The Wednesday Letter #249 - 12/4/2024
THIS WEEK: The Stakes in Syria; Supply Chain Warfare; Notre-Dame "A Church, More than a Building"; The Market in 2024 and 2025; Investment Themes to Watch.
THE STAKES IN SYRIA
The Syrian civil war has flared up again. The war started with peaceful protests during a 2011 regional wave that was optimistically described as the Arab Spring. It gradually escalated in later years to full-on armed battles, aerial bombings and chemical weapons. The number of dead has exceeded 600,000, half of them children, and the number of forcibly displaced has reached 14 million, or nearly two-thirds of Syria’s population. Of the latter, half are refugees in Syria and the other half have gone to other countries, primarily Turkey, Lebanon and Jordan.
In order to understand the war and its different alliances, one must know Syria’s religious demographics. They are shown in the map below. Syria is estimated to be 75% Sunni Muslim, 13% Shia Muslim (including Alawite), 9% Christian and 3% Druze. The Alawites are dominant in coastal Syria (green on the map) and are categorized as Shia Muslim. President Bashar Assad is from the Alawite community, which explains his alliances with the largest Shia country in the world, Iran, and with Shia groups in the region, in particular Hezbollah in Lebanon and the Houthis in Yemen.
Although Assad’s regime has been repressive, he comes from a minority of 13% and is often favored by other minorities, Christians and Druze, that are fearful of a complete takeover of Syria by its Sunni majority. Further, the Alawites being coastal people tend to be more liberal, more educated and more secular than the Sunnis who live inland.
Shia Iran has been an ally and supporter of Assad for decades, while Turkey, which is predominantly Sunni and shares a long border with Syria, has supported some of the groups fighting the regime. The opposition is fragmented however, and includes Sunni Kurds that are being fought by Turkey (despite being Sunni) for its own internal reasons. Turkey has a sizable Kurdish population and fears Kurdish demands for autonomy or the creation of an independent Kurdistan. Parenthetically, the Kurds were left out of the post World War I regional reordering that followed the collapse of the Ottoman Empire. They live in a territory that saddles parts of eastern Turkey, northeastern Syria, northern Iraq and northwestern Iran.
During one chapter of the Syrian civil war, the Assad regime was losing ground to opposition forces and requested help from its allies Iran, Hezbollah and eventually Russia. Thousands of Hezbollah fighters went from Lebanon to Syria in order to join the war alongside the Syrian army and against the rebel groups.
As time went by and Barack Obama’s ‘red line’ warning to Assad not to use chemical weapons came and went with no consequences to Assad, Iran and Hezbollah increased their support, and the Russians entered the fray to shore up regime forces and fight the opposition. The Russian air force carried out bombing campaigns that leveled large sections of Aleppo and other cities. And the Russian navy took control of the port of Tartus on the Mediterranean coast, fulfilling a longstanding Russian ambition to have a ‘warm water’ port.
In 2020, Russia (fighting on the side of the Assad regime) and Turkey (supporting some anti-regime forces) agreed on a ceasefire and on a de facto temporary fragmentation of Syria. However, both sides violated the agreement over the years with each blaming the other for its breakdown.
Now with Iran and Hezbollah both greatly weakened by Israel, the Syrian opposition saw an opportunity to regain some ground. They have already retaken Aleppo and are said to be closing in on Hama and Homs. Demarcation lines are fluid and should be taken with a grain of salt, but here is a likely configuration from @ThomasVLinge (map below).
The regime controls red areas and the rebels control green areas. The ‘Federation’ Syrian Democratic Forces (light green in the east) are essentially Kurdish. The Rebels are dominated by Hayat Tahrir al-Sham (HTS in dark green), a group that was formed in 2012 by ISIS (yes, that ISIS).
There are two main reasons that explain why the Syria war has lasted so long; 1) the support of Russia-Iran-Hezbollah has allowed the regime to survive and to continue fighting, 2) the opposition is disunited and its backers want conflicting outcomes. For example, Turkey supports the Sunni opposition to Assad, but is also fighting the Sunni Kurds who are part of that opposition. The US is against the Russia-Syria-Iran axis but the US is also opposed to ISIS and its descendant groups like HTS that are fighting that axis. Israel is at war with Syria and Iran but may prefer to have at its border Assad’s Alawite-led secular regime rather than a future Sunni-led adversary that would include some extremist elements of ISIS and Al Qaeda. On the other hand, such a Sunni regime would stop the flow of arms from Iran to Hezbollah.
If Assad falls or if his regime loses large chunks of territory, the biggest losers will be Russia and Iran. The two Syrian air bases that are used by the Russian air force are already within striking distance of the Rebels, and there are reports that the Russian navy has moved its ships out of Tartus. Syria was an important piece in Putin’s effort to reassert Russia’s presence in the Middle East and his ambition to return it to its role as a global military superpower. The loss of Syria therefore would be a severe setback for Russia and for Putin and would close a parenthesis that was opened by Obama’s red line climbdown in 2012.
Iran would also be a big loser because its entire regional hegemony will have collapsed. By losing Syria and Hezbollah, Iran will be forced to refocus on its internal politics, a development that may put the Islamic regime in jeopardy.
The biggest winners would be Turkey and its Sunni allies. In big-picture terms, such a turn of events would mark the return of a strong Turkish influence in lands that were until 1918 part of the Ottoman Empire.
For Lebanon, the US and Israel, the fall of Assad would be a mixed bag: a disarmed Hezbollah, Russia and Iran ousted from Syria, but the potential of a consolidated new Sunni-dominated country that may include extreme elements, and that may not respect the rights of minorities.
The stakes are very high, especially for Russia and Iran. And this means that the fighting will go on for a while. Iran is offering this morning to send its own troops to Syria to assist the regime forces of Bashar Assad.
SUPPLY CHAIN WARFARE
Last week, I discussed the new geo-trade policy likely to be adopted by President Trump in his second term, which consists of tying trade with geopolitics. The prime targets of this new policy are countries that on one hand enjoy wide open access to the US consumer market and on the other hand deploy their newly found riches (obtained in part thanks to the US consumer) on projects that are blatantly antagonistic to US interests. China is at the top of the list of those countries.
To every action, there is a reaction not only in physics but also in trade and in geopolitics. And the reaction in this case is something that is being increasingly referred to as “supply chain warfare”. It consists of depriving a trade partner of the goods or raw materials that are essential to some sectors of its economy. For example, in the case of China, it would deprive US companies of rare earth minerals or of refined metals needed for the energy transition or in technology sector manufacturing.
This is already happening. Yesterday, China banned exports of dual-use items related to gallium, germanium, antimony, and superhard materials to the US. These materials have broad civilian and military uses. The list of such potential bans is long and could be temporarily crippling to some US sectors. China is dominant in the production and refining of a large number of metals and minerals.
This latest ban shows that China is planning to meet Donald Trump’s threatened tariffs head-on and to signal that a trade war would ultimately create no winners. US companies could scramble and find other sources for the materials that they need but this resourcing would take years to implement. In the meantime, US companies (and their stocks) could suffer meaningful supply disruptions and inflation. Trump’s new geo-trade policy could be effective but only if managed properly.
In future posts, we will quantify the more direct impact of various bans on US industry.
NOTRE-DAME “A CHURCH, MORE THAN A BUILDING”
Over a decade ago, I was visiting the Rector of the Church of the Heavenly Rest on Manhattan’s upper east side when we started talking about the architecture of the church. The Reverend Jim (the Rector) marveled at its design which he called “Gothic Deco”, a rare mix of Gothic and Art Deco styles at the hands of architect Hardie Phillip (1886-1973). He recited some details about its history and some trivia and statistics about its size and its stained glass windows. After a few minutes, his excitement had run its course. He took a deep breath, sat up and said: “well, our church is more than just a building.” Having talked about the physical, he now wanted to talk about the metaphysical, the faith and the congregation.
I could not help remembering this conversation when I heard last week that the cathedral of Notre-Dame de Paris was scheduled to reopen this Saturday, five years and eight months after the fire that destroyed its roof and other parts on April 15th, 2019. Since then, a deep restoration and reconstruction have taken place and the famed cathedral now looks better that it has in a very long time. The restoration did not only rebuild the roof but was also extensive in its renovation of the interior, whether it was touched by the fire or not.
Notre-Dame was built in the 13th century and it has survived several wars and other catastrophes such as plagues and political upheavals. The reopening will take place in the presence of President Emmanuel Macron and dozens of foreign dignitaries and heads of state including President-Elect Donald Trump and First Lady Jill Biden (President Biden is returning from Africa and his attendance has not been confirmed). It is right to be in a celebratory mood that this historic and religious icon has come back to life better than ever.
Perhaps it is poor timing to point this out in the midst of celebration, but the renewal of the restored cathedral stands in contrast with the latest trends in French catholicism and Christianity. It is fair to say that the religiosity of the French, and of Europeans in general, could also use a freshening and some effort at restoration.
The table shows the percentages of French citizens who have declared a religious affiliation. France is historically an overwhelmingly catholic country, but the percentage of people identifying as catholics has dropped from over 90% in 1960 to a startling 25% today. During the same period, the percentage claiming no religious affiliation has risen from less than 8% to over 54%. There is now a sizable Muslim population of 11% and people who belong to other religions 9%.
This evolution must be put in context and account for the fact that there is less social or cultural stigma today in one’s admitting to be an atheist. Nonetheless, even if the older figures mask a larger number of atheists, we know from cultural trends that the percentage of nonbelievers has certainly grown over the past few decades. Another way to look at this is through the number of christenings (baptêmes) that take place annually (chart below). The trend is clear and has been down since at least 2000. There was a large dip in 2020-21 due to covid, followed by a recovery in 2022-23 but the long-term trend remains intact.
Notre-Dame will always occupy a special place in the history of Paris but its significance as a religious place of worship has waned in the eyes of the French. Time will tell whether, in Reverend Jim’s words, the cathedral will once again be “a church, more than just a building.”
READ MORE (in French) > > > Les chiffres des sacrements en France.
⬇️ MARKETS AND INVESTMENTS ⬇️
The Market in 2024 and 2025
Investment Themes to Watch
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