Geo-Politics

Geopolitical Ramifications of Taiwan’s Independence!

The prospect of Taiwan declaring independence is a geopolitical tinderbox with potential to ignite a cascade of global consequences. Drawing uncomfortable parallels to historical flashpoints like the Cuban Missile Crisis, such a move could trigger military aggression from China, endanger regional stability in East Asia, and rattle the foundations of international organizations like the United Nations. Beyond the military realm, the economic repercussions could echo the 1973 oil crisis, disrupting global trade and technology sectors. As we delve into these intricate scenarios, we start with the immediate and unsettling question: What would a Chinese military response look like?

The Consequences:

Chinese Military Response:

If Taiwan were to declare independence, the geopolitical tension with China could escalate into unprecedented aggression, with a palpable risk of military conflict that could engulf not only the Taiwan Strait but potentially draw in global superpowers. The simmering tension is already observable on the frontlines, such as the island of Kinmen, which carries the scars of historical conflict with China. Recent Chinese claims of “sovereign rights” over the Taiwan Strait have already obliterated its neutral, international status, and a declaration of independence would likely be the tipping point for a full-scale military response. In a show of increasing American support, high-profile visits like that of House Speaker Nancy Pelosi have been met with aggressive Chinese military exercises, including missile tests and air incursions, aimed at wearing down Taiwan’s military and morale. In this highly charged atmosphere, even a minor miscalculation could trigger an unintentional escalation. Taiwanese authorities are thus caught in an intricate balancing act, wanting to deter Chinese advances while not alarming their populace or inciting further aggression. U.S. officials, meanwhile, worry that Taiwan’s traditional military strategies are not sufficiently agile to fend off a well-prepared Chinese offensive, and they also fear that China is gradually gaining the upper hand, developing capabilities that could make American intervention ineffective. In such a scenario, the balance of power in the Pacific would shift dramatically, weakening U.S. influence and potentially transforming Taiwan from a democratic stronghold to a cautionary tale of unyielding geopolitical might.

Strategic Involvement:

Historically, the very core of Beijing’s stance towards Taiwan revolves around the “One China” policy, and any departure from the status quo would likely be viewed as a direct threat to China’s territorial sovereignty and integrity. Given past warnings and military postures, such a declaration would likely elicit a forceful, possibly military, response, leading to a significant geopolitical crisis. The U.S., having maintained a policy of strategic ambiguity with regards to Taiwan, could find itself in a precarious situation, especially in light of incidents like Gen. Mark Milley’s communications with his Chinese counterpart in 2020. Any miscalculation or aggressive posturing could then entangle multiple global superpowers in the conflict, further complicating an already volatile situation.

Moreover, China’s desire to reclaim Taiwan is not merely symbolic; Taiwan’s strategic location and economic significance, especially in microchip manufacturing, make it a prized asset. In the shadow of China’s assertive moves in the South China Sea and its observed responses to events like Russia’s invasion of Ukraine, Beijing’s reactions can be inferred to be calculated and aggressive. China’s efforts to dominate the Indo-Pacific region, especially through maritime strategies and the establishment of anti-access/area-denial zones, indicate that any move by Taiwan towards independence would be countered with vast military and strategic might. In such a high-stakes environment, even minor provocations could ignite a full-blown crisis, forcing global superpowers to reconsider their positions and strategies in the Indo-Pacific region.

Regional Security:

If Taiwan declares independence, triggering unprecedented aggression from China, the ripple effects would likely reverberate throughout the region, compromising the security balance in East Asia. Japan, which has a Self-Defense Force of approximately 247,000 active-duty military personnel and a strategic alliance with the United States. Japan might find itself drawn into the conflict either directly or indirectly. Article 5 of the U.S.-Japan Security Treaty states that an armed attack against either country would act as a catalyst for mutual defense, and any military clash near Taiwan could imperil Japan’s Senkaku Islands, which China also claims as the Diaoyu Islands. South Korea, with its own geopolitical complexities including North Korea and an alliance with the U.S., could also be ensnared in the conflict. South Korea’s military, one of the largest in the world with over 600,000 active-duty personnel, could be torn between its U.S. alliance obligations and its significant economic ties with China, which is its largest trading partner as of 2022.

Moreover, such a scenario would have dire consequences for regional stability, putting at risk major global shipping routes like the Strait of Malacca through which about 40% of the world’s trade passes. Within the intricate tapestry of the South China Sea, the territorial disputes involving nations such as Vietnam and the Philippines are poised to become even more labyrinthine as China’s military assertiveness continues to surge. This escalation not only amplifies the complexity of these disputes but also adds a layer of uncertainty to their resolution.

Moreover, the ripple effects extend beyond the immediate stakeholders. Smaller nations nestled within the Association of Southeast Asian Nations (ASEAN), a collective with a combined GDP that reached approximately $3.11 trillion in 2019, stand at the precipice of economic ramifications and heightened Chinese influence. This dual threat, economic and political, casts a shadow over the stability of the entire region, unsettling its delicate equilibrium.

In this climate of heightened tensions, regional security platforms like the ASEAN Regional Forum (ARF) and the East Asia Summit find themselves facing a formidable test. The countries involved are now confronted with the daunting challenge of preserving a semblance of equilibrium and tranquility in an environment that seems increasingly precarious.

Alliance Realignment:

The far-reaching consequences of these developments could extend their grip across the globe, ensnaring countries in a web of intricate challenges, potentially prompting a substantial reshuffling of alliances and partnerships on an unprecedented scale. Take, for instance, the European Union (EU), whose economic ties with China ran deep, with a trading volume surpassing 649.5 billion euros in 2020, establishing China as its largest trading partner. This pivotal relationship would place the EU in a precarious position, caught between conflicting interests. On one hand, EU member states share longstanding transatlantic bonds with the United States, firmly anchored through NATO, an alliance boasting a combined military budget that exceeded a staggering $1 trillion as of 2021. This alliance has historically underpinned European security. Thus, as the global geopolitical landscape evolves, the EU faces the challenging task of navigating the intricate maze of diplomatic relations, trade dynamics, and security commitments. The decisions made in this complex quandary could herald a new era of global partnerships and realignments, with far-reaching implications for nations worldwide. On the other hand, the economic stakes with China are incredibly high. This could strain relations and force hard choices, compromising collective policies like the European Union’s 2019 “Strategic Outlook” paper, which referred to China as a “systemic rival.”

Likewise, countries in the Indo-Pacific region that have significant economic relations with both the U.S. and China would face particularly acute dilemmas. Australia, for instance, had a two-way trade value of 252 billion Australian dollars with China in the 2020-2021 fiscal year but also has a robust military alliance with the U.S. through the ANZUS Treaty. Similarly, India, which had a trade volume of 87 billion dollars with the United States, and 77.7 billion dollars with China in the 2019-2020 fiscal year, would also be at a crossroads. These countries might have to recalibrate their alliances, choosing between economic benefits and security commitments, thereby creating an unpredictable and possibly unstable new global geopolitical landscape.

Global Institutions:

Should Taiwan declare independence, thereby triggering an aggressive military response from China, the ripple effects on global institutions could be considerable, most notably affecting the United Nations. Currently, the United Nations recognizes the People’s Republic of China as the legitimate government of China and does not recognize Taiwan, in line with the One-China Policy. As of 2020, China contributes about 12% of the UN regular budget and roughly 15% of the UN peacekeeping budget, making it the second-largest contributor to the UN after the United States. The aggressive stance taken by China in the hypothetical situation of Taiwanese independence could polarize member states, compelling them to take sides on whether to continue recognizing Beijing’s One-China Policy or to question it in light of aggressive actions.

This division within the United Nations could extend to other international bodies in which China plays a significant role, such as the World Health Organization (WHO) or the World Trade Organization (WTO). A geopolitical event of this magnitude could paralyze decision-making processes and cast doubt on the effectiveness of these organizations. This could remind us about the déjà vu images of the aftermaths of World War 1 situation where countries started to oppose the international order by defying the principles of the League of nation and the world plunged into another Great War, the World War 2. Countries opposing China’s aggressive measures might push for sanctions or diplomatic isolations via these platforms, leading to counter-moves by countries aligned with China. A sharp division among the 193 UN member states over Taiwan’s independence and China’s hypothetical military aggression could undermine the core tenets of international cooperation and compromise the effectiveness of global institutions.

Economic Disruption:

Likewise, in the wake of an aggressive military response from China over Taiwan, the fallout would reverberate through multiple facets of the global economy. To start with the semiconductor industry—Taiwan is home to TSMC, the world’s largest contract chipmaker, which is a key supplier to companies like Apple, Qualcomm, and Nvidia. A conflict in Taiwan could effectively freeze production or shipment, causing widespread disruption. To put it in numbers, Taiwan’s semiconductor industry generated about $115 billion in revenue in 2020. A halt or even a slowdown in this output would lead to electronics shortages, soaring prices, and a stunted pace of technological innovation worldwide.

Beyond technology, the Taiwan Strait is one of the world’s busiest waterways. According to the U.S. Energy Information Administration, over 16 million barrels of crude oil passed through the strait each day in 2018. Any military conflict in the strait would likely disrupt these shipments, causing global oil prices to spike. Countries like Japan and South Korea, which import most of their energy needs, would be especially hard-hit, leading to increased costs for heating, electricity, and transportation. This could stoke inflationary pressures at a time when economies are still recovering from the pandemic, leading to a rise in living costs for millions of people.

Nuclear Risks and Global Arms Race:

If Taiwan were to declare independence and China responded with unprecedented military aggression, the specter of nuclear warfare could become an alarming concern. China, which possesses a nuclear arsenal estimated to include about 320 warheads as of 2020, has a no-first-use policy. However, the severity of a conflict over Taiwan, a territory China has vowed to reclaim, could place tremendous pressure on this policy, although the use of nuclear weapons would be an exceedingly drastic step. In a scenario of such gravity, the repercussions would unfurl on a truly global scale, unleashing a cataclysmic wave of consequences that would reverberate across the environmental, economic, and human dimensions. This multifaceted catastrophe, both immediate and enduring, would cast its ominous shadow far and wide, leaving no facet of our world untouched.

Furthermore, within this tumultuous narrative, the United States, a formidable nuclear power and staunch ally of Taiwan, would enter the fray, introducing the ominous specter of a full-blown nuclear showdown. Such a perilous escalation could become the catalyst for an all-encompassing conflagration, drawing other nations into the maelstrom and casting a pall over the stability of our global security architecture.

Yet, the tendrils of turmoil would not end there; they would extend to spark a resurgence in the specter of a global arms race, a harrowing prospect that looms ominously on the horizon. Nations, spurred by the urgency of the moment, would race to bolster their military arsenals, channeling resources into the development of cutting-edge, and perhaps even unconventional, weaponry. Consider that in 2020, the Stockholm International Peace Research Institute (SIPRI) recorded a staggering $1.98 trillion in global military expenditures, a testament to the ominous potential of such an arms race.

As the drums of militarization beat ever louder, the delicate fabric of arms control initiatives like the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) and the Comprehensive Nuclear-Test-Ban Treaty (CTBT) would fray at the seams, their efficacy undermined by the relentless march toward greater firepower.

Simultaneously, the gravitational pull of militarism would divert crucial resources away from pressing global imperatives such as poverty alleviation, healthcare access, and the fight against climate change. In this tumultuous realignment of priorities, nations worldwide would find themselves at a crossroads, their choices impacting the intricate equilibrium of global power in ways as unpredictable as they are profound.

Humanitarian Crisis, Impact on Global Democracy and the Rise in Nationalism:

If Taiwan declares independence and China responds with military aggression, the humanitarian implications would be immense. According to a 2021 estimate by the International Institute for Strategic Studies, China’s People’s Liberation Army (PLA) has an active-duty military force of roughly 2 million, while Taiwan has around 140,000 active-duty troops. A full-scale conflict could produce casualties in the tens or even hundreds of thousands. Additionally, Taiwan’s dense population centers, like Taipei, which houses over 2.6 million people, would be vulnerable to aerial bombardment and missile strikes. If we consider historical precedents such as the Yugoslav Wars or the Syrian conflict, large numbers of civilians would become refugees almost overnight. The global community would face the pressure of a new refugee crisis comparable to the Syrian crisis, which has displaced more than 6 million people according to UN HCR figures.

In the ideological domain, Taiwan stands as a democratic model in East Asia, scoring 93 out of 100 in Freedom House’s , Freedom in the World twenty twenty one report. A forced unification with authoritarian China, which scores just 9 in the same report, could demoralize democratic movements globally. For example, pro-democracy protests in places like Hong Kong or Belarus could lose momentum or international support, fearing a similar fate. In terms of nationalism, the use of military force in a Taiwan scenario would likely surge nationalist sentiment in China, possibly strengthening President Xi Jinping’s position but also raising the specter of ultranationalism. This could mirror situations like Putin’s Russia after the annexation of Crimea, where nationalist pride swelled but also led to more autocratic governance. This heightened nationalism emboldened Russia’s courage to invade Ukraine, thus, potentially destabilizing the entire region.

In conclusion, the prospect of Taiwan declaring independence will have repercussions that would reverberate from the military theater to global economies, alliances, and even the integrity of international institutions. As we’ve seen, the stakes are extraordinarily high, touching on core interests of major world powers and risking a destabilizing chain reaction that could reshape the global landscape for decades to come. Therefore, the pragmatic way forward necessitates nuanced diplomacy, engagement, and multilateral dialogue. It is imperative for all parties involved to exercise restraint, pursue open communication, and consider the profound global ramifications before taking unilateral actions.

Analysis

Malaysia to Investigate Leaked Classified Chinese Note on South China Sea Dispute

Malaysia’s Ministry of Foreign Affairs has launched an internal probe into the leak of a classified diplomatic note sent by China concerning oil exploration activities in the South China Sea. The move follows an article published by the Philippine Daily Inquirer on August 29, which detailed the contents of the confidential communication. The Malaysian government expressed grave concern over the breach, as the document constitutes an official communication channel between Beijing and Kuala Lumpur.

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Background

In February 2024, China sent a classified diplomatic note to Malaysia, expressing concerns over Malaysia’s oil and gas exploration activities in the South China Sea. This note was leaked by the Philippine Daily Inquirer on August 29, 2024, drawing attention to ongoing regional tensions. The focus of China’s concern was Malaysia’s exploration near the Luconia Shoals, an area situated roughly 100 kilometers off the Malaysian state of Sarawak. While Malaysia asserts its rights to this region, China claims the area under its controversial nine-dash line, which covers nearly the entire South China Sea.

The diplomatic note highlights China’s longstanding claim over the South China Sea and highlights Beijing’s opposition to Malaysia’s exploration activities. According to the document, these activities infringe upon China’s territorial claims, and the note urges Malaysia to halt its operations immediately. This is not the first time such concerns have been raised, but the leak has brought the issue into sharper focus, putting additional strain on the diplomatic relations between the two nations.

Malaysia’s response to the leak has been swift. The country’s Foreign Ministry has initiated a police investigation into how the document was made public and launched an internal probe. Malaysia’s stance remains firm, with officials emphasizing that the country will continue to protect its sovereignty and pursue its interests in its maritime areas, in accordance with international law, specifically the United Nations Convention on the Law of the Sea (UNCLOS).

Malaysian Prime Minister Anwar Ibrahim further reinforced this position, stating that Malaysia will persist with its oil and gas exploration in the South China Sea despite the concerns raised by China. This development reflects the broader regional dynamics, as Malaysia, along with the Philippines, Vietnam, and Taiwan, all have overlapping claims in the South China Sea, making the area a significant flashpoint for international relations.

Recent Developments

The leaked diplomatic note highlights the sensitive and contentious nature of the territorial disputes in the South China Sea. It also sheds light on the careful balancing act Malaysia is attempting, as it seeks to assert its rights in the region while managing its diplomatic ties with China.

In its statement released on Wednesday, the Ministry of Foreign Affairs confirmed it is conducting an internal investigation and will be filing a police report to further scrutinize the incident. While the ministry refrained from naming the Philippine media outlet or verifying the authenticity of the note, it emphasized the need for swift action to prevent further leaks of classified materials.

Malaysia Urged to Halt All activities in the South China Sea by China

The note in question reportedly urged Malaysia to halt all oil exploration and drilling operations in the Luconia Shoals, a resource-rich area located about 100 kilometers off the coast of Sarawak. According to the Inquirer, China claimed that Malaysia’s activities in the region violated its sovereignty under the controversial nine-dash line. China’s nearest landmass, Hainan Island, is situated approximately 1,300 kilometers from the disputed shoals.

The South China Sea dispute involves competing claims from multiple nations, including Malaysia, the Philippines, Vietnam, and Taiwan. China claims nearly the entire sea based on historical maps, despite a 2016 international arbitration ruling that dismissed the nine-dash line as legally baseless. Malaysia, while sharing strong economic ties with China, has now become entangled in the broader geopolitical tensions over control of these vital waters.

Malaysia’s Ministry of Foreign Affairs reaffirmed its stance on the South China Sea, pledging to defend its sovereignty and interests in accordance with international law, including the United Nations Convention on the Law of the Sea (UNCLOS). The ministry noted that while Malaysia seeks peaceful resolution through dialogue, the country will remain firm in protecting its maritime rights.

Beijing has not commented on the leaked note. However, diplomatic tensions have flared in recent months, with China’s aggressive presence in the South China Sea leading to repeated confrontations, especially with the Philippines. Just this year, multiple stand-offs occurred between Chinese and Philippine coastguards near Second Thomas Shoal.

Prime Minister Anwar Ibrahim has maintained a more diplomatic approach toward Beijing, stressing the importance of balancing national interests with regional stability. However, the leak has raised concerns about Malaysia’s ability to maintain this balancing act amid increasing pressure from China. Anwar has acknowledged China’s concerns over Malaysia’s energy activities but remains open to negotiations on resolving maritime disputes.

This incident marks the second time in recent months that China’s activities in the South China Sea have drawn public attention in Malaysia. Earlier this year, a standoff between Malaysian state oil company Petronas and Chinese vessels occurred near the same contested waters. Chinese survey ships have increasingly patrolled the area, challenging Malaysia’s economic activities within its Exclusive Economic Zone (EEZ).

Despite these challenges, Malaysia’s foreign ministry highlighted that Kuala Lumpur and Beijing have committed to handling the South China Sea dispute diplomatically. Both nations co-chair discussions within the ASEAN framework aimed at reaching a Code of Conduct (COC) for the region, with negotiations expected to finalize in the coming years.

China’s claims over the South China Sea are based on the nine-dash line, a boundary dating back to 1947. However, the Permanent Court of Arbitration in The Hague ruled in 2016 that this claim had no merit under international law, siding with the Philippines. China has disregarded the ruling, continuing to assert its claims through military and diplomatic means.

Malaysia’s role in the dispute is further complicated by its reliance on China as its largest trading partner. Since 2009, bilateral relations between the two nations have strengthened, even as Malaysia faced pressure from the international community to stand firm against Chinese encroachment on its EEZ.

The Luconia Shoals, where the recent conflict has surfaced, are located within Malaysia’s EEZ, recognized by UNCLOS. However, China’s claim extends beyond its geographic proximity, relying on historical maps to justify its territorial ambitions in the South China Sea.

While the dispute escalates, Malaysia’s foreign ministry reiterated that its focus remains on diplomatic engagement. The government has called on all nations involved to respect the principles of peaceful negotiation and avoid any actions that could lead to violence or further escalation in the region.

End Note

The leak of China’s diplomatic note adds complexity to Malaysia’s foreign policy strategy, as it seeks to maintain both economic ties with China and its sovereign rights in the contested waters. Analysts believe that Malaysia’s next steps will be closely watched, both by regional partners and global powers like the United States.

Malaysia remains engaged in ASEAN-led efforts to establish a Code of Conduct for the South China Sea, aimed at reducing tensions and fostering long-term peace.

The investigation into the leak is ongoing, with the Malaysian government prioritizing both national security and diplomatic engagement with China. As tensions persist, Malaysia faces the challenge of navigating its position in a rapidly evolving geopolitical landscape.

Analysis

Can Saudis Survive Without Oil?

“Russia, Iran and Saudi Arabia depend on exporting Oil & Gas. Their economies will collapse if Oil & Gas suddenly give way to Solar & Wind.” (Yuval Noah Harari)

Oil has long been the backbone of Saudi Arabia’s economy and the driving force behind its development. As the world’s largest oil exporter, it’s challenging to envision a Saudi Arabia without oil. However, the country is now on a bold mission to reduce its dependence on oil revenue as the bedrock of its national economy. This push for economic diversification comes in the wake of a decade marked by oil market volatility, which has intensified the economic and political challenges faced by the ruling Al Saud family. Saudi Arabia possesses approximately 17% of the world’s proven petroleum reserves, making it one of the leading net exporters of petroleum and home to the world’s second-largest proven oil reserves. Saudi Aramco, one of the world’s largest integrated energy and chemical companies, operates across three segments: upstream, midstream, and downstream. In 2022, Aramco’s average hydrocarbon production was 13.6 million barrels per day, with crude oil accounting for 11.5 million barrels per day. The company proudly claims to produce the lowest-carbon barrel of oil in the industry and has committed to achieving net-zero emissions by 2050, ahead of the government’s 2060 target. Saudi Arabia continues to invest in cleaner conventional engines, carbon capture, utilization and storage (CCUS), hydrogen, and renewable energy sources. Despite these efforts, Saudi Arabia remains heavily reliant on oil, which contributes 42% to the country’s GDP, 90% of export earnings, and 87% of budget revenue.

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Historical Context

(March 3, 1938 CE: Oil discovered in Saudi Arabia)

On March 3, 1938, an American-owned oil well in Dammam, Saudi Arabia, tapped into what would become the world’s largest petroleum reserve. This discovery profoundly transformed Saudi Arabia, the Middle East, and the global landscape—politically, economically, and geographically. Before the discovery, the majority of Saudi Arabians were nomadic, and the nation’s economy largely depended on the tourism industry, driven by religious pilgrimages to Mecca. The company responsible for the discovery, which later became Chevron, set the stage for a seismic shift in the country’s future.

In the wake of the discovery, Saudi engineers developed an extensive infrastructure of ports, refineries, pipelines, and oil wells. Today, oil accounts for 92% of Saudi Arabia’s budget, making the nation one of the world’s leading producers and exporters of petroleum. This wealth from oil has fostered high-level diplomatic relationships with the West, as well as with China, Japan, and Southeast Asia. Some argue that Saudi Arabia’s oil wealth allows it to wield significant influence over international foreign policy decisions, particularly those involving the Middle East.

The kingdom’s demographics have also been reshaped by the oil industry, attracting millions of foreign workers from the Middle East, South Asia, South East Asia and other regions of the world. The first oil discovery site near Dharan is now connected to a vast pipeline network that transports petroleum across the region.

Petrodollar System

Petrodollars refer to the revenues generated from oil exports, denominated in US dollars, and are not a separate currency but rather US dollars accepted by oil-exporting countries in exchange for their oil. In 2020, the global average for daily crude oil exports was around 88.4 million barrels. With an average price of $100 per barrel, this would translate into an annual global supply of petrodollars exceeding $3.2 trillion.

For many members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil and gas exporters like Russia, Qatar, and Norway, petrodollars are a primary source of income and wealth. The term “petrodollar” reflects the common practice of these nations accepting US dollars for crude oil transactions rather than a global trading system or a distinct currency. The US dollar is favored by oil exporters because of its global value in international investments, making it a practical store of value for oil revenues that need to generate returns.

A significant example of petrodollar recycling is the 1974 agreement between the United States and Saudi Arabia, where Saudi petrodollars were invested in U.S. Treasuries. The profits from these investments were later used to finance American arms sales to Saudi Arabia, as well as various development and assistance programs in the country. Today, many oil-exporting nations channel their petrodollars through sovereign wealth funds, investing in stocks, bonds, and other financial products. For example, one such fund holds nearly 1.5% of all publicly traded shares worldwide, with 72% of its investments in equities.

The petrodollar system has been crucial in facilitating smoother international trade by standardizing oil pricing, simplifying transactions, and reducing exchange rate risks for oil-importing nations. This system underpinned the strategic alliance between the United States, Saudi Arabia, and other oil-producing countries—a partnership that has significantly influenced global politics for decades. For oil-exporting nations, petrodollars have provided essential income, enabling reinvestment in infrastructure, drilling, and exploration projects, which in turn boosts oil production and drives technological advancements in the energy sector.

The petrodollar system has reinforced the US dollar’s status as the world’s primary reserve currency, driving global demand for it. Oil-exporting countries typically hold large reserves of US dollars, which they often invest in US government securities, thereby strengthening the US economy. This high demand for US dollars, fueled by oil trade, helps maintain a favorable US trade balance and ensures ample liquidity, making the dollar the most traded currency in the forex market.

However, the future of the petrodollar system is increasingly uncertain due to shifting geopolitical dynamics. On June 9, 2024, Saudi Arabia ended its 50-year petrodollar agreement with the United States, an event widely regarded as the “end of the petrodollar.” This agreement had been the cornerstone of the petrodollar system, and its termination marks a significant shift in the global economic landscape. With the end of this agreement, oil transactions may now be conducted in various currencies, including the yuan, euro, yen, and possibly even virtual currencies like Bitcoin.

These developments reflect a growing desire among nations to diversify economic risks and reduce their reliance on the US dollar. By diminishing the dollar’s dominance, these changes could lead to a more multipolar monetary system, granting countries greater financial independence and potentially creating a more balanced global economic environment. The rise of new economic alliances and the global shift towards sustainable energy alternatives further challenge the traditional oil-US dollar system. The transition to renewable energy could reduce global reliance on oil, thereby diminishing the significance of the US dollar and prompting a reevaluation of the current system.

As global energy and financial systems evolve, the role of the petrodollar is increasingly being questioned. The recent end of the US-Saudi agreement is a clear example of the shifting geopolitical and economic landscape. These changes may result in market volatility and the revaluation of various currencies, presenting both challenges and opportunities for the global economy.

Diversification Efforts

Saudi Vision 2030

“Given the nation’s climatic advantages, the Vision 2030 statement stresses the growth of renewable energy sources, such as solar and wind. Opportunities for Western businesses specializing in solar and wind technology, energy storage solutions, and green construction technologies arise from the target of producing 9.5 gigawatts of renewable energy by 2030. The country is a rich ground for renewable energy projects because of its large, sunny deserts and substantial investment in green energy.” (Rana Maristani)

Saudi Arabia’s Vision 2030 is a comprehensive plan launched on April 25, 2016, aimed at reducing the nation’s dependency on oil and diversifying its economy. Centered around three main themes, the framework outlines specific objectives to be achieved by 2030, including the development of ports, cultural assets, and tourism destinations to leverage Saudi Arabia’s strategic position at the crossroads of the Arab and Islamic worlds. A key element of the plan involves partially privatizing the national oil company, Aramco, and enhancing the resources and influence of the Saudi Public Investment Fund.

For decades, Saudi Arabia’s economic growth has been driven by oil, but this reliance has exposed the nation to the volatility of global crude prices. In the 1990s, while oil prices remained stagnant, government policies encouraging larger families led to a population boom. This growth, combined with a young, highly educated workforce, resulted in rising underemployment and unemployment rates, particularly among the youth.

Vision 2030 seeks to address these challenges by transforming Saudi Arabia’s economy over 15 years. The plan aims to improve the quality of life for citizens through world-class healthcare and education, equipping young people with the skills needed for future jobs. It also focuses on creating a diversified economy, emphasizing trade, tourism, high-tech industries, and a business-friendly environment to attract foreign direct investment and entrepreneurs. Key areas of diversification include cryptocurrency, artificial intelligence, and environmental sustainability.

In a significant milestone, Saudi Arabia’s non-oil sector contributed 50% of the GDP for the first time last year, signaling the success of the ongoing economic transformation. With Vision 2030, the Kingdom plans to inject $3 trillion in foreign investment into its economy, driving further growth and offering new opportunities for multinational companies. As the nation continues its economic revolution, it is well-positioned for a promising future.

“Saudi Arabia is becoming more welcoming to foreign investment as it works to advance living standards, build non-oil sectors, and upgrade infrastructure. The Kingdom has taken the initiative in recent years to improve the investment climate by enacting policies that improve business regulations, providing incentives, and establishing special economic zones that offer advantages like tax breaks and business support services.” (Rana Maristani)

Difficulties and Vulnerabilities

The Kingdom of Saudi Arabia is confronted with various obstacles and weaknesses, chiefly arising from the vagaries of international markets and oil prices. The country urgently has to diversify its economy and lessen its reliance on oil revenue, as this instability in the economy highlights. The country also needs to deal with environmental issues and the global shift to renewable energy sources, which puts further strain on its established economic structure. Given that oil exports account for a sizeable amount of Saudi Arabia’s national income, the country’s economy is greatly impacted by the volatility of oil prices. It is challenging for the nation to keep a solid economic outlook due to the unpredictability of the world oil market. As a result, the kingdom has been actively pursuing measures for economic diversification through its Vision 2030 project, with the goal of fostering the growth of non-oil industries including technology, entertainment, and tourism. The world’s need for oil is predicted to decrease as it moves toward renewable and sustainable energy sources. The adoption of greener technologies and investments in renewable energy projects are imperative in light of this worldwide trend. Saudi Arabia, seeing the need to change with the energy environment, has begun to investigate and invest in solar and wind energy. The main issues facing Saudi Arabia are its dependency on oil for its economy, the instability of the market, and the necessity of embracing environmental sustainability. For the country to have long-term economic stability and growth, these problems must be resolved.

Financial Resilience

After a year of minimal growth in 2023, the Saudi economy is expected to start recovering in 2024, though its success will largely hinge on the government’s oil production policies. The economic downturn in 2023 was exacerbated by the monarchy’s unilateral decision to cut oil output by one million barrels per day from July 2023 through the end of the year to support oil prices. This move led to a self-inflicted economic slump. However, with an anticipated increase in oil production and exports, along with continued expansion in the non-oil sector, real GDP growth is projected to rise by approximately 2% in the latter half of 2024, aligning with historical averages since 2014.

A significant budget deficit is likely to persist, potentially dampening energy and construction projects, particularly with the resurgence of regional conflicts. Despite these challenges, Saudi Arabia is expected to continue investing heavily in large-scale projects.

Saudi Arabia’s reliance on agri-food imports, particularly grain, remains substantial, but the kingdom has managed to find alternatives due to its purchasing power. Inflation is projected to remain around 2%, supported by substantial export earnings, significant reserves that maintain the currency peg with the US dollar, and a rigorous monetary tightening cycle that began in March 2022 alongside the US Federal Reserve.

Oil prices will continue to be a key driver of the economy, providing essential funding for Vision 2030’s long-term objectives. Decisions made by OPEC and its partners, including Russia, Kazakhstan, Azerbaijan, Mexico, and Oman (OPEC+), have struggled to maintain crude oil prices above USD 80 per barrel, a level deemed necessary for most OPEC+ countries to balance their trade and fiscal needs. Attempts to increase production limits have been hindered by renewed geopolitical tensions in the Middle East, benefiting countries not constrained by output limits.

Non-Oil Prospects

In 2022, Saudi Arabia’s economy grew faster than any other G20 nation, with overall growth reaching 8.7% and non-oil GDP expanding by 4.8%. The non-oil sector saw its most robust growth since Q3 2021, increasing by 6.2% in Q4 2022. For 2023, the non-oil sector is expected to grow by 4.7%, driven primarily by strong private consumption and significant private sector investments, particularly in construction, retail, wholesale, and transportation. This shift highlights the growing role of the private sector in Saudi Arabia’s evolving economy.

Vision 2030 aims to increase the non-oil GDP share to 50% by 2030 and diversify non-oil exports. Key sectors for focus include finance, insurance, transportation, communication, non-oil manufacturing, and agriculture. In 2023, non-oil revenues surged by 9%, while oil revenues fell by 3% due to declining crude prices. To reduce reliance on oil, the Saudi government has implemented significant budgetary reforms including revenue enhancement, spending rationalization, Treasury Single Account implementation, energy price reforms, fiscal risk assessments, improved budget transparency, and strengthened debt management.

The non-oil sector is seen as a crucial component for managing the increasing number of Saudi nationals entering the labor market each year. It offers greater stability, sustainability, and job creation compared to the volatile oil sector.

Geographical Consequences

The stability of the region and worldwide alliances are greatly impacted by Saudi Arabia’s strategic position in the world oil markets. Being one of the world’s top oil producers, the Kingdom has significant influence over the availability and cost of energy worldwide. Saudi Arabia is able to shape alliances and regional dynamics thanks to its advantageous geopolitical position. The potential of the Kingdom to influence or destabilize the oil markets can have significant ramifications for countries that import and export petroleum products. Global markets closely follow Saudi Arabia’s decisions about the amount of oil produced, as these decisions have the potential to affect global economic conditions. Its position in the Organization of the Petroleum Exporting Countries (OPEC), where it frequently takes the lead in coordinating member states’ production policies, is another example of this power. Saudi Arabia’s energy policy and geopolitical ambitions are closely related on a regional level. Part of the reason for its partnerships with major world powers, especially the US, is shared energy interests. Additionally, the Kingdom can support or oppose different regional actors due to its money and influence, which has an impact on regional stability. Saudi Arabia’s oil interests and the need to preserve its dominant position in the region play a major role in its engagement in crises and diplomatic attempts throughout the Middle East, particularly its attitude on Iran.

Inference

When one considers Saudi Arabia’s transition from an oil-dependent economy to one that is more diverse, one can see that the Kingdom is at a turning point. Although there is uncertainty about the future during this shift, it emphasizes how important it is to be resilient and adaptable. By adopting strategic planning, encouraging innovation, and making a commitment to sustainable development, Saudi Arabia is managing this transition. Even though there are still obstacles to overcome, the Kingdom’s initiatives to lessen its reliance on oil earnings and investigate new business opportunities represent a substantial step in the direction of a more diverse and sustainable future. In essence, Saudi Arabia’s long-term economic growth and stability will depend greatly on its capacity to adjust to these changes. Although the road ahead is difficult, the Kingdom’s proactive strategy presents a viable way forward.

Asia

How Benito Ebuen Air Base in Cebu provides strategic depth to the Philippines?

From the Soviet Union’s vast geography repelling German forces during World War II to Israel’s control of the Golan Heights providing a defensive advantage, nations have relied on strategic depth to protect their territories throughout history. In the Philippines, Benito Ebuen Air Base on Mactan Island serves a similar purpose, offering the nation a crucial military hub at the heart of the Visayas region. Positioned centrally, this base is more than just a runway; it plays a vital role in the rapid deployment of air assets, enabling the country to respond swiftly to threats and emergencies. As regional challenges evolve, the strategic significance of Benito Ebuen Air Base becomes increasingly apparent, highlighting its essential role in national defense and regional stability. What makes Benito Ebuen Air Base so essential, and how does its location help keep the country safe? Let us explore this vital base and find out.

Table of Contents

Overview of Benito Ebuen Air Base

Benito Ebuen Air Base is a pivotal military facility located on Mactan Island in Cebu, established in 1958. It is named in honor of General Benito Ebuen, a distinguished figure in the Philippine Air Force. Over the decades, the base has grown into a key component of the Philippine Air Force’s operations, playing a vital role in air defense and operational readiness. Its evolution reflects the Philippines’ commitment to a modern and capable air force.

The strategic significance of Benito Ebuen Air Base is amplified by its central location in the Visayas region. Situated on Mactan Island, the base is ideally positioned to provide comprehensive coverage and support throughout the central Philippines. This central placement allows for efficient coordination and rapid deployment of air assets across the archipelago. Its location facilitates quicker response times to both regional and national emergencies, enhancing overall defense and operational flexibility.

Historical Background

With its beginnings during the American rule of the Philippines, Benito Ebuen Air Base has a rich past. Founded on Mactan Island, it served as a key location for regional military operations. The base supplied vital air support and logistical support in the defense of the area against Japanese forces during World War II.

A new era began when the base was turned up to Philippines authority after the war. The base has undergone significant renovation and modifications over this time, making it an essential part of the Philippine Air Force. Thanks to these improvements, Benito Ebuen Air Base will continue to be a vital resource for the nation’s operational and air defense requirements.

Strategic Importance

Because it is home to important Philippine Air Force units like the 220th Airlift Wing and the 205th Tactical Operations Wing, Benito Ebuen Air Base is very valuable militarily. The base’s involvement in regional security and defense is strengthened by these units, which are essential for carrying out a variety of tasks, from tactical missions to strategic airlift.
The Enhanced Defense Cooperation Agreement (EDCA) between the United States and the Philippines significantly increases the base’s strategic significance. The objective of the April 28, 2014, agreement, which was signed by President Benigno Aquino III, is to enhance security cooperation between the United States and the Philippines by increasing the rotational deployment of US soldiers at specific sites, such as Benito Ebuen Air Base.

Recent events have highlighted how crucial this agreement is. The EDCA’s implementation has accelerated despite early setbacks and difficulties, such as opposition and judicial review, particularly in reaction to China’s forceful moves in the South China Sea. The US and the Philippines expedited their plans in February 2023 to fully implement EDCA, adding four new facilities to the list of places already in place. In addition, the agreement has resulted in the approval of other new projects and increased funding.

Significant turning points in US-Philippine security relations occurred in April 2024. In order to support freedom of navigation, a maritime cooperative activity including the US, Australia, Japan, the Philippines, and the Philippines was carried out in the South China Sea on April 7. The first trilateral summit between the US, Japan, and the Philippines was held on April 11 with the goal of advancing an open and free Indo-Pacific. In addition, the two countries’ continued strategic cooperation in the face of escalating regional tensions served as a highlight of the EDCA’s tenth anniversary.

In essence, the strategic significance of Benito Ebuen Air Base is enhanced by the continuous EDCA relationship, making it not only an essential operational hub but also a crucial component of the larger framework of US-Philippine defense cooperation.

Strategic Depth and Regional Stability

The Philippines benefits greatly from Benito Ebuen Air Base’s strategic position on Mactan Island in Cebu. Its central location within the Visayas allows it to respond quickly to different parts of the archipelago. During emergencies, this centrality is essential because it enables the effective deployment of manpower and resources to impacted areas. Beyond military, the base plays a crucial role in aiding humanitarian and disaster relief efforts. For example, its close proximity makes it easier to mobilize quickly in the event of a disaster, as demonstrated by the recent typhoon emergencies in the area.

The base’s continued expansion and enhancement of its infrastructure serves to emphasize its strategic relevance even more. Under the Enhanced Defense Cooperation Agreement (EDCA), the Philippine government and the US government will continue to improve the base’s amenities in 2024. To handle additional aircraft and equipment, these modifications include enlarging runway capabilities and enhancing logistical support systems. The goal is to guarantee that the facility can efficiently support tasks pertaining to both international cooperation and national defense.

Future plans include for a possible augmentation of the military’s presence at Benito Ebuen Air Base. The infrastructure improvements and strategic adjustments are intended to support a wider variety of military actions. This growth is in line with the Philippines’ overarching plan to improve its defense capabilities and better address threats to regional security.

Current Operations and Facilities

The runways that Benito Ebuen Air Base shares with Mactan-Cebu International Airport (MCIA) are vital to the aviation industry in the area. MCIA managed about 17,000 international aircraft movements in 2023, highlighting the agency’s significance for both military and commercial aviation. The base’s operating flexibility and efficiency are improved by this integration.
The facilities on the site are capable of supporting various military activities. Its infrastructure has been updated recently to support combined missions and modern aircraft. For instance, U.S. Air Force F-22 Raptors performed operations at Benito Ebuen on August 8, 2024, showcasing the base’s capacity to handle high-performance aircraft.

Major enhancements are in progress under the Enhanced Defense Cooperation Agreement (EDCA). Expanding and updating facilities to accommodate bigger and more varied aircraft is the main emphasis of recent improvements, which are in line with strategic objectives to improve operational preparedness and regional security.

In order to guarantee that Benito Ebuen Air Base continues to be a vital asset for the Philippine Air Force and allied operations, future plans call for ongoing upgrading initiatives. The base’s strategic significance in the area is bolstered by its developing infrastructure, which supports its participation in joint exercises and tactical actions.

Geopolitical Context

In order to address security concerns in the Visayas region, Benito Ebuen Air Base is essential. Threats from terrorism and insurgency have been present in the region, and local military units are actively involved in counterterrorism and counterinsurgency activities. Along with its brigades, the Joint Task Force Spear of the Philippine Army’s 3rd Infantry Division fights armed militants and strengthens territorial security. For the region to remain stable and secure, these initiatives are essential. Additional resources and training possibilities are brought about by cooperation with the United States, especially through the Enhanced Defense Cooperation Agreement (EDCA).

Recent EDCA-funded U.S. military exercises and upgrades, for example, have strengthened the defense posture in the region by enhancing the capabilities of sites like Benito Ebuen Air Base.
By forming both domestic and international alliances, these cooperative initiatives highlight the significance of Benito Ebuen Air Base in the larger geopolitical context and promote peace and security in the region.

End point

The Benito Ebuen Air Base, established in 1958 on Mactan Island, is a cornerstone of the Philippines’ military strategy due to its strategic location and critical role in national defense. Over the years, it has evolved into a vital air operations hub, key to both regional security and the nation’s quick reaction and humanitarian aid efforts. As the base undergoes upgrades and expands its capabilities, it will play an even greater role in addressing emerging threats and collaborating with international allies. Its central position in the Visayas not only enhances its strategic importance but also reinforces its contribution to regional stability.