Power takes institutional form

This week in a brief

Several initiatives that had been taking shape for months moved into an institutional and operational phase. The USremoved Syria from its list of state sponsors of terrorism and deepened its direct involvement in Venezuela’s oil industry, while the Makkah Joint Defense Pact established a permanent secretariat in Riyadh. India and China created new mechanisms for managing their border dispute, and China stood alone at the G20 in opposing a common position on excess exports. Meanwhile, Germany attributed an attempted drone attack to Russia, fighting resumed in the Strait of Hormuz, and Greece signed a $3.5 billion air defense agreement with Israel. Rising energy prices and renewed inflation concerns also began to affect government bond markets.

Geopolitical Dynamics

Syria removed from the list of state sponsors of terrorism: The U.S. designation expired following a 45-day congressional review, after the American president announced the decision in July. The administration justified the move by citing commitments from Syria’s new leadership to distance itself from international terrorist organizations. The designation of Jabhat al-Nusra, once led by Syria’s current president, was also revoked. The decision removes a significant legal barrier to financial activity, investment and diplomatic relations, and advances Syria’s gradual reintegration into the international system.

The Makkah Pact moves from an agreement to permanent institutions: At the first meeting of the member states, the participants announced the establishment of a permanent secretariat in Riyadh and appointed its first secretary-general, a Pakistani national. The chiefs of staff and defense ministers of Saudi Arabia, Türkiye and Pakistan took part in the discussions, while Türkiye reiterated that the framework remained open to additional countries. The agreement signed in August is thus acquiring a permanent structure intended to support regular security coordination beyond its original mutual-defense commitment.

India and China expand their border-management mechanisms: Representatives of the two countries agreed in Beijing on eight measures, including maintaining calm along the Line of Actual Control, establishing expert groups to advance solutions to border issues, opening additional border personnel meeting points and adding direct communication channels between forces in the eastern and central sectors. The two sides have not agreed on the border’s actual alignment, but they are expanding the mechanisms intended to prevent local incidents from escalating into a broader confrontation.

China stands alone against the other G20 members on excess exports: Nineteen of the forum’s 20 members supported the position that large-scale, low-cost exports from non-market economies create unsustainable distortions. China was the only country to oppose it. At the same time, Russia’s finance minister attended the U.S.-hosted meeting, marking his first such participation since 2022 and reflecting the gradual reopening of channels between Washington and Moscow.

CIA director visits Moscow: U.S. media reported that the director of the Central Intelligence Agency made an unannounced visit to Moscow. Washington reportedly asked Ukraine to suspend long-range strikes on Russian cities during the visit. Neither the White House nor the CIA confirmed the reports. If accurate, the visit represents another direct channel between the two countries alongside their ongoing diplomatic contacts.

Security and Threats

Germany attributes an attempted drone attack to Russia: Berlin concluded that Russia was behind an attempt to strike Leipzig/Halle Airport with a drone, near a cargo aircraft carrying military equipment to Ukraine. The drone failed to explode. In response, Germany announced further reductions in the Russian presence in the country, including the closure of Russian institutions, while the European Union began considering additional measures against sabotage and hybrid warfare. Russia denied responsibility.

Fighting returns to the Strait of Hormuz: After a period of relative calm, the USstruck Iranian launchers on Larak Island, and Iran responded by firing at U.S. targets in the region. Commercial vessels were also hit near Oman, and two sailors were killed in one of the incidents. The renewed escalation has restored the immediate threat to commercial shipping through the strait, while the memorandum of understanding signed in June on reopening the shipping lane has yet to be implemented.

Greece purchases a multilayered Israeli air defense system: Greece and Israel signed an agreement worth approximately $3.5 billion to develop an air defense system combining several interception layers with radar and command-and-control capabilities. Greek companies are expected to participate in approximately $870 million of the project. The agreement is among the largest defense export deals in Israel’s history and forms part of Greece’s effort to expand its air defense capabilities amid regional tensions and the growing missile and drone threat.

Economy, Technology and Trade

Washington takes a direct role in the ownership structure of Venezuela’s oil industry: A new agreement grants a company in which the U.S. government holds a substantial stake long-term rights in 17 oilfields containing approximately 65 billion barrels, equivalent to roughly one-fifth of Venezuela’s proven reserves. The USis expected to hold a 35% stake in the parent company, gain access to part of the production at cost and receive first refusal on additional output. After years of attempting to constrain Venezuela’s oil industry through sanctions, Washington is shifting toward direct involvement in production and marketing.

The US seeks to disconnect the Emirati branches of an Egyptian bank from the dollar system: The U.S. Treasury proposed invoking Section 311 against Bank Misr’s branches in the United Arab Emirates, while excluding the bank’s headquarters in Cairo. If approved, the rule would require U.S. financial institutions to restrict the ability of those branches to conduct dollar transactions. The measure focuses enforcement on financial transit points used for trade with Iran, even when they operate in countries with close relations with the United States.

Rising energy prices reach government bond markets: Investors sold government bonds in several major economies amid concerns over renewed inflation and higher public spending. The yield on Japan’s ten-year government bond reached its highest level in approximately three decades, while borrowing costs also increased in the United Kingdom. Higher financing costs are limiting governments’ ability to expand spending through additional debt precisely as defense and energy expenditure continues to rise.

Crises and Domestic Politics

Iceland rejects the resumption of EU accession talks: A total of 52.8% of voters opposed reopening negotiations, compared with 47.2% who supported the proposal. Reykjavík was the only region in which a majority voted in favor. The referendum concerned only the resumption of negotiations, rather than EU membership itself. Despite the changing security environment in the Arctic and renewed debate over Iceland’s relations with Europe, control over the fishing industry and national resources remained a central factor behind opposition to accession.

Britain’s new government immediately confronts the constraints of public debt: In his first address to Parliament, the new prime minister presented a program that included greater public control over services, the devolution of powers, measures to ease the cost of living and a larger defense budget. At the same time, rising bond yields are increasing the cost of financing these policies and narrowing the government’s ability to expand the deficit. The government will need to reconcile its broad spending program with previous commitments not to raise income tax.

Flooding in Nepal becomes a prolonged national crisis: A surge of water, mud and rock from the Himalayas destroyed bridges, roads and buildings and caused severe damage in areas bordering Tibet. More than 1,000 people were killed and approximately 4,000 remain missing, including hundreds of foreign nationals. The disaster confronts the relatively new government with the need to rebuild infrastructure and operate a large-scale relief effort in a country already facing weak economic growth and high energy costs.

“Surely goodness and mercy shall follow” (Psalm 23).

The Geopolitics Lab Team