Grey Zone SITREP 26 Feb 23

Forewarned is Forearmed.

Hey team,

Bit of a delay on this as I’ve been flat out busy with different things. I’ve also recorded episode two of The ALCON Podcast, where I’m joined by Expeditionary Intelligence and we discuss Mexican cartels in the Indo-Pacific:

This week's Grey Zone newsletter highlights three major developments in diplomacy, information, and military domains. Firstly, the Biden administration is nearing deals with the Marshall Islands and Palau to extend ties that are crucial to maintain a balance in the US-China rivalry for influence in the Indo-Pacific region.

Secondly, the European Commission has banned TikTok on work-related devices for its employees amid increasing fears of Chinese tech companies collecting sensitive data from around the world. Lastly, the US has alleged that China may provide lethal aid to Russia to aid its war with Ukraine, which has escalated tensions between the two countries.

The newsletter also emphasizes the need for proper cybersecurity protocols and precautions to protect against cyber attacks and data breaches.

Lastly, I’ve removed the Outstations and Compartment sections and have instead put ALCON Assessments, which is our own analysis and forecasting assessments on what to expect over the long or short term. For paid subscribers only.

Cheers for all your support!

Cole // ALCON.S2

Diplomacy

The Biden administration is nearing deals with two Pacific Island nations, the Marshall Islands and Palau, to extend ties that are crucial to maintaining balance in the U.S.-China rivalry for influence in the Indo-Pacific region. The Chinese have been rapidly expanding their economic, diplomatic, and military clout in the region, and extending the so-called "Compacts of Free Association" agreements with these two nations will be critical to retaining American power and blunting Chinese assertiveness.

These agreements grant the U.S. unique military and security rights on the islands in return for substantial aid. Negotiations on a similar memorandum with Micronesia are ongoing, and the current 20-year compacts with the Marshall Islands and Micronesia expire this year, while the compact with Palau expires in 2024. The administration believes that all three can be renewed and signed by mid- to late-spring.

This move by the Biden administration is part of a broader strategy to counter China's growing influence in the Indo-Pacific region. The region is of vital importance to both the U.S. and China, with the latter looking to expand its footprint and challenge American dominance. The U.S. has been working to strengthen its partnerships and alliances in the region, and extending ties with these Pacific Island nations is a crucial part of that effort.

China has been increasingly partnering with Russia, which has put it at odds with the West. On the one-year anniversary of Russia's invasion of Ukraine, China reiterated its calls for a political settlement to the conflict. Beijing's Foreign Ministry called for a resumption of peace talks, an end to unilateral sanctions, and stressed its opposition to the use of nuclear weapons. The position paper is part of Beijing's efforts to present itself as a neutral peace broker, as it tries to balance its partnership with Moscow and fraying relations with the West.

However, Beijing's claim to neutrality is undermined by its diplomatic and economic support for Moscow, and its refusal to acknowledge the nature of the conflict. It has avoided calling it an "invasion" and has been accused by Western officials of considering providing Russia with lethal military assistance, which Beijing denies. The position paper is mostly a reiteration of China's existing position, which includes urging both sides to resume peace talks and playing a "constructive role" without offering any details.

In a separate development, China's corruption watchdog has vowed to escalate its anti-graft campaign against misconduct, including cracking down on executives who see themselves as financial elites and have "extravagant" lifestyles. The article, written by a department in charge of investigations under the Central Commission for Discipline Inspection, the Communist Party's top watchdog, calls on graft investigators and prosecutors to "deepen" their understanding of misbehavior in the financial sector and state enterprises, as well as their associated industries. It also rejects the idea that senior officials or executives are exempt from party edicts urging them to lead a simple life.

This move by China's corruption watchdog is part of the country's broader campaign against corruption, which has been ongoing for years. It reflects the government's desire to rein in the excesses of the wealthy elite and promote a more egalitarian society. However, some have criticized the campaign as being politically motivated, with the government using it to purge political rivals and consolidate power.

Analyst Comment. These three developments highlight the complex geopolitical landscape in which China finds itself. On the one hand, it is seeking to expand its influence in the Indo-Pacific region and partner with Russia, while on the other hand, it is presenting itself as a neutral peace broker in the Ukraine conflict and cracking down on corruption and excess among its wealthy elite. As China continues to navigate this landscape, it will need to strike a delicate balance between these competing interests and avoid alienating its allies and partners in the process.

Information

As a cyber security expert, I find it concerning that the European Commission has banned TikTok on work-related devices for its employees. The move comes amid increasing fears that the Chinese government is using its tech companies to collect sensitive data from around the world. While TikTok denies any involvement in such activities, the reality is that Chinese law compels all Chinese companies to "support, assist, and cooperate" with national intelligence efforts.

In fact, the Irish Data Protection Commission has been investigating TikTok's data transfers to China since September 2021, along with its compliance with privacy laws in the European Union. This investigation is ongoing and raises questions about how TikTok handles user data and who has access to it

.

Furthermore, cyber security researcher Anurag Sen recently discovered an exposed Department of Defense computer server that contained a large trove of internal U.S. military emails. The Microsoft Azure server was left unprotected without any authentication likely due to misconfiguration, which often happens due to human error. The server was not password protected, and anyone who knew where to look could have accessed it after the misconfiguration occurred approximately two weeks ago.

This incident highlights the importance of proper cyber security protocols and the potential consequences of human error. Cyber attacks and data breaches can occur from something as simple as a misconfiguration or lack of proper password protection. As technology advances and cyber threats become increasingly sophisticated, it is crucial that individuals and organizations take the necessary precautions to protect their data and networks.

In the case of TikTok, it is essential that the company addresses the concerns of governments and users alike by ensuring that user data is handled appropriately and not accessible by foreign governments. The European Commission's ban on TikTok for its employees is a step in the right direction in protecting sensitive information from potential cyber threats. It is important for all individuals and organizations to prioritize cyber security and take steps to protect their data from cyber attacks.

Military

Tensions between the US and China have escalated yet again, this time with allegations from the US that China may provide lethal aid to Russia to aid its war with Ukraine. This comes amidst already strained diplomatic relations between the two nations, and could potentially cause a serious problem in their relationship. As a military analyst, it is important to consider the implications of this development for the Asia Pacific region.

The prospect of China sending weapons and ammunition to Russia is a concerning development, as it could escalate the conflict and potentially involve more countries in the fighting. This could lead to increased tensions in the region, especially if the US and its allies choose to respond to such actions. The possibility of a wider conflict breaking out cannot be ignored, and it is essential for military leaders in the region to be prepared for any scenario.

However, the Australian government has announced new sanctions against individuals associated with the invasion. An addition to sanctions, Ukraine's defense forces will be provided with access to Australian drone systems in a $33 million package. Ukrainian President Volodymyr Zelenskyy has been urging Western allies to provide increased military aid, emphasizing the importance of speed in protecting life

Additionally, the challenges faced by the New Zealand Defence Force, as highlighted by Defence Minister Andrew Little, pose a significant concern for the Asia Pacific region. With historic attrition rates and difficulties in maintaining and staffing assets, the Defence Force may not be equipped to meet the changing demands in the region. This could potentially leave the region vulnerable to threats, and it is important for New Zealand and its allies to invest in the necessary resources to ensure their defence capabilities remain strong.

Analyst Comment. The prospect of China potentially sending lethal aid to Russia, combined with the challenges faced by the New Zealand Defence Force, underscore the importance of being prepared for any potential threats in the Asia Pacific region. It is crucial for military leaders and policymakers to work together to invest in resources and capabilities to ensure the safety and security of the region, and to prevent any escalation of conflicts that could have devastating consequences.

Economic

The stock market has been enjoying a surge of good news in the first few months of the year, with investors feeling confident about the global economy's recovery. However, this sense of euphoria could be masking the very real risks and dangers that lie ahead. Analysts are warning that the market is becoming complacent and that this could lead to a sudden reversal that will be even more painful for investors.

One of the biggest concerns is inflation. While many investors have been focused on the potential for a recession, inflation has been quietly rising in the background. As the economy continues to recover and grow, inflation is likely to accelerate, forcing the Federal Reserve to raise interest rates to control it. This could lead to increased volatility in the markets, as investors worry about the impact of higher rates on corporate earnings and future growth.

Another concern is the unsustainable valuations of US stocks. The S&P 500 index has risen 6% year-to-date, while the tech-heavy Nasdaq Composite has jumped 13%. Investors have been buying up stocks in anticipation of interest rate cuts by the Federal Reserve, which would support higher spending and cheaper borrowing. However, Morgan Stanley's Mike Wilson has warned that these valuations are reaching dangerous levels, comparing them to the "death zone" on Mount Everest, where the human body begins to die due to a lack of oxygen.

This sense of complacency and overconfidence is a major risk for the Pacific region. As the global economy continues to recover, many countries in the region are relying on exports to drive their growth. However, if the markets suddenly reverse, demand for exports could plummet, leading to a sharp economic contraction. This could be particularly damaging for countries that are heavily dependent on exports, such as Japan, South Korea, and Taiwan.

In addition, many Pacific countries have significant exposure to US stocks through their sovereign wealth funds and other investment vehicles. If the market experiences a sudden reversal, these funds could see significant losses, leading to a decline in government revenues and potentially even a recession.

Analyst Comment. The current state of the stock market is cause for concern. While the global economy is recovering, there are still many risks and dangers that investors need to be aware of. The Pacific region, in particular, is vulnerable to a sudden reversal in the markets, which could lead to a sharp contraction in economic activity and a decline in government revenues. It is important for investors to remain vigilant and prepared for any potential risks and to avoid complacency and overconfidence.

ALCON Assessments.

Our predictions for what’s ahead.