Around the World with Academy Securities

Around the World with Academy Securities

February 27, 2024

In this month’s edition of Around the World with Academy Securities, our Geopolitical Intelligence Group (GIG) focuses on the following geopolitical tensions that we are monitoring:

  1. War Between Israel and Hamas Continues
  2. Iran-Backed Houthi Forces Increase Attacks in Red Sea
  3. Russia | Ukraine Update
  4. China Increases Tension with Taiwan

We begin with an update on the war between Israel and Hamas, and while Israel’s operation into Rafah is looming, there is a chance that a ceasefire will be agreed upon as soon as next Monday which would secure the release of dozens of Israeli hostages. Israel’s mission to destroy Hamas will continue after the potential temporary ceasefire ends, as there are likely key Hamas leadership targets in and around Rafah. We also revisit the Red Sea where Houthi attacks on commercial shipping have been increasing even after additional U.S./coalition strikes in Yemen. While the hope would be that an eventual end of hostilities between Israel and Hamas would slow or even stop the Houthi attacks, the concern is that the Houthis are gearing up for a longer-term confrontation with U.S./coalition forces. Additionally, we address the war in Ukraine which is now in its 3rd year. Recent successes on the battlefield and faltering Western aid have given Russia some momentum. Next, we address the renewed tension between China and Taiwan following the deaths of two Chinese fishermen near the Kinmen Islands. This incident, coupled with a visit by a U.S. Congressional delegation to Taiwan, has increased tension in the region in the months leading up to Taiwan’s President-elect Lai’s inauguration in May. Finally, we wanted to highlight the recent moon landing of a private U.S. unmanned lunar lander, which was the first U.S. spacecraft on the moon in more than 50 years.

Please reach out to your Academy coverage officer with any questions and we would be happy to engage.

Front and Center: War Between Israel and Hamas Continues

As we have addressed in our previous ATWs, SITREPs, and podcasts, our GIG continues to closely monitor the war between Israel and Hamas. As the war continues, the focus is now on Israel’s planned operation into Rafah. In addition to the humanitarian concerns, there is also the possibility that civilians may be pushed into Egypt (which is what Egypt is trying to avoid). Israel has given March 10th (the beginning of Ramadan) as the date for the operation unless all of the hostages are released. In addition, while the U.S. vetoed a 3rd UN Resolution calling for an immediate ceasefire, the U.S. has submitted an alternative proposal calling for a ceasefire “as soon as practicable” in exchange for the return of all the hostages. Meanwhile, this past weekend, ceasefire negotiations continued and included the head of Mossad David Barnea, CIA Director William Burns, Qatari Prime Minister Mohammed bin Abdulrahman bin Jassim al-Thani, and Abbas Kamel, the head of Egyptian intelligence. While there is hope that a deal can be reached, outside of an acceptable hostage deal, Israel will continue with its planned operation into Rafah. As the U.S. continues to support Netanyahu and provide weapons necessary to strike Hamas targets while limiting civilian casualties, the time will eventually come when the conflict shifts from a focus on major combat operations to more surgical strikes. The structure/timing of the ceasefire (when it comes, which President Biden said could be as soon as next Monday) will be telling as issues around reconstruction aid from neighboring Arab countries, humanitarian support, and which entity will govern Gaza moving forward are all still being discussed. However, as plans for the future of Gaza start to surface, Netanyahu has indicated his desire to see a “complete demilitarization” of Gaza, a closure of the border with Egypt, an overhaul of the civil administration and education systems, and a security buffer zone.

“Israel’s Prime Minister Netanyahu is not popular with much of the population. However, most Israelis back his current approach to the war, providing him the needed support to continue the IDF’s push into southern Gaza and Rafah after the already destructive offensives in Gaza City and Khan Younis. Netanyahu believes that the IDF’s intense offensive operations are the only way to force Hamas to release the 134 remaining hostages. This approach was successful in the early stages of the war when the IDF’s surprising rapid and powerful attacks resulted in Hamas agreeing to a ceasefire and releasing more than 100 hostages. President Biden’s pressure on Israel to reduce civilian casualties has slowly reduced the intensity of the IDF’s operations with them becoming more targeted during the battle for Khan Younis in comparison to Gaza City. A continued more targeted approach is expected as the IDF plans to go into Rafah to eliminate the Hamas military and capture or kill its leaders that are thought to be hiding in Rafah’s tunnel complexes. The IDF has additionally stepped up operations against Hezbollah in Lebanon to send a signal that they could be next, and Israel has both the will and military strength to continue operations there. The Hamas ceasefire demand for the IDF to end operations and leave Gaza for the hostages to be released is a non-starter for Israel and allows the IDF to continue their push into the final Hamas stronghold in Rafah.” – General Robert Walsh

“I believe the IDF operation into Rafah will be the last big, planned, and overt offensive operation by the IDF to rid Gaza of the last 6 Hamas battalions (they have eliminated 18 of the 24 already). Then only special operations surgical/tactical/covert missions will take place going after individual leaders not yet eliminated. This will give Netanyahu credibility that he (and Israel/the IDF) did not stop short of “getting the job done” as well as significantly ensuring that Hamas’ missile launching capabilities and infrastructure for planning future attacks against Israel do not remain in place post-conflict. If everything happens as expected, Netanyahu stays in power, the IDF is hailed for a job well done, and Israel has a powerful position to negotiate from because of the deterrent image they presented.” – Admiral Sean Buck

“The Israeli government knows that they will not get future opportunities to finish their mission so they will take it to conclusion and Rafah is the last major target. Smuggled goods through tunnels in southern Gaza always had to be stopped or the supply and logistics infrastructure for Hamas would remain open. In reality, all the underground infrastructure has to be destroyed which always meant clearing to the Egyptian border. The next question is really where does Hamas leadership go after Rafah is taken? West Bank, Qatar, Egypt? It is unlikely that all hostages will be returned until Hamas leadership has escaped. They are the last bit of leverage and holding them also creates friction among the Israelis. Israel will pursue Hamas in the region if leaders escape, so internal Gaza operations will continue (at a lesser scale) and so will external ones to hunt Hamas outside of Gaza. The U.S. amendments to the UN resolution are more face saving for the U.S., since “when practicable” is pretty ambiguous. Internally flushing out Hamas from the rubble of Gaza will still take time and as I stated initially, they need to continue until it’s done as they won’t get another chance.” – General Frank Kearney

“A ‘two-state’ solution (as it is currently being discussed) is a non-starter for Israel. A sovereign nation can arm, attack, strike, acquire nukes…whatever it wants. Over the long-term, this is an unacceptable risk for the Israelis. Still, iteration on a two-state structure could provide an opportunity. Of note, Egypt has a barely functional government. A wave of extremist armies moving out of Gaza is an existential risk for Egypt.” – General Michael Groen

“General Groen brings up a critical point about the increased risk of a sovereign Palestinian state arming itself. While Israel will be part of shaping that outcome, in a post-Netanyahu government, a two-state solution represents unacceptable risk for Israel in the near to mid-term and that risk is recognized well beyond the current PM and current government. A promise of a two-state solution and dialogue may emerge, but the timelines for any implementation are in the distant future at best. Operations will continue throughout the year to destroy the underground infrastructure and as many Hamas fighters as possible. Israel will continue to set the pace of operations as they deem necessary irrespective of international pressure.” – General Robert Ashley

Iran-Backed Houthi Forces Increase Attacks in Red Sea

As we reported in our recent SITREPs, the U.S. has continued to strike back against Iranian-backed proxy forces in the region. Following U.S. retaliatory strikes in early February (and a cyber-attack against the MV Behshad, an Iranian spy ship), it appears that Kataib Hezbollah and other proxy forces have stopped (or at least paused) their attacks on U.S. forces in Iraq and Syria. The assumption is that the Quds force commander ordered these parties to stand down for fear that the U.S. would escalate its retaliatory strikes against Iranian assets directly (and many still remember what happened to Soleimani). However, the same cannot be said about the Houthi attacks in the Red Sea. Even as the U.S./coalition forces step up its strikes (the U.S. and Britain struck 18 Houthi targets in Yemen this past weekend), Houthi rebels continue to down U.S. drones and fire anti-ship missiles/drones (and now underwater drones) at commercial ships, even causing one to abandon ship. In addition, reports are surfacing that Houthi rebels have damaged a number of underwater cables over the past few months, causing major communication disruptions between Europe and Asia. While Iran claims that the Houthis are autonomous and do not take their orders from Iran, the question is what more can the U.S. do to significantly diminish Houthi capabilities to strike commercial traffic in the region? While the volume of these attacks on commercial shipping (and U.S./coalition forces) will likely slow dramatically (or even stop) once the war in Gaza is over, there is a concern that the Houthi rebels are preparing for a longer-term conflict with the U.S. in the Red Sea. The bottom line is that unless the Houthi threat is dealt with now, they will survive and continue to be a threat in the future.

“The Houthi attacks in the Red Sea have forced over three quarters of major shipping lines to abandon their Red Sea routes and take far longer routes around Africa. The attacks are increasing economic pressure globally (through inflation) and on Egypt which is getting reduced revenue from ships no longer sailing through the Suez Canal. The U.S. is using both economic and military tools in its leadership role to counter the attacks. The U.S. put economic sanctions on members of Iran’s IRGC and on the Houthis by adding them to a list of terrorist groups as it aims to cut off funding for the weapons used in the attacks. The sanctions will take a long time to take hold. Meanwhile the U.S. and British attacks on Houthi weapons and launch facilities have thus far not slowed the Houthi attacks. Last week the Houthis seriously damaged the commercial ship Rubymar and shot down a second large U.S. MQ-9 Reaper drone. The U.S. is losing the cost calculus by trading multi-million dollar assets to take out Houthi drones and missiles that are a fraction of the cost. The ability for the U.S. to deter the attacks is becoming increasingly difficult and the Houthi attacks are expected to continue until there is a ceasefire in Gaza.” – General Robert Walsh

“The U.S. needs to do two more things to significantly limit Houthi capabilities. First, a massive air strike against up to 100 Houthi targets to destroy specific capabilities, weapons stockpiles, and fighters would be a significant show of force. Iran would likely do nothing about it because they will continue to fear further escalation by the U.S. and realize that the Houthis have ‘made their own bed.’ Secondly, we need to target a few top Houthi leaders. That too will be a strong message. Then the game would be over. The attacks will stop, and Saudi Arabia can take the fight back up with the Houthis and contribute to their destruction, which they have been trying to do for years.” – Admiral Sean Buck

“Yemen’s Houthis targeted the U.S.-flagged oil tanker MV TORM THOR with naval missiles. The USS MASON engaged these missiles on Saturday and shot down one anti-ship ballistic missile launched into the Gulf of Aden that was targeting the tanker. Neither ship was damaged. This attack on the MV TORM THOR highlighted the fact that while other commercial vessels (especially container ships) started to avoid the Red Sea soon after the attacks started in November, oil and fuel tankers have been slower to steer clear. That changed after U.S. and UK forces bombed Yemen. Now tankers (especially crude oil tankers) are beginning to sail around southern Africa instead of through the Red Sea and Suez Canal. This means that voyage durations are going up and shipping rates are spiking. Adding to this spike is the realization that there are only two new super tankers being delivered in 2024, and only five in 2025. That compares with 42 ships delivered in 2022. OPEC+ is continuing to reduce output in order to prop up oil prices, and high freight rates can cause a correction by making it too expensive for oil cargoes, which ultimately reduces tanker demand.” – Admiral Mark Heinrich

“The Houthis should not have been underestimated and their successes have emboldened them. Since we are playing in their backyard, we will be vulnerable even if we add more resources. Our capabilities need to be increased so that we can maintain constant pressure. We will take losses but that is the cost of degrading their abilities to interdict shipping. Shipping is an easy target, and it is not really possible to have complete success. Of course, every successful strike erodes confidence in the U.S./coalition fighting the Houthis. The erosion of U.S. prestige is a key objective which supports the Iranian desire to force us out of the region.” – General Frank Kearney

“Even though the Houthis are a bunch of extremists from the mountainous north of Yemen, they still beat back the Saudis in the civil war (even with U.S. assistance). They are directly resourced and armed by the Iranian regime, without which the pipeline of munitions to Yemen would dry up. Putting pressure on Iran (sinking spy ships, etc.) may be a first step of a campaign against Iranian control of the Red Sea.” – General Michael Groen

Russia | Ukraine Update

As we have addressed in our previous ATWs, the war in Ukraine grinds on and recently passed its two-year anniversary. While much of the past six months since the failed Ukrainian counteroffensive can best be characterized as a stalemate (with a few smaller tactical victories for both sides), the momentum is now beginning to shift in Russia’s favor. With the fall of Avdiivka and reports of Ukrainian forces running low on critical ammunition/artillery/missile defense capabilities, the bloody fighting is starting to take its toll on the Ukrainian forces. Russia’s sights are now on Pokrovsk, a Ukrainian logistics center 30 miles away from Avdiivka. If this falls, the Russians would be in a position to say that they have captured Donetsk. With Navalny dead, stories about Russian nuclear anti-satellite weapons circulating, and Putin expected to win his 5th term in March (see SITREP), Putin could be setting Russia up for a spring/summer offensive where he will continue to make it clear that he has significantly more resources than Ukraine, especially as Western aid falters. However, it remains to be seen what the impact of the most recent round of U.S. sanctions (the most significant since the war began) will have on Russia’s financial system and military-industrial complex. Our GIG will also be paying close attention to the discussions on Capitol Hill regarding future Ukraine funding and how far the EU is able/willing to go in the coming months (though it is encouraging that Hungary has approved Sweden’s NATO membership). Meanwhile, Putin will continue to push for as much territory as he can get before ceasefire discussions begin.

“The U.S. has been the most generous contributor to Ukraine, with a total of about $44 billion over time. The U.S. Senate has passed a $95 billion international assistance bill that includes aid to Ukraine, Israel, and Taiwan, but the House is still discussing it. As the largest supporter of Ukraine, loss of all U.S. support would be a devastating blow to Ukraine’s efforts. That said, European countries are expanding their investments, mitigating the situation to a degree. The arrival of F-16s with trained pilots later this year will bring an important new dimension to Ukraine’s capabilities, but it may not be enough. After two years of fighting and a bitter counteroffensive last year that failed to regain significant Ukrainian territory, Ukrainian military capability is significantly stretched. Ukraine has begun to ration artillery rounds and is consistently low on long-range air defense missiles. These are critical, as the Russians bring waves of Iranian-manufactured drones to directly attack Ukrainian cities. Without continuous resupply of additional anti-aircraft/missile/drone weapons like the Patriot, Ukrainian cities and critical infrastructure will be at risk. Both sides have dug in for the winter, extending fortifications and reaching a state of ‘positional warfare’ that makes classic large maneuvers too costly in human and combat capital.

President Zelensky is making his rounds in Europe requesting additional help from the French and the Germans, and the EU has been stepping up support, but their stocks are not limitless either. Ukraine cannot push Russia completely out of Ukraine with the weaponry provided to date, so the hard conversations will likely begin this spring (if not sooner) about how much support the U.S. and the EU will be able to provide. While heroic Ukrainians will fight to the end with the capabilities they can get, the Russians currently occupy significant industrial territories, the Crimean peninsula, and a large swath of Eastern Ukraine. Evicting the Russians from these occupied territories will take more capability than the Ukrainians currently have. Putin believes that he is in a position to ‘wait the West out’ until later this year and will likely push to take as much territory as he can get before any negotiations to end the war begin. Russia has a significantly stronger industrial base that can continue to reconstitute capabilities at a greater pace than Ukraine can.

For the Russians, even the 300k casualties, the loss of 2/3 of Russia’s pre-invasion tank force, and the fact that the war has set Russia back 15 years in military capabilities will not cause Putin to start talking before he has gained a negotiating position of advantage. This will be a significant test of European resolve. Putin’s legacy is on the line, and he will leverage every advantage to demonstrate his power over Ukraine (and the rest of Western Europe). If Putin perceives himself to be in a position of strength later this year, he may drive a hard bargain for peace; dramatically limiting the economic and military viability of Ukraine and forcing tough concessions from NATO and the West. He would certainly demand assurance that Ukraine will not join NATO and limit its access to markets through the Black Sea. This could be enough for Putin to be able to claim victory, especially following his upcoming election next month where he is fully expected to win a 5th term.” – General Michael Groen

“Putin already signaled to the U.S. his interest in discussing a ceasefire that was rejected by the U.S. if Ukraine is not involved in the negotiations. Ukraine remains unwilling to discuss a ceasefire along the current frontlines. The slowly changing front is a warning that the war will continue into next year. Momentum has shifted back to Russia, but Ukraine has continued to strengthen its defensive belts in the same way Russia did in stopping Ukraine’s offensive last fall. Putin now senses weakness in the undermanned and underequipped Ukrainian military and is willing to push his military to extremes in their renewed offensive to see how far he can get before serious ceasefire discussions occur. Even if Ukraine begins to receive the much-needed weapons from NATO and the U.S., the Russians have continued to fortify their defenses making it even more difficult for a future Ukrainian breakthrough. Ukraine’s best hope is to receive and use long-range weapons to attack deep into Russia itself in hopes of weakening Putin’s position with the Russian people.” – General Robert Walsh

“The momentum for Putin is definitely building and these victories will empower him to reach further in his quest to regain lost Soviet territory. The significant loss of life by Russian soldiers, conscripts, and forced convict labor/fighters is not having enough of an effect against his aims. We (the free world) are losing a lot in this unchecked, illegal, and immoral war against Ukraine. The U.S. should continue to fund Ukraine.” – Admiral Sean Buck

“The narrative is turning, and U.S. sanctions have failed to have a major impact on Russia’s ability to wage war. Support from China, North Korea, and Iran as well as oil sales to India have given Russia the funding to rebuild their military. This build should also worry Europeans as the Russians are growing and learning. Should U.S. funding not materialize, we should expect major efforts by Russia to gain as much strategic terrain as possible through the November elections. This puts them in a better bargaining position for a negotiated ceasefire in early 2025.” – General Frank Kearney

“Momentum has already shifted to Putin. The Ukrainians will be forced to look at their own defensive belt and engage in mobile defensive operations to ward off any, albeit small, Russian gains in 2024. The lack of arms is already impacting Ukrainian operations and the continued drain on manpower will only exacerbate their ability to sustain increased OPTEMPO. The Ukrainians now must focus on not losing any additional territory while looking to strike Russia in an asymmetric campaign in the Black Sea, Crimea, and along the Russian border. As best they can, Ukraine must continue to cause the Russians to bleed resources while husbanding theirs as much as possible. While Zelensky has discussed a ceasefire, I don’t see Putin shifting off his maximalist goals for now. The first power to consider a ceasefire is the one that begins to think that they can no longer win. Russia’s economy has contracted, but it is still in on a positive footing. China is helping to address the delta in chips and other related technology.” – General Robert Ashley

China Increases Tension with Taiwan

On February 15th, it was reported that two Chinese fishermen drowned after being pursued by Taiwan’s coast guard off the coast of Taiwan’s Kinmen islands. Following this incident, China has increased its patrols of the frontline islands controlled by Taiwan, significantly raising tensions in the region once again. In addition, last week, six Chinese coast guard officers boarded a Taiwanese sightseeing vessel near the Kinmen islands. While the boarding ended without incident, it created panic for those onboard. After the DPP won its third consecutive term in January (see ATW), China has been increasing the pressure on Taiwan by conducting military drills in the region. These events are likely tests of the incoming Lai administration in advance of his inauguration in May. These incremental actions could also be designed to assess Taiwan’s reactions to these types of encounters. This pattern of events increases the possibility of a miscalculation or an accident occurring which would result in a much larger problem for all parties involved. With respect to U.S. support for Taiwan, a U.S. Congressional delegation led by Rep. Mike Gallagher met with Taiwanese President-Elect Lai in Taipei last week. In response, China demanded that the U.S. should cease any official contact with Taiwan and Foreign Ministry spokeswoman Mao Ning said that “China opposes any form of official interaction between the U.S. and Taiwan authorities and rejects U.S. interference in Taiwan affairs in whatever form or under whatever pretext.” Our team will continue to monitor the tension between China and Taiwan in the months leading up to Lai’s inauguration.

“Two events in the last two weeks increased the tension between the U.S. and China over Taiwan. First, China will increase pressure on Taiwan in the waters around the Kinmen and Matsu islands after the deaths of two Chinese nationals that died fleeing from the Taiwanese coast guard on February 15th. China reciprocated with boarding and inspecting a Taiwanese tourist vessel. We can expect China to use the incident to put more pressure on Taiwan by using its coast guard as it has done in the international waters near the Philippines and Vietnam. Second, last week the Chairman of the U.S. House Select Committee on the Chinese Communist Party, Congressman Mike Gallagher, led a Congressional delegation to Taiwan to meet with President-elect William Lai. Though Congressman Gallagher has announced his decision to not run for reelection, the visit was seen by China as a provocation. Prabowo Subianto’s election as Indonesia’s next president is not expected to alter Indonesia’s neutral approach to diplomacy between China and the U.S. Indonesia’s economy is growing, and they are prone to welcome any investment and see the competition between China and the U.S. as an economic opportunity.” – General Robert Walsh

“No real change with the election of Subianto in Indonesia. Indonesia has a policy of non-alignment which they have been able to successfully navigate. China is Indonesia’s largest trading partner and a significant investor in Indonesia. I don’t see a big policy change, but we can expect to see Indonesia continue to host multinational military exercises in the region to enhance their military prestige, military-to-military relationships, and strategic partnerships. Last year they hosted the first ever ASEAN joint military exercise with 10 countries along with hosting the largest ever Super Garuda Shield 2023 with the U.S., Australia, Japan, Singapore, France, and the UK participating.” – General KK Chinn

“I do not believe that China will further escalate beyond the type of saber rattling that they are doing now. They are trying to exert their muscle against the smaller nations (Taiwan, Philippines, Vietnam) but these incidents have been relatively minor events leading up to the elections and inaugurations in Taiwan and Indonesia. China knows an all-out war right now is not in their best interest.” – Admiral Sean Buck

“China has established a pattern of activities with respect to incursion of air space, naval presence surrounding Taiwan, and force postures which have become the norm in the area. This may lead to complacency and negates some early warning should they choose military action. The key issue remains the ability to survive economically in the short-term should they choose military reunification. Russia is proving that economic viability is possible even after an unprovoked military invasion. The U.S. has had issues with Indonesia because of the Leahy amendment for years. Subianto will need to argue that human rights under his leadership will not be an issue for U.S. support. He will of course be interested in ensuring Indonesian access to resources and protection of sovereignty.” – General Frank Kearney