FT : French mayors take on Airbnb amid a housing squeeze

French mayors take on Airbnb amid a housing squeeze
MPs to vote on law that would empower local authorities to set quotas on short-term rentals

France is seeking to clamp down on Airbnb and other holiday rental companies, spurred on by mayors in tourist destinations such as the Alps and the Basque country who are concerned that the platforms are worsening housing shortages and disfiguring historic centres.

The French national assembly is set to vote on Monday on a draft law that would give local authorities broad powers to set quotas on short-term rentals or impose compensation mechanisms, such as requiring landlords to add a unit of long-term housing for each unit let out on Airbnb. A tax advantage is also on the chopping block.

Iñaki Echaniz, a Socialist lawmaker from the Pyrénées in south-west France who co-wrote the legislation, said the proposals would empower local officials to regulate the market and repel a wave of lawsuits that have been filed by property owners and unions who oppose such restrictions.

“Young people in my district and nearby along the coast around Biarritz simply cannot afford to live here anymore and that’s not right,” Echaniz said. “Even in popular tourism areas, housing should not be a speculative asset dominated by private interests.” 

Courts meanwhile have suspended new quotas from taking effect in Annecy in the Alps, Saint-Malo in Brittany and La Rochelle on the south-west coast while legal challenges are being reviewed.

The French proposals come as cities, such as New York, Berlin and Barcelona, tighten their regulations on Airbnb and other platforms, putting pressure on the companies’ business models. The mayors’ concerns echo local officials from tourist areas elsewhere about the ripple effect of short-term rentals on residents and beauty spots.

The proposed law may also go as far as scrapping a tax advantage that allows owners of short-term holiday rentals to reduce their taxable amount by a generous 71 per cent, compared with only 30 per cent for a traditional lease.

If the law is passed, it would be a blow to holiday rental platforms, especially Airbnb, since France is its second-biggest market in terms of listings after the US, according to analysts.

But even the law’s advocates admit there is a risk that it will be watered down or again delayed amid intense lobbying from landlords’ groups and the platforms. 

Airbnb has particular influence ahead of the summer Olympics to be hosted by Paris in July because many residents want to rent out their homes to the 15mn visitors expected to attend. The US short-term rental group is a top-level sponsor of the games.

UNPLV, a trade association whose members include Airbnb and Abritel as well as service providers for holiday lets, opposes several measures in the draft law, such as the quotas, arguing that they would amount to illegal limitations on the property rights of homeowners. “We don’t accept the charge that short-term holiday rentals are aggravating the housing crisis, and these proposals are populist, oversimplistic answers to a very difficult problem,” said UNPLV president Dominique Debuire.

Restrictions already exist in Paris, one of the world’s most popular tourist destinations and Airbnb’s single biggest city, including a cap of 120 nights a year for primary residences and a requirement to register flats before putting them on short-term rental websites. 

The city employs a squad of 30 inspectors who scout for illegal rentals by knocking on doors, checking mailboxes and identifying key boxes where hosts stash keys for guests. It filed several hundred lawsuits last year against owners, but city officials say they need new powers to intensify controls and cut down on the estimated 25,000 illegal rentals focused in the city centre, including popular areas such as the Marais and Montmartre.

The new law would allow smaller cities and towns to follow the example of Paris by scrapping a rule that meant that restrictions could only be imposed in places with more than 200,000 residents.

“France is already home to the most sophisticated short-term rental rules in Europe,” said Emmanuel Marill, Airbnb’s head of Europe, Middle East and Africa. “The additional national rules that are being discussed will chiefly hurt casual hosts — particularly primary homeowners — and parts of France where short-term rentals are wanted and needed by the local tourism ecosystem.” 

The proliferation of short-term holiday rentals has helped transform tourism in cities and towns across France in the past decade. The online platforms have added capacity and lodging options beyond hotels and have brought people to lesser-known villages and rural areas. However, they have also removed some housing stock from the long-term rental market and hollowed out neighbourhoods. 

In Annecy, a medieval town on a lake surrounded by mountains, there are four times as many short-term rentals in the old town today compared with five years ago, said mayor François Astorg. A housing shortage has worsened and rental prices pushed up for full-time residents, he argued, and the city has not been able to move ahead with planned quotas because of court cases.

“Butchers and bakeries are being replaced by Airbnb concierge services,” he said. “I’ve received a complaint from a person who is the only full-time resident left in a 12-apartment building — the rest are all holiday rentals.” 

Astorg added that the city is not against Airbnb and supports the development of tourism for the local economy: “But we do not want the historic centre of Annecy to turn into Disneyland. Things are out of hand.”

In the south-west city of Bayonne on the Atlantic coast, mayor Jean René Etchegaray has had some success in curbing the platforms. Bayonne defeated court challenges to move ahead last year with a requirement for owners to compensate for each short-term holiday rental with a corresponding long-term one. “We did impact and historical studies to prove that there was a public interest in changing the law to address the housing shortage,” Etchegaray said.

About 4,200 three-year licences for short-term holiday rentals had earlier been issued in the Basque country but, since the new regulation took effect in March 2023, only two new permits have been issued. “We’ve stopped the haemorrhage,” he said.

FT : Germany’s new far-left party calls for an end to the Ukraine war

Germany’s new far-left party calls for an end to the Ukraine war
The Sahra Wagenknecht Alliance’s mix of traditional leftwing policies with anti-migrant rhetoric seeks to take AfD votes

The leader of Germany’s new left-wing populist party the Sahra Wagenknecht Alliance (BSW) criticised Olaf Scholz’s increasingly unpopular government and called for an immediate end to the Ukraine war at its founding congress in Berlin on Saturday.

Sahra Wagenknecht, the party’s leader, told delegates that society was at a tipping point, with voters overcome with “insecurity, outrage and fury”.

“We are setting out to change politics in Germany,” she said.

The new party’s programme combines traditional left-wing policies, such as higher taxes on the rich, with a markedly anti-immigration message — a strategy it hopes will allow it to compete with and potentially peel support away from the far-right Alternative for Germany (AfD).

In a 30-minute speech that was frequently interrupted by rapturous applause, Wagenknecht said the new party stood for economic common sense, social justice, and “peace and detente, instead of arms races and ever more war”.

She said it advocated “freedom of opinion and respect for dissenters, instead of cancel culture and a fast-encroaching political authoritarianism, which we experienced in its crassest form during the pandemic”.

Wagenknecht said the party’s supporters included “trades unionists, businessmen, careworkers, policemen, theologians, city dwellers and villagers”.

But it clearly bears Wagenknecht’s unmistakable imprimatur. A fixture of TV talk shows, a firebrand orator and best-selling author, she is one of Germany’s best-known personalities, with a huge following among voters disillusioned with mainstream politics, and she dominates the new party.

She was long a senior figure in Die Linke, a hard-left party that has its roots in the East German Communist party. But her views — especially her opposition to irregular immigration, and her frequent broadsides against “woke” political culture — eventually diverged sharply with others in Die Linke, and last year she announced she was breaking away to form her own party.

BSW’s hope is that can shake up the upcoming European parliament elections, as well as elections in September in the three East German states of Saxony, Brandenburg and Thuringia which the AfD is expected to win.

The far-right party has been steady in the polls despite recent revelations that AfD functionaries met right-wing radicals last November to discuss plans to deport millions of people with immigrant roots from Germany, even those with German passports. Reports of the meeting triggered mass demonstrations against the far-right in many of Germany’s largest cities.

Surveys of voting intentions show the BSW could steal some votes away from the AfD, especially in eastern Germany — though its potential to disrupt German politics is still relatively small.

A poll this week by Infratest dimap in Saxony put the BSW at 8 per cent, ahead of Scholz’s Social Democrats (SPD) and Greens at 7 per cent but well behind the AfD on 35 per cent and the main opposition Christian Democrats (CDU) on 30 per cent.

In her speech, Wagenknecht called Scholz’s SPD-Green-liberal coalition the “most stupid government in Europe”, lambasting a controversial law to replace oil and gas boilers with heat pumps and a recent decision to cut fuel subsidies for farmers which triggered nationwide protests.

She also mocked the CDU and its leader Friedrich Merz, a millionaire with a private plane who once claimed he belonged to the middle class.

While appealing to traditionally left-wing voters with her call for a higher minimum wage, better pensions and affordable energy, she also seeks to attract AfD voters who oppose economic sanctions against Russia and German support for the authorities in Kyiv.

“We supply them with weapons till a victory which Ukraine’s own generals no longer believe in,” she said. “No to war, no to weapons exports in combat zones.”

The party has a markedly Eurosceptic tone, which could also appeal to AfD voters. Its programme for the European elections says the EU in its current form “damages the European idea”, singling out the “regulatory frenzy of the EU technocracy”.

The BSW says EU guidelines shouldn’t be implemented on a national level if they “run counter to economic common sense, social justice, peace, democracy and freedom of opinion”.

Wagenknecht criticised the government parties for denouncing as rightwingers those who wanted to see peace in Ukraine, who defended the protesting farmers and who worried about uncontrolled immigration giving rise to “Islamic parallel societies” in German cities.

The best way for the government to weaken the AfD, she said, was for it to “change its miserable policies”.

FT : Switzerland’s Holcim plans separation of US cement business

Switzerland’s Holcim plans separation of US cement business
Deal could be announced in days and the North American operations eventually listed

The Swiss cement giant Holcim is near a deal to separate out its North American business, according to people familiar with the matter.

The company could announce its plans in the coming days, the people said, adding that the North American business could eventually be listed in the US.

Based in Zug, Holcim is the result of a 2015 merger between France’s Lafarge and Switzerland’s Holcim that created the world’s largest cement company. Holcim trades at a market capitalisation of about 37.2bn CHF ($43.1bn).

In its first-half results last year, Holcim said that North America was set to contribute around $12bn of net sales in 2023, representing about 40 per cent of the group’s total.

It added that it was North America’s leading cement supplier, and a top provider of commercial flat roofing and concrete. The company has about 350 locations across 43 states in the US and employs 7,000 people, according to its website.

Since its own merger almost a decade ago, Holcim has remained active in dealmaking.

In 2022, Holcim agreed to sell its Indian businesses to Adani Group for $10.5bn in cash.

The previous year, the group agreed to buy Firestone Building Products from Japan’s Bridgestone Corporation for $3.4bn to strengthen its position in the US. The deal was intended to help Holcim break into the lucrative flat roof market.

European companies have looked to US listings for the higher valuations and greater market liquidity and analyst coverage they can bring.

CRH, the world’s largest building materials group, last year moved its primary listing from London to New York.

Holcim did not respond to immediate requests for comment. The WSJ first reported Holcim’s plans.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Microsoft is currently ranked as the most valuable company globally

Cover:
-Microsoft's shares closed at a record $404.87, with a $3T market cap, and it is currently ranked as the most valuable company globally. MSFT stock has outperformed the S&P 500 index over the past one, three, five, and 10 years. If purchased at its IPO in 1986, it would be worth over $22M today. Over the past decade, Microsoft stock has risen almost tenfold, matching the tenure of CEO Nadella, who has revitalized the company from a moribund state.

Interview:
-No interview this week

Tech Trader:
-Earnings reports from the five most important tech companies are just days away, with Alphabet and Microsoft providing updates on Tuesday, followed by Amazon, Apple, and Meta Platforms on Thursday. IBM shares soared on strong fourth-quarter results, with signs of strength for its nascent artificial intelligence software and consulting business. Workflow management company ServiceNow posted a beat-and-raise quarter, indicating faster uptake for new AI offerings than any product launch ever. Seagate, which has been struggling in recent quarters, reported a rebound in demand for cloud data center hard drives. However, Intel stock fell on Friday after its revenue outlook resulted about $1B short of Wall Street's estimate. Texas Instruments added to a series of disappointing earnings reports from chip makers serving industrial and automotive customers. Tesla slumped on an earnings disappointment, and Logitech swooned on cautious comments about the outlook for videoconferencing systems.

The Trader:
-The market continues to rise despite risks in the week ahead, including the Federal Open Market Committee's announcement of its monetary policy decision on Wednesday. There is only a tiny chance of a rate cut, and federal-funds futures suggest less than a 50% chance that Jerome Powell and company will lower rates in March. However, investors seem disinclined to worry about the results of Apple, Amazon.com, Microsoft, and Alphabet's report. The stock market celebrated good economic data, with fourth-quarter US gross domestic product coming in at an annualized rate of 3.3%, above forecasts for 1.8%. But Investors need to worry about the bad news, particularly given signals from other parts of the market, such as treasuries, which have seen a 0.2 percentage point difference between the two-year and 10-year yields.
-Chip stocks are experiencing a surge, but not those dealing with auto makers. As for the automotive-focused chip stocks, these have sent warnings about the slowdown and seeing their stocks tumble. NXP Semiconductors gets 56% of its sales from the auto industry and offered disappointing guidance in November, predicting fourth-quarter sales of $3.4B, a 2.7% year-over-year growth. Despite these challenges, NXP could flourish after its Feb. 6 earnings report, which is expected to report earnings of $3.66 a share. The company is managing its inventory well, with the number of days products sat on shelves declining on average from the prior quarter.

Features
-The third report from the 2024 Barron's Roundtable presents investment recommendations from Henry Ellenbogen, Rajiv Jain, Abby Joseph Cohen, and Mario Gabelli. The four investors have varying stock-picking styles, but share a common interest in finding value. Henry, the managing partner of Durable Capital Partners, prefers private markets, platform companies, and franchises with compounding value. Rajiv, the chairman and CIO of GQG Partners, places big bets on fast-growing businesses benefiting from a changing world. Abby, a Columbia Business School professor, teaches about the potential revival of US blue chips and Japanese REITs. Mario Gabelli, chairman and CEO of Gabelli Funds, is known for his expertise in corporate lovemaking and companies likely to prosper from mergers and spinoffs.
-Biotech stocks have seen a significant increase in investor interest, with CG Oncology's IPO generating a 96% surge in its first day of trading. This indicates that investor enthusiasm for biotech stocks is still strong, and the sector is expected to continue growing. However, the SPDR S&P Biotech ETF, which tracks smaller and midsize biotech stocks, is still down nearly 50% from its high point in early 2021, despite a 30% rise since November. The ETF has seen gains in early January due to deal announcements at the annual JP Morgan healthcare investment conference, but has dipped in the weeks since.

Europe:
-The European Central Bank (ECB) has left interest rates unchanged this month. Despite historically low unemployment rates in the 20 Eurozone nations, the weak growth outlook and rapidly slowing inflation will put more pressure on the ECB. The ECB is determined to ensure inflation returns to its 2% medium-term target in a timely manner and will set policy rates at sufficiently restrictive levels for as long as necessary. President Christine Lagarde stated that it is "premature to discuss rate cuts" and reiterated the importance of data-dependent decisions.

Emerging Markets:
-No update this week

Commodities:
-President Biden has announced a pause in the approvals of liquefied natural gas export plants to review their environmental, security, and economic impacts. This is the first major setback in the energy industry, but it is unlikely to significantly impact major stocks. The projects that could be delayed are unlikely to enter service before 2027, and the US export capacity is expected to double by the end of the decade. Despite global liquefied natural gas demand growing rapidly, capacity is growing even faster. Existing LNG projects and those under construction are expected to meet or exceed global demand through 2029. The decision has not caused concern for energy investors, as natural-gas prices have ticked up and the First Trust Natural Gas ETF has declined slightly. However, some analysts believe that a plant delay could benefit existing players in the industry, such as Cheniere Energy, which built the first US LNG export facility and whose market share was threatened by an influx of competitors.

Streetwise:
-Jack Hough observes that oil prices have experienced a wild ride in recent years, with prices falling to $37 per barrel during the pandemic (due to empty highways and full storage tanks) and then rising to $120 in summer 2022. Texas crude has recently sold for $77, down from $90 at the end of September but up from $72 since the start of this year. The futures curve suggests that oil prices will fall from the high to low $70s from now through 2027. Oil stock analyst Jason Gabelman, at TD Cowen, is cautious, assuming high $70s for now but $65, on average, in 2026 and 2027. However, he upgraded Exxon Mobil to Outperform from Market Perform, predicting a healthy stock gain with its 3.7% dividend yield. Oil companies like Exxon can still profit well even with low oil prices, as they have brought down the break-even price needed to cover their dividends by $20 a barrel since the early days of the shale drilling revolution.

WSJ : Eager for Economic Wins, Biden to Announce Billions for Advanced Chips

Eager for Economic Wins, Biden to Announce Billions for Advanced Chips
Industry, lawmakers worry semiconductor production could take years because of negotiations, permitting and worker shortages

WASHINGTON—The Biden administration, eager to highlight a signature economic initiative as elections approach, is expected to award billions of dollars in subsidies to Intel, Taiwan Semiconductor Manufacturing Co., or TSMC, and other top semiconductor companies in coming weeks to help build new factories.

The grants are part of the $53 billion Chips Act, intended to reshore production of advanced microchips and fend off China, which is fast developing its own chip industry.

The slow pace of implementation of the 2022 bipartisan law has frustrated some. More than 170 firms have applied but, to date, just two tiny grants have been made, to makers of less advanced chips.

Industry executives familiar with negotiations said the forthcoming announcements are for much larger sums, in the billions of dollars, and aimed to kick-start manufacturing of advanced semiconductors that power smartphones, artificial intelligence and weapons systems.

The executives expect some announcements to come before the State of the Union address scheduled for March 7, when President Biden, a Democrat, will seek to showcase his economic achievements as the presidential campaign picks up steam. Former President Donald Trump is the front-runner for the Republican nomination.

“There is pressure obviously to get the big names funded before things start really heating up,” said William Rinehart, a senior fellow for technology and innovation for the American Enterprise Institute, a think tank.

The announcements are preliminary, to be followed by due diligence and then final agreements. Funds will be released in stages as the projects progress.

Some lawmakers and industry officials worry that, because of permitting and other delays, it could be years before the taxpayer-subsidized factories are churning out made-in-America chips.

Among the likely recipients is Intel, which is led by CEO Pat Gelsinger and has projects under way in Arizona, Ohio, New Mexico and Oregon that will cost more than $43.5 billion. Another is TSMC, with two fabrication plants, or fabs, under construction near Phoenix for a total investment of $40 billion. Arizona and Ohio are considered battleground states in November’s presidential and congressional races.

South Korea’s Samsung Electronics has a $17.3 billion project near Dallas. Micron Technology, Texas Instruments and GlobalFoundries count among other top contenders, industry executives say.

“Certainly, in the early part of this year, we will be announcing major progress,” Michael Schmidt, director of the Chips Program Office, said. “We are on schedule.”

A Commerce Department spokeswoman declined to discuss individual applications, timing or award amounts. “This is a merit-based process with tough commercial negotiations—CHIPS awards will be entirely dependent upon which projects will advance U.S. economic and national security,” she said.

The Chips Act includes $39 billion in manufacturing grants to cover as much as 15% of the total cost of each project up to $3 billion per fab, as well as loans, loan guarantees and tax credits.

How the Chips Act is implemented makes for an early test of Washington’s ability to carry out industrial policy—government support for industries deemed strategic—where China, Japan and Germany have far more practice.

Delivering on signature economic policies—such as the Chips Act, a 2021 infrastructure law, and the 2022 Inflation Reduction Act aimed at renewable energy—is also urgent for Biden’s re-election push. The laws are individually popular: An October survey by progressive-aligned Navigator Research showed the Chips Act was among the more popular Biden programs, with 69% of respondents expressing support.

But voters overall have a dim view of Biden’s economic stewardship. A December poll by The Wall Street Journal found “Bidenomics,” the collective moniker for such programs, is viewed favorably by less than 30% of voters and unfavorably by more than half.

Part of the gap might lie in how long it has taken to actually implement the laws. The Chips Act’s requirements on workforce and national security have complicated the funding negotiations. Shortages of skilled workers loom.

TSMC, which produces roughly 90% of the world’s most advanced chips, said last week it expected to delay production at the second of its Arizona plants by one to two years, citing uncertainty over U.S. incentives. TSMC had earlier postponed the opening of the first fab from 2024 to the first half of 2025.

“The main reason is the lead time and the alternatives that these firms have,” said John VerWey, an adviser on security and technology at the federal Pacific Northwest National Laboratory who has studied regulatory hurdles for plant constructions in the U.S. “When TSMC wants to build a fab in Taiwan or in Japan, they can do so much faster than they can in the U.S.”

Administration officials say that the Chips Act has already spurred private sector investments exceeding $200 billion. Some 12,000 people work daily at TSMC’s Arizona site.

“Let’s think about what’s possible 10 years from now if we are bold,” Commerce Secretary Gina Raimondo said in February last year.

The most immediate threat to the timely construction is the National Environmental Policy Act, which requires large federally funded projects to pass environmental review before grants are released, regardless of whether they have already obtained state and local government permits. Full NEPA reviews took an average of 4.5 years between 2013 and 2018, according to a federal government report. Critics say each year of delay adds roughly 5% to the construction cost of a chip plant.

A Senate-passed bill exempting major Chips Act projects from NEPA review has failed to gain traction in the House. Some Republicans want a wider permitting overhaul covering energy and other sectors. Some Democrats worry about diluting environmental standards.

“The process could take five years and that’s not the intention of why we are doing this thing,” said Sen. Mark Kelly (D. Ariz.), a lead author of the Senate bill. “We are trying to get these chips built here in the United States as soon as we possibly can.”

Industry executives also say negotiations have been complicated by a lack of clarity on how the program’s rules will work. Some executives in private complain that what the Commerce Department has offered so far is insufficient. They also worry about accompanying conditions, such as activity in China, sharing of excess profits with the government and paying construction workers union-scale wages.

A shortage of skilled workers has been cited as a reason for potential delays. The Semiconductor Industry Association, a trade group, estimates the industry will face a shortfall of 67,000 workers by 2030, including technicians, computer scientists and engineers.

“The chip industry is capital-intensive and, as such, firms need predictability,” said Jimmy Goodrich, a semiconductor expert advising Rand Corp. “They will hedge significant investments such as purchasing equipment, which accounts for 80% of fab costs, until they are certain that there is market demand and that government incentives will be in place at the level needed to compete globally.”

WSJ : Swiss Building-Materials Giant Plans Separation of U.S. Business

Swiss Building-Materials Giant Plans Separation of U.S. Business
A deal for Holcim’s North American operation could value it at over $30 billion

Switzerland’s Holcim HOLN -0.06%decrease; red down pointing triangle is nearing a deal to separate out its North America business, a big supplier of building materials that could be worth more than $30 billion.

The deal could be announced this coming week, assuming the plans don’t fall apart at the last minute, according to people familiar with the matter.

Holcim shares have moved little from where they sat a decade ago, which is likely behind the desire to unlock value in the fast-growing North American operation. There is no guarantee the company will achieve the expected valuation.

In North America, Holcim is among the largest suppliers of cement, commercial flat-roofing materials and ready-mix concrete. In 2022, the business generated 35% of the parent’s total net sales of more than 29 billion Swiss francs, equivalent to about $33.6 billion, and that is expected to have reached about 40% last year, the company said this past summer.

Holcim, based in Zug, Switzerland, has a market capitalization of roughly 36.9 billion Swiss francs. Its creation was the result of the hotly contested merger of Lafarge, then of France, and Holcim, of Switzerland, in 2015. The combined company had been known as LafargeHolcim until 2021, when it adopted its current name.

Eventually, the idea would be to take Holcim’s North American business public in the U.S., making it easier for investors to value the operation separate from the parent company’s divisions in Europe, Latin America, Asia, the Middle East and Africa. That would also allow it to use its own stock to fund future acquisitions.

Increased government spending on infrastructure in the U.S. has bolstered companies in the building-products sector like Holcim that play a key role in efforts to transition to cleaner energy and to rebuild the nation’s roads.

Holcim operates through four business segments: Cement, Ready-Mix Concrete, Aggregates and Solutions & Products. In the U.S., Holcim has close to 350 sites in 43 states and employs 7,000 people, according to the company’s website.

In 2021, Holcim completed the roughly $3 billion acquisition of Firestone Building Products, which makes commercial roofing and other building products. The move was aimed at bolstering what the company said was its biggest market by sales.

The decision by CRH, a Holcim rival, to list in New York shows the perks of going public here. The Dublin company previously had its primary listing in London but switched it in September because the company generates most of its operating profit in the U.S., a market that offers more acquisition opportunities. CRH’s stock is up more than 24% since then.

Shares in LafargeHolcim made their debut on the Swiss and Paris stock exchanges more than eight years ago with a market capitalization of about 41 billion Swiss francs.

The choice of a leader for the merged company threatened to undo the deal nearly a year after it was first agreed. Both companies also had to shed assets around the world to get approval from regulators, while investors harbored other concerns over the transaction.

LafargeHolcim was established to pivot the companies away from developed markets and toward faster-growing economies in Africa and Asia.

WSJ : Israel Struggles to Destroy Hamas’s Gaza Tunnel Network

Israel Struggles to Destroy Hamas’s Gaza Tunnel Network
System’s complexity, Israel’s war aims and lack of manpower hinder effort

As much as 80% of Hamas’s vast warren of tunnels under Gaza remains intact after weeks of Israeli efforts to destroy them, U.S. and Israeli officials said, hampering Israel’s central war aims.

Thwarting Hamas’s ability to use tunnels is the keystone to Israel’s effort to capture top Hamas leaders and rescue the remaining Israeli hostages, Israeli officials have said. And Israel has said it has conducted strikes on hospitals and other key infrastructure in its pursuit of the tunnels.

Disabling the tunnels, which run for more than 300 miles under the narrow strip—or roughly half the New York City subway system—would deny Hamas relatively safe storage for weapons and ammunition, a hiding place for fighters, command-and-control centers for its leadership, and the ability to maneuver around the territory unexposed to Israeli fire, Israel has said.

Israel has sought various methods to clear the tunnels, including installing pumps to flood them with water from the Mediterranean, destroying them with airstrikes and liquid explosives, searching them with dogs and robots, destroying their entrances and raiding them with highly trained soldiers.

More than 25,000 people, the majority women and children, have been killed in Gaza since the start of hostilities, according to Palestinian authorities. Those figures don’t distinguish between combatants and civilians.

U.S. and Israeli officials have had difficulty precisely assessing the level of destruction of the tunnels, in part because they can’t say for certain how many miles of tunnels exist. The officials from both countries estimate 20% to 40% of the tunnels have been damaged or rendered inoperable, U.S. officials said, much of that in northern Gaza.

Israel is “thoroughly and gradually dismantling the tunnel network,” the Israel Defense Forces said in a statement. The White House and the Office of the Director of National Intelligence declined to comment.

Late last year, in an operation called “Sea of Atlantis,” Israel installed a series of pumps in northern Gaza, despite concerns about the potential impact of pumping seawater on the territory’s freshwater supply and above ground infrastructure. Israel’s bombing of the tunnels has inflicted widespread destruction to buildings on the surface.

Earlier this month, Israel installed at least one pump in the southern Gaza city of Khan Younis to disrupt the tunnel network there, a U.S. official familiar with the effort said. The first pumps installed within Gaza used water from the Mediterranean Sea, while the latest pump draws water from Israel, the official said.

In some places, walls and other unexpected barriers and defenses slowed or stopped the water flow, U.S. officials said. Seawater has corroded some of the tunnels, but the overall effort wasn’t as effective as Israeli officials had hoped, U.S. officials said.

“Hamas’s strategy revolves around the tunnels—it is their center of gravity. They needed the tunnels to level the battlefield with the IDF,” said Mick Mulroy, a former deputy assistant secretary of defense and officer in the Marine Corps and Central Intelligence Agency. “The tunnels are where Hamas planned [before Oct. 7] to wait out Israel’s political will as Israel faced pressure for a cease-fire.”

Israel has units that specialize in clearing tunnels but many of those troops are engineers trained to destroy them, not search for hostages and top Hamas leaders, U.S. officials said. In particular, more troops are needed to clear the tunnels, the officials said.

In addition, Israel’s primary war aims—killing or capturing top Hamas leaders and rescuing the roughly 100 remaining hostages—are, at times, at odds, officials said.

“The question is: Is there a real way to get the hostages out alive?” said a senior Israeli military official. “Otherwise we would have been much more forceful in our approach.”

Some of the hostages are being held in a command center in a tunnel under Khan Younis, Israeli officials said. Hamas’s top leader in Gaza, Yahya Sinwar is hiding in the same location, according to the senior Israeli military official.

A raid on that command center could endanger the hostages, according to former Israeli officials and military analysts, a dilemma that amounts to a choice between killing Sinwar and negotiating the release of some or all of the remaining hostages.

The official said the military’s approach was focused on clearing “nodes” within the tunnels where Hamas leaders and fighters are hiding, rather than checking or destroying the entire system.

“It’s a very hard mission. It’s done slowly, very carefully. It’s urban warfare unseen globally,” the official said.

Even locating Sinwar and the remaining hostages could prove to be a difficult task.

Gershon Baskin, a hostage negotiator who facilitated the 2011 deal with Hamas that freed Israeli soldier Gilad Shalit from captivity in Gaza, said Israel didn’t know where he was held for years.

“It’s unbelievable that this is Israel’s backyard and how little intelligence information they have,” he said.

Earlier this month, the Israeli military took reporters on a tour of the tunnels in southern Gaza, around Khan Younis, and said there was evidence hostages had been held there. But they couldn’t say when they had been moved.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-The UN's top court has ordered Israel to comply with international law on genocide, a politically explosive case that raises pressure on its war in Gaza. The International Court of Justice ordered Israel to limit harm to Palestinians in Gaza but did not call for an immediate end to the military offensive. The ruling came shortly before UNRWA dismissed several employees over alleged Hamas attack involvement.
-The rise in freight rates and port snarl-ups in 2021-22 was due to increased consumer demand as the world recovered from Covid, not supply shocks to the trading system. America's role in keeping shipping lanes open, particularly by clearing pirates, has contributed to its resilience. The Center for Global Development think-tank states that the US contributes 0.2% of gross national income to protect international waters.
-Houthi rebels in Yemen have launched a missile attack on a Russian refined oil ship, the Marlin Luanda, (operated by Trafigura, and owned by Oceonix Services) as they continue their attacks on commercial and military vessels in the Gulf of Aden and the Red Sea. The attack marks the first time a commercial vessel has been targeted by the Houthis since the US and UK combined on a second set of strikes against the militants. The attack follows the Houthis' previous missile attack on the USS Carney, a US navy vessel in the Gulf of Aden.
-A New York jury has ordered former US President Donald Trump to pay $83.3mn for defamation of writer E Jean Carroll, who accused him of sexual assault. The verdict comes after Trump was ordered to pay $5mn after a separate trial in May, where a jury found Trump had sexually abused but not raped her. The bill could soon grow steeper, with Trump also facing potential damages upwards of $350mn in a separate fraud trial involving his family business, the Trump Organization. A New York judge is expected to issue his judgment before the end of the month.
-Sri Lanka is set to negotiate a debt restructuring with US dollar bond holders within a couple of months, despite private creditors' concerns about being left in the dark. Central Bank Governor Nandalal Weerasinghe stated that the $13B debt restructuring process needs to be completed quickly, despite the procedure taking time. The country is preparing for elections later this year amid signs of economic recovery, two years after a currency crisis led to its debt default.
-Boeing CEO Dave Calhoun is facing scrutiny from customers, politicians, and regulators as his leadership is under scrutiny. Boeing's shares have fallen 20% since the January 5 fuselage blowout on an Alaska Airlines flight. The grounding of most of its 737 Max 9 jets has damaged the company's reputation and caused disruptions to customers' operations. Alaska Airlines CEO Ben Minicucci has pledged to hold Boeing accountable, while American Airlines CEO Robert Isom has urged Boeing employees to act together. Pilots have expressed anger, stating that Calhoun's management changes have not worked and that they need safe, reliable aircraft.
-Charles Michel, former European Council president, has resisted his bid for a European parliament seat, stating he will continue to chair EU summits and represent the bloc's 27 leaders. Michel will not step down before the end of his mandate in December, as he would have been forced to do so after the June elections.
-US aid for Ukraine's war effort seems unlikely to materialize due to Trump and House Speaker Mike Johnson's opposition to a potential Congress deal linking more funding for Kiev with stricter immigration controls. Senate negotiators have been working on a bipartisan agreement on stricter border measures in exchange for more security assistance to Ukraine. Trump's focus on immigration and his dominance in the Republican primary have made it difficult for lawmakers to accept a compromise.
-Luxury goods companies in Europe have seen their stocks reach multiyear highs following LVMH's fourth-quarter sales report, boosting investor confidence in the sector's ability to withstand an economic downturn. France's Cac 40 rose 2.3%, while London's FTSE 100 added 1.4%. The Stoxx Europe 600 rose 1.1%, reaching its highest level since January 2022. LVMH's turnover rose 10% in the three months to December, easing concerns about a China economic slowdown.
-The Biden administration will temporarily halt approvals for new liquefied natural gas export terminals along the US coastline, affecting the industry and benefiting climate campaigners. The US is the world's largest LNG exporter, but its liquefaction plants are a target for climate activists.

THE NEW YORK TIMES
-Former President Trump has been ordered to pay $83.3M to writer E. Jean Carroll for defamation in 2019. The jury awarded Carroll $65M in punitive damages, finding Trump's actions with malice. Trump continued to attack Carroll in social media posts, news conferences, and during the trial.
-The United Nations has fired 12 UNRWA employees in Gaza following accusations of involvement in the October 7 terrorist attack. The agency, known as UNRWA, is under criminal investigation. The agency condemns the attacks and will hold any involved employees accountable, including through criminal prosecution.
-Alabama officials have vowed to continue using nitrogen gas in executions after the nation's first nitrogen gas execution, despite critics calling it appalling and far from what the state promised. The state's attorney general, Steve Marshall, called it a "textbook" execution, making nitrogen hypoxia a "proven" method for other states to emulate. Witnesses described an intense reaction during the gas administration, including a violent shaky and writhing prisoner.
-Nikki Haley, former South Carolina governor and Trump's UN ambassador, criticized Trump's mental acuity after a failed attempt by one of his allies to declare him the party's presumptive nominee, escalating her attacks on his mental acuity on Fox News.
-President Biden fought to save a bipartisan immigration deal from collapse in Congress, vowing to shut down the border if the plan becomes law. In a written statement, Biden declared the border "broken" and in "crisis," and promised to halt migration immediately if Congress sends him the proposal.
-Protests by farmers in France have spread due to complex regulations, administrative hassles, and low wages. The country's new prime minister, Gabriel Attal, arrived in southwestern France to ease tensions. Attal declared that without farmers, France is no longer France. He promised to scrap plans to reduce state subsidies on diesel fuel used in trucks and other farming machinery and significantly reduce bureaucratic regulations farmers must follow. For example, 14 different regulations on hedges would be merged into one.
-The State Department has approved a $23B sale of F-16 fighter jets and related equipment to Turkey after President Recep Tayyip Erdogan signed documents allowing Sweden's entry into the North Atlantic Treaty Organization. Four senior lawmakers confirmed their agreement after reviewing the signed documents. Congress could block the sale, but four senior lawmakers remained unafraid after reviewing the documents. The State Department requested Turkey to fly the documents to New York and bring them to Washington.

THE NEW YORK POST
-Andrew Cuomo, a prominent figure in the Democratic Party, has criticized President Biden's administration for failing to address the migrant crisis. He attributed the problem to divided opinions within the party, a sentiment that was echoed by political experts. Cuomo's message is based on self-serving tough love, highlighting the ineffectiveness of the Democratic Party in addressing the issue. However, he also acknowledges the need for a more nuanced approach to the problem.
-A key Biden family associate, Rob Walker, has revealed new details about Joe Biden's alleged involvement in foreign business relationships. Walker testified that Biden attended a meeting with a Chinese government-linked company in 2017, which paid millions to his son Hunter and brother James. Biden did not commit any wrongdoing in these overseas ventures.
-JetBlue Airways is expressing doubts over closing its $3.8B merger with Spirit Airlines, citing unmet conditions as part of the deal. Spirit's shares tumbled 13% to $6.25, adding to their losses of over 60% this month. JetBlue informed Spirit that the merger agreement might be terminated on and after Sunday due to unmet conditions. Spirit, however, said there was no basis for terminating the agreement and expects JetBlue to do the same.