Balance of Power

Welcome to Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up here.

The last thing the world wants to contemplate in the wake of the US military showdown with Iran is a Russian attack on NATO. But that’s exactly what’s on the mind of the alliance’s war planners as NATO leaders convene today in The Hague.

A Russian assault remains unlikely in the near term. The Kremlin doesn’t want to fight on two fronts, and more than three years into its war on Ukraine it lacks the capacity to take on the bloc. That doesn’t mean it’s beyond Moscow’s vision for the future.

President Vladimir Putin denies he has any such plans, though he said the same before Russia invaded Ukraine. He has made clear he seeks to reclaim what he views as historically Russian territory.

Estonia, Latvia and Lithuania — NATO frontline members — were once directly administered by the Soviet Union and are home to large Russian minority populations.

WATCH: Bloomberg’s Oliver Crook breaks down issues at the NATO summit.

To the Baltic states, the threat of a Russian invasion is more than hypothetical. All three countries have hiked defense spending in recent years, and are in the process of withdrawing from an international landmines ban so they can be used to bolster defenses.

Further complicating NATO’s planning, a war may start under ambiguous circumstances. Russia has a history of using hybrid operations – false flags, staged incidents, disinformation – to create pretext for a larger attack.

For the Baltics, that could involve a rail line connecting Moscow to Russia’s Kaliningrad region via Lithuania. Russia could claim the train was stopped in Lithuania, and it needed to send in troops to rescue stranded Russian citizens.

The question facing NATO members would then be whether this would invoke their mutual-defense commitment. For the Baltic states, it absolutely would.

That scenario is the focus of a new modeling exercise by Bloomberg Economics. The implications? Untold casualties, a $1.5 trillion hit to the global economy, and a further blow to the fragile global security order. — Jennifer Welch

Members of the Royal Netherlands Marechaussee march during the NATO summit. Photographer: Lina Selg/Bloomberg

Global Must Reads

Iran denied it fired missiles after Israel accused the Islamic Republic of breaching a ceasefire US President Donald Trump announced hours before to end the 12-day war. “THE CEASEFIRE IS NOW IN EFFECT,” Trump said on Truth Social. “PLEASE DO NOT VIOLATE IT!” Meanwhile, satellite images suggest that the US Air Force was careful not to hit Iranian nuclear reactors at a key research facility during its weekend air strikes.

China harshly condemned Taiwanese President Lai Ching-te for a speech aimed at rallying the democracy’s 23 million people to stand up to its neighbor — a back-and-forth that illustrates a deepening cross-strait divide. Lai was “wantonly spreading separatist remarks about ‘Taiwan independence,’” the People’s Daily said in a commentary today, adding the address “was a provocation that was strong and harmful.”

Lai Ching-te. Photographer: Anadolu/Anadolu Agency

French political instability reared up again as negotiations over retirement reform hit a deadlock, prompting Prime Minister Francois Bayrou to call fresh talks for today. Bayrou is separately due to present another round of spending cuts and tax increases by mid-July that are widely opposed by lawmakers but urgently needed to get control of France’s growing debt pile, and both issues risk triggering censure ballots that could lead to the government’s collapse.

With the NATO summit set to embrace an ambitious defense-spending target, cracks are starting to appear among the ranks. UK Prime Minister Keir Starmer will vow to spend the requisite 5% of economic output on security by 2035 without providing a path on how to get there, while Prime Minister Mark Carney was warned his surprise announcement that Canada would spend 2% of GDP on defense this fiscal year is a recipe for even deeper deficits. Spanish Prime Minister Pedro Sánchez, meanwhile, refused to agree to the spending increases.

Germany will borrow about a fifth more than planned in the third quarter to fund a surge in spending on infrastructure and the military, while a separate deal today to secure a package of corporate tax breaks worth more than $50 billion highlighted how debt needs are set to grow. Both measures are part of efforts by Chancellor Friedrich Merz’s coalition to bolster the armed forces and revive a stagnating economy.

Singapore’s prime minister, Lawrence Wong, pledged to deepen bilateral cooperation in a meeting with Chinese President Xi Jinping, as the trade-dependent city-state confronts growing tensions between Beijing and Washington.

The Thai anti-graft agency will probe Prime Minister Paetongtarn Shinawatra’s controversial phone call with former Cambodian leader Hun Sen, according to local media reports, as her rivals seek legal recourse to force her ouster.

New Yorkers will head to the polls today to choose a Democratic candidate for mayor with the top two candidates, Andrew Cuomo and Zohran Mamdani, offering starkly different visions for the city on crime, rent freezes and free child care.

New York City mayoral candidates Andrew Cuomo (left) and Zohran Mamdani on June 4. Photographer: Yuki Iwamura/AP Photo

South Korea reiterated its call to be exempted from US tariffs including duties affecting key industries such as cars and steel, Trade Minister Yeo Han-koo said after his first meeting with US counterparts since taking up his position.

Sign up for the Washington Edition newsletter for news from the US capital and watch Balance of Power at 1 and 5 p.m. ET weekdays on Bloomberg Television.

Chart of the Day

Germany’s liquefied natural gas terminals are busier than ever, but much of the fuel they import is flowing abroad — leaving domestic storage levels stubbornly low. Flows into the nation’s four floating terminals have surged in recent months amid a rush to replenish gas reserves, according to ship-tracking data compiled by Bloomberg. But rather than filling domestic storage sites, large amounts of the fuel are heading to Austria and the Czech Republic, and onwards to Hungary and Ukraine.

And Finally

The collapse of Johannesburg’s passenger-rail service has shifted more commuters than ever to costlier mini-bus taxis and into the crosshairs of deadly gun battles between rival driver groups. The mini-bus taxi industry, which is largely unregulated, has grown to become the backbone of South African public transit, and despite government efforts to improve transportation offerings, alternatives remain limited. Commuters face daily challenges including safety concerns, with many relying on informal networks to navigate Africa’s richest city.

Morning commuters make their way to work and school in the Diepsloot township north of Johannesburg. Photographer: Leon Sadiki/Bloomberg

Global Must Reads

Chart of the Day

And Finally

More from Bloomberg