Biden in the Middle East

This is an audio transcript of the FT News Briefing podcast episode: Biden in the Middle East

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, July 13th, and this is your FT News Briefing.

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The latest US inflation numbers are due out today. Top US banks report earnings later in the week. And US president Joe Biden will visit Saudi Arabia, a country he’s criticised for human rights violations.

Felicia Schwartz
The invasion of Ukraine and oil prices has kind of forced him to, you know, reconsider that position and pursue a more realist foreign policy.

Marc Filippino
Plus, the European leaders are starting to worry that all those weapons they send to Ukraine could end up on the black market. I’m Marc Filippino and here’s the news you need to start your day.

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US President Joe Biden heads to the Middle East today. He’ll meet with Israeli and Palestinian leaders first. But the bigger focus is on his stops later in the week in Saudi Arabia. He wants help lowering oil prices. It’s become a political liability for him back home. Here’s our US foreign affairs correspondent, Felicia Schwartz.

Felicia Schwartz
He is hoping to convince the Saudis and other Gulf countries more broadly. But Saudi is, of course, the head of OPEC to pump more oil because gas prices are so high. There might not be some huge announcement at the summit on that front, but it will definitely come up and they’re hoping to see some progress in the future.

Marc Filippino
The visit to Saudi Arabia is a tricky U-turn for Biden. The US president threatened to punish Saudi Arabia after the 2018 murder of journalist Jamal Khashoggi. The murder was linked to Saudi Crown Prince Mohammed bin Salman. Biden will meet with MBS on this week’s trip.

Felicia Schwartz
So I think one of the ways that we know that this is so sensitive is what his team has said is that, you know, he will see MBS in the context of this meeting of other leaders like that King Salman, who is the king of Saudi Arabia, that MBS is part of his leadership team and he’ll see him in that capacity. So the Saudis obviously see this meeting between MBS and Biden as an important way to kind of get him out of the penalty box after everything that happened with Khashoggi. So it is very sensitive because on the campaign trail, the president promised that he would make a pariah out of Saudi Arabia. He was very critical of the human rights record of MBS and the government more broadly. He vowed not to sell them weapons. And, you know, the reality of the invasion of Ukraine and oil prices has kind of forced him to, you know, reconsider that position and pursue a more realist foreign policy and deal with these guys.

Marc Filippino
Felicia Schwartz is the FT’s US foreign affairs correspondent. Thanks, Felicia.

Felicia Schwartz
Thanks for having me.

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Marc Filippino
New US inflation numbers are due out today. Prices for June are expected to have risen nearly 9 per cent over the last year. The new data could add to the pressure on US central bankers to raise interest rates more aggressively. But you know who would like that? Banks. The biggest US banks report quarterly earnings this week and they’re expected to show bumper earnings from lending. Here’s our US banking editor Josh Franklin.

Joshua Franklin
Basically, the big banks like JPMorgan and Bank of America, which hope to make billions of dollars from lending, basically they’re benefiting from the green shoots of rising interest rates, which have enabled them to charge more for the loans that they do make. And it’s a kind of two rising tide as well. It’s not just rising interest rates, but also there’s good demand for loans as well. So that’s really benefiting the banks at the moment.

Marc Filippino
So, Josh, rising rates may be good for banks right now, but there’s also a risk that, you know, they could push the country into a recession, which would be bad for banks, right?

Joshua Franklin
It’s a really strange moment for banks. Earnings per share, which is one of the main metrics to gauge financial performance, will look pretty solid. They’ll probably, for most banks, be down in comparison to 2021 when banks had a blockbuster year. But certainly if you compare it to pre-pandemic levels, it’ll look pretty decent. You have strong activity in the trading divisions at places like Goldman Sachs and Morgan Stanley that have benefited from market volatility. But where things get more complicated is the outlook. And basically, investors are punishing bank stocks at the moment because they see a recession potentially on the horizon. And that’s an environment where banks typically don’t do well. So that’s going to be an area that investors and the market are going to be watching very closely, what banks guide for on the outlook that they’re expecting for the next 12, 18 months.

Marc Filippino
Josh Franklin is the FT’s US banking editor.

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Western countries have sent billions of dollars in weapons to Ukraine to support the country’s fight against Russia. We’re talking rifles, ammo, portable rocket launchers and armoured vehicles. But there’s growing concern that some of the weapons are being smuggled out of Ukraine and sold on European black markets. I’m joined now by Henry Foy. He’s our European diplomatic correspondent. Hey, Henry.

Henry Foy
Hey Marc.

Marc Filippino
Henry, what happens to weapons after they cross the border into Ukraine? Are they tracked?

Henry Foy
Well, at the moment, no. The weapons go across the border in a variety of ways. A lot of it is kept secret for security reasons. The problem is we, the western countries, are saying, look, we have to take your word for it, that all of these weapons end up in the hands of your soldiers and are used in the war effort and that none of them are getting lost, getting mislaid, or indeed being sold off to traders and then re-exported back into the EU. That’s become an increasingly large worry for EU and Nato governments.

Marc Filippino
What sparked these concerns? Why is this emerging as an issue now?

Henry Foy
The first thing to say is that when you have a big war, there is normally weapons leakage. Europol, which is the EU’s law enforcement agency, in April, put out a report where they flagged this issue. They said there were short, medium and long-term risks to the EU security and that their investigations suggested that arms trafficking had already begun back in April. Ministers in the EU and Nato have been discussing this more and more. Just this week there was a meeting in Prague where this issue was front and centre, and the EU on Tuesday launched what they called a support hub for Moldova, which borders Ukraine, where trying to tackle arms trafficking over the border is one of the major focuses.

Marc Filippino
And is Ukraine concerned about this? What’s their response like?

Henry Foy
So for Ukraine, I think the issues are twofold. The first is any suggestion that they’re not using all the weapons to fight the Russians is a slight on their character and they’re obviously not best pleased with that. But secondly, they’re worried that stories such as these and any kind of fears among western governments that these weapons aren’t being used properly could reduce the amount of weapons being sent. It’s important to say here that western governments aren’t threatening any at any point to stop this weapons trade. All they want is a bit more oversight and a bit more transparency over where they’re going so they can be sure that these are being used in Ukraine. They’re not going to come back. But also, more importantly, they can be sure what’s most important and what needs to be sent in advance and what needs to be sent in larger quantities.

Marc Filippino
So is there anything else that western powers can do to prevent or crack down on weapons smuggling?

Henry Foy
Western governments, European governments are also keen to tighten up border controls to make sure that checks are more stringent and that everyone that’s coming across the border — refugees, transport vehicles, etc — are being thoroughly checked. Of course, the problem with that is this comes at the same time as the grain crisis where countries are desperate to get as much grain out of Ukraine as possible. And for that, European countries have actually lowered the threshold for customs checks. There’s a problem and a push-and-pull factor here, and western countries are having to work out what’s their priority.

Marc Filippino
Henry Foy is the FT’s European diplomatic correspondent. Thank you, Henry.

Henry Foy
Thanks so much.

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Marc Filippino
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