This week, in the Middle East, Israel and Hamas continued to conduct prisoner exchanges while Israel and Lebanon agreed to extend their cease-fire. In the Indo-Pacific, U.S. President Donald Trump announced possible tariffs on Taiwan’s semiconductor industry, and the emergence of a new Chinese AI model sent shocks through the U.S. tech and financial sectors. In the Russia-Ukraine conflict, the EU discussed resuming Russian natural gas imports in exchange for a cease-fire in Ukraine, while Latvia reported another incident of damage to underwater internet cables in the Baltic Sea.
Weekly Forecast Monitor: Jan. 31, 2025
The Geopolitical Hotspots Monitor examines the outlook for key geopolitical hotspots around the world.
1 Russia/Ukraine Conflict
The Russia/Ukraine war trended toward diplomatic de-escalation and hybrid escalation scenarios as Trump and Russian President Vladimir Putin publicly discussed their willingness to negotiate an end to the Ukraine conflict in person. Latvia announced the discovery of newly damaged underwater data cables, while Estonia proposed a tax on Baltic shipping to finance counter-sabotage operations. EU officials debated lifting restrictions on Russian natural gas imports in Europe as part of a potential peace deal in Ukraine.
2 Middle East
Conflicts in the Middle East trended toward diplomatic de-escalation as Hamas and Israel continued to conduct hostage/prisoner exchanges. At least 300,000 displaced Palestinians have returned to northern Gaza. Trump stated that Palestinians should be permanently relocated from Gaza to Egypt and Jordan, a proposition firmly rejected by both nations. Israel and Lebanon agreed to an extension of their cease-fire deal, as dozens of Lebanese civilians were killed protesting the continued Israeli military presence in southern Lebanon.
3 U.S./China/Indo-Pacific
Tensions in the Indo-Pacific trended toward hybrid escalation, as Trump announced plans to impose tariffs on Taiwan’s semiconductor and microchip industry. U.S. stocks plummeted after the release of a low-cost Chinese AI model that could threaten U.S. tech leadership. Trump had a “productive” phone call with Indian Prime Minister Narendra Modi, and he announced his intent to “denuclearize” North Korea in the wake of the latter’s most recent cruise missile test.
4 Other Hotspots
Democratic Republic of Congo/Rwanda
Tutsi-led rebel group M23, backed by Rwandan troops in the DRC, made significant advances in the east of the country, an area rich in critical mineral deposits, seizing the city of Goma and causing its citizens to flee. The Rwandan government denied backing the group. U.S. Secretary of State Marco Rubio condemned M23’s actions and called for renewed talks between the DRC and Rwanda. Forecast – military escalation scenario
Greenland/Denmark
Denmark has pledged to spend 6 billion kroner ($2.05 billion) in coordination with Greenland and the Faroe Islands to boost Arctic security, which includes the acquisition of three ships, long-range drones, and stronger satellite capacity. Forecast – security stabilization scenario
U.S./Colombia
After at first refusing to accept military planes carrying Colombian migrants deported from the United States, the government in Bogotá reversed course in the face of a Trump threat to impose tariffs and sanctions, averting a trade war. Forecast – Diplomatic de-escalation scenario
U.S./Canada/Mexico
Trump stated he would impose 25% tariffs on Canada and Mexico on Feb. 1 and that he was considering adding tariffs to oil imports from those countries. Forecast – hybrid escalation scenario
The Global Connectivity Tracker examines the impact of geopolitical dynamics on key themes like trade, technology, and energy/climate.
1
U.S.
Oil
What Happened
U.S. oil production is expected to increase by less than 1.3 million barrels per day during Trump’s term, compared to 1.9 million bpd under former President Joe Biden.
Significance/Outlook
Despite the Trump administration’s push for energy companies to ramp up investment in U.S. fossil fuel production, production growth is expected to slow over the next four years. Industry analysts from Rystad Energy and Wood Mackenzie anticipate this slowdown, citing investor pressure for financial discipline and lower oil prices, which have led major oil companies to limit drilling expansion. As of August 2024, U.S. crude oil production reached a record high, averaging 13.4 million bpd. Substantial drilling would require an average price of $84 per barrel to be economically viable. However, with current price levels around $74, and projections of a further decline to $64 by the end of the year, major companies like Chevron and ConocoPhillips are cutting capital expenditures and prioritizing shareholder returns over expansion. Investor pressure and relatively low oil prices are inspiring companies to be more financially cautious in the shale sector.
2
Portugal/U.S./Russia
LNG
What Happened
Portuguese Environmental Minister Maria da Graca Carvalho said her country will increase its purchases of liquefied natural gas from the United States and Nigeria to replace Russian LNG.
Significance/Outlook
Portugal aims to minimize its dependence on Russian gas supplies. A combination of Trump’s demands that the EU increase its energy purchases from the U.S. and sanctions imposed by the EU on Russian oil and pipeline gas shipments inspired this shift. Trump has warned of tariffs on the EU if it does not buy more U.S. energy. Through the diversification of its energy sources, Portugal is working to boost energy independence and increase energy security. Nigeria may need to increase LNG production and export infrastructure to fulfill international demand.
3
U.S./India/Russia
Oil
While detaching from Russian oil may lead to short-term economic strain and inflation, India could benefit in the long run by strengthening ties with stable suppliers like the Middle East and the United States. This presents an opportunity for India to prioritize long-term energy security, especially as it is set to surpass China as the world’s largest oil consumer.
What Happened
The U.S. Treasury has imposed new sanctions on Russia, targeting two additional oil companies and 183 tankers, which could disrupt India’s access to cheap Russian oil.
Significance/Outlook
These sanctions put India at risk of losing access to discounted Russian crude, which made up 40% of its oil imports in 2024 and for which it paid on average about $9 less per barrel than general market prices. The increased expense is expected to increase India’s overall inflation by 0.4%, posing a significant economic challenge. The risk of secondary sanctions has driven major Indian refiners to seek more imports from the Middle East and potentially the United States. Reports indicate that 75 of the sanctioned tankers had delivered Russian crude to India, underscoring its dependence on cheaper Russian oil since the start of the Ukraine conflict. When the sanctions take effect in March, India could face supply disruptions of up to 500,000 barrels per day, further straining its energy security.
4
Italy
Nuclear Power
Italy’s return to nuclear generation would complement its shift toward green energy and could supply heavy industry with reliable baseload electricity, reducing its dependence on variable power sources such as wind and solar. However, the government plan would have to overcome deep-seated mistrust of nuclear power’s safety among Italians.
What Happened
Italian Energy Minister Gilberto Pichetto Fratin told newspaper Sole 24 Ore that the government plans to authorize the construction and operation of nuclear power plants in Italy by 2027, ending a nearly four-decade moratorium on nuclear power in the county.
Significance/Outlook
Voters had approved a ban on nuclear power in a referendum in 1987 in the wake of the Chernobyl disaster and again in 2011 after an attempt to revive the energy source. The government under Prime Minister Giorgia Meloni plans to authorize the building of small and advanced modular reactors, considered a safer technology than older models. Italian state-run energy company Enei has experience operating nuclear power plants in Spain.
5
Ukraine/Azerbaijan
Natural Gas
What Happened
Ukrainian President Volodymyr Zelenskyy said his country is prepared to transit pipeline natural gas from Azerbaijan to Europe.
Significance/Outlook
The decision by Ukraine last month not to renew the transit agreement by which Russian gas shipments to Europe pass through the pipelines through the country enraged some European states, including Slovakia and Hungary. To ease tensions, Ukraine proposed to use its energy infrastructure for transporting Azerbaijani gas to Europe. This is an opportunity for Azerbaijan to strengthen its position in the European energy market. Ukraine would strengthen its energy security transit role by shipping Azeri gas to Europe. Ukraine could maintain relations with Slovakia and Austria, the two countries most dependent on natural gas supplies through Ukraine. However, without Russian gas transit through Ukraine, Russian attacks on the Ukrainian gas transmission system could jeopardize gas supply security.
