The key issues that will mark the geopolitical agenda in 2023

February 2022 will likely be remembered as the turning point towards a new geopolitical epoch. On the 24th of that month, Vladimir Putin launched the invasion of Ukraine. Shortly before, on the 4th, Moscow and Beijing had signed a joint declaration proclaiming a bilateral relationship “without limits” and the desire to establish a global order that relativizes the concepts of democracy and human rights. These episodes are references to a world marked by the complete break between Russia and the bloc of advanced democracies and a reconfiguration of their relations with China. The Russian war has caused huge global disruptions, destabilizing the energy and food markets, and the resulting inflationary flare-up.

The distrust of democracies towards China prompts a profound reorganization of supply chains, with Western countries and their companies seeking to reduce their dependence on the Asian giant’s manufacturing powerhouse that is perceived as an authoritarian competitor of uncertain reliability and an unstable producer due to its unresolved pandemic crisis. Both dynamics —Russian and Chinese— contribute, along with other factors, to a strong global economic slowdown while, at the same time, they distract from the fight against climate change that, however, is raging with increasingly evident effects. Next year will see the depth of these trends with far-reaching impact on a global scale, with Western countries and their companies seeking to reduce their dependence on the manufacturing power of the Asian giant, which is perceived as an authoritarian competitor of uncertain reliability and an unstable producer due to its unresolved pandemic crisis. 

Of course, other major crises demand maximum attention, including dramatic conflicts that the international community and the media pay too little attention to, such as those in Yemen, Ethiopia or Myanmar, among others. Clashes continue in many corners of a world that is advancing towards a generalized rearmament with an increase in military spending. In parallel, the covid pandemic is still not a resolved issue, not only in China, and its health, social and economic consequences accumulate new grievances in the batch of social injustices that continue to plague the world. But arguably those four issues—war in Ukraine, the West/China relationship, economic turmoil, and climate change—are those with the greatest global impact in what can reasonably be expected by 2023. 

The war in Ukraine

The world is watching in suspense as the conflict unfolds in Ukraine, with the terrible suffering of its civilians and the serious consequences on a planetary scale. Many voices, especially in the Global South, call for a cessation of hostilities through diplomacy. But among experts the opinion is prevailing according to which that moment is not yet close. Most of the wars end with some kind of negotiation and it is difficult for this to end in any other way, with a total defeat of a nuclear power like Russia or another of a Ukraine that has an irreducible willingness to fight and the support of the enormous western muscle. But to reach a negotiated solution, the parties involved must converge on the conviction that the costs of continuing to fight will be greater than the concessions necessary to make an agreement viable. The available items do not point to that.

Ukraine suffers the harsh punishment of Russian attacks on its infrastructure that leave the country with enormous problems of electricity, water and heating supply. But its military forces have had multiple successes in recent months, and it is plausible that they can achieve more. The majority of the population supports the fight to expel the invader, and the political leadership is very determined to achieve a total victory. The Western countries – which with their military and financial support hold the key to forcing kyiv to come to the table or not – for the moment maintain a strong flow of aid and reiterate that it is up to the Ukrainians to decide when and how to negotiate.

For its part, despite the enormous losses suffered, the Kremlin is far from having exhausted its potential and its willingness to continue on the offensive. Russia is in the process of integrating into its operations some 300,000 new troops recruited to replace the casualties of the early stages of the war and has growing support from Iran, with the supply of armed drones. The Russian economy is undoubtedly suffering from the blow of Western sanctions, but not the collapse that some expected, with a contraction in GDP of between 3% and 4% according to different organizations and a stable ruble.

Adverse winter weather conditions may slow down the fighting somewhat, but a formal ceasefire does not seem likely to be anywhere near. It is more plausible to anticipate that the hostilities will continue at least in the first part of the year, and that the attacks against civil infrastructures will generate significant movements of the population, both as internally displaced persons —from cities to the countryside— as well as refugees to other countries.

 The relationship between China and the West

The urgency of the crisis unleashed by the Russian war in Ukraine logically commands attention, but this does not exclude that the future of the relationship between the West and China is even more important for the future of the world, with implications for practically all human beings: the US, EU and Chinese economies account for more than half of global GDP. The first face-to-face meeting as presidents of Joe Biden and Xi Jinping, held on the eve of the G-20 summit in Bali in November, expressed the intention of both to put a stop to the serious deterioration in relations. The meeting has reactivated the dialogue that had been cut short after the angry Chinese reaction to Nancy Pelosi’s visit to Taiwan. The year 2023 will tell us if the two powers will be able to prevent the strong competition between them from turning towards confrontation.

The reconfiguration of relations between the blocs is underway on unfriendly terms. The Biden Administration has not only maintained the new tariffs imposed by his predecessor, Donald Trump, on China, but has also increased restrictions on Chinese access to key US technology. Many US companies are undergoing a process of relocation of their supply chains to depend less on China (including Apple) or a reduction in their investments in the country (20% of the total has done so in 2022 compared to the previous year, according to a survey by the American Chamber of Commerce published in October). One of the few consensuses between the two big parties in the US is precisely that: there is no longer room for a relationship of trust with Beijing. For his part, The Asian giant sees a conspiracy to contain its rise and seeks to build a “fortress economy”, in the official jargon of the CCP, that does not depend on large Western assets – cutting-edge technology, leadership in finance and insurance… -. Meanwhile, the EU is also seeking greater autonomy from the Asian manufacturing powerhouse, with plans for more independence, for example, in the microchip sector or strategic raw materials. The distancing maneuver between the West and China affects other key sectors, such as telecommunications —with the aversion to Huawei and Chinese 5G—, components for the green transition or pharmaceutical products. leadership in finance and insurance… Meanwhile, the EU is also seeking greater autonomy from the Asian manufacturing powerhouse, with plans for more independence, for example, in the microchip sector or strategic raw materials.

But it’s not just geoeconomics that shakes the way: geopolitics too. The status of Taiwan is the epicenter of the tension, which has grown in crescendo in 2022, with unusual episodes such as the visit of Nancy Pelosi, the strong Chinese reaction or the explicit and repeated commitment of a US president to come to the defense of Taiwan. the island in case of unjustified aggression. Experts consider it unlikely that Beijing will opt to regain control of the island by force anytime soon. The experience of the war in Ukraine will undoubtedly have invited prudence in Beijing. But the voices are increasing that point out that, despite this, that moment is getting closer. The internal turmoil in China linked to the discontent over the zero covid policy does not appear to be good news in this regard: a typical resource of autocratic regimes is to divert attention from internal problems to external causes that ignite a nationalist closure, and Xi Jinping, recently consolidated with an unusual third term, is a leader who wields a more assertive and nationalist tone than his predecessors. . Another important element to observe in this section will be the development of Western alliances in the region, including the Aukus (Australia, United Kingdom, USA) or the Quad (Australia, India, Japan and the USA). China continues to bolster its military capabilities at a rapid pace, and the other players in the region are in on them too, with Washington’s help. The US is “drawing lessons from the war in Ukraine to strengthen the self-defense capabilities of (its) partners in Asia-Pacific,” the Pentagon chief recently declared.

Economic turmoil

The two previous issues come together with others in the formation of a strong global economic slowdown, which will probably take the form of a recession in some cases. Together with it, the adverse situation is configured by factors such as a China that has not managed to overcome the covid pandemic, which is gripping its economic engine and will contribute to the slowdown (although with a benign parallel effect on inflation, as demand is probably reduced of energy and raw materials of the Asian giant). Central banks face the dilemma of how far to respond with demand-cooling interest rate hikes to a price spike that is not due to overheating, but rather to a supply shock—of energy, food, etc.-. At once,

This context can have considerable social, economic and political effects. In many developed countries, the most important will probably be the one linked to the loss of purchasing power of wages. In the euro zone, for example, according to ECB data, between the end of 2020 and mid-2022 the real compensation per hour worked has dropped eight percentage points. The unknown is to what extent this loss will be compensated with salary increases and in what way the discontent linked to the part that is not covered will evolve. In developing countries, this situation of higher interest rates in the large currency areas, together with an economic slowdown and greater demands for support for the most exposed citizens, poses a serious risk of financial sustainability problems.

 Climate change

The Russian war in Ukraine has caused a huge disruption of the energy market in 2022. Its primary effect has been to place the concept of energy security as a top priority, somewhat shifting the focus from the fight against climate change and in some circumstances leading to backtracking decisions such as the reactivation of coal power plants. COP27, held in November in Egypt, produced a disappointing result, with an agreement for advanced nations to compensate poorer ones for the damage caused by climate change, but without any progress on the path of reducing emissions.

Gas prices in Europe and crude oil prices globally have been stabilizing in the last part of the year. But this does not mean that the prospect of 2023 is comfortable. As for gas, Europe will continue to face a difficult journey, especially if the winter is cold. It faces it with full stores, but neither that is enough nor an eventual overcoming of this winter without serious supply problems means the end of the crisis. Filling the tanks for the following winter will be a great challenge without having supplies from Russia. In addition, Europe will have to overcome the deficit in electricity production derived from the serious problems of the French nuclear park. 

On another level, it will be essential to observe how investment evolves to increase the potential for renewable energy production. Although the crisis of the Russian invasion has represented an urgency that has diverted resources, it has also shown that green sources have the virtue of reducing, in addition to emissions, also the dependence on unreliable producers. Improving public/private frameworks to encourage the investments needed to multiply renewable production will be one of the main yardsticks of 2023.  

A new geopolitical era, slowdown and inflation, the environment badly hurt… A look with perspective on key issues for the coming year: the war in Ukraine, the relationship between the West and China, global economic turmoil and the fight against change climate. Four great themes with which this globalized world faces the beginning of 2023.