The Weekly Rundown: Trump's Decision Point on Iran, U.S.-China Trade and Facebook Introduces Libra

11 MINS READJun 22, 2019 | 18:07 GMT
U.S. President Donald Trump, Secretary of State Mike Pompeo and national security adviser John Bolton, left to right, are pictured in the Oval Office of the White House on June 20, 2019.
(MANDEL NGAN/AFP/Getty Images)

U.S. President Donald Trump, Secretary of State Mike Pompeo and national security adviser John Bolton, left to right, are pictured in the Oval Office on June 20, the day ordered and then rescinded a military strike on Iranian radar and missile batteries.

Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.

On the Record

If you look at the rhetoric now compared to the days when they were signing that agreement (the 2015 Iran nuclear deal, which Trump withdrew from), where it was always "death to America, death to America, we will destroy America, we will kill America," I’m not hearing that too much anymore. And I don’t expect to.

               U.S. President Donald Trump, in a June 18 interview with Time

On Our Radar

A Dove in Hawk’s Clothing? Let’s take stock of Iran’s retaliatory campaign so far. Within a span of six weeks, Iran is the main suspect behind two separate attacks on oil tankers near the Strait of Hormuz, is believed to be behind a big spike in militant attacks against American interests in Iraq and possibly a suicide bombing in Kabul, has announced a restart of its nuclear activity and has shot down a U.S. strategic surveillance drone. U.S. President Donald Trump, however, is in disbelief that his strategy to drive a crippled Iran to negotiate and avoid war is floundering. After trying to attribute the drone shootdown to an unintentional mistake by a rogue general, Trump admitted that he aborted a strike on Iranian radar and missile batteries upon realizing, with 10 minutes to spare, he tweeted, that there would be 150 casualties. This narrative is full of holes. Estimates on collateral damage would have been communicated to the president at the planning stage, and a selection of targets would have been presented to ensure a proportional response. The more likely explanation is that Trump, fearing a much bigger escalation, got cold feet. It is also quite clear from the denials on both sides of an 11th-hour message sent from the White House via Oman to Tehran that the president’s attempt to use military intimidation to open the door to dialogue has flopped.

Trump is portraying himself as a prudent peacemaker to his base, but the matter of how the United States responds to Iranian actions goes well beyond domestic political opinion at this point. There are a growing and pressing need for the United States to establish a strong military deterrence against further Iranian escalation. The president’s pullback, combined with his extraordinarily transparent comments on how loath he is to go to war with Iran, is only likely to embolden Tehran further (not to mention North Korea). And with no sign of negotiation in the cards, there will likely be a number of triggers that drive the United States toward a limited strike against Iran. We’ll be monitoring closely a preplanned visit by national security adviser John Bolton to Israel starting June 23, where he’ll be meeting with his Israeli and Russian counterparts, Meir Ben-Shabbat and Nikolai Patrushev, for further clues on the White House’s next steps with Iran.

Xi and Trump to Meet Again at Last. Ever since U.S.-China trade talks broke down at the end of April, one of the biggest questions afflicting global markets and central bank leaders is whether Trump and Chinese President Xi Jinping would agree to meet again and work out another truce that avoids yet another major tariff escalation. We now know that an extended dinner meeting during the June 28-29 G-20 summit in Osaka, Japan, will reunite the pair, but whether they work out an actual deal is another question entirely. China appears to have fundamentally shifted its position and seems prepared to walk if the White House sticks to its maximalist demands. We’ll be watching carefully to see what preconditions Beijing brings to the table when U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He hold preparatory talks ahead of the G-20 meeting. Will the White House be willing to scope down its demands and lift some tariffs to keep Beijing engaged? Will there be any discussion around easing U.S. export restrictions on Huawei? To keep the air clear ahead of the summit, Vice President Mike Pence has once again delayed a speech that was expected to be highly critical of China across a range of issues. At the same time, China is monitoring closely pending U.S. defense transfers to Taiwan, possible sanctions over China’s treatment of its Uighur population and potential U.S. interference in Hong Kong. These are all major irritants that could still cloud prospects for a trade truce.

Trump Meetings to Monitor at the G-20. Trump's meeting with Xi will be the main event at the G-20 summit, but there are a few other bilateral meetings that will be key to watch:

  • With Russian President Vladimir Putin: Iran will top the agenda, with Russia providing diplomatic backing and economic support for Tehran amid its standoff with the United States. Arms control and military buildups in the European borderlands could also be up for discussion.
  • With Indian Prime Minister Narendra Modi: Tensions are building amid U.S. threats of tariffs and sanctions against New Delhi and the recent U.S. move to strip India of special trading privileges. U.S. Secretary of State Mike Pompeo’s visit to New Delhi on June 25 ahead of the Trump-Modi sit-down at the G-20 will be important to watch for signs of progress or roadblocks in the trade negotiation.
  • With Turkish President Recep Tayyip Erdogan: Turkey’s S-400 acquisition from Russia will be the main topic for discussion. If the two leaders firm up plans for Trump to visit Turkey in July, that could be a sign of a developing compromise. But the final say on the controversial weapons system delivery isn’t wholly up to Trump: Congress is preparing its own sanctions, too.
  • With European Commission President Jean-Claude Juncker: Even though there is little Juncker can do to break a logjam in trade talks (a new European Commission president will replace Juncker this fall), his meeting with Trump could reveal whether Trump has shifted his stance at all on his auto tariff threat against the European Union.

Turkey’s Election Redo. Turkey’s do-over of the Istanbul municipal election will take place on June 23, and the international community is watching to see how the ruling Justice and Development Party (AKP) handles the dubiously justified rerun of a race that many believe was won by the opposition candidate, Ekrem Imamoglu, in March. If the election looks dirty, it will affect Turkey's currency as traders fret of institutional backsliding and more extreme tactics by the AKP to hold onto power at any cost. A badly received Istanbul repeat election is the last thing the Turkish economy needs right now when the threat of U.S. sanctions over the Russian S-400 missile defense system deal and EU sanctions over Turkey’s moves in the eastern Mediterranean are looming large.

Big Votes in the Mexican Senate. Mexican President Andres Manuel Lopez Obrador fell short of the 10 Senate votes he needed to pass a major constitutional reform that would allow recall referendums against elected officials and legally binding referendums on a broad range of topics. Lopez Obrador will be working on whipping more votes ahead of a new session starting July 1. Meanwhile, the Mexican Senate ratified the United States-Mexico-Canada Agreement, which sends a positive signal to the White House at a particularly tense time in U.S.-Mexico relations. We’re keeping an eye on daily apprehensions at the U.S.-Mexico border, but the prospects of Mexico appeasing the White House and escaping tariff threats are not looking great. Political unrest in Honduras is turning severe ahead of the June 28 anniversary of a 2009 coup against the leftist former President Manuel Zelaya, and the Central American state is on the brink of recession. Rising migration from Honduras will threaten the Mexican government’s promise to the White House that it will curb flows of people from Central America — keeping the threat of eventual tariffs against Mexico alive.

On Our Minds

The Protector of the High Seas Comes With Conditions. In trying to downplay Iran’s provocations, Trump noted in an interview with Time magazine this week that the United States doesn’t get much energy from the Persian Gulf anymore. Echoing that view, Air Force Gen. Paul Selva, the vice chairman of the Joint Chiefs of Staff, said the United States is not going to replicate what it did during the so-called Tanker War of the 1980s when the U.S. Navy reflagged Kuwaiti oil tankers with the American flag to bring them under its protection in the name of freedom of navigation and keeping commercial sea lanes open. Selva argued it is not just the United States' responsibility to respond to Iranian actions when oil moving through the Persian Gulf is consumed by several countries in Asia who have yet to show “any real predilection to press the Iranians to stop what they’re doing.” This is a striking shift in the United States' perception of its longstanding role and responsibility to protect the high seas. The United States is producing more energy at home, but it is also importing roughly the same amount of oil from the Persian Gulf region that it did in the 1980s. Moreover, any disruptions near the Strait of Hormuz will create a price shock that will harm the global economy and thus the United States at large. But as the United States signals its waning interest in defending this vital oil chokepoint, we’ll have to see who else will step up. The United Kingdom and France have naval assets in the region. India, one of the more vulnerable countries to supply shortages, has sent naval escorts for its commercial vessels. China still remains a big question mark.

Libra, Mamma Mia. After months of speculation, Facebook unveiled plans to create its own cryptocurrency called Libra. The vision is for Libra to be used as a digital currency to facilitate transactions and money transfers on Facebook’s expansive social media platform. With Facebook's global user base numbering more than 2 billion, Libra will instantly become a high-profile cryptocurrency with low barriers to entry. Unlike bitcoin, Libra will likely be underpinned by a centralized blockchain under the thumb of Facebook and government regulators. For many cryptocurrency enthusiasts, this is a bad thing because most original digital currencies like bitcoin were designed to be decentralized currencies that governments — or corporations — could not control. Nevertheless, while Libra has potential, it will face heavy scrutiny on whether Facebook can be trusted to run a cryptocurrency. Already the plan has run into political opposition in the European Union and the United States where momentum is growing to cut Facebook down to size.

Not a Drop to Drink. Last year’s weak monsoon season and this year’s delayed one have put the Indian state of Tamil Nadu in the crosshairs of a climate crisis. With the four reservoirs feeding Chennai, India’s sixth-largest city, running virtually dry, the state's bustling information technology sector has been forced to keep employees at home with talk of temporary relocation as hotels, schools and restaurants have been forced to control water use. Protests and subsequent arrests in the Tamil Nadu city of Coimbatore underscore the rising levels of unrest in addition to economic disruptions that come from acute water shortages. In the short term, monsoon rains will likely provide some relief soon, limiting the near-term impact on business activities and Tamil Nadu’s economy. But as heat waves and irregular monsoons become more the norm than the exception in India, the risk to the country’s economic and political stability will grow greater. Water shortages hit the poorest populations the hardest. With increased urbanization, the potential for increasing numbers of forced migrations could threaten regional social and political stability in Indian in the decades to come.

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On Our Calendar

In the coming week, U.S. President Donald Trump and Chinese President Xi Jinping are scheduled to meet on the sidelines of the G-20 summit in Osaka, Japan; U.S. national security adviser John Bolton visits Israel to meet with his Israeli and Russian counterparts; and U.S. Secretary of State Mike Pompeo visits India. For more, see our Geopolitical Calendar.

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