Weekly Geopolitical Report – AUKUS (October 11, 2021)

by Bill O’Grady | PDF

On September 15, the leaders of the U.S., U.K., and Australia announced a new security relationship which includes a nuclear submarine arrangement with Australia.  Although it will likely take a couple of decades before Australia will have its own indigenous nuclear propulsion vessels, the treaty means that the U.S. and U.K. will likely begin sharing nuclear technology and other weapons systems.

The announcement not only marked the beginning of a new security relationship in Asia for the U.S. and U.K., but it also marked the end of another one, a $60 billion defense arrangement that France had with Canberra.  France had previously agreed to provide Australia with diesel/battery submarines, but this new deal scuttled the French arrangement.  The French were incensed; ambassadors were recalled, and European governments denounced the new arrangement.

It is not a huge surprise that the French were upset, but the degree of the reaction seemed strong given the violation.  Diesel submarines pale in comparison to the capabilities of nuclear propulsion.  The former is only useful in coastal protection.   They need to resurface to use the diesel engines to recharge batteries; during this period, they are vulnerable to attack.  They also require regular refueling.  Nuclear submarines don’t need to resurface and can extend their patrol range significantly compared to a diesel-powered vessel.  When the deal was made in 2016, diesel subs may have been adequate for the risks Australia perceived.  That is no longer the case.  So, it should have come as no surprise that Australia would consider an upgrade.  Although France has nuclear propulsion technology, it is not as effective as American technology.

The U.S. decision to create this new security arrangement, Australia’s acceptance, the U.K. decision to join, and the reaction of France all reflect an evolving geopolitical situation in Asia.  In this report, we will discuss why the three nations decided to create a new pact.  From there, we will offer a short geopolitical analysis of Europe, followed by an examination of the French and European reactions.  We will close with market ramifications.

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