Economic warfare dominates this week's brief. You know times are odd when the US imposes tariffs on its closest trading partner while lifting decades old terrorism sanctions on a state led by former al-Qaeda members. We will report further on fascinating developments in Syria in coming weeks. This week's headline has been Mark Carney and the US reigniting their trade dispute in rather spectacular fashion. It will cause economic pain on both sides of the border. But, once the dust has settled, we expect both sides to return to the negotiating table.

Washington appears to be stepping back from its military campaign in Iran in favour of longer-term sanctions. You might be forgiven for asking "wasn't that the Western approach before all this mess?" Yes, it was, and the package announced this week is a little underwhelming given the US touted it as "Economic D-Day." But it is a signal of things to come for those doing business with Iran. Where this leaves negotiations over the Strait of Hormuz is something to watch. Our tentative view is that the US shift makes a deal more likely.

Sanctions & Export Controls·Middle East & North Africa

US sanctions campaign against Iran's trading partners

US Treasury Secretary Scott Bessent announced an expanded secondary sanctions campaign against Iran on 24 August, named Operation Economic Outcast. Secondary sanctions punish foreign firms and banks for dealing with a sanctioned state. The covered categories now include digital assets, technology, gold, aviation and shipping. The Treasury designated close to 60 entities, individuals and vessels. Bessent said every country would get its own deadline to end Iran-related business, and that a large bank would be designated within the week. Our view is that the measures announced so far are limited, but they mark a move away from the military campaign. Businesses in the Gulf, Turkey, South and East Asia should be preapared for further measures in the coming months impacting their Iranian exposure. Chinese supply of Iranian oil has not been targeted so far, and we think that unlikely ahead of the Trump-Xi meeting expected in late September.

Trade & Supply Chains·Americas

US-Canada trade talks collapse

After a promising signal last week, three days of talks in Washington ended without agreement. US tariffs of 50% on about $20bn of Canadian goods took effect on 22 August. The list covers electronics, industrial machinery and dairy, roughly 5% of Canada's exports to the US, and adds to existing duties on steel, lumber and cars. Canadian PM Mark Carney has taken a tough stance and announced measures to match "dollar for dollar" from 8 September, hitting US steel, dairy, appliances, machinery and paper. Trump then pushed further, saying that all Canadian cars, trucks, vehicle parts and steel would face 50% from 1 January 2027. Our view is that tariffs this high will price most affected goods out of the market, so we expect buyers on both sides to wait, or to switch suppliers where they can. We predict that the sides will return to the table but that a big deal is unlikely in the short-term. Instead, we might see a run of quiet sectoral carve-outs.

Trade & Supply Chains·Global

Panama Canal cuts daily transits as drought returns

The Panama Canal Authority issued an advisory on 20 August cutting daily booking slots from 36 to 34 from 3 September, then to 32 from 15 September. Rainfall across the canal watershed has run 34% below its historical average since May, and the authority expects El Niño to keep it low through the wet season. The canal carries about 5% of world seaborne trade. Fewer slots mean longer waits and higher prices at slot auctions, and the authority may cap tonnage from October. Shipping firms are already adding surcharges. The 2023-24 drought cut canal traffic by roughly a third over six months. Our view is that these measures are limited but businesses reliant on the canal should expect further disruption and cost increases, with possible further restrictions from October. Freight between the US East and Gulf Coasts and Asia will be most affected, putting further pressure on global energy and consumer prices.

Also this week

CIA director makes an unannounced trip to Moscow. John Ratcliffe flew to Moscow on 25 August, the first visit by a serving CIA director since November 2021. Neither government has said anything beyond a Kremlin line that this was contact between security services. Analysts read it as an attempt to manage escalation. Politics & Governance · Europe & Eurasia

UK and France permit Storm Shadow production in Ukraine. New UK PM Andy Burnham visited Ukraine this week to "hand-over" blueprints of Storm Shadow cruise missile components. President Zelensky said on 25 August that both governments had approved manufacture of the missiles inside Ukraine. This removes some hurdles for delivery but building the missiles in Ukraine still requires UK and French involvement and production will take time to start. Defence & Security · Europe & Eurasia

US takes Syria off its state sponsor of terrorism list. The designation lapsed on 24 August after a 45-day congressional review. The listing had been in place since 1979. It lifts curbs on US aid, defence exports and financial transactions. A day later the Kurdish Syrian Democratic Forces announced their merger into the national army. Politics & Governance · Middle East & North Africa

Washington weighs a 7.5% tariff on Chinese overcapacity. Officials are considering that rate ahead of a Trump-Xi meeting expected in late September, low enough in their judgement to leave the one-year trade truce intact. Trade & Supply Chains · Asia-Pacific

North Korea fires more than ten ballistic missiles. South Korea's Joint Chiefs of Staff said the launches on 20 August flew about 300 kilometres from the Pyongyang area. They came hours before the shortened US-South Korea Ulchi Freedom Shield military exercise ended. Defence & Security · Asia-Pacific

Kazakh refinery to process Russian crude. Kazakhstan's energy ministry said on 25 August that the Kondensat refinery would refine Russian crude at Moscow's request. Seventy per cent of the petrol and diesel will be re-exported back to Russia. Ukrainian strikes have damaged Russian refineries in recent weeks. Resource Security · Europe & Eurasia

US asks the UN to extend Sudan's arms embargo nationwide. The US told the Security Council on 24 August that Washington had tabled a resolution widening the Darfur embargo to all of Sudan and to drones. The Darfur measure expires on 12 September and Russia opposes constraints on the Sudanese army, so a narrow rollover is the realistic outcome. Sanctions & Export Controls · Sub-Saharan Africa

Congo's Ebola outbreak passes 100 days. The World Health Organization reported more than 5,500 confirmed cases and over 2,600 deaths by 24 August, with about 85% of cases in Ituri province. Around 60% of recent deaths occurred outside treatment centres. Conflict & Instability · Sub-Saharan Africa