2018 fourth-quarter forecast

Sep 9, 2018 | 17:38 GMT

5 mins read

Middle East and North Africa

The Middle East and North Africa is the world's crossroads. It encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between. The story of the region, as is so often the case of places stuck between foreign players, is the story of trade, exchange and conflict. The traditional powers of the region are Turkey and Iran — Saudi Arabia and Egypt are the current Arab powers — and their competition for influence over the region's weaker states makes the Middle East and North Africa an arena of violence and instability.

The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.
(Chris Jackson/Getty Images)

Key Trends for the Quarter

Iran Will Hurt — but It Will Survive

The United States will continue its hard-line strategy of sanctioning Iran, a course designed in part to increase domestic unrest. Economically motivated protests will spread, but, for now, Iran will be able to manage them. Conservatives within the Iranian government will accelerate their political attacks against President Hassan Rouhani's moderate allies, but protection from Supreme Leader Ayatollah Ali Khamenei will ensure Rouhani's political survival. Foreign companies with exposure to the United States, with the exception of those in China and Russia, are more likely to comply with U.S. sanctions and cut back their transactions with Iran rather than retain Iranian contracts.

The European Union's plans to provide money to companies in the bloc that risk incurring U.S. sanctions for trading with Iran will be a political sign of support that won't help Iran much economically. They would also set up the potential for U.S.-EU friction if Washington tries to disconnect Iranian banks from SWIFT, the main network for international monetary transactions.

To retaliate and build leverage for future negotiations, Iran will blur the line of acceptable behavior within the boundaries of the Joint Comprehensive Plan of Action, aka the Iran nuclear deal, and engage in limited nuclear development. Iran will also cling to its proxy militant activity abroad; it will engage in cyberattacks, harass U.S. and allied vessels and oil infrastructure in the Persian Gulf, and posture about closing the Strait of Hormuz to build some leverage against the United States, even as it seeks to avoid sparking a larger conflict. Read more about Iran's economic strategy under sanctions.

Syria's Civil War Enters a New Phase

The Syrian civil war will challenge the Russians in new ways, especially in the last major rebel bastion, Idlib province. Russia will try to balance Iran and Turkey in Idlib, and Turkey will hold its ground. Israel will continue to strike Iran inside Syria, even as Russia tries to ensure that these conflicts do not spiral into a major regional war. Finally, the United States won't pull out of Syria, but its Syrian Democratic Forces allies will prepare for the future by building subtle connections to Damascus. Read more about how Russia is carrying out its strategy in Syria.

A map showing territorial holdings in the Syrian civil war.

Erdogan Won't Back Down

Pressured by his country's deteriorating relationship with the United States, Turkish President Recep Tayyip Erdogan would rather risk amplifying Turkey's economic crisis than implement more restrictive fiscal and monetary policies. Even though the Turkish government will announce plans to cut back on national spending and halt inflation, Erdogan's tight grip on control within the government will limit the ability of the country's economic institutions to enact desired changes. To avoid being pressured by the European Union to make substantial policy shifts or address human rights conditions, Erdogan will look for assistance primarily from friendly foreign allies, like Qatar, China and Russia, rather than the International Monetary Fund. But such support, especially if the lira plunges again, will likely be limited. For the quarter, a powerful Erdogan will use the economic crisis and growing frictions with the United States to rally nationalist support. If he chooses to call early municipal elections, any deeper reforms would come after. Read more about how Turkey ended up in an economic crisis.

A graphic shows just how deep a financial crisis Turkey is in.

Saudi Arabia Will Slow Its Reforms

Saudi Arabia will slow the pace of both social and economic reforms in the coming quarter, buoyed by an increase in oil revenue that it will use to draft another expansionary budget in December. Riyadh's Public Investment Fund (PIF) remains the main source of money for the kingdom's modernization plans, but rather than using the still-pending Aramco IPO to generate capital for it, the Saudi government is seeking less politically contentious means. This could include allowing Aramco to issue debt to buy the PIF's 70 percent stake in petrochemical firm SABIC, which would be worth approximately $70 billion. Read more about Saudi Arabia's long and ambitious path to reform

A chart showing Saudi Arabia's public investment fund.

America Seeks an Arab NATO

Despite U.S. efforts to build a strategic alliance with its Arab allies, the reality is that the United States' Middle Eastern partners are divided among themselves and neither able nor interested in taking on Washington's regional security burden. The Israeli-Saudi-Emirati alignment with the United States will advance in certain places — like in Syria with Israel, in Yemen with the Saudis and Emiratis, and in Iraq with the Saudis — where America can execute its strategy to weaken Iran through its allies. But none of these powers will commit to the kind of formal, region-spanning alliance that the United States wants. Meanwhile, neutral actors such as Kuwait and Oman will find themselves pressured to align their policies with those of Saudi Arabia and the United Arab Emirates

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Sept. 30: Iraq's Kurdistan Regional Government holds parliamentary elections.
  • Oct. 30: Israel holds municipal elections.
  • Nov. 4: U.S. sanctions against Iran's energy sector and central bank transactions are reimposed.
  • Nov. 24: Bahrain holds parliamentary elections.
  • Dec. 10 [tentative]: Libya potentially holds elections.
  • Dec. 13: Turkey's Central Bank Monetary Policy Committee meets.

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