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EU divided over defence funding

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Although increasing EU defence production has been on the agenda of EU leaders since the start of the war in Ukraine, the issue has been slow to gain traction.

The most sensitive issue is how to finance further defence investment in the future. EU leaders agreed on Thursday (21 March) to force the European Investment Bank (EIB) to ‘adapt its policy on lending to the defence industry and its current definition of dual-use goods, while maintaining its financing capacity’.

They also made progress on using proceeds from frozen Russian assets to help Ukraine within months, under a plan to use most of the money to buy arms for Kiev.

The European Commission had proposed that 90% of the proceeds from frozen Russian assets be used to finance Ukraine’s defence production and military aid, while the remaining 10% would be given to Kiev as budget support.

European Council President Charles Michel and European Commission President Ursula von der Leyen said the idea of using the proceeds from frozen Russian assets to benefit Ukraine had broad support among EU countries.

Concerns of ‘neutral’ countries

But the use of this money to buy weapons is a problem for some countries, including militarily neutral states such as Austria, Ireland and Malta.

“For us neutrals, it must be ensured that the money we approve is not spent on arms and ammunition,” said Austrian Chancellor Karl Nehammer. Michel said Brussels could find ways to address their concerns.

“Russia must feel the real cost of war and the need for a just peace,” Ukrainian President Volodymyr Zelensky said, urging EU leaders to go further and use the assets themselves, a step the bloc has not yet considered.

Proposal for joint defence borrowing rejected

At the same time, EU leaders disagreed on a broader initiative for European financing of arms for Kiev, such as the ‘Eurobond for defence’ requested by Estonia and France.

Member states such as the Netherlands and Sweden are sceptical about joint borrowing on the financial market for defence purposes.

“The urgency of the issue means we have to consider options we don’t like,” an EU diplomat told Euractiv.

The leaders asked the European Commission to “explore all options for mobilising financing and report back by June”, a choice of words pushed by the Baltic states, Poland and Greece.

Leyen told reporters that the discussion was still at an early stage.

Fear of ‘power grab’

Although there is no coherent plan for new funding, the Commission has recently outlined plans for a European defence strategy.

These include Leyen’s idea of a new defence (industry) commissioner for the next term, more defence funding, an expansion of the bloc’s defence industrial base and the use of frozen Russian assets.

The plan even goes as far as the EU executive being prepared to place arms orders with member states to support joint arms procurement.

But this is where the controversy erupts. Leyen’s plan for a European defence industrial strategy is drawing criticism from some EU countries, including Germany, which supports strengthening the sector but fears the plan involves usurping national competences.

EU diplomats said there was considerable scepticism during Thursday’s summit discussions.

German Chancellor Olaf Scholz told EU leaders that the bloc did not need ‘another state-like structure for defence’ or the creation of new powers that would amount to a power grab, two people familiar with the talks told Euractiv.

While Scholz stressed the need to develop the bloc’s potential for joint procurement, he rejected the idea of the Commission as a mediator that could slow down processes.

“She wants to be a war president but forgets that the EU is not a state,” an EU diplomat said of Leyen, suggesting that critics of her using the defence issue to win a second term were right.

Member states still opposed to investment programme

In recent months, many EU countries have raised concerns about the Commission’s intentions behind the European Defence Investment Programme (EDIP), the bloc’s ambitious framework for strengthening the military-industrial complex.

As the programme will give EU member states and the Commission the power to redirect industrial priorities, finance arms production and give the EU body an overview of production capacities and supply chains, often protected by governments for national security reasons, some measures are considered ‘sensitive’ by member states.

Presenting the text, internal market commissioner Thierry Breton said his organisation was not interested in a ‘power grab’ and rejected a loose interpretation of EU treaties prohibiting the transfer of EU funds to military operations.

To avoid this accusation, the European Commission based its industrial policy proposal on Article 173 of the EU treaty, which allows the bloc to work on industrial competitiveness.

The Commission’s directorate-general in charge of implementing the programme (DEFIS) recently sent envoys to prepare the ground with EU countries to avoid potential problems.

Despite concerns, EU leaders on Thursday instructed their ministers to examine the EDIP text ‘without delay’.

Negotiations on technical details are expected to start in early April, with the European Council due to adopt its position in June, before the new European Parliament convenes in the summer.

Middle East

Israeli envoy warns red line crossed over Turkish moves in Syria

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Israel’s Ambassador to the US, Yechiel Leiter, stated that Tel Aviv received clear intelligence showing Türkiye planned to expand its military presence in Syria significantly, an action Israel deemed the crossing of a “red line.”

Speaking to The Jerusalem Post, Leiter said: “We are not looking for an escalation or a war with either Türkiye or Syria. But a red line was crossed.”

His remarks follow an Israeli air strike on the Abu al-Duhur Airbase in Idlib, Syria, which drew swift criticism from both the Syrian and Turkish governments.

Leiter continued:

“This was seen as a blatant Turkish violation of the understandings. Those who needed access to the intelligence received it. Those who needed to know what was going to happen knew. We made it clear that this was contrary to our understandings, and that is why Israel acted as it did.”

According to Leiter, the failure to heed these warnings led Israel on Tuesday to strike the Abu al-Duhur airbase, where Turkish forces were allegedly expected to arrive.

Syrian officials stated that the airbase was targeted by at least eight strikes, whilst subsequently released satellite imagery revealed damage to the runways.

Leiter stated that the Turkish move contradicted understandings reached during the Biden administration between Israel and the administration of Syria’s new leader, Ahmed al-Sharaa, which “froze the existing situation” in the country.

According to Leiter, these understandings were reaffirmed during a meeting held in Paris in January 2026, attended by Syrian Foreign Minister Asaad al-Shaibani, US Special Envoy for Syria Tom Barrack, Leiter, then-National Security Council head Gil Reich, and Netanyahu’s military secretary Roman Gofman (now director of Mossad).

Leiter continued:

“This freeze means we do not act as long as the Turks do not act, and they do not force us to withdraw. It is also important to understand: whilst we maintain a security zone of only 78 square miles [approximately 202 square kilometres] in Syria, the Turks have, over the past few years, slowly annexed 3,500 square miles in northern Syria—roughly 5% of the country’s territory.”

According to The Jerusalem Post, with the exception of Tom Barrack, the US Special Envoy for Syria and Ambassador to Türkiye, senior US officials did not condemn the Israeli strike in Syria.

“The administration’s policy is that the previously agreed freeze should continue; that is why even Trump did not condemn the strike,” Leiter said.

Despite the tensions, Leiter emphasised Israel’s understanding that Syria is not seeking an escalation or war.

“It is clear to us that the Syrians do not want a confrontation with us. That is why we tell the Turks not to create conflict. There are multiple indications that the move planned by Türkiye was imposed on the Syrians,” the ambassador said.

Leiter argued that this apparent discord was also evident in the conflicting statements issued by Türkiye and Syria following the strike:

“Whilst Syrian Foreign Minister Shaibani acknowledged that a Turkish delegation was in Syria a few days before the strike, the Turks denied this. They need to resolve this matter between themselves.”

Leiter did not rule out a return to direct talks with Syria, as conducted in the past, but said conditions must be suitable.

“Negotiations can be resumed. We want to continue the face-to-face dialogue we previously conducted with the Syrians,” Leiter said.

Leiter added that Israel is not seeking a conflict with Türkiye and remains open to dialogue with Ankara.

“We are certainly open to dialogue with them, but judging by statements from senior officials in the country, they would prefer to wipe Israel off the map,” the Israeli diplomat said.

Alleging that Türkiye hosts Hamas leaders and “channels funds” to Hezbollah and Hamas, Leiter argued that it was inappropriate at this juncture for “Türkiye to begin expanding its influence in Lebanon and Syria.”

Leiter continued:

“Under current conditions, Türkiye cannot be a force that helps bring calm to the region. If only we could return to the state of relations between Jerusalem and Ankara from several decades ago. Back then, we would have been open to Türkiye’s influence in the region. But in an environment where Türkiye funds terrorist organisations, an increase in its regional influence makes no sense.”

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UAE halts trade with Iran after reported ballistic missile attack

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The United Arab Emirates (UAE) has suspended commercial and economic relations with Iran after announcing that Tehran launched two ballistic missiles towards the Gulf state on Tuesday.

The UAE Ministry of Defence stated that air defence systems detected two ballistic missiles launched from Iran towards its territory.

The incident is considered Tehran’s first direct attack targeting the Gulf country since May.

The event prompted emergency telephone alerts to be sent to residents across the UAE.

The Ministry of Defence stated that assessments indicated the missiles targeted maritime traffic, adding that one missile fell into the sea outside UAE territorial waters and the other landed within territorial waters.

The UAE Ministry of Foreign Affairs later announced that “in light of regional tensions that undermine regional and international peace and security, all trade, commercial relations, and financial transactions with Iran have been halted until further notice.”

Iran denied any involvement in the missile attacks. Iranian Foreign Ministry Spokesperson Esmail Baghaei said the claim “contradicts the principle of good neighbourliness and undermines ongoing efforts to strengthen trust among regional countries.”

The missile strikes occurred after a period in which the UAE and Tehran had sought to reduce tensions between the two countries.

The bulk of Tehran’s military retaliation targeted neighbouring Gulf states, which Iran accused of facilitating US-Israeli attacks.

The UAE bore the heaviest brunt of Iran’s attacks against US allies in the Gulf, sustaining nearly 3,000 missile and drone strikes.

Exhibiting the most hawkish stance against Tehran among its Gulf neighbours, the UAE responded with dozens of strikes against Iran.

However, tensions between the UAE and Iran eased following a memorandum of understanding signed between Washington and Tehran in June.

After the agreement began to unravel in early July, Iran largely redirected its attacks towards Bahrain, Kuwait, and Jordan.

In recent months, the UAE reactivated diplomatic and economic channels with Iran while simultaneously strengthening its military ties with Israel and the US.

Tuesday’s missile strikes threaten to disrupt the atmosphere of normalisation that had returned to the UAE.

While Dubai’s financial district was once again filling with bankers, certain commercial activities between the emirate and Iranian ports had resumed.

Furthermore, several Iranian flights to the UAE had quietly resumed.

UAE authorities had also begun permitting the return of approximately 20,000 Iranians holding UAE residency permits who were outside the country when the war began.

UAE officials have repeatedly emphasised that the country seeks to avoid being drawn further into a broader regional war.

Nevertheless, efforts to de-escalate tensions between the UAE and Iran have come under increasing strain in recent weeks.

This month, the UAE accused Iran of attacking vessels belonging to the Abu Dhabi National Oil Company in the Strait of Hormuz.

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US considers land blockade on Iran involving Türkiye and neighbours

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To date, the US has imposed sanctions on thousands of Iranian individuals and legal entities; however, the Tehran administration continues to bypass these restrictions by rapidly establishing new structures to replace those that have been blocked.

In an assessment citing expert opinions published by the Reuters news agency, the current situation was likened to a game of whack-a-mole.

Whack-a-mole is known as a game of agility and reflexes based on the concept of hitting plastic figures with a mallet as they pop up unexpectedly from their holes.

Speaking to the agency, experts outlined other options that Washington could deploy to increase pressure on Tehran and raise the efficacy of sanctions.

Potential measures include restrictions targeting independent Chinese refineries, known as “teapots,” which account for a quarter of China’s oil refining capacity.

China purchases more than 80% of the oil exported by Iran, and these refineries process the vast majority of those shipments. Nevertheless, these facilities have limited ties to the US financial system, rendering them partially protected against secondary sanctions.

Another option on the table is increasing pressure on major Chinese banks. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has applied secondary sanctions to small firms based in China and Hong Kong accused of executing billions of dollars in transactions for Iranian oil.

The agency has also warned two large banks, though it has not yet included them on its sanctions list.

While taking steps against major banks could deter other financial institutions, such actions carry the risk of Beijing enacting retaliatory measures. Washington seeks to avoid such tension ahead of a potential meeting between US President Donald Trump and Xi Jinping in September.

Experts are also evaluating the possibility of enforcing a land blockade with the participation of Iran’s neighbours: Iraq, Türkiye, Pakistan, Azerbaijan, Turkmenistan, and Armenia.

The Trump administration holds various leverage mechanisms against such nations, including Pakistan, which is requesting a $10 billion swap line, and Türkiye, which seeks to rejoin the F-35 program. Analysts express, however, that implementing such a blockade on the ground and generating the expected pressure inside Iran would be difficult.

Trump has repeatedly voiced threats to impose secondary tariffs on countries that trade with Iran; however, the US Supreme Court struck down the legal basis for such measures.

On the other hand, a anti-Russia “crushing” sanctions bill passed by the Senate includes new restrictions on Iran and grants Trump tariff authority.

This bill must also pass a vote in the House of Representatives; however, the text faces opposition from both Democrats and certain Republican lawmakers.

US Treasury Secretary Scott Bessent announced in mid-August that Trump would disclose new measures designed to raise Iran’s economic isolation to an unprecedented level.

Stating that the US President had instructed the re-establishment of the maximum economic pressure policy against Tehran, Bessent said, “We have moved from Epic Fury to Economic Fury.”

Following Bessent’s statements, Bloomberg noted that Tehran has learned to manage the consequences of a naval blockade and thousands of restrictions. According to the agency’s analysts, the principal obstacle facing Washington is the close economic relationship between Iran and China; indeed, Beijing secures more than 90% of Iranian oil exports. Sanctioning the entities facilitating these purchases would directly reduce Tehran’s oil revenues, yet the US is avoiding this step for now.

Maritime traffic in the Strait of Hormuz remains restricted. On August 11, Iran conveyed its conditions for lifting the blockade in the strait to the US through intermediaries.

Tehran’s conditions included an end to threats and military actions, the lifting of the blockade and sanctions, compensation for damages, and the release of frozen assets.

On August 14, Trump claimed that following the end of the war with Iran, he would declare the Strait of Hormuz to be US territory. Responding to these statements, the Iranian Foreign Ministry warned that the Strait of Hormuz could not be seized “by a tweet, an aircraft carrier, an executive order, or a campaign speech.”

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