Recommended Weekend Reads
June 20 - 22, 2025
Assessing Israel’s Attack and the Limits of Iran’s Missile Strategy, A Hitchhiker’s Guide to the Fed’s Role in the Fixed Income Market, and Analyzing the Pentagon Pizza Index
Below are the studies and reports we found of particular interest this past week. We hope you find them of interest, too. Please let us know if you have any questions or if you or a colleague wants to be added to our distribution list.
The Israel-Iran Crisis
How Iran Lost – Tehran’s Hard-Liners Squandered Decades of Strategic Capital and Undermined Deterrence Afshon Ostovar/Foreign Affairs
Iran’s hard-liners overplayed their hand. After Hamas attacked Israel on October 7, 2023, the regime’s leaders opted for a campaign of maximum aggression. Rather than letting Hamas and Israel fight it out, they unleashed their proxies at Israeli targets. Israel, in turn, was compelled to expand its offensive beyond Gaza. It succeeded in severely degrading Hezbollah, the most powerful of Tehran’s proxy groups, and eviscerating Iranian positions in Syria, indirectly contributing to the collapse of the Assad regime. Iran responded to this aggression by unleashing the two largest ballistic missile attacks ever launched against Israel. But Israel, backed by the U.S. military and other partners, repelled those attacks and incurred little damage. It then struck back. With that, the foundation of Iran’s deterrence strategy crumbled. Its ruling regime became more vulnerable and exposed than at any point since the Iran-Iraq War of the 1980s. And Israel, which has dreamed of striking Iran for decades, had an opportunity it decided it could not pass up.
Israel’s attack and the limits of Iran’s missile strategy International Institute for Strategic Studies
Israel’s attack on Iran has exposed critical weaknesses in Tehran’s broader military strategy. While Iran still has untapped shorter-range capabilities it could deploy in its immediate neighborhood, its depleted medium-range missile arsenal and weakened regional allies leave it with limited options for retaliation against Israel.
Options for Targeting Iran’s Fordow Nuclear Facility Center for Strategic and International Studies
In order to achieve its stated objective of dismantling Iran’s nuclear program, Israel will need to take out a key Iranian facility, the Fordow Fuel Enrichment Plant. Fordow is buried deep under a mountain near Qom and is believed to be one of the key sites of Iran’s nuclear enrichment activities, about 54,000 square feet in size, with 3,000 centrifuges. Due to its hardening and depth, Israel lacks the ordnance to take out Fordow on its own in the short term; however, multiple strikes from the U.S. GBU-57, carried out by U.S. B-2 bombers, could destroy the facility. There are at least five options for destroying Fordow. All of them will have varying degrees of impact on Iran’s nuclear program, along with unique risks of escalation and international response. Below is an analysis of all five options; however, to avoid escalation while still achieving nonproliferation objectives, Israeli sabotage appears to be an underappreciated option.
Geoeconomics
Black Swans and Financial Stability: A Framework for Building Resilience Daniel Barth/Stacey Schreft – Federal Reserve Board of Governors Finance and Economics Discussion Series (FEDS)
Abstract: This article refines the concept of black swans, typically described as highly unlikely and catastrophic events, by clearly distinguishing between knowable and unknowable events. By emphasizing that black swans are “unknown unknowns,” the article highlights that the realization of new black swans cannot be prevented and motivates a need for policies that build the financial system's resilience to unforeseeable crises. The article introduces a "resilience principle" that calls for policies that are adaptable, universal, and systemic. Examples are provided of policies with these features, none of which relies on the official sector being better positioned than the private sector to anticipate the unknown.
Bank Financing of Global Supply Chain Federal Reserve Bank of Atlanta Working Paper Series
Abstract: Finding new international suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018–19 US-China trade tensions. We match data on shipments to US ports with the US credit register to analyze trade and bank credit relationships at the bank-firm level. We show that importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit demand, drawing on bank credit lines and taking out loans at higher rates. Banks offering specialized trade finance services to Asian markets eased both financial and information frictions. Tariff-hit firms with specialized banks borrowed at lower rates and were 15 percentage points more likely and three months faster to establish new supplier relationships than firms with other banks. We estimate the cost of searching for suppliers at $1.9 million (or 5 percent of annual sales revenue) for the average US importer.
A Hitchhikers Guide to Federal Reserve Participation in Fixed Income Markets Journal of Economic Perspectives
The Federal Reserve has historically relied on banks and primary dealers, [but] the landscape for fixed income ownership shifted after the 2007–2009 financial crisis, and again after the March 2020 crisis. As of the end of 2024, [non-bank financial institutions] are more than three times larger than the US banking system. Participation of investment funds—including mutual funds, money market funds, hedge funds, money managers, and investment advisors—in auctions of Treasury securities increased from 1.7% in January 2008 to 67.8% in October 2023, whereas the share attributable to dealers and brokers’ share decreased from 79% to 19.4% during the same period.
Investment in an increasingly global landscape Bank for International Settlements (BIS)
Private business fixed investment has fallen or remained flat in advanced economies for decades, with a recent levelling-off also observed in several emerging market economies. The recent increase in uncertainty due to trade tensions will dampen investment while also reducing the effectiveness of monetary policy. In the long run, the outlook for private business investment depends on the potential need to reconfigure supply chains disrupted by higher trade tariffs as well as governments’ efforts to boost public investment and implement structural reforms.
Africa
Africa’s Complicated Democratic Landscape Center for Strategic and International Studies
In 2024, the global trend of voters rejecting incumbents was reflected in Africa, where opposition parties made significant gains in countries with relatively strong democratic institutions. These results stemmed from economic frustration, widespread dissatisfaction with poor governance, and changing demographics. The most critical elections of 2025 will be in countries where incumbents have used constitutional changes and institutional control to stay in power. As elections unfold, how voters engage with the process will be key to shaping the political future of their countries and the continent as a whole. There are several African elections worth watching in late 2025 to help make this determination: Cameroon, Tanzania, Côte d’Ivoire, and Guinea. Uganda's election in January 2026 is also one to watch.
21st-Century Africa: Governance and Growth The World Bank
When compared with the average living standards of the rest of the world, GDP per capita in Sub-Saharan Africa has declined over the past three decades. During the period 1990–2022, three distinct periods can be identified in the evolution of Sub-Saharan Africa’s real GDP per capita: a declining trend during 1990–2000 (from 30% to 25% of the world average), stagnant GDP per capita relative to the world during 2000-14 (fluctuating around 25%), and a declining trend from 2014 to 2022 (from 25% to 22% of the world average). The region’s lack of convergence in living standards with the rest of the world largely results from its inability to sustain growth over time. If Sub-Saharan Africa had grown (in per capita terms) at the same pace as the global economy since 1990, its level of income per capita in 2022 would have been more than 40% higher than its actual level. If it had grown at the same pace as emerging East Asia, the region’s income per capita would have been nearly three times its 2022 level. Currently home to 14% of the world’s working-age population, by 2100, Africa is projected to have 39%, representing more than a third of the workforce of the entire world.
Africa has a new space agency — here’s what it will do Nature Magazine
Africa’s first continent-wide space agency, the African Space Agency (AfSA), which was inaugurated in April, is looking to secure funding as its first projects get underway. AfSA is an initiative of the 55-member African Union (AU) and is headquartered in Cairo. It was established to coordinate the work of Africa’s existing efforts in space — more than 20 African countries have space programs. Priorities will include improving satellite communication, which provides crucial connectivity for rural populations. It also aims to generate and access data from space to track the effects of climate change, provide disaster relief, and aid agriculture, water, and food security.
China
Is China Really Growing at 5 percent? Federal Reserve Board of Governors FEDS Notes
Chinese authorities recently announced a growth target of "around 5 percent" for 2025, the same as their 2024 target. Five percent is about half the pace of growth that China sustained from the 1980s to the early 2010s, but it is nonetheless quite high for an economy flirting with deflation and mired in a years-long property bust. The ambitious growth target, given the circumstances, has led many observers of the Chinese economy to once again treat the official GDP data with skepticism. All told, assessing the accuracy of China's GDP growth remains a challenge, and no statistical model can provide a definitive alternative measure. But our analysis suggests that official figures have not recently been overstating GDP growth for three reasons. First, the excess smoothness of official GDP has significantly diminished since the pandemic. Second, our alternative indicator, which relies on a broad set of data series informative about the Chinese business cycle, including consumption and the property sector, closely tracks official GDP. Finally, the supply side of China's economy has performed remarkably well in the context of robust demand for Chinese goods and industrial policies promoting self-reliance.
China’s Car Industry Runs on Empty as Supply Chain Bills Go Unpaid Financial Times
In an effort to shore up automotive supply chains, the Chinese government mandated a 60-day supplier payment rule. Most carmakers suffer from negative working capital; only a handful of Chinese EV makers have sufficient net cash to comply with the new rule.
Assessing Geopolitical Risk
Pentagon Pizza Index: The theory that surging pizza orders signal a global crisis Fast Company
A different kind of pie chart is being used to predict global crises. A surge in takeout deliveries to the Pentagon—now dubbed the “Pentagon Pizza Index”—has emerged as an unexpectedly accurate predictor of major geopolitical events. Tracking activity at local pizza joints in Arlington County, the X account Pentagon Pizza Report noted an uptick in Google Maps activity from four pizza places near the Pentagon on June 12. We, The Pizza, District Pizza Palace, Domino’s, and Extreme Pizza all reportedly saw higher-than-usual order volumes around 7 p.m. ET. “As of 6:59 p.m. ET nearly all pizza establishments nearby the Pentagon have experienced a HUGE surge in activity,” the X account posted. The timing? Just hours before news broke of Israel’s major attack on Iran.
Geopolitical Shift: Corporate America’s Growing Focus on Global Risk U.S. Chamber of Commerce
Geopolitical risks are no longer a distant concern for businesses—they are a top-tier strategic and financial challenge. From supply chain disruptions to shifting regulations and market volatility, global instability now shapes investment decisions, corporate strategy, and economic security. As a result, companies across all sectors are reporting more geopolitical concerns in their investor communications since 2009. This trend has accelerated sharply since 2019. And technology companies show the highest levels of concern, though the increase spans all industries.