Geoeconomics Bi-Weekly: Oil and Critical Minerals Remain in Focus as COP 28 Begins

Welcome to December everyone, a time for both looking back and looking ahead. 2023 was an eventful year in geoeconomics, while 2024 promises more changes as there will be more elections than any other year in history. This week’s newsletter does a bit of both as well, looking ahead at some notable upcoming events while highlighting how several past developments are now taking effect. 

But first, a quick update on the global economy.  

Macroeconomic Update 

After two years of increasing inflation, CPI is declining in many top economies. In October 2023, annualized CPI fell to 2.9% in the Eurozone, 3.2% in the United States, and 4.6% in the UK. The easing inflation is prompting speculation on when central banks will lower interest rates, which remain high in most leading economies.  

The primary outlier is Japan, where inflation rose from an annualized rate of 3% in September to 3.3% in October. However, this is in line with the goals of the Bank of Japan based on a recent statement. The Bank of Japan is maintaining a interest rate of negative 0.1% to spur economic activity. Japan’s GDP contracted by 0.5% in the third quarter of 2023. 

Elsewhere, GDP growth is mixed. On a quarterly basis, GDP grew in the third quarter of 2023 by 5.2% in the United States and 1.3% in China, while it contracted in the Eurozone by 0.1%. The UK registered no change over the same period. In October, the IMF estimated that advanced economies would see GDP growth slow from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024 as interest rate hikes start to bite. 

On to the top stories of the week! 

Stories of the Week 

1. China’s graphite export controls take effect as COP 28 begins: China’s export restrictions on graphite, a key component in electric vehicle batteries, take effect today as representatives from over 190 countries meet in Dubai with the goal of limiting climate change. This is the second time this year that China has implemented export restrictions on critical minerals in a perceived retaliation against U.S. policy decisions, prompting concerns on how China's dominance of the critical mineral supply chain impacts both U.S. national security and the broader green energy transition. China currently leads in green energy technologies and has not shied away from utilizing its central spot in the supply of critical minerals as a geoeconomic tool. (China produced 65% of the world’s graphite in 2022.) The graphite restrictions were announced in October, three days after the United States closed several loopholes in its previous restrictions on semiconductor exports to China.  

2. OPEC+ agrees to additional production cuts to maintain oil prices: The Organization of Petroleum Exporting Countries (OPEC+) oil cartel agreed on Thursday to cut oil production by 1 million barrels per day, on top of Saudi Arabia’s existing production cuts. Crude oil is an essential economic input, meaning that higher oil prices tend to lead to higher inflation. The move briefly pushed the price of a barrel to over $84, the highest price in several weeks, before closing at $81 yesterday. The cartel is attempting to bolster oil prices which have slipped in recent months despite heightened tensions in the Middle East due to the ongoing war in Gaza. The primary reasons for the slump in oil prices appear to be the economic slowdown in China (China accounted for over 75% of oil demand growth in 2023) and increasing renewable energy sources.  

3. The German economy continues to contract: Earlier this fall, the IMF predicted that Germany, the largest economy in Europe, would be the worst-performing major economy this year. Recently released data indicates that this is likely to be true. On an annual basis, the country’s GDP decreased by 0.4% in Q3 2023, after falling by 0.2% in both Q1 and Q2 earlier this year. Germany has also reached its legal debt ceiling for the year. On a positive note, Germany’s CPI inflation surprised analysts by decreasing to 3.2% in November, hitting its lowest point since June 2021 and spurring speculation of rate cuts in the Eurozone in 2024. Eurozone inflation eased from 2.9% in October to 2.4% in November, exceeding expectations.  

4. Scrutiny over use of cryptocurrencies for terrorism financing continues, escalating calls for regulation: The use of cryptocurrencies to finance terrorism and other illicit activities has been thrust back into the spotlight following the October 7 terrorist attacks on Israel. Hamas may have utilized cryptocurrencies to receive donations and millions in funding from Iran, prompting over 100 U.S. lawmakers to demand the Biden Administration address crypto financing of terrorism. The heightened scrutiny of cryptocurrency comes as the United States took down a titan of the cryptocurrency industry for the second time in a month. Changpeng Zhao, founder and CEO of crypto-exchange Binance, plead guilty last week to violating the Bank Secrecy Act and U.S. sanctions law. Zhao will step down as CEO of Binance and faces up to 18 months in jail, while Binance will pay a $4.3 billion fine, the third-largest fine levied against a tech company ever.  

5. Indonesian presidential campaign kicks off as the Southeast Asian nation balances relationships with China and the United States: Indonesia, the world’s 16th largest economy and 4th most populous nation, has emerged as a key player in the growing economic and technological competition between the United States and China. The strategically located archipelago nation of over 275 million possesses abundant natural resources and a growing consumer base, prompting the United States and China to vie for economic influence. Earlier this month, Indonesian President Joko Widodo and President Biden announced a “comprehensive strategic partnership” designed to boost economic ties between the two nations. China, for its part, has pledged billions in investments and is heavily involved in the development of Indonesia’s critical mineral industry, a key source of economic growth in Indonesia. The focus on Indonesia comes as candidates for the Indonesian presidency opened their campaigns on Tuesday in a race to succeed President Widodo, who is serving his second and final term. The election will be held on February 14th and the new president will assume office in October 2024. 

What We’re Watching 

• December 4 – First ever COP “Trade Day” will bring a larger focus on how trade can accelerate the green energy transition. International trade organizations, including the World Trade Organization and UN Conference on Trade and Development, will lead the agenda, with issues such as supply chain decarbonization slated to take the spotlight. 

• December 12 – U.S. Federal Reserve meets for the last time in 2023 to decide on increasing, decreasing, or maintaining interest rates. While few see an interest rate hike coming, investors are split on when the Fed may begin to cut interest rates.