by Thomas Wash | PDF
At nearly 5,000 nuclear warheads, Ukraine had one of the largest nuclear arsenals in the world on its territory. If Ukraine hadn’t transferred those weapons to Russia in 1996, it is unlikely that Moscow would have invaded. North Korea believes it is facing a similar threat which is why it has fought to maintain its nuclear program.
In North Korea’s first nuclear test in 2006, the bomb generated the equivalent of a 4.7 magnitude earthquake. In its next attempt in 2009, the bomb was four times stronger. The bombs tested in 2016 and 2017 each yielded more power than the atomic bomb dropped on Hiroshima in 1945. In short, North Korea clearly has the ability to develop and produce its own nuclear weapons. The country’s ability to deliver a nuclear weapon against the U.S. or any other adversary is less clear, but a flurry of recent tests suggests it is making incremental progress in its missile technology.
This report will focus on North Korea’s nuclear program and the implications for the rest of the world if North Korea is capable of striking the U.S. with a nuke. We start with a brief history of the country’s nuclear weapons program and discuss how the rest of the world has tried to denuclearize the country. Next, we examine North Korea’s current military capabilities and potential threats to the global order. As usual, we conclude with the potential impact on financial markets from these events.
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.
by Bill O’Grady
(Due to Martin Luther King Jr. Day, Part II of this report will be published on January 23.)
One of the key elements of global hegemony is the ability of a nation to project power. Ideally, this means a potential hegemon needs local security. In other words, a nation that faces significant proximate threats will struggle to project power globally. As a general rule, it’s easier to attack via land compared to the sea.
Rome’s power base was the Italian peninsula. It only needed to defend the northern part of the land mass. Spain had a similar situation. The Netherlands was the global hegemon for a while but was always facing a land threat from France. Britain, being an island, was geographically ideal for superpower status; the last successful invasion of the British Isles was in 1066. Finally, the U.S. has managed to create an island effect on a larger land mass giving America more access to natural resources compared to Britain, making the U.S. a nearly ideal hegemon.
In Part I of this report, we will examine American hegemony from a foreign nation’s perspective. In other words, if a nation wanted to attack the U.S. to either replace the U.S. as global superpower or to create conditions that would allow it to act freely to establish regional hegemony, how would this be accomplished? This analysis will begin by examining America’s geopolitical position. As part of this week’s report, we will examine the likelihood of a nuclear attack and a terrorist strike against the U.S. In Part II, we will examine the remaining two methods, cyberwarfare and disinformation, discussing their likelihood along with the costs and benefits of these tactics. We will also conclude in Part II with potential market effects.