Blain’s Morning Porridge 9th December 2024 – Syria shock, but good news for the Global Economy and the West!
“Oh, those Russians…”
The weekend’s events in Syria highlight dramatic and swift change at the core of the geopolitical instability that’s defined the last few years. The cost in blood from conflict has been horrendous, but from a market and stability perspective there is now much to be positive about. Russia and Iran’s defeat in Syria could even trigger global recovery!
The first half of this decade has seen the distrust around Covid, fears of global conflict, rising regional tensions, flashpoint wars in Ukraine and around Israel, and global trade frictions, all triggered by an unprecedented reordering of global alignments as the American century and its role as Global Hegemon seemed to be winding down.
However, the new reality is when Donald Trump assumes office on January 20th 2025 he will be facing a threat board where the opposition looks massively weakened, and how the US holds many of the cards. That doesn’t mean the world is much less dangerous – it’s entirely unclear what kind of new Syria might emerge from Assad’s overthrow – but it feels like power and the global initiative could be shifting back to the West.
The Syrian overthrow, defacto defeat of Russia and Iran, and an embarrassment for China, has massive implications for markets in terms of unwinding fears around the dollar’s pre-eminence, while increasing the momentum that could develop behind Trump’s global trade vision – both putting the US and US$ front and centre. The effect on sentiment could be immense in terms of global confidence and redirected flows into US assets and commodities on rising growth expectations. An uneasy peace in the Middle East, and less Russian sponsored instability in Africa, could even ratchet down European tension points. Fewer displaced refugees into Europe will starve populist parties of the political capital they require.
There are a host of lessons to unravel from the weekend, and these are first thoughts:
Iran is the clear looser – its’ proxies in Gaza (Hamas), Lebanon (Hezbollah) and Syria have been smashed through the past year, largely by Israel playing by its own unconstrained rules. The Houthis in Yemen remain volatile but will be increasingly isolated. There is much speculation the fall of Assad will trigger a Persian Spring bringing down the Mullahs in Tehran. Trump has made clear he has a special part of hell reserved for them.
Ahead of Trump’s inauguration, the Saudis were already reassessing the independent “non-aligned” geopolitical relationship they pursued while Biden was in power. For the past 4-years they’ve flited with BRICS and a new relationship with China. Expect these to be unwound. (I met a leading Saudi investor/industrialist last week who expects MBS will swiftly embrace a strong pro-US stance with Trump – ending any uncertainty as to where Saudi’s best and future interests best lie.) A resurgent US is good news for the Gulf Oil states and Opec – global growth spells stronger, stable oil prices and demand.
Far from being isolated as a pariah-state, Israel may yet see its status in the Middle East formalised through Saudi recognition – as was set to happen before the Hamas atrocities – ending any further meaningful political support for Iranian terrorist proxies. The deaths of Israelis and Palestinians in the Hamas attack and the subsequent Israeli counter-offensive have been utterly tragic. Isis was part of the same issue. More than 1 million Middle East citizens have perished in the regional instability driven by Iran’s now thwarted efforts to lead the Arab world by keeping it unstable.
Russia is left embarrassed and isolated. The global support it had been drawing from re-aligned Global South nations now looks questionable. Its diplomats look foolish. Its armed forces aren’t the threat Putin’s stick waving suggests. Any honest appraisal of the Ukraine War would suggest Russia is still struggling and increasingly desperate – taking enormous causalities to gain meters of ground ahead of Trump’s inauguration. US intel sources suggest up to 600,000 Russian soldiers have been killed or wounded, and economy is running on fumes. Meanwhile, Russian interference in Georgian and Romanian elections has seen massive protests and pushback.
The Chinese have their own problems. The economy is stuck in an immediate deflationary spiral and long-term demographic decline. It requires Western markets to drive the economic growth deemed necessary to keep the lid on its own population. For all the noise about reclaiming Taiwan, the dismal performance of Russian arms, plus the number of Chinese Generals recently deposed and arrested for corruption, suggests the Peoples Liberation Army is far less combat ready or prepared for war than Emperor Xi pretends it to be. China may prefer to engage Trump – which will leave Russia further isolated.
Meanwhile not much has been heard about the North Korean troops in Russia to fight Putin’s war. There were stories about their HQ’s being hit by Storm Shadow missiles and senior level casualties. North Korea could be the big unknown – how will Kim react to being isolated if Xi engages with Trump? An increasingly isolated North-Korea and Russia could become a major global problem.
The collapse of the Assad regime in Syria over the weekend came as profound shock to the media – but I’m pretty sure Western “spooks” were anticipating that if change came, it would come quickly. When push came to shove, as happened when the Turkish supported and now “Reformed” ex-al-Qaeda linked Hayat Tahir al-Sham struck, the Russians knew the situation would be irrecoverable – advising citizens to leave early last week.
Just how rotten Assad’s kleptocratic Syria had become was evident in how quickly the Syrian army evaporated, leaving the Russians scrabbling to exit their bases in-country. Endemic corruption left the Syrian Armed forces as little better than licenced pillagers, demoralised and easy to bypass/bribe. There is a massive difference in quality between Western professional armies, and civilian thugs dressed in military fatigues.
Where does the collapse of Syria leave the outlook for the markets?
- Non Aligned nations will reassess geopolitics and the likely outlook – concluding free markets in the West offer better upside than the misfiring Chinese co-prosperity sphere.
- Fears of de-dollarisation will recede – as will concerns about global demand for US Treasuries which again become the global risk-free-rate.
- US stock market should remain the most attractive – but look for others that are underpriced and could benefit from a strong global recovery.
- The West will continue to re-arm and modernise armed forces – and can be expected to rapidly overhaul recent Chinese and Russian advances in hypersonic missiles and guided munitions – further denting the fashionable myth that Russia is stronger than the west.
- Watch inflation – despite stronger stable oil, this may see global supply chain frictions ease.
I should imagine Putin in Moscow and the Mullah’s in Tehran sit uneasy this morning.
The one thing I haven’t mentioned above is environment and climate change – which despite Trump’s aversion to the topic, could actually be an issue for China and the US to find common ground on to back a re-engagement. Imagine a Mar-a-Lago concord early next year with the two nations agreeing new global trade frameworks around the theme of climate urgency? Worth hoping for.
Out of time and back to the day job..
Bill Blain
Author of the Morning Porridge, and CEO Windshift Capital
