The Week That Was
Turkish Troops Finally Enter Syria
It took Turkey shooting down a Russian military aircraft and a Turkish military coup to get to this point, but this was the week that we finally saw confirmation of our long-term forecast of the Turkish military returning to Arab soil. It was only appropriate that Operation Euphrates Shield began exactly 500 years after the Battle of Marj Dabiq near Aleppo, which culminated in the Ottoman conquest of the Middle East. Even with a limited presence, Turkey and its rebel proxies have already made significant headway in clearing Islamic State from Jarabulus along the Turkish-Syrian border. From here, Turkey's sights will be focused southward on retaking the strategic town of al-Bab. Turkey wants to prevent Kurdish militants operating under the Syrian Democratic Forces umbrella from reaching al-Bab first and using that strategic position to link up with Kurdish forces in Afrin canton. The goal of keeping the Kurdish landscape broken up is precisely why Turkey has laid a heavy expectation on the United States to keep Kurdish forces east of the Euphrates River. This is a tall order, however. U.S. Vice President Joe Biden did say while in Turkey this week that the United States will withdraw its support for the Kurdish People's Protection Units (YPG) if they do not keep to the east of the river. That means those YPG forces that defy U.S. orders will be highly vulnerable to Turkish air power. Turkey can meanwhile use the YPG's defiance to justify a slow-expanding presence in Aleppo.
Remember the Turkish grand plan for a safe zone that the Europeans scoffed at? Well, it is back, and this time it can actually happen. We expect to see in the weeks ahead Turkish preparations to build out a safe zone for refugees in Jarabulus with the purpose of housing Syrian refugees. Turkey will argue that this is yet another move Ankara has taken to ease Europe's migrant woes and why it is deserving of the visa liberalization deal and the 3 billion euros that the Europeans owe Ankara.
Now that the Turks are finally in Syria, things are about to get a lot more complicated for the other regional stakeholders. First, Iran and Syria are profoundly uncomfortable with Turkey extending its military presence in this proxy battleground and will look for ways to obstruct Turkey's path. Enabling Kurdish militants is a card they could play. Second, Turkey made sure to bargain with Russia just enough to clear the way for its operation in northern Syria, but there are still plenty of outstanding issues between the two powers. Russia sees this as the very beginning of a lengthy negotiation that touches a host of strategic matters while Turkey is laser-focused on its immediate objectives in Syria. This may explain a strange cancellation of a meeting that was supposed to take place Friday between the Russian and Turkish chiefs of staff. (Turkey said it was indefinitely postponed while the Russian press made it sound like the meeting was never scheduled in the first place.) Turkish President Recep Tayyip Erdogan then called up Putin to "inform" him of the Syrian operation that began earlier in the week. Erdogan is trying to keep things calm with Russia, but if we are already seeing a snag in the Turkish-Russian understanding, that could point to complications on the battlefield as Moscow, Tehran and Damascus could try to obstruct Turkey's path. The stakes are obviously much higher now with Turkey physically in Syria, which is why Turkey will continue to lean heavily on U.S. support to balance against this risk.
Iran's Provocations in the Strait of Hormuz
The U.S. Navy has grown to expect some level of Islamic Revolutionary Guard Corps (IRGC) harassment in the Strait of Hormuz, but the growing pace of close interceptions between IRGC and U.S. naval vessels that we saw this week is cause for alarm in the United States. There is a practical military use to such provocations, as the IRGC can test the U.S. response times and procedures. The increased frequency of such provocations may also be explained by the fact that the armed forces are operating under a new commander, Mohammed Bagheri, who hails from the IRGC and has an interest in asserting the IRGC's influence.
The IRGC is already feeling politically and economically threatened by Iran's economic opening to foreign investors with the unveiling of a new petroleum contract and is looking for ways to flex its muscles and play to nationalist sentiment at home. The Rouhani government can use the IRGC's actions to argue to the United States and the Europeans that more needs to be done to ease remaining complications to the sanctions easing if the West wants to help the moderates keep Iranian hardliners in line. There is also a broader dynamic to bear in mind: the more Russia deepens its involvement in the region on the side of the Iran-Syria axis, the more the United States feels compelled to reassure Saudi Arabia and its Sunni allies. Tighter U.S.-Saudi coordination then complicates Washington's delicate balancing act with the Iranians, who use such provocations in the Strait of Hormuz to keep pressure on the United States.
Managing Relations in the South China Sea
Vietnamese President Tran Dai Quang said this week that he would like France and other nations to help diffuse tensions in the South China Sea. This comes after a similar announcement in June by the French Ministry of Defense calling for joint EU patrols in maritime Asia. France has a historical link to the region and is thus the most likely out of the Europeans to show interest in the idea. In addition to the French, Vietnam has also called on India, Japan, Australia and Russia to get more involved. Vietnam's intent is to internationalize the South China Sea issue as a way to complicate China's strategy. This contrasts with the Philippine approach, which, under Duterte, is more about a carrot-and-stick approach of pursuing economic deals with China while still leaning on the United States and Japan to reinforce its maritime claims.
A FARC Deal, At Last
On Aug. 23, the Colombian government announced that it has struck a peace agreement with the Revolutionary Armed Forces of Colombia (FARC) after nearly four years of negotiations. The government will officially implement a cease-fire between its forces and those of the FARC on Aug. 29. The final peace deal between the two sides will be signed in the second half of September. The deal will eventually be voted on by the Colombian public, potentially in October.
Over the next weeks, militants from the FARC will begin gathering at predetermined locations across Colombia to begin the process of demobilizing. If the Colombian public approves the deal in the nationwide vote, Colombia's longest-running insurgency could be ended by early 2017. That said, Colombia will still face a significant threat from criminal bands, or bacrim, who will be able to attract recruits from low-level FARC ranks who are unable to find employment or unable to benefit from the amnesty deal.
Niger Delta Dialogue Underway
This week saw notable developments in Nigeria's restive Niger Delta region. First, the Niger Delta Avengers militant group stated Aug. 20 that it is willing to negotiate with the federal government, something that it had previously rejected amid its intermittent attacks against oil and natural gas infrastructure as well as other targets. Despite the potential opening, the group imposed conditions on any future talks, including some (such as the inclusion of host country representatives of multinational oil companies and sixty percent of oil revenue) that will prove unrealistic.
Moreover, traditional rulers, including those from Delta State, where the bulk of attacks have occurred, met with Nigeria's minister of state of petroleum. During the meeting, they presented the minister with demands that perhaps while not exhaustive, do underscore that a more measured approach compared to the Avengers. Both events highlight the ongoing desire for talks — either formal or informal — between the federal government and local stakeholders in the oil-producing region in an attempt to halt the attacks that have helped decrease Nigeria's oil production during a time of economic weakness.
India's New Central Bank Chief Spells Continuity
India has a new central bank governor to replace Raghuram Rajan, whose term ends on Sept. 3. Urjit Patel, the deputy governor of monetary policy in the Reserve Bank of India, will assume the post on Sept. 4. Patel's selection is a sign of continuity. Like Rajan, the Yale-trained economist is an inflation hawk and was instrumental in pushing inflation-targeting as a focus of Indian monetary policy. Yet unlike Rajan — whose candor on social issues often put him at odds with prime minister Narendra Modi — Patel is low key. Given India's inflation rate in July peaked above the Reserve Bank of India's 6 percent window, Patel probably won't lower rates during the bank's October policy meeting. Next, we will be tracking to see who replaces Patel as deputy governor and which candidates are chosen for the Reserve Bank of India's new six-member Monetary Policy Committee.
Merkel Talks Around EU Integration
The week that was saw German Chancellor Angela Merkel meeting with the leaders of several EU members to discuss the future of the bloc after Brexit. Merkel's tour offered a clear picture of the divisions within the European Union: while the Italians are requesting flexible fiscal targets and more EU investment, the Poles, the Czechs and the Hungarians are demanding better controls of the European Union's external borders and resisting any attempts to cede more attributions to Brussels. The EU will hold its first summit without the United Kingdom in Bratislava on Sept. 16. Before that, Greece will hold its own summit of Mediterranean countries on Sept. 9.
Kremlin Watch, Continued
Another Kremlin mystery emerged this week when Russian President Vladimir Putin summoned Chechen President Ramzan Kadyrov to Moscow for a late night meeting on Thursday. Kadyrov, who is a bit of a social media fanatic, predictably Instagrammed his meeting, thanking the President for his "constant attention," and reporting on Chechen economic and social issues. Kadyrov also met with Finance Minister Anton Siluanov, asking for an increase in funding for his republic — a hot-button issue in the Kremlin and for the Russian people. Kadyrov then met with Vyacheslav Volodin, the Kremlin's election strategist — and someone who has been hostile in the past to Kadyrov's inner circle.
While these meetings look innocuous, the suddenness raises questions, especially after Federal Security Services (FSB) elite Sergei Ivanov, was recently sidelined. As a reminder, one of the big drivers behind the Federal Security Services challenge to Putin was Putin's strong support for Kadyrov. Adding to the puzzle was Kadyrov's meeting with Investigative Committee Chief Alexander Bastrykin, who has increasingly flirted with the FSB clan over the past year and been vocal about criticizing Putin. Kadyrov broadcast Bastrykin's praise for the Chechen leader and flaunted gifts from the chief investigator. The question now is whether Putin plans to use Kadyrov to push harder against the FSB or if he intends to restrain Kadyrov as a way to compromise with his challengers.
Quote of the Week
"A producers meeting without a result or agreement — meaning a large decline in oil prices — is not in the interest of producers or the market or prices, so the question is why hold a meeting?"
- Kuwait's national representative to OPEC and senior official at state-owned KPC Mohammed al-Shatti
One of the most profound — and potentially disruptive — developments in the world's economy over past five years has been the rapid growth of the so-called "sharing economy." The technologically driven networks underpinning the concept, also known as the peer-to-peer (P2P) economy, have grown so much that many countries are trying to add P2P to their official gross domestic product data to better monitor the sector's development. Recently, a P2P technology platform was at the center of one of the largest acquisitions in China's history, when Chinese network transportation company Didi Chuxing agreed to acquire Uber's China operations for $35 billion. Technological advancements, specifically in communications, have already brought substantial changes to a number of sectors, and with continued double-digit growth, the P2P economy will transform more and more industries in the future.
Since the Republic of Turkey became a multiparty constitutional democracy in 1946, its governmental institutions have been used as tools of patronage in a highly polarized political system. The arduous process of rewriting the Turkish Constitution offers a prime opportunity for parties to co-opt Turkish political institutions to advance their agendas. Sometimes, these agendas coincide. The constitution of 1982, for instance, was in many ways drafted around various protections for the military. But in the years since its adoption, civilian political parties have rallied around the common goal of redacting those protections to keep Turkey's democratic system from descending into martial law.
When Matteo Renzi took over as Italy's prime minister in February 2014, he had two main goals. The first was to introduce a series of policies — most notably, a new labor law — to fight unemployment and generate economic growth. The second was to remodel Italy's political system to ensure more stable governments and to reduce the financial risk that political uncertainty posed. Though Renzi's economic reforms have been only moderately successful (unemployment is falling slowly, while growth has been timid), it is the political reforms that will define the future of his government and that could open a new phase of uncertainty for the rest of the eurozone.
After two years of recession, the worst may be over for Russia's economy, but not for its leaders. As the year approaches its final quarter, the Russian government is still trying to finalize its 2016 budget. Though the federal budget has long been a point of contention in the Kremlin, this year's budget battle has been especially divisive amid dwindling funds and disappearing options for spending cuts. To make matters worse for the Kremlin, just weeks before September's parliamentary elections — a bellwether for the ruling United Russia party ahead of the 2018 presidential vote — Russians are protesting their economic straits in droves. Facing an unhappy public and a $31 billion shortfall in the current budget drafts, Prime Minister Dmitri Medvedev has been given a tall order: plug the gaping hole in the budget while also allowing for billions more in social spending.
The Week Ahead
Syria Negotiations in Focus
Negotiations on a way forward on Syria between the United States and Russia will enter a critical period this week. The negotiations aim at direct U.S. and Russian cooperation in airstrikes against extremist factions in Syria. Important progress has already been achieved at the technical level, particularly on delineating the positions held by the Islamic State and Jabhat Fateh al-Sham. This was a key hurdle to overcome given previously opposing views on which areas where held by extremists. However, key disagreements remain on the grounding of the Syrian Air Force, the separation of U.S.-backed rebels from Jabhat Fateh al-Sham, and the status of Assad during the political transition. While some progress could be made in terms of closer US and Russian cooperation on the battlefield in the negotiations, the differences between the two sides and their allies on the field remain too intractable for a panacea.
Turkey and Russia will engage in a round of football diplomacy next week when Putin attends a Turkey-Russia friendship match in the southern Turkish city of Antalya. This provides an informal negotiating opportunity for the Russian and Turkish leaders at a time when a number of complications are surrounding Turkey's military operation in Syria.
Saudi Arabia Seeking Investments in Asia
Saudi Arabia's Deputy Crown Prince Mohammed bin Salman will visit China and Japan next week in a visit that will be primarily focused on maintaining and building energy and economic cooperation. In the context of a Saudi Chinese Business Council meeting, delegations of Chinese and Saudi private and public sector businesses will be meeting to sign Memorandums of Understanding to build an already healthy bilateral trade relationship that amounts $74.4 billion. In East Asia in particular, Saudi Arabia wants to build a ring of refineries in which Saudi Arabia has a large stake. Within the context of the Deputy Crown Prince's Vision 2030 plan, building out Saudi Arabia's downstream capacity through joint cooperation with East Asian oil and gas companies is a primary goal. ARAMCO and Sinopec already have a good history of cooperation, embodied in such refineries as Saudi Arabia's YASREF refinery in Yanbu. In Japan, the subject of increasing Saudi Arabia's crude oil storage capacity will be on the table for discussion. This could help increase Saudi Arabia's already sizeable crude export capacity in East Asia in the future, especially since China and Japan are primary export destinations for Saudi Arabia's crude exports.
Protests in Venezuela
On Sept. 1, Venezuela's Democratic Unity Roundtable — the country's opposition political coalition—will hold a demonstration in Caracas intended to pressure the government to hold a recall referendum against President Nicolas Maduro in 2016 that would lead to new elections. The government has so far been able to successfully delay a referendum, and intends to delay the referendum call until next year, when a successful recall vote against Maduro would result in power passing to the vice president. The opposition's protest will begin at several locations across the capital, and government forces such as the National Guard will likely attempt to block routes into the city to slow or stop the protesters.
The opposition coalition's leadership has called for a peaceful demonstration, though there is the potential for some violence at the protest, particularly wherever demonstrators and security forces come into contact. The Maduro government will try to draw people away from the protests by selling food at discounted rates – another example of how hunger is being used as a weapon in Venezuela. We will be watching the security response closely as the military tries to avoid direct clashes with protesters. Maduro meanwhile is trying to place more responsibility for food imports in the military's hands, hoping to reassign blame to the generals when food scarcity becomes intolerable.
Brazil Impeachment Saga Wraps Up
Brazil's Senate on Aug. 29 will conduct a final vote on whether to impeach President Dilma Rousseff. If the Senate votes to remove Rousseff, it is plausible that there will be demonstrations in Brasilia and other major Brazilian cities. Once the impeachment process is wrapped up, the government under interim president Michel Temer will turn its attention to implementing economic and fiscal reforms intended to spur investment and cut government spending. Some reforms, such as removing a legal requirement that Petrobras operate all pre-salt fields, can realistically pass through congress. The implementation of a spending cap on public investment is also going to be discussed and potentially voted upon in coming months. More politically sensitive issues such as pension reform to rein in Brazil's heavy public spending on retirement pensions may run into roadblocks, given that any attempts to limit spending on these may affect a significant segment of the population.
Eastern Economic Forum
Russia is holding its annual Eastern Economic Forum (EEF) in Vladivostok this weekend, where Moscow will present to foreign investors more than a hundred projects pertaining to the Far East worth more than $30 billion. Along with the leaders of Japan and South Korea, nearly 3 thousand businessmen from China, South Korea, Japan, Vietnam, India, Australia, Singapore and the United States will attend. With sanctions from the West continuing, Russia has been on a long courtship looking for investment from the east. At the St. Petersburg Economic Forum — the EEF's counterpart — East Asian firms signed a string of large agreements worth tens of billions of dollars. The EEF deals are tailored for investment in the Far East. Already, Russia has raised $17 billion worth of foreign investment for the region. One of the stand-out projects being launched at the EEF is a new stock exchange program (called Voskhod, sunshine) for Russia's Far Eastern companies to facilitate exchange with international investors. Also important will be Russian President Vladimir Putin's sideline with his Japanese counterpart, Shinzo Abe. The two leaders are eager to thaw relations with discussions on a deal for the island dispute resuming. With elections in September, Russia still has to balance nationalist sentiment in any deal with Japan.
Europe Back From Vacation
With the summer reaching its end, political activity is slowly resuming in Europe. The European Parliament resumes work on Aug. 29, and has a significant list of pending issues, including the decision on a date to debate the controversial proposal to grant visa liberalization to Turkey. In Spain, the first of several votes of investiture to appoint a new government will take place on August 31. Acting Prime Minister Mariano Rajoy is likely to lose the first vote, because he does not have an absolute majority in parliament. But more votes will follow, where only a relative majority (more positive votes than negative votes, excluding abstentions) is required. Spanish political parties have two months to come up with a government if they want to avoid the third general election within a year.
The month of Dhu al-Hajj begins next week on the Islamic calendar, which heralds the beginning of the pilgrimage season in Saudi Arabia. Saudi Arabia's King Salman holds the title the Custodian of the Two Holy Mosques — a reference to the important guardianship role that Saudi Arabia holds in managing and maintaining a safe pilgrimage season for the world's Muslims. Though the busiest period of the Hajj will be between Sept. 9 and Sept. 14, Saudi Arabia is building out its security plans and is already welcoming pilgrims to its borders. Saudi Arabia has taken a considerable amount of criticism for last year's crane disaster and the issue of fatal stampedes, and always unveils new security initiatives, like this year's program that will geolocate some pilgrims using a watch distributed at customs. Nonetheless, there are significant concerns regarding Saudi Arabia's ability to monitor the safety of thousands of pilgrims from potential attacks and accidents. The Hajj is also a month typically seized by jihadist groups to carry out spectacular attacks in the region.
Elections in Gabon
The Central African country of Gabon is gearing up for its first presidential election since 2009. The contest will pit the incumbent president, Ali Bongo, against a number of opposition candidates totaling more than a dozen. The contest is a referendum on the continuation of the Bongo family's rule (President Bongo's father ruled from the late 1960s to 2009), especially in light of the financial difficulties facing the country amid the persistence of low oil prices (Gabon produces over 200,000 barrels per day). The president and his ruling Gabonese Democratic Party (PDG) retains significant electoral advantages over his opponents and the possibility of post-electoral violence in the form of street protests and skirmishes is high given the divisions within the country. Despite the possibility of such unrest, severe economic disruption — especially in the country's energy sector — remains unlikely.
Indian Economic Diplomacy in Action
On Sept. 1, Egyptian president Abdel Fattah al-Sisi will begin a 3-day trip to India to meet with Indian prime minister Narendra Modi. The two leaders will discuss combating terrorism and boosting economic links and are expected to sign $100 million in economic cooperation deals. Sisi is also expected to seek Indian investments in developing an IT training center at Al-Azhar University in Cairo. Meanwhile, U.S. secretary of state John Kerry and commerce secretary Penny Pritzker will fly to New Delhi on August 29th for a two-day visit. There, they will meet with their Indian counterparts and co-chair the second annual U.S.-India Strategic and Commercial Dialogue, a key platform for discussing bilateral economic ties for both nations. As part of that trip, Kerry will also stop in Dhaka, Bangladesh where he will call upon prime minister Sheikh Hasina to discuss strengthening security and development ties.
The following is an internal Stratfor document listing significant meetings and events planned for the next week.
- Aug. 29: Committees of the European Parliament will reconvene in Brussels after its summer break to discuss the EU budget, Greek debt relief and visa liberalizations.
- Aug. 29: Turkish Foreign Minister Mevlut Cavusoglu will visit Athens to discuss cooperation on the refugee crisis and the requested extradition of eight Turkish military officers.
- Aug. 29: Estonia will hold its presidential election.
- Aug. 31: Poland is expected to issue a permit for Gazprom's Nord Stream II pipeline project.
- Aug. 31: German Chancellor Angela Merkel will meet with Italian Prime Minister Matteo Renzi in Maranello, Italy.
- Aug. 31: Spain will hold the first vote of investiture to appoint the country's new government.
- Sept. 1: British Airways will resume direct flights between the United Kingdom and Iran.
- Sept. 2: EU foreign ministers will hold an informal meeting in Bratislava.
- Sept. 4: Germany will hold state elections in Mecklenburg-Western Pomerania.
- Sept. 2-3: The Eastern Economic Forum will be held in Vladivostok. Russian President Vladimir Putin will meet with Japanese Prime Minister Shinzo Abe and South Korean President Park Geun Hye on the sidelines of the summit.
- Sept. 4: Russia will hold its Day of Solidarity commemorating a string of terrorist attacks against Russian apartment buildings and the Beslan school siege.
- Aug. 29-Sept. 3: Saudi Deputy Crown Prince Mohammed bin Salman will visit China and Japan.
- Aug. 31: Myanmar's government and ethnic rebel groups will open comprehensive peace talks.
- Sept. 4: Hong Kong will hold Legislative Council elections.
- Sept. 4-5: China will host a summit for leaders of the G-20.
- Aug. 29: U.N. General Assembly President-elect Peter Thomson will visit India.
- Aug. 29-31: U.S. Secretary of State John Kerry and Secretary of Commerce Penny Pritzker will visit New Delhi to engage in the U.S.-India Strategic and Commercial Dialogue.
- Sept. 1-4: Egyptian President Abdel Fattah al-Sisi and a delegation of Egyptian businessmen will visit India.
- Sept. 4: Indian economist Urjit Patel will become the new chief of the Reserve Bank of India.
- Aug. 29-31: Egypt and Jordan will hold a joint higher committee in Cairo.
- Aug. 31: Russian President Vladimir Putin will visit Turkey for an international football exhibition match.
- Sept. 2: Dhu al-Hijjah, the Islamic month when the hajj (the annual pilgrimage to Mecca) takes place, will begin.
- Aug. 29: The impeachment proceedings against Brazilian President Dilma Rousseff are scheduled to conclude.
- Aug. 30: Brazil's interim president, Michel Temer, will announce his economic reform agenda.
- Aug. 31: Brazil's central bank will meet.
- Aug. 31: Colombia's central bank will meet.
- Sept. 2: Representatives from Mercosur member states will meet in Montevideo.
- Sept. 2: The East African Community will hold the final session of its two-week summit on assessing the bloc's financial problems.
- Sept. 2: South African telecommunications giant MTN and the Communication Workers Union will hold talks.