S. sanctions response</a> on China.&nbsp; &nbsp;

Ukraine and Russia Attempt to Bolster Their Foreign Support 

Azerbaijan will threaten military escalation to pressure Armenia into further concessions in ongoing border demarcation and regional transit corridor talks, while Armenia&#39;s government will weather an uptick in domestic turbulence. Following a strategy in recent years of increasing attacks on Armenian forces during the later summer and early fall, Azerbaijan is likely to <a href="/article/azerbaijan-early-presidential-election-may-portend-further-threats-armenia">step up shelling</a> of Armenian positions during the quarter. It could also attempt to seize additional small pieces of Armenia&#39;s internationally recognized territory, though this is less likely. Baku&#39;s goal would be pressuring Yerevan to make territorial concessions to avoid further losses of Armenian lives and territory. Baku would not necessarily <a href="/article/assessing-prospect-azerbaijan-invading-armenia">seek to permanently occupy</a> any newly seized areas through border demarcation, as Baku could instead exchange the small territories of Armenia it occupies for Armenian concessions on the operations of regional transit corridors, namely the Zangezur Corridor. Domestic opposition to Armenian Prime Minister Nikol Pashinian may grow, and Russia will likely increase its efforts to destabilize Pashinian&#39;s government and bring to power pro-Russian political leadership. The possibility of a military coup is remote, but could become more likely if Pashinian&#39;s government were to give major concessions allowing the operation of the Zangezur Corridor.&nbsp;

Azerbaijan Uses the Threat of Escalation as Leverage in Border Talks with Armenia

Campaigning will commence in Georgia and Moldova for decisive elections in the fourth quarter. Moldovans will select a president Oct. 20 and simultaneously vote on EU membership while Georgia&#39;s parliamentary election occurs Oct. 26. Georgia&#39;s government will rally its base ahead of the vote and dissuade Russia from <a href="/article/georgia-set-adopt-its-controversial-foreign-agents-bill-what-now">destabilizing the country</a> by pressing forward with controversial Russian-style laws. Following its passage of a so-called foreign agents bill in late May, Georgian Dream could pursue a law on so-called LGBT propaganda &mdash; like the foreign agents bill, inspired by a similar law in Russia. Protests against the ruling Georgian Dream government will occur in Tbilisi daily during the quarter, though most actions will be small-scale. While some opposition forces may advocate more intense protests well ahead of the October vote, there will be no serious Maidan-style protest attempts during the quarter because the opposition believes its supporters can be more effectively mobilized after the vote rather than weeks before the election. In Moldova, President Maya Sandu&#39;s government will use increases in social payments and recent U.S. and EU support packages to <a href="/article/moldova-two-key-votes-portend-more-pro-russian-political-agitation">ensure economic stability</a> ahead of the votes, while the pro-Russian Moldovan opposition will reactivate protest attempts, albeit to little effect.&nbsp;

Pro-West vs. Pro-Russia Forces Prepare for Votes in Georgia and Moldova

Asia-Pacific

Chinese policymakers will opt for limited, targeted policies to maintain macroeconomic stability and support economic activity, with China&#39;s 5% growth target for 2024 within reach. Beijing will keep its <a href="/article/chinas-great-economic-rebalancing-part-2-potential-solutions">gradual approach to managing deflation</a> and real estate sector risks and maintain solid economic growth. Further measures aimed at stimulating domestic consumption and other measures aimed at supporting the real estate sector are possible, though likely on a small scale. Beijing is unlikely to provide major stimulus, in part because targeted intervention is <a href="/article/gauging-risk-systemic-financial-crisis-china">better suited to manage systemic risks</a>, while rebalancing the economy. If it did opt for a large-scale stimulus, this would likely be announced at the July Politburo meeting. China&#39;s restraint on domestic consumption stimulus in the context of increasing exports, especially in electric vehicles, will exacerbate <a href="/article/chinese-electric-vehicles-prepare-hit-great-wall-western-tariffs">trade tensions with the United States and Europe</a>. Although the present trade conflict is primarily about China&#39;s surging green technology exports, the West will see growing trade surpluses as the direct consequence of Chinese policies aimed at stimulating non-real estate investment and exports with only minor domestic consumption support. The People&#39;s Bank of China is unlikely to allow the renminbi to weaken significantly during the quarter due to concerns about undermining domestic financial confidence. But if the central bank were to lower interest rates to support economic growth, the renminbi would weaken, further fueling China-U.S. and China-EU trade tensions. Tensions surrounding Taiwan will impede already fraught U.S.-China economic talks, particularly if the U.S. speaker of the House or Senate majority and minority leaders meet with new Taiwanese President William Lai ahead of U.S. general elections in November, which would likely prompt new <a href="/article/chinas-latest-military-drills-around-taiwan-set-tone-cross-strait-relations-under-lai">large-scale Chinese military drills</a> around Taiwan.

China Limits Economic Intervention Amid a Steady Recovery

Leadership disputes within Japan&#39;s ruling party could usher in a new prime minister but are unlikely to result in significant changes to foreign policy, particularly during the quarter. Approval ratings for Japanese Prime Minister Fumio Kishida and his Liberal Democratic Party have been low for months, and the <a href="/article/election-losses-shake-japans-ruling-party-kishida-stays-course">LDP has lost several by-elections</a> in the second quarter, with another election due July 7 for the mayoralty of Tokyo. In the event Kishida loses the LDP leadership election in September, a new LDP leader (who would also become prime minister) would most likely maintain foreign policy continuity through <a href="/article/japan-us-relationship-serves-model-indo-pacific-security-bad-omen-china">growing cooperation</a> with the United States and South Korea on military affairs and supply chain resilience efforts. There is a small chance, however, that a more hawkish LDP successor like Taro Aso will engage more directly with Taiwan on security affairs and <a href="/article/reviewing-china-japan-south-korea-summit-long-shot-effort-ease-tensions">risk Chinese economic retaliation</a>. It is also possible that a more dovish LDP successor like Yoshihide Suga will focus on stabilizing the economy and moderating trade tensions with China. In the unlikely case that Kishida calls a <a href="/article/japan-kishidas-cabinet-reshuffle-intended-facilitate-snap-election">snap election</a> prior to September in a bid to secure his premiership, this would likely backfire and usher in an opposition government, which would focus on cost-of-living concerns, limiting military engagement with <a href="/article/what-expect-us-japan-south-korea-summit">South Korea and the United States</a> and bolstering trade ties with China.&nbsp; &nbsp;

Kishida's Future Uncertain, Though Japanese Policy Continuity Likely

Vietnam will consolidate its frayed leadership, which will forestall political infighting and likely slow the country&#39;s anti-corruption campaign in the upcoming quarter while setting the stage for the country&#39;s next leadership turnover in 2026. The leadership lineup for the rest of the term is now tentatively set, as the National Assembly elected a host of new leaders in May, leading Vietnam down a path of recapturing a sense of political stability and reinvigorating investor confidence during the third quarter. Former top police officer, enforcer of the anti-corruption campaign and <a href="/article/enforcer-vietnams-anti-corruption-campaign-has-been-appointed-president">new President To Lam</a> will jockey for influence and compete with the few remaining candidates for the position of Vietnamese Communist Party general secretary, many of whom have been eliminated from contention under the pretext of corruption. Lam&#39;s corresponding removal as minister of public security, the position responsible for overseeing the anti-corruption campaign, means the campaign will likely slow in the upcoming quarter, at least at the <a href="/article/another-abrupt-leadership-change-sows-doubt-about-vietnams-political-stability">highest echelons of power</a>, portending well for <a href="/article/falling-exports-and-rising-temperatures-bog-down-vietnams-economy">business approvals</a>, licensing, personnel continuity and foreign investment sentiment more broadly. While the reshuffle will likely provide stability, the succession contest remains ongoing, meaning <a href="/article/vietnams-president-forced-out-what-now">infighting</a> will likely pick back up after the quarter. In a more extreme and immediate scenario, further resignations of top leaders or the incapacitation or death of Vietnamese Communist Party General Secretary Nguyen Phu Trong would throw the realigned succession process back into chaos.

Vietnam's Political Scene Calms, at Least Temporarily

New Zealand, Japan and South Korea will take steps to join AUKUS Pillar II, which seeks to bolster their security and technological capabilities and share some of the burden of deterring China from the United States with additional Asia-Pacific partners, but will also drive an intensified arms race with China and military ties between China, Russia and North Korea. The U.S. Congress will likely pass legislation directing the executive branch to <a href="/article/japan-us-relationship-serves-model-indo-pacific-security-bad-omen-china">engage with Japan</a> on its participation in <a href="/article/strategic-implications-new-us-uk-australia-defense-partnership">AUKUS Pillar II</a> (which focuses on developing advanced capabilities, sharing technology and increasing interoperability between armed forces) in the quarter, but Japanese weapons trade restrictions will complicate the process. New Zealand has confirmed its interest in Pillar II, and its membership in the Five Eyes intelligence sharing pact renders it easiest to slot in from a regulatory perspective, but concerns about undermining its trade relationship with China could be a constraint. South Korea is the least likely to take meaningful steps toward joining Pillar II this quarter, although it has also made its interest clear. The urgency for strengthening AUKUS is tied to the November U.S. presidential election, with allies seeking to lock in such arrangements before a potential Trump administration might upend them. For the United States, <a href="/article/examining-multi-alignment-asia-pacific">AUKUS expansion</a> would distribute the burden of regional defense and China deterrence more broadly. The inclusion of <a href="/article/conflicting-security-priorities-will-haunt-australia-china-rapprochement">additional Asia-Pacific countries</a> would simultaneously heighten China&#39;s threat perception and further drive it to seek parity or supremacy in technologies such as quantum computing, artificial intelligence and hypersonic weapons. AUKUS expansion would also further incentivize China&#39;s deepening security relations with <a href="/article/what-russia-and-north-korea-stand-gain-arms-deal">Russia and North Korea</a> while constraining its willingness to rein actions by either that the United States opposes. This will lead to additional joint drills with China&#39;s respective partners, potentially including trilateral joint naval drills between China, <a href="/article/what-expect-during-putins-trip-china">Russia</a> and <a href="/article/north-koreas-foreign-affairs-hit-inflection-point">North Korea</a> in the Pacific.

AUKUS Expansion Progresses

Americas

Argentina&#39;s macroeconomic environment will stabilize during the quarter, but social unrest and political disputes will persist, maintaining uncertainty about the government&#39;s reform push. Argentina&#39;s economy contracted substantially in the first half of 2024 due to <a href="/article/gauging-outlook-energy-reforms-argentina">public spending cuts</a> and tax increases aimed at achieving a fiscal surplus and lowering inflation, severely reducing economic activity. The policies did, however, decelerate monthly inflation, which will remain in single digits in the third quarter. Buenos Aires will also preserve its fiscal surplus, and the <a href="/article/argentina-challenges-and-benefits-facing-mileis-deregulation-push">Central Bank of Argentina</a> will continue increasing its dollar reserves. Despite a weaker than anticipated harvest due to unexpected weather, increased foreign exchange inflows early in the quarter will stabilize macroeconomic conditions. This could result in timid improvements in economic activity during the quarter. Higher dollar reserves will move Argentina closer to lifting capital controls, though this is unlikely during the quarter. While falling inflation will maintain some popular support for the government, high poverty rates and weakened purchasing power will sustain the risk of social unrest, including protests and strikes that disrupt the movement of goods and people. Meanwhile, the Argentine Congress will give its final approval to a watered-down version of the government&#39;s plans to deregulate the economy. Despite the passage of President Javier Milei&#39;s first meaningful reform, lingering questions about his government&#39;s ability to legislate additional reforms will continue to deter significant foreign investment.&nbsp;

Argentina's Reforms Stabilize the Economy

During his final months in office, Mexican President Andres Manuel Lopez Obrador will attempt to pass a package of constitutional reforms, some of which would decrease regulatory hurdles and government checks and balances. Lopez Obrador will spend the quarter attempting to pass constitutional and legal reforms to secure his legacy. <a href="/article/morena-sweeps-mexicos-general-election-portending-policy-continuity-and-possible">President-elect Claudia Sheinbaum</a> will take office Oct. 1, but the new Congress will convene Sept. 1, giving Lopez Obrador a month to pass reforms. While Morena is two seats short of a qualified majority in the Senate, the party will be able to pass some of the reforms. For example, Morena will likely manage to pass a law prohibiting the awarding of water concessions in areas with low water availability, a development that would help streamline water services but limit water-intensive industries in Northern Mexico. Morena may also be able to gather the votes needed to redefine the National Guard as part of the armed forces, a move that would aid anticrime efforts but undermine popular support for it given distrust of the military, hindering cooperation between security forces and residents of high-crime areas. Lopez Obrador will likely struggle to pass more controversial reforms, including one shrinking the <a href="/article/2024-elections-mexico">National Electoral Institute</a>, amid opposition resistance. Other proposals eliminating government bodies would help cut expenditures but risk decreasing checks and balances and allowing Mexico&#39;s corruption challenges to worsen. Meanwhile, Sheinbaum will communicate with left-wing governments such as that of Brazilian President Luiz Inacio Lula da Silva in Brazil to foster strong relations, with major areas of focus likely to include environmental issues.&nbsp; &nbsp;

Mexican President Pushes Reforms During Final Months in Office

Brazil&#39;s congress will cement regulations for the 2023 tax reform, improving the country&#39;s investment attractiveness, while Lula will continue efforts to bolster Brazil&#39;s geopolitical position and as a leader in fighting climate change. The Brazilian legislature will likely approve tax reforms approved in late 2023, which include significant changes that simplify and combine multiple state and federal taxes. These reforms will enter force progressively over the next decade, and will improve Brazil&#39;s business environment by simplifying the country&#39;s notoriously intricate tax scheme. The expectation of this simplification will continue to improve the country&#39;s <a href="/article/reassessing-brazils-economic-outlook">business attractiveness</a> this quarter; Moody&#39;s Ratings raised Brazil&#39;s credit outlook to positive in May in part due to the reform. The quarter will also see little policymaking as political parties campaign for Oct. 6 municipal elections. Meanwhile, Lula will focus on bolstering Brazil&#39;s geopolitical position, likely through a South American summit to expand regional cooperation. He will also push for action on climate change internationally ahead of the November BRICS and G20 summits in Brazil. Domestically, climate issues will create social tensions amid popular frustration over <a href="/article/how-el-nino-will-impact-latin-america-2024">devastating flooding</a> in southern Brazil in May and state-owned energy giant Petroleo Brasileiro&#39;s likely increase in oil production, including in the northern Equatorial Margin waters.&nbsp; &nbsp;

Brazil Solidifies Tax Reforms and Pushes for Regional Leadership

Venezuela&#39;s election will see Nicolas Maduro reelected, creating a risk of further U.S. sanctions and minor Venezuelan incursions into Guyana in the postelection period, while Colombia and Ecuador will face political gridlock that threatens economic conditions. Venezuela will hold presidential elections July 28, with Nicolas Maduro almost certain to win reelection, as the vote will <a href="/article/venezuela-opposition-candidates-disqualification-dims-hopes-free-and-fair-elections">not be free or fair</a> given regime efforts to prevent popular opposition candidates from running and its likely vote rigging. The postelection period will see increased international criticism of Venezuela, with the potential for the United States to further reduce sanction waivers on Venezuelan oil. As Venezuela already reduced waivers in April, new sanctions will likely be minor. Tensions with Guyana over the disputed Essequibo region will persist, with Venezuela&#39;s construction of military facilities on the border indicating a rising potential for small incursions into the region and harassment of energy sector vessels off Guyana&#39;s coast. A full Venezuelan invasion, however, remains highly unlikely this quarter. In Colombia, <a href="/article/what-another-corruption-scandal-means-colombias-fragile-government">President Gustavo Petro</a> will continue to push for health and constitutional reforms, including changing the Central Bank of Colombia&#39;s mandate to prioritize employment. Insufficient support in Congress and active resistance from the opposition means that the government is unlikely to pass any major reforms. Ecuadorian President Daniel Noboa will face similar legislative gridlock following the collapse of his legislative coalition, which will threaten Ecuador&#39;s ability to enact laws to meet the terms of its International Monetary Fund agreement. This will jeopardize IMF disbursements and increase the risk of a debt default in the long term.&nbsp;

Venezuelans Vote While Colombia and Ecuador Face Political Gridlock

South Asia

The Bharatiya Janata Party&#39;s reliance on coalition partners will ensure <a href="/article/indias-2024-elections-will-likely-generate-policy-continuity">continuity in domestic economic policies</a> in India, particularly in manufacturing and infrastructure, but the BJP will face challenges in maintaining fiscal consolidation and advancing reforms and from other disagreements within the alliance, causing legislative delays. Following the April-June general elections, BJP reliance on its <a href="/article/indias-bjp-clinches-another-term-weaker-majority">coalition partners</a> within the National Democratic Alliance will likely lead to continuity in domestic economic policies such as enhancing manufacturing, infrastructure development and job creation. The BJP&#39;s reduced majority may, however, hinder the passage of more ambitious structural reforms, such as the privatization of state-owned companies and land and labor reforms that opposition parties and even some NDA members could resist for fear of backlash from trade unions and farmers groups. Consequently, the government will likely prioritize less controversial economic priorities, such as expanding production-linked incentives for export-oriented sectors burdened by high import duties, particularly textiles, leather and equipment. While the BJP will seek to continue its fiscal consolidation efforts, the budget for the next fiscal year to be finalized in July will likely include an uptick in populist spending on welfare schemes and subsidies to appease coalition allies by addressing state and regional priorities. The BJP&#39;s weakened position may also deter it from advancing <a href="/article/india-election-update-bjp-still-set-win-low-turnout-dims-hopes-supermajority">contentious policy changes</a> like the highly promoted &quot;one nation, one election&quot; reform aimed at synchronizing elections for the lower house of the Indian parliament and all state assemblies. This reform requires a constitutional amendment, but the BJP and its allies lack the necessary supermajority. Additionally, disagreements within the NDA, especially on social issues like the Citizenship Amendment Act and Uniform Civil Code, could occasionally stall policymaking as regional parties advocate for their constituents&#39; interests.&nbsp;

Policy Continuity Likely Under India's New Government

Pakistan will prioritize finalizing a new IMF deal by seeking to implement recommended reforms, something likely to be reflected in upcoming budget deliberations. Pakistan will prioritize finalizing <a href="/article/outlook-pakistan-imf-engagement">a new IMF program</a>, aiming to secure approximately $6 billion in funding in July and potentially request additional financing under the IMF&#39;s Resilience and Sustainability Trust. Receiving additional IMF funds will help Pakistan restructure its debt. This would avert default and foster economic stability, potentially boosting investor confidence. To qualify for the program, Pakistan must fulfill various conditions, likely including measures to reduce the fiscal deficit, increase taxes and raise interest rates to tame inflation. These steps will likely be implemented during the quarter after ongoing budget discussions set to be finalized by July, with a priority on tax accumulation and fiscal consolidation. Meanwhile, negotiations for steps after the program is finalized will likely include calls for more structural reforms, such as enhancing debt sustainability, restoring energy sector stability and efficiency and privatizing state-owned companies. This may see the government implement measures such as stricter payment collection mechanisms and energy tariff restructuring. Passage of these reforms this quarter is unlikely, however, due to long-standing challenges in convincing <a href="/article/challenges-facing-pakistans-new-government">coalition partners</a> and the opposition to go along amid the potential for low level protests. &nbsp;

Pakistani Tax Reforms Undergird Efforts to Secure a New IMF Loan Program

While Sri Lanka will prioritize reaching debt restructuring agreements and adhering to IMF-recommended reforms, the government may scale back on implementing some stringent measures ahead of the upcoming presidential election. Sri Lanka&#39;s main priority during the quarter will be continuing <a href="/article/whats-stake-sri-lanka-struggles-restructure-its-debt">debt restructuring discussions</a>. The government is aiming to conclude by late June, but could be delayed further into the quarter. While these negotiations have dragged on, a lack of progress is unlikely to prevent the IMF from approving funds from its $2.9 billion bailout as long as the government remains committed to negotiations with bondholders and adheres to IMF-recommended reforms. The IMF expects the government to advocate for the passage of the Economic Transformation bill aimed at strengthening public finance management, safeguarding against economic downturns, boosting international trade, addressing climate change and establishing a new Economic Commission to attract investments. The bill may encounter resistance due to austerity measures and insufficient employee safeguards, however, potentially delaying its passage. Consequently, the government may prioritize more feasible reforms including improving tax collection by introducing a progressive property tax, removing tax exemptions for industries like tourism and agriculture, and combating tax evasion. Meanwhile, with a presidential election scheduled between September and October, President Ranil Wickremesinghe will likely declare his candidacy, especially amid announcements from key opposition leaders. In an effort to garner public favor, the government may scale back some austerity measures, perhaps delaying tax hikes and maintaining subsidies. &nbsp;

Sri Lanka Prioritizes Debt Restructuring 

The monsoon season and potential heatwaves pose significant risks to India and Pakistan, including flooding and damage to infrastructure, displacement, agricultural impact, waterborne diseases and strains on energy supplies, exacerbating regional economic challenges. India&#39;s monsoon season, which typically occurs from June to September, presents both benefits and risks. While it brings nearly 70% of the rain India needs for agriculture and recharging reservoirs, heavy rainfall may result in widespread flooding, particularly in key <a href="/article/implications-indias-pursuit-protectionist-trade-policies">manufacturing and agricultural states</a> like Karnataka, Maharashtra, Odisha and West Bengal, as well as in regions with inadequate drainage systems, risking damage to homes, crops and infrastructure. Additionally, the stagnant water left by flooding increases the risk of waterborne diseases such as malaria and dengue, while displacement of people and damage to infrastructure will lead to economic losses and disruptions across affected regions. In Pakistan, flooding primarily occurs during the monsoon season, which runs from July to September, affecting regions like Balochistan, Khyber Pakhtunkhwa, Punjab and Sindh. According to the National Disaster Management Authority and Pakistan Meteorological Department, Pakistan is expected to receive up to 60% more rainfall than usual during the upcoming monsoon. Heavy rainfall and flooding risks extensive damage to residences, infrastructure and agricultural areas, displacing communities and causing loss of life and livelihoods. Pakistan is also vulnerable to heat waves during summer, when temperatures can soar to extreme levels, particularly in urban areas like Karachi and Lahore. Increased demand for electricity will likely lead to blackouts and load shedding, worsening existing energy challenges.

India and Pakistan Brace for Climate-Related Challenges

Sub-Saharan Africa

South Africa&#39;s new government is unlikely to pass significant economic reforms as the African National Congress and the Democratic Alliance attempt to craft a shared policy agenda, but progress in unbundling state-owned utility company Eskom is likely as reforms passed by the previous parliament are implemented. South Africa&#39;s government of national unity &mdash; in effect a coalition between the ANC, Democratic Alliance and smaller parties &mdash; will take charge following the country&#39;s <a href="/article/previewing-south-africas-general-election">May 29 general election</a>, in which the <a href="/article/whats-next-south-africa-following-ancs-historic-electoral-defeat">ANC lost its parliamentary majority</a> for the first time since the country&#39;s transition to democracy. While it enjoys a comfortable parliamentary majority on paper, <a href="/article/assessing-south-africas-post-election-economic-outlook">structural economic reforms</a> are unlikely as the ANC and Democratic Alliance are expected to engage in a national dialogue to craft a shared policy agenda. Now the leading opposition party, former President Jacob Zuma&#39;s uMkhonto weSizwe party is likely to adopt a confrontational approach against the new government, which could include protests that could turn violent. Despite this, reforms passed in the previous parliament will be implemented, with state-owned utility company Eskom&#39;s transmission division likely to start trading as the new National Transmission Company of South Africa. This will mark a milestone in <a href="/article/south-africa-bails-out-eskom-again-blackouts-remain-likely">unbundling Eskom</a> (one of Ramaphosa&#39;s main pledges in his first term) that will help establish a more competitive market structure for South Africa&#39;s power sector, even though further progress in unbundling Eskom&#39;s distribution and generation divisions remains unlikely to materialize in the quarter.&nbsp; &nbsp;

Structural Reforms Unlikely in South Africa 

Nigeria&#39;s cost-of-living crisis will persist, likely heightening security challenges that could worsen food inflation and cause persistent difficulties in expanding the country&#39;s oil output. Inflation will remain high amid continued weakness in the naira, which together with the recent removal of certain electricity subsidies will sustain the <a href="/article/despite-reforms-and-prudence-nigerias-economy-will-still-challenge-government">country&#39;s cost-of-living crisis</a>, threatening to degrade Nigeria&#39;s security environment. In the Niger Delta, the crisis could swell the ranks of criminal groups targeting onshore oil infrastructure, resulting in a sustained threat to Nigeria&#39;s oil output. While the federal government&#39;s prioritization of Niger Delta security compared to other regions suggests that a steep drop in output is unlikely, vandalism will maintain Abuja&#39;s struggles to meet its OPEC+ production quota, capping government revenue. Focusing security resources in the delta will leave security forces stretched thin in northern Nigeria, where the cost-of-living crisis is likely to encourage an expansion of banditry. Worsening regional insecurity plus a heightened risk of floods due to the north&#39;s rainy season will threaten to cut staple crop output and fuel elevated food inflation, likely encouraging the Central Bank of Nigeria to maintain monetary tightening. Northern Nigeria&#39;s degraded security environment will also exacerbate disparities in educational outcomes between northern Nigeria and the rest of the country, feeding into the country&#39;s long-term regional economic imbalances.

Nigeria's Security Environment Remains Degraded Amid Cost-of-Living Crisis 

The likely continuation of Sudan&#39;s civil war will present opportunities for outside powers to expand their influence in the country, with Russia likely to begin work on a naval supply point while continued UAE support for the Rapid Support Forces will cause friction with Saudi Arabia. Amid the Sudanese Armed Forces&#39; continued refusal to engage in peace talks with the Rapid Support Forces, <a href="/article/sudan-peace-remains-distant-prospect">Sudan&#39;s civil war</a> will likely persist, threatening the stability of neighboring Chad and <a href="/article/sudans-civil-war-endangers-south-sudans-fragile-peace">South Sudan</a>. The war&#39;s continuation will present opportunities for outside powers to expand their influence in the country as the SAF and RSF look to secure additional weapons. The SAF will likely help <a href="/article/wagner-groups-new-path-africa">Russia start to set up</a> a naval supply point near Port Sudan in exchange for military support, enabling Moscow to expand its regional influence. Russian support for the SAF will also enable greater synergy in Russia&#39;s and <a href="/article/why-iran-sending-drones-sudanese-armed-forces">Iran&#39;s approach to Africa</a>, facilitating Tehran&#39;s outreach to other Russia-friendly countries on the continent. This will also cause the RSF to face military setbacks, in turn raising incentives for the United Arab Emirates to expand its military support for the group through Chad. This will expose certain Emirati companies to entity-based sanctions from Western countries due to the RSF&#39;s ethnically motivated killings while also risking tensions with Saudi Arabia &mdash; which is seeking to mediate the conflict &mdash; making <a href="/article/saudi-uae-regional-rivalry-intensifies">Riyadh and Abu Dhabi</a> less willing to cooperate on other regional issues.&nbsp;

Sudan's Civil War Threatens Regional Stability, Drives Great Power Competition

The Islamic State Mozambique Province will likely expand attacks across Cabo Delgado amid Mozambique&#39;s dry season and the termination of the South African Development Community&#39;s mission in the country, threatening to delay major liquefied natural gas projects and to heighten political tensions in the run-up to the October 2024 general election. Despite the recent buildup in Rwandan troops in the province of Cabo Delgado in northern Mozambique, <a href="/article/mozambique-victory-against-jihadists-likely-signals-new-guerrilla-campaign">the Islamic State</a> will likely exploit the greater mobility afforded by the dry season to sustain its recent buildup in attacks in the province, something the end of the South African Development Community mission in July will also facilitate. While Tanzanian and South African forces will likely remain in Cabo Delgado despite the departure of the rest of the multinational force, neither is likely to conduct large-scale counterinsurgency operations against the Islamic State. Potential <a href="/article/mozambique-jihadist-attack-changes-game-lng-sector">high-profile attacks</a> could compel French major TotalEnergies to delay its planned resumption of works on its LNG project in Cabo Delgado now scheduled to begin production in 2028. This would deprive the European Union of a new natural gas source amid its shift from Russian gas. Delays to Total&#39;s LNG project would likely affect ExxonMobil&#39;s Rovuma LNG offshore of Mozambique, as both projects share common facilities. Furthermore, the ruling Liberation Front of Mozambique, better known as Frelimo, could use an uptick in jihadist attacks to consolidate power ahead of October general elections, potentially setting the stage for <a href="/article/mozambiques-disputed-local-elections-offer-preview-2024-national-ballot">protests by the opposition</a> Mozambique National Resistance Movement, better known as Renamo. &nbsp;

2024 THIRD-QUARTER FORECAST

Europe

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