Key Trends for the Quarter
The Iran-U.S. Standoff Rests on a Knife's Edge
To demonstrate its resolve and build leverage it can use in future negotiations, Iran will risk military conflict with the United States and its regional allies as U.S. sanctions intensify. Both Iran and the United States will probe the potential for preliminary talks in the quarter they seek to build up and maintain advantages ahead of any sit-downs. For the United States, this means deepening sanctions and using fewer offensive tools such as cyberattacks in response to Iranian threats. Iran will make incremental — not extreme — moves on its nuclear activities, increase its support for regional proxies and continue to threaten vessels and energy assets in the Persian Gulf. Tehran's activities will increase the risk of a U.S. military response, but President Donald Trump will remain reluctant to stoke a major Middle Eastern conflict in the runup to the 2020 U.S. presidential election, a reticence that Iran shares because of its own domestic politics. The European Union, along with regional states such as Oman and Kuwait that fear potential crossfire, will encourage the United States and Iran to de-escalate their standoff and offer a way out in case hostilities ramp up. The United States will consider the possibility of talks and of extending limited oil-for-food offers to keep a lid on further Iranian aggression, but comprehensive negotiations will not begin in the quarter. To learn more about Iran's strategy in facing down the United States, check out this assessment.
Tehran's activities will increase the risk of a U.S. military response, but Trump will remain reluctant to stoke a major Middle Eastern conflict in the runup to the 2020 U.S. presidential election, a reticence that Iran shares.
Israel Strikes Its Enemies, Stoking Regional Conflict
Despite internal political turmoil, Israel will continue to strike Iranian targets and allies throughout the region, especially in Syria, Iraq and Lebanon. The attacks will expose Israel to the risk of retaliation by Iranian proxy forces. They will also destabilize the already fragile Lebanese and Iraqi states, empowering domestic forces in Iraq that want the United States to leave the country.
Israel will calculate that Washington will back its campaign, but support may decline if it threatens to drag the United States into a war with Iran. As a new Israeli government emerges, containing Iran will remain the country's paramount foreign policy issue, though its approach to security threats in the Lebanese, Syrian, Iraqi or Yemeni proxy theaters, or the more immediate Gaza and West Bank, could evolve. This Stratfor analysis examines the role Iraq could play in the Middle East's next conflict.
The Southern Front Intensifies in Yemen
In Yemen, fissures will spread among the Saudi-led coalition engaged in the anti-Houthi offensive as a partial Emirati withdrawal from the front lines weakens its ability to focus on the threat posed by the rebel movement. Meanwhile, the nominally allied Southern Transitional Council will move against the U.N.-backed administration of President Abd Rabboh Mansour Hadi, demanding greater autonomy and political guarantees in pursuit of the council's long-standing goal of restoring an independent South Yemen. Less concerted pressure on the Houthis will give them leeway to continue attacking strategic Saudi targets, while more coalition infighting will give jihadists in the south greater opportunity to flourish. Despite the strain on the anti-Houthi coalition, the Emirati-Saudi divergence in Yemen will not affect their alignment in other theaters. Read on for more about the implications of South Yemen's drive for renewed independence.
Turkey Seeks a Balance in Northern Syria
The Syrian regime and Russia will challenge Turkish plans in northwestern Syria, and Ankara's desires in northeastern Syria face U.S. opposition. In the northwest, Turkey will seek face-saving measures as its influence steadily diminishes in Idlib as an intermittent Syrian offensive supported by Russia and Iran threatens to touch off a major diplomatic crisis between Turkey and Russia. In northeastern Syria, Turkey will lobby the United States to create a larger buffer zone against the U.S.-allied Syrian Democratic Forces, but it will not risk a second crisis with the United States. Turkey's need to drum up domestic nationalist sentiment as a stagnant economy threatens the ruling Justice and Development Party (AKP) will continue to influence its actions in Syria.
Sluggish consumer sentiment, a weak lira and an economy vulnerable to external shocks — including the ever-present threat of EU and U.S. sanctions — is accelerating a new split within the AKP. In its bid to retain power and maintain party cohesion, the AKP will make full use of its institutional advantages — including control over the central bank, the parliament and the judiciary — to fend off further defections to a budding rival party during the quarter. See Stratfor's recent assessment about how Turkey's president is fighting to keep the country's opposition off balance.
Saudi Economic Struggles Continue
Like other Gulf Cooperation Council states struggling amid lackluster oil prices, Saudi Arabia will draft a 2020 budget that expands spending after a difficult year trying to make a dent in its budget deficit. The kingdom will also intensify preparations for the limited initial public offering of Saudi Arabian Oil Co. (Saudi Aramco), the state-backed energy giant, to generate capital for diversifying the country's oil-dependent economy. But investor concerns over the security of the firm following the massive Sept. 14 Abqaiq and Khurais facility attacks will delay these efforts. Given the political barriers to listing abroad, such as transparency requirements about sensitive issues like Saudi Aramco's finances and the kingdom's energy reserves, Riyadh will make preparations to list 1 percent of the energy giant's shares on its domestic Tadawul stock market by the end of the year. While it will discuss the listing with banks, it will hold off on an international IPO listing during the quarter. Click here to see why Saudi oil facilities present such an appealing target for Iran.
- In Algeria, the army will push for elections by year's end, before the emboldened opposition is ready for them, leading to yet more street protests.
- In neighboring Tunisia, presidential and parliamentary elections will shape a new, untested coalition government that will fail to solve the country's looming structural economic issues.
- The Libyan National Army's offensive on Tripoli will struggle to make gains as Emirati, Egyptian, Saudi and French support for Khalifa Hifter will not suffice to boost his forces' limited manpower. In the meantime, Libya's oil production will remain volatile this quarter.
Key Dates to Watch
- Oct. 1: A new Israeli Knesset is expected to be sworn in.
- Oct. 1-2: An Israeli court holds a pre-indictment hearing for Benjamin Netanyahu in ongoing corruption cases.
- Oct. 6: Tunisia holds parliamentary elections.
- Oct. 6-23: The window for the second round of Tunisia's presidential elections.
- Oct. 13-18: The Financial Action Task Force Plenary meets in Paris, where Iran could face resumed sanctions over money laundering.
- Oct. 30: U.S. sanctions exemptions on Iran's nuclear program expire.
- Oct. 31-Nov. 14: A possible window opens for the next Israeli prime minister to select and form a new government.
- Nov. 5: Iran's self-imposed deadline to breach further restrictions of the nuclear deal expires.
- Dec. 12: Algeria will possibly hold presidential elections.
- December: The GCC meets for its annual summit following member states' likely approval of their respective budgets.