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Hawkish

Belgium and Nato are leading a charge to better defend Europe’s critical energy infrastructure against malign interference, writes Alice Hancock.

Context: The explosion of the Nord Stream 2 gas pipeline in the Baltic Sea, sightings of Russian boats near wind farms off the Dutch coast and scares around oil rigs have heightened fears that Moscow or other unfriendly actors could sabotage EU energy infrastructure. 

Officials are concerned that any threats could leave a region already vulnerable to energy supply shocks more exposed, particularly as governments push to expand offshore wind farms in the North and Baltic seas.

Defending that infrastructure had become “a geopolitical, security and also an economic imperative”, said Tinne van der Straeten, the Belgian energy minister who chaired a closed-door lunch with her fellow EU ministers and Nato officials yesterday. “Close co-operation is absolutely needed.”

The plan is for developers of wind farms, subsea cables and gas pipelines to share more data — including video footage and information collected by sensors — with military agencies.

The key issues are establishing what the major threats to energy infrastructure are, what can be done about it and how sensitive data can be shared in real time.

A person familiar with the discussions said that meetings to establish data-sharing networks were under way, along with efforts to develop artificial intelligence technology that would evaluate satellite data as well as input from drones and electronic sensors — of which offshore wind turbines can have up to 300.

Belgium could become the first country to formalise this, based on proposals for the auctions of contracts for its new North Sea energy hub, an artificial island nicknamed Princess Elizabeth.

The plans come after Belgium, Germany, the UK, the Netherlands, Denmark and Norway last week signed a declaration to share more information about protecting critical assets.

Though developers are increasingly conscious of the risks, shielding the new infrastructure won’t be straightforward.

Wind turbines above the water are easier to protect than subsea pipelines and cables, but new technologies such as distributed acoustic sensing, which allows continuous monitoring along cables, can tell “if a vessel is dropping anchor on the seabed”, according to Giles Dickson, chief executive of the industry body WindEurope.

More off-kilter ways to protect power generators include sensors with small calibre guns to fire on malicious operators, putting up nets to catch drones — or even using hawks to disable them.

Tapestry’s $8.5 billion buyout of Capri was approved by regulators in the E.U. and Japan, but still needs a sign off from the U.S. FTC. Crevoiserat said she's, "looking forward to moving forward" with the deal.

Tapestry Inc. took two big steps toward closing on its $8.5 billion acquisition Capri Holdings, with antitrust regulators in both Japan and the European Union signing off on the deal.

That leaves the U.S. Federal Trade Commission as the last antitrust regulator looking at the buyout, which would bring together Tapestry’s Coach, Kate Spade and Stuart Weitzman brands with Capri’s Michael Kors, Versace and Jimmy Choo. It’s the FTC, which made a second request for more information in November, that has made Wall Street antsy.

Investors are still in wait-and-see mode as shares of Capri closed up just 2 cents to $39.22, well below the $57 per share buyout price.

But Joanne Crevoiserat, chief executive officer of Tapestry Inc. and the deal’s architect, projected confidence over the mega buyout in an interview with WWD on Monday.

“We’re super pleased to see the European Commission today unconditionally approved the deal,” Crevoiserat said shortly after the company revealed the approval in a filing with the Securities and Exchange Commission. Japan gave the deal its thumbs up last week.

“This is recognition that this is a transaction that is pro-consumer in a market that is highly dynamic and highly competitive,” Crevoiserat said. “We’re excited that this next step has been taken and looking forward to moving forward with the transaction.

“The FTC is still reviewing it, and we continue to work collaboratively with the FTC in that effort,” she said. “But we continue to be confident because we know that this is a transaction that is pro-consumer.”

That’s a key point because antitrust regulations are designed in part to keep any one company from gaining so much influence over a sector of the market that it could control prices or the consumer experience too much.

Antitrust experts have described Tapestry’s takeover of Capri as a generally straightforward deal and one that on the surface seems likely to be approved. But as the FTC digs deeper into the transaction and the regulatory environment evolves, investors are fretting over just what Washington has under the microscope.

The deal was always set to close this calendar year and Crevoiserat said she knew it would take time to get approvals.

“We expected that the regulatory process particularly would be a long one, just understanding the environment and the landscape that we’re operating in,” the CEO said. “So we do have a pretty wide window, and we haven’t been specific and we haven’t tried to be more specific given the nature of the environment and just how long these reviews take. We had set a calendar 2024 expectation, and we’re still confident that we can complete the deal.”

Since the deal was signed in August, Capri in particular has hit a rough spot. Sales dropped 5.6 percent year-over-year to $1.4 billion during the quarter ended Dec. 30, while adjusted earnings declined to $142 million from $240 million a year earlier.

But Crevoiserat said that just illustrates the transaction’s potential.

“It underscores the opportunity that we have ahead of us,” she said. “What we do know about all three of the Capri brands — Jimmy Choo, Versace, Michael Kors — they all have strong brand equity and arguably opportunities to improve relevance with consumers.”

She said that Tapestry’s brand-building platform and discipline could “bring more relevant product across all three brands to the market for more consumers.”

Despite speculation that Tapestry could sell off, say, Versace to help pay for the deal, that emphasis signals that Tapestry is considering how it could grow all three Capri names.

“We think that there’s a tremendous value unlock and opportunity with all of these brands,” Crevoiserat said.

Now, she just has to close the deal, financing for which has already been secured.

Decision makers must balance need to deter Iran with desire to strengthen a tenuous coalition and achieve their war aims in Gaza

TEL AVIV—Israel intends to punish Tehran for the drone and missile barrage that represented Iran’s first-ever direct attack on its territory, Israeli officials said, but it faces a difficult challenge of finding a way of doing so that avoids further escalation, preserves the partnership that helped fend off the assault and doesn’t derail its war aims in Gaza.

Israel’s war cabinet met Monday to discuss how and when to respond to Iran’s attack, which Tehran said was in response to the killing by Israel of a senior Iranian general at an Iranian diplomatic building in Damascus, Syria. Israel hasn’t confirmed or denied involvement.

“We are looking ahead and considering our steps. The launching of so many missiles, cruise missiles and drones into Israeli territory will be met with a response,” said the head of Israel’s military, Herzi Halevi, during a visit to an Israeli air-force base that was damaged by the Iranian attack. Halevi said that while Israel could manage alone, “with such a widespread and distant threat, we are always happy to have support,” and he singled out U.S. support.

Israel faces an increasingly delicate set of political calculations. It is already fighting on three fronts: in Gaza against Hamas, on its northern border with Hezbollah, as well as trying to quell unrest in the West Bank. Now, it is under pressure to restore deterrence with Iran, amid calls from allies to exercise restraint. Decision makers must balance the need to project strength with their desire to hold together a tenuous strategic partnership against Iran that helped it block the attack in the first place.

“The point is to respond smartly, in a way that won’t undermine the opportunity for regional and international cooperation that we created,” said Michael Oren, a former Israeli ambassador to the U.S.

President Biden has urged Israel to use caution in any response to Iran’s attack and pressed allies Sunday for a united diplomatic front in a bid to stop the hostilities from spiraling into open warfare that could engulf the Middle East and entangle the U.S.

“Together with our partners, we defeated that attack,” Biden said Monday while meeting with Iraqi Prime Minister Mohammed al-Sudani. Biden said the U.S. was “committed to Israel’s security. We’re committed to a cease-fire that will bring the hostages home and prevent the conflict from spreading beyond where it already has.”

Saturday’s attack demonstrated the importance of Israel’s relationship with the U.S. Analysts said that will likely be a key consideration as Israel weighs its next move and seeks to capitalize on the show of international support the assault triggered. In the weeks before Iran’s attack, Israel had faced weeks of criticism over the mounting death toll in Gaza and failure to agree to a cease-fire.

In light of the successful defense against Iran’s attack, Israeli military spokesman Daniel Hagari said Israel’s range of possible responses “are wider and greater.” He said Israelis could receive new safety instructions “in the coming days” similar to those that preceded the Iranian attack, suggesting an Israeli response could come soon.

John Kirby, a spokesman for the White House National Security Council, said the U.S. wasn’t involved in Israel’s decision-making about a potential response. “This is an Israeli decision to make whether and how they’ll respond to what Iran did on Saturday,” said Kirby.

Israel’s strained relationship with the Biden administration also might be playing into Iran’s thinking, said Sanam Vakil, a Middle East expert at the U.K.’s Chatham House think tank. “I think the Islamic Republic has decided that if Israel and Iran are going into an escalatory cycle, it’s better to do it now, during the Biden administration,” she said.

The head of Iran’s Islamic Revolutionary Guard Corps, Maj. Gen. Hossein Salami, said Sunday that Iran would respond to future Israeli attacks on Iran-linked targets from Iranian soil, potentially opening the door for escalatory responses from Israel. “We have decided to create a new equation and it goes this way: from now on if the Zionist regime anywhere attacks our interests, assets, figures and citizens, we will reciprocally attack it from the origin of Iran,” Salami told a state-run television station.

Operations in Gaza are also part of the Israeli calculus, including a planned offensive in the crowded southern city of Rafah, which Israel sees as crucial to eliminating Hamas and freeing dozens of hostages still held in the enclave, but that is opposed by Israel’s close allies and Arab neighbors who came to its defense on Saturday. The issue of a ground operation in Rafah, where more than a million Palestinians are sheltering, has been a key source of tension between Israel and the U.S. Israeli strikes on Rafah continued in recent days, even up to the moment the Iranian attack began late Saturday night, people living in the city said.

On Monday, Israeli Defense Minister Yoav Gallant said he discussed preparations for the civilian evacuation of Rafah with security officials. On Sunday, Israel said Hamas had rejected a U.S. proposal for the release of hostages.

Israeli Prime Minister Benjamin Netanyahu’s right-wing base is already disgruntled that the ground operation in Rafah hasn’t taken place and doesn’t seem imminent, since Israel has pulled most of its soldiers out of Gaza. Israel is calling up two reserve brigades in the coming days for reinforcement in Gaza but will need more forces for any major operation. Now, Netanyahu’s supporters want a strong retaliation against Iran as well.

“To create deterrence in the Middle East,” Israel “has to go crazy,” Itamar Ben-Gvir, Israel’s national security minister and a voice of Israel’s hard right, said on Sunday.

Netanyahu told ministers from his Likud party that he is “determined to respond” to Iran, but that the action would be “sensible and not something irresponsible,” according to a person familiar with the matter.

Failure to act against Iran or in Rafah could further harm Netanyahu’s already diminished political support, said Chuck Freilich, a former Israeli deputy national security adviser.

“Even if he wants to show restraint on both fronts, he has to balance that,” Freilich said.

At the same time, said Freilich, Israel has an opportunity to turn the strategic partnership that helped Israel counter Iran’s offensive into something more permanent. But, he said, that would require Netanyahu to signal openness to the Biden administration’s postwar plan to combine Israel’s agreement on a path toward the establishment of a Palestinian state with Israel-Saudi normalization talks.

“It depends first and foremost on whether the prime minister is willing to say some even limited, meager yes to the Biden plan for the postwar stage in Gaza,” Freilich said.

Israeli security analysts said Israel has a range of options that it would consider as retaliation rather than major escalation, without overstretching its forces that are deployed in Gaza, on its northern border and in the West Bank. In the latest confrontation on the northern border, four Israeli soldiers were injured by an explosive Sunday night while operating dozens of yards inside Lebanese territory, according to Israeli Army Radio.

Israel’s options for retaliation against Iran include cyberattacks and targeted attacks on key state-owned sites such as Iranian oil infrastructure. Israel has in the past targeted Iranian personnel and infrastructure related to Iran’s nuclear program without taking responsibility and could do so again but more overtly, analysts said. In addition to direct strikes on Iran, analysts said Israel could respond indirectly by hitting one of Iran’s proxies in the region.

Analysts said any Israeli strike on major Iranian nuclear sites would be unlikely, since they are deep underground and doing so would require the backing and aid of Washington. The U.S. has never greenlighted an Israeli counterattack, said Oren, the former Israeli ambassador, who is also a historian. “It’s when we move from defense to counter-offense, we hemorrhage American support,” he added.

Strikes on preselected military targets inside Iran, based on extensive Israeli intelligence, are more likely, said Sima Shine, head of the Iran program at the Institute for National Security Studies. But she was skeptical that such retaliation would take place in the near term, since it would require support from Washington. If Israel retaliates, it would likely avoid Iranian civilian and economic sites, Shine said.

Israel might also choose to defer action until a later point. One option is “‘we will respond, but not immediately.’ Iran will give Israel reason to respond and retaliate in future,” said Ehud Yaari, a fellow with the Washington Institute for Near East Policy. “I think it’s very clear at this point that Israel would have to do something about Iran at some point, but not now,” he added.

The U.S., U.K. and France sought to dial down tensions after participating in Saturday’s formidable display of collective defense, urging Israel to demonstrate restraint to prevent escalation in the wider Middle East region.

“We must both be alongside Israel to ensure its security as much as possible, but call for a limit to avoid escalation,” French President Emmanuel Macron said Monday.

On Sunday, Group of Seven leaders issued a statement condemning Iran’s attack on Israel, offering solidarity to the Israelis and pressing for no further escalation in tensions in the Middle East. The statement was watered down from a first draft, with Japan, Canada and European officials wary of giving Israel too wide a berth for its response to the attacks, said a senior European diplomat involved in the discussions.

The original draft—reviewed by The Wall Street Journal—labeled Iran’s actions “reckless” and said Iran had “crossed yet another line” in destabilizing the region. It expressed “unconditional” solidarity with Israel and an “ironclad” G-7 commitment toward its security. All those phrases were omitted from the final version of the text. The language was changed on Gaza from calling for a cease-fire as soon as possible to seeking “an immediate and sustainable cease-fire.”

In a call Saturday evening with Netanyahu, Biden said the Israelis should proceed with caution after the successful joint operation to thwart Iran’s attack.

The U.S., France and the U.K. intercepted drones headed for Israel on Saturday night, while the United Arab Emirates and Saudi Arabia, which doesn’t officially recognize Israel, agreed privately to share intelligence. Jordan, which has repeatedly called on Israel for a cease-fire in Gaza, said it would allow the use of its airspace by U.S. and other countries’ warplanes and use its own aircraft to assist in intercepting Iranian missiles and drones, Saudi and Egyptian officials said.

Brent crude has struggled to stay above $90 despite Tehran’s attacks on Israel this weekend

Despite crude oil’s combustible properties, armed conflict near large oil producers — Russia and now Iran — has not ignited a sustained rise in price. Brent crude fell on Monday, struggling to stay above $90 a barrel, after this weekend’s attack on Israel by Iran.

Why is the oil market so relaxed in the face of escalating regional tensions? The oil price may increasingly self-regulate in price terms. Higher oil prices just stoke fears of a reacceleration of broader price inflation. This would remove one of the factors behind the recent rally in equity prices. It is unlikely that commodity prices would continue to climb should central banks start to play down the prospect of interest rate cuts.

World stock prices have rallied a fifth since October, anticipating an inflection point for interest rates. That hope has already dimmed. US Federal Reserve chair Jay Powell this month hinted that the central bank would move slowly. US bond yields, anticipating problems, have risen this year. Interest rate traders anticipate less than half as many reductions by global central banks as at the beginning of the year.

As a result, equity markets are already more jittery — not a positive for oil. Since 2000 oil prices have rarely continued rising when the S&P 500 has a sustained decline. That surely would happen if oil prices soared in an all-out war between Iran and Israel. Opec+ producers could also use their almost 6mn barrels per day of spare capacity were price rises seen to threaten central banks’ next move, thinks Rystad Energy.

Traders may also be questioning the extent of Iran’s military threat. The country will not want to hurt its own oil exports. These have picked up markedly in recent years, from a low of about 400,000 b/d in the pandemic year of 2020 to about 1.4mn b/d recently, according to Richard Bronze at Energy Aspects. Almost all of that is tanked to China from the Gulf through the Strait of Hormuz.

China brokered last March’s restoration of diplomatic relations between Iran and Saudi Arabia after a seven-year dispute. Iran’s largest customer will not want to see that undone, nor does Iran wish to threaten its export revenues. Its recent failed attempt to raise the cost of its discounted oil to its Chinese customers underscores a poor negotiating position.

Yes, oil prices could well rise if further hostilities ensue. But as politicians rush to avoid further conflict, markets are already signalling their fears that central banks will keep rates higher for longer. That should help keep oil range bound in the months ahead.