BRSL Weekly Brief
Your weekly brief on current events from the Berkeley Risk and Security Lab.
BRSL Weekly Brief
News Roundup: Iran, European Rearmament, and Semiconductors
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
This week on the BRSL Weekly Brief, we're diving into three separate--yet deeply interconnected--topics: the ongoing Iran war, European pushes for rearmament, and worldwide semiconductor chip shortages.
Hi, welcome back to the Berkeley Risk and Security Lab's news podcast, the BRSL Weekly Brief, where we bring you the latest information on current events from our lab experts. I'm the labs communications manager, Vivian Bossieux-Skinner, and I'm here with BRSL faculty director, Professor Andrew Reddie. Today we're going to be doing a little bit of a news roundup and give you more background information on some of the week's top headlines. So we're going to start with Iran. We're recording this at about 10am Pacific Time on Thursday, April 16. Can you give us a little bit of background at the moment and set the scene of what's going on right now.
Professor Andrew Reddie:Sure. Thanks, Vivian. It'll be fun to do this kind of like around around the world in headlines. I like your idea. So, yeah. I mean, I think that we're all trying to figure out what a blockade of a blockade ends up meaning and looking like in practice. There, you know, appears to be some progress by way of the talks between the Iranians and the Americans after the failed meeting over the weekend that led to some concerns that it would all kind of start up again. But, you know, obviously markets have improved markedly, markedly on the on the back of the news that, you know, the negotiations are still kind of going along. I think some of the things that we're, you know, analysts are watching are things like the degree to which the Iranians are willing to freeze their nuclear program for five years. And it's kind of bringing up a lot of reminiscing on the Joint Comprehensive Plan of Action, which was the prior quote, unquote, Iran deal negotiated by the Obama administration that so many had problems with, by virtue of the fact that it was ostensibly focused on nuclear material and enrichment, specifically, a little bit on weaponization at the margin, but didn't deal with any other kind of behavior across the region. So for example, around support for proxies like Hezbollah and Lebanon, which we can also talk about. There's also been some talks between the Israelis and the Lebanese that are really interesting, and the Houthis in Yemen and so, you know, I think it's still a situation where there's a lot of uncertainty. And, you know, we've seen a lot of kind of flip flopping in terms of American strategy in the region. But, you know, I think a lot of you know, a lot of us are hopeful that we're kind of getting to the tail end of this thing here, of course, you know, come tomorrow's headlines could be entirely wrong, but that's kind of where we sit this morning.
Vivian Bossieux-Skinner:Yeah, it seems like things change so fast, in that conflict. There was news this week that the ceasefire could be extended by two weeks. What does that mean? And what do you make of that?
Professor Andrew Reddie:I mean good news. Or again, the hope is that these end up kind of driving towards some sort of, not fine, negotiated settlement, but right, some sort of settlement to this current crisis. It is the case that there's some fundamental disagreements between the, I think it's a 15 point plan that the US have put forward and a 10 point plan that the Iranians have put forward. And the two are incongruous with one another, particularly with regard to, you know, whether, I mean, even, even the Pakistanis brokered arrangement over the weekend. You know, there was a lack of clarity about whether it covers the conflict between Israel and Hezbollah and southern Lebanon or not, right? The American position was that that was an entirely separate conflict from the Iranians perspective, they're linked. And so, you know, I think that it kind of demonstrates the really difficult job of actually undertaking these negotiations. And the reason that, you know, we've got hundreds of staffers inside the Department of State that are usually responsible for this type of thing. This administration is doing a little bit more kind of flying by night in terms of how it's engaging. And you can see that by virtue of, you know, JD Vance being sent to the region to actually undertake negotiations. But, you know, there's a lot, there's a lot of difficulty coming to any sort of international agreement. And so ceasefires are important insofar as they provide that space for the negotiations to actually occur.
Vivian Bossieux-Skinner:Yeah. So the White House has threatened to place sanctions on buyers of Iranian oil. What does that impact? And where do these entities turn instead?
Professor Andrew Reddie:Well, I mean, really, it impacts countries like China and of course, you've got, David Sanger had a really interesting video on the New York Times yesterday. They kind of made salient an argument that had been percolating that strikes me as very four dimensional chess around, you know, both Venezuela and Iran being a mechanism through which to kind of deleteriously impact Beijing, because they're obviously a net oil importer and don't have domestic stocks of their own, and actually had relatively significant investments in Venezuela and a deep trading relationship with China. Now, you know, there's also the argument that China's pivot to green technology has been the most successful of any country in the world, and thus maybe they feel the squeeze right a little bit less than any other. But you know, countries like the United States are becoming net exporters of fossil fuels that, you know, previously, we weren't. We were just, you know, is primarily focused on, you know, bringing that into the internal market. But now it's so, so cost competitive and profit generating that now we're actually, you know, exporting. I'm not entirely sure that the Chinese would prefer to buy from the Americans, all else equal. But, you know, that's, that's the challenge. So, you know that, but that really has been like, you know, there's there the Iranians effectively blockaded the Strait in order to impact LNG flows from the likes of Qatar. And now you've got the Americans kind of, you know, also trying to tighten, tighten the noose on Iranian, Iranian industry. There wasn't, in my view, a large amount of Iranian oil getting to the international market, just given the conditions of the crisis, you know, insurance premiums for any company that was trying to operate in the street of Hormuz or sky high, and so you know that, and that's ultimately what's impacted the prices of oil. Now, of course, the oil futures prices are going down because people, analysts are expecting that this conflict is kind of winding down here, one way or the other, which you know is good news.
Vivian Bossieux-Skinner:Yeah. How much do you think this is all interconnected with things like, I mean, we just had news that Mexican president Claudia, I'm forgetting her last name, but she has said that Mexico is going to start fracking, which she has been previously super opposed to. And like you were saying, like other countries kind of trying to, like the US, trying to generate more fuel in house, essentially. How interconnected is all of this and what do you think the future is in that realm?
Professor Andrew Reddie:Yeah, yeah. Sheinbaum, so yes, but, but yeah. It's.. to be fair, this crisis has just kind of accelerated a trend that we were already seeing. So, you know, my colleague and I, Vinny Aggarwal from the political science department across campus, you know, have been working for over a decade at this point on industrial policy, economic statecraft, like a return to Neo mercantilism. You know, very indeed, when we started doing that work, people were kind of laughing at us, saying, like that. Us, saying, like, that's not, you know, how the global economy is going to be arranging itself, because it's, you know, ex post inefficient, right? You know, you generally speaking, you want everybody producing goods at a price that reflects their comparative advantage, which should bring all prices down. And then you right, consume them wherever across the globe, so long as transport costs are low. And so that's how it should work. But things like covid, you know, things like the relationship between Beijing and Washington have meant that, you know, even before this crisis, countries were turning inwards and figuring out, okay, what are those things that we just absolutely can't do without and either attempt to produce them themselves, and I know later we'll talk about the semiconductor industry across the globe too, or stockpile what you need. But the trouble for a government is that under knowing what it is that you actually need to stockpile isn't necessarily the clearest thing in the world. Right before covid, we weren't thinking about stockpiling PPE equipment, right? You know, masks, gowns, etc. That wasn't, you know, we stockpile oil, right? Similarly now, right? You know, there's discussions around rare earths and having to stockpile those, right? If you're, if you're China, stockpiling oil because you're not a producer. And so, you know, it's not surprising to me, and ultimately it means that prices for consumers go up in a world of Neo mercantilism, prices for a consumer go up all else equal. And, you know, countries are getting quite cute. There's lots of different ways that governments can manipulate their markets. Obviously, there's things that are incredibly obvious, like setting quotas or tariff policy, which are things that we talk about a lot in the context of the United States, but even things like human capital development programs that push students into particular master's programs are examples of ways to try to manipulate the market and create externalities that are, you know, strategically beneficial based on whatever plan that that particular country has. But no, broadly, you know, just, just given a lot of a lot of you know, my work, I'm pretty sympathetic to the view that we're kind of in this new era of. Of you know, mercantilism, maybe mercantil, mercantilism light. In the past, there were some conversations about whether the US would engage in friend shoring, rather than reshoring as it tries to build back its manufacturing base. This administration's been a bit antagonistic towards this alliance relationships, and so, you know, I think maybe that looks a little bit different now than it might have done two years ago. But, you know, we'll see. You know, I think one of the things that we're learning from all sorts of sectors of the economy is that actually undertaking that industrial policy is not the easiest thing in the world to do. I don't know you want to talk a little bit about European rearmament as well, and it's, I think the lesson is that it's incredibly difficult, because we've allowed these industries to atrophy over four decades, and building them back is going to take time.
Vivian Bossieux-Skinner:Yeah, yeah. Let's, let's pivot to Europe and talk a little bit more about that. So there have been quite a few headlines recently, I mean, in the last week, and then also month, recent months, talking about talks in Europe, generally, about rearmament, Germany, France. Where do you see this headed? And kind of, given the context we were just talking about, how in general, do you see this heading into the next, like 100 years or so in the world?
Professor Andrew Reddie:Yeah, I mean, I mean, it really comes back to the deterioration in the alliance relationships that I just mentioned there so effectively European capitals, and obviously the fact that they're all NATO members has a big impact too, right? So, I mean, I guess just backing up a bit by virtue of being a member of NATO, over the last seven years or so, there's been a commitment to increase defense spending, right? The hope, from NATO's perspective as an organization, and also driven by the first Trump administration, was to get that military spending to on the order of 2.7 to 3% of GDP. And so that's kind of the background condition. So you already had increased defense spending. Now a decent portion of those dollars were actually getting fed back into US defense companies, right? Who were providing F 35 right? So Lockheed, for example, and in the last three or four months, probably kicked off by the Greenland shenanigans, there have been real questions in European capitals about whether they can trust the US administration to continue to one right come to their aid in the event that conflict does occur in Europe, and to continue to provide, you know, military materiel for their forces. And so it's the same kind of conversation in the industrial policy piece where you're like, Okay, this is too important for us to be outsourcing to capital that we think might be unreliable, and so they're looking at building a lot themselves. You know, I've heard numbers from it'll take four years to seven years to 10 years to 15 years, because doing this is not an easy thing to do. And, you know, the Germans in particular, hadn't been doing a significant amount of military spending and building their own kind of military contractor base for gosh, what would that have been 40 years now, which is a long time. So they got Rheinmetall, and that's about it. And then it's a similar story as you look across the UK, France. I mean, just to put it like just to foot stomp the reliance, right? Britain's nuclear deterrent runs off of an American missile to try to defy that is put on to a British submarine, British manufacturer submarine. But ultimately, it's the Americans that are manufacturing the missile system itself. And so you have all of these, you know, deeply interwoven relationships on the basis of an alliance that you know is definitely rocky. I mean, I think a lot of us are hoping that, you know, there will be an appreciation for what Alliance structures actually provide the United States and that get reflected in Washington's policy, but the Europeans aren't waiting around to figure that, to find that out. They're going to do their investment in their own domestic industries in the meantime.
Vivian Bossieux-Skinner:Yeah, how, so, I guess Germany and France are generally larger ish European countries compared to others. How do you see this, how would this work for smaller European or smaller NATO countries? Are we going to see similar things there? Or are they going to be getting arms more locally, or, yeah, what do you see there?
Professor Andrew Reddie:One of my students is writing about the potential for effectively, arm sharing amongst European states under the, you know, under the European Union, which would be incredibly interesting, because generally, militaries are considered sovereign capabilities, rather than those that you would actually put inside of a regional organization. So you could see some of that. You could see some sort of division of labor. Actually, the fact that the Nordics are now firmly inside of NATO is a really big deal in their relationships, because they've traditionally kind of kept their military industrial complex, for lack of a better word, kind of rolling in a way that some of the other European countries did not. And so that's actually been a pretty significant boon to NATO in particular. So you might see some sharing, right for you know, from that countries like Latvia, Estonia, etc, could take advantage of but even your midsize European countries, right? So your Poland's your Italy's your, you know, what have you like even they're looking quite seriously at kind of what role they want their industry to play in bolstering their own defense and not being reliant on external so I think that the answer is kind of twofold. You'll see a lot of countries doing their own thing in order to try to, you know, bolster their existing comparative advantages. So the French, for example, have Raphael for the air domain. And then you'll also see places where they might have some sort of sort of European sharing. Now, the history of Europe blooms incredibly large, which, you know, for our generation might not make a lot of sense, because World War Two seems like a long time ago, but it was interesting. Some of the meeting notes from some of the French national security meetings suggested that they were just as worried about German rearmament as they were about the future of Ukraine. And so, you know, you also have that backdrop, and that might drive more Pan European sharing that might otherwise have been the case. So, yeah, I mean, because the joke, I mean, the joke of NATO is right, like, keep the Americans in, right, the Russians out, and the Germans down. And so, you know, there's, there's still, there's still some truth into trying to, kind of have that be piece of the European defense architecture. But it really look, we'll see. I mean, there's one thing to have some of these things written down in the paper, and functionally, nothing shifted. So, you know, it's still all of the old defense contracts, still under the auspices of all the old alliance structures, you know, we'll see. But there's no question that European slash middle powers, as Mark Carney, right, described them at Davos, are being a lot more assertive in terms of what they want to do on the defense side. So we'll see. I'm sure we'll talk about it again, maybe not next week, but maybe, you know, six weeks from now.
Vivian Bossieux-Skinner:Yeah, yeah. I mean, I was gonna ask about the kind of, where you see the future of these defense alliances, or other ones cropping up, or people being kicked or countries being kicked out, or that kind of thing. But it might be some, it sounds like it might be kind of just something that is like a wait and see.
Professor Andrew Reddie:Well, the big thing that matters, actually, for NATO is that Orbán lost the election in Hungary. So Hungary was always one of the problem children of NATO. There are a couple. It's not just Hungary, but the fact that he lost the election was a major blow for kind of right wing populism on the continent. I mean, we'll see what that means in the French elections and the German elections too, but that ostensibly, should make engagement in NATO easier, because they were the ones that were always dissenting. And a lot of things inside of international organizations require consensus of all the members. And so if you've got Hungary sometimes Turkey dissenting to everything, then you know that's really challenging. But yeah. Well, I mean, yeah, it is. The future of NATO is incredibly interesting topic. And you could do, you could do hours and hours of lectures on that, yeah.
Vivian Bossieux-Skinner:Well, I guess we'll have to revisit that at some point soon on the podcast. But we did want to pivot slightly at the end and talk about there's a headline this week about microchips. Elon Musk is pressuring suppliers to speed up production of microchips because global production can't meet the demand, and he has plans for a new $25 billion semiconductor manufacturing plant in Texas. That is kind of where he's focused on right now. So what can you tell us about, kind of the future of chip manufacturing, why it's under so much pressure, and what could happen next?
Professor Andrew Reddie:Yeah, I mean, again, really nice to I mean, you would think that talking about Iran, European rearmament and semiconductors would be entirely divorced, but really it's all kind of, integrates into kind of one whole, because, again, it's incredibly difficult to spin up industries more or less from scratch. The major challenge that we have inside the United States is actually a human capital one, so we're not generating the bachelor's and master's degrees necessary to actually staff the plants. And also the associate's degrees to actually, you know, do some of the actual manufacturing. And so, you know, TSMC, who have their plant in Arizona, have been complaining about the quality of the workforce, and subsequently, have been bringing workforce in from Taiwan. But that means that, effectively, it's operating on the basis of substitution. You're not actually adding anything to the pie. And so that's kind of the first limitation. The infrastructural limitations, in terms of, right, like the number of fabs and what have you, are something that can be fixed, particularly when kind of government really puts its mind to something. But building anything in the US is just incredibly slow. You know, you've got China doing mega projects in six months at a time, we can barely get something through an environmental review process in six months. In fact, we can't. And so, you know, it's, it's a major drag on the ability to actually do quick turn investments in emerging tech areas that are really important. And then, of course, you've also got the global supply chain piece to all of it, right? So, you know, semiconductors don't come from nowhere, right? They require all sorts of inputs from, you know, the rare earths that we talked about earlier and what have you. So, you know, there's also that global supply chain piece that has been disrupted in the past and was likely to be disrupted in the future. So you'll recall, during covid, car manufacturers struggled, because there's so many semiconductors inside of cars at this point that there actually weren't enough, and they're not advanced whatsoever. You know, this is relatively run of the mill chips. But you know, Tesla's car doors have chips in them. And so, you know, in a world in which you're you're chip limited, it becomes a real problem for basically every manufactured good. And so, you know, we'll see. I think one of the plays for Musk is that he likes to have all of his corporate interests tightly, vertically integrated. And so, you know, if you've got a plant that's producing semiconductors, you can bet who the first customer is going to be, right, it'll be Tesla, it'll be SpaceX, it'll be x, AI, etc. So, but, but, yeah, no, it's a problem. But it's not going to be, it's going to be a slow burn, because, again, moving, moving the ship of where we've had our economy going here for the last, you know, effectively, 36 years after the end of the Cold War, right, where we kind of enjoyed a peace dividend, got really, kind of focused on services, etc. You know, means that either reordering will take time. I think that, you know, perhaps I'm naively optimistic. I look at, you know, our one university, and I think we're relatively well placed to actually perform that pivot, but it's going to take a lot of work.
Vivian Bossieux-Skinner:Yeah, well, it seems like the theme of today is kind of, where are bottlenecks in different areas of economy and trade and that sort of thing. So this has all been really interesting, and I know we're running up on the end of our time, but yeah, thanks for chatting with me again today about all these interesting topics.
Professor Andrew Reddie:Thanks, Vivian.