Strikes against Houthis

US, UK airstrikes show spreading fallout from Israel-Hamas war [View in browser]( [Bloomberg]( Welcome to Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up [here](. Waves of US cruise missiles and militant threats of Red Sea revenge aren’t a great end to another week of Middle East turmoil. But for now it’s not as bad as it looks. The US and UK [struck the Iran-backed Houthis]( in Yemen overnight, their biggest retaliation against the group in years. The Houthis, who’ve been attacking ships and disrupting global trade, said “all US and UK interests have become legitimate targets.” The ripple effects of the Israel-Hamas war risk edging the region further into crisis and drawing Washington deeper into the kind of military action it has been keen to avoid, especially in a presidential election year. What matters most though is the response of Iran, which has so far shown reluctance to be embroiled directly in a battle with the US. Such a move could upend oil markets by disrupting supply and potentially draw the region into an all-out conflagration with severe consequences. We’re not there yet. The Houthis say their actions are part of an [“axis of resistance”]( against Israel’s bombardment of Hamas-run Gaza. Like the Yemeni group, Hamas is backed by Tehran and other proxies that have been increasingly drawn into the latest violence. It was all sparked by the Oct. 7 attacks on Israel by Hamas, which the US and the European Union consider a terrorist group. Washington has stood firmly behind Israel’s war in Gaza, as international pressure grows to end a devastating conflict. There’s also the risk on Israel’s northern border with Lebanon. The Iranian-backed Hezbollah group has been exchanging daily fire with Israel since the battle erupted. While it’s also seen as less keen to enter into a bigger fight, in Israel the mood for war against Hezbollah persists. Further down the line, that could also provoke a bigger Iranian retaliation. As so often in the Middle East, look one way and you’ll be missing something else. — [Sylvia Westall]( A missile is launched at a Houthi target from a US Navy ship. Source: US Central Command Global Must Reads Taiwan’s freewheeling democratic system is on show this week, as the island of 23 million people prepares for its [tightest presidential race]( in two decades. When voters pick a new leader tomorrow, they’ll be choosing whether to forge closer ties with Beijing, which claims the territory as its own, or continue putting greater emphasis on strengthening relations with the US and its allies. WATCH: Bloomberg speaks to the three candidates of Taiwan’s presidential election. Source: Bloomberg Donald Trump looks set to easily win the Iowa caucuses on Monday, with polls showing the former US president’s support among Iowans at 51%, dwarfing that of his chief rivals, Florida Governor Ron DeSantis and Nikki Haley, his onetime ambassador to the United Nations. Yet some of his aides fear some [voters could stay at home]( on what is forecast to be a frigid night, producing a less-imposing margin of victory that will prolong the Republican primary contest.  Russia is preparing a legal challenge to thwart any efforts by the US or Europe to confiscate some of its $300 billion in [frozen central bank assets]( in favor of Ukraine, sources say. A sense of urgency has grown for the Kremlin at a time when discussions are intensifying among the US and its allies over the fate of the holdings blocked days after the February 2022 invasion of Ukraine. Vietnam is preparing to expand a probe into alleged corruption among officials linked to the energy sector as the Southeast Asian country seeks to gain control of a worsening power crisis, sources say. The investigation has already ensnared senior trade officials in recent weeks over [accusations of bribery](, poor oversight and other abuses of office. Washington will send top military, State Department and law-enforcement officials to Ecuador to offer assistance as that [country battles a terror campaign]( launched by powerful narco gangs. The violence has paralyzed the Andean nation since two drug kingpins escaped from prison, and President Daniel Noboa, who took office in November, ordered a nationwide manhunt. The UK will increase military funding for Ukraine by some £200 million ($260 million) to £2.5 billion, Prime Minister Rishi Sunak said today [during a visit]( to Kyiv. Myanmar’s junta said it reached a temporary cease-fire agreement with rebels [after talks backed by China](, potentially ending more than two months of fighting. Ethiopian authorities face a tough decision needed to win an [International Monetary Fund bailout]( that’s key to restructuring the nation’s debt: whether to allow its currency to weaken and risk triggering higher prices and social instability. Washington Dispatch The aftermath of the Yemen airstrikes unfolds at a delicate time for the US Defense Department. The Pentagon’s inspector general yesterday [announced a probe]( into the circumstances of Defense Secretary Lloyd Austin’s hospitalization — something he didn’t tell the White House about for days. Austin, who’s recovering from complications after prostate surgery, issued a robust statement after US and allied forces fired on Houthi targets. Pentagon officials say he is performing his duties and that his prognosis is good. Yet the failure to inform the White House of his absence touched off a round of criticism from members of both parties in Congress as well as Republican candidates aspiring to replace President Joe Biden. His hospitalization briefly raised alarms about who was in charge of the world’s most powerful armed forces. The inspector general intends to look into whether Pentagon procedures are “sufficient to ensure timely and appropriate notifications and the effective transition of authorities as may be warranted” if senior leaders fall ill or become unavailable. The White House this week announced a review of protocols regarding cabinet secretaries who are unreachable or incapacitated. One thing to watch today: The producer price index for December will be released by the Bureau of Labor Statistics. [Sign up for the Washington Edition newsletter]( for more from the US capital and watch Balance of Power at 5pm ET weekdays on Bloomberg Television. Chart of the Day China’s consumer prices marked their longest streak of declines since 2009, threatening a deflationary spiral that may require more government support to reverse. Its export growth engine is also faltering. The next few weeks may [be key for policy action](, given Chinese leaders will soon gear up for March’s National People’s Congress. And Finally Jonathan Tseng, who served in Taiwan’s army, volunteered to fight for Ukraine against Russia, saying he wanted to be better prepared if China moved beyond decades of warnings and threats against the island and actually waged war. Yang Yang retraced [his tragic journey](, leaving his family, including a young son, to fight someone else’s war. Jonathan Tseng. Photographer: Saphryn Shikaze More from Bloomberg - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [India Edition](, an insider’s guide to the emerging economic powerhouse, and the billionaires and businesses behind its rise - [Next Africa](, a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Economics Daily]( for what the changing landscape means for policy makers, investors and you - [Green Daily]( for the latest in climate news, zero-emission tech and green finance - Explore more newsletters at [Bloomberg.com](. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Balance of Power newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. 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