On the Record
While the US remains the indispensable nation in the free world, we cannot protect our interests or serve that role effectively without maintaining strong alliances and showing respect to those allies.
U.S. Secretary of Defense James Mattis,
in his resignation letter to President Donald Trump
On Our Radar
A Withdrawal and Resignations. Two announcements this week from the United States have shaken up America's Middle East policy. The first was President Donald Trump's sudden decision to begin a full withdrawal of U.S. forces from Syria; the second was the subsequent resignation of Defense Secretary James Mattis on Dec. 20, apparently in response to Trump's Syria decision. Joining Mattis the next day was Brett McGurk, the State Department's special envoy to the global coalition fighting the Islamic State. Now talk turns to the withdrawal of some U.S. forces from Afghanistan, and the uncertainty surrounding the future of the Trump administration's Middle East policy. Bringing troops home satisfies some domestic political imperatives for Trump, but at the same time it undermines the anti-Iran strategy championed by his national security adviser John Bolton — a strategy Trump has appeared to support. Moreover, the fight against the Islamic State in Syria also will be set back, as America's Syrian allies, the Syrian Democratic Forces, brace themselves for a potential Turkish incursion and deploy away from the front lines with the Islamic State's remnants.
Mexico's Tool of Choice. Mexico's new government is exploring avenues to limit private investment in its energy sector, and it appears to be wielding the federal budget as a tool to slow capital inflow. In the 2019 federal expenses budget, the government cut planned expenses for the National Hydrocarbons Commission by 10 percent, for the Energy Regulatory Commission by 11 percent, and the budget for the agency that issues environmental permits by 35 percent. Adding to investors' woes, the treasury secretary ordered a federal hiring freeze to cut spending that will lead to mass layoffs at the energy regulators. In a best-case scenario, this spending cut combined with the hiring freeze will slow investments for several years until a subsequent Mexican president raises spending for regulators. But it could also be a prelude to a broader attempt by the government to drastically amend Mexican energy legislation, which could further narrow investment opportunities in Mexico's energy sector.
Kicking the Can on EU Sanctions. The Italian government and the European Commission reached an agreement on Italy's budget for 2019, which means Rome will avoid European Union sanctions, at least for now. The agreement allowed the European Commission to save face, because it managed to take Italy's planned deficit to 2.04 percent of GDP next year from the original plan of a 2.4 percent deficit. But it is mostly a victory for Italy, as Rome was supposed to have a deficit of no more than 0.8 percent of GDP. All Italy had to do was to delay the introduction of controversial measures (like a basic income for the poor) by a few months and to promise that it would trigger emergency measures if the deficit worsens more than expected. But this does not solve the main problem: At roughly 130 percent of GDP, Italy's debt is the second highest in the eurozone, a situation that is not likely to improve any time soon.
The U.S. Approach to Russia Sanctions Remains Measured, but Steady. The U.S. Treasury Department notified Congress on Dec. 19 that it intends to remove sanctions imposed on Russia's Rusal, EN+ and ESE in 30 days. Oleg Deripaska, the Russian oligarch with key stakes in these companies, will remain on the U.S. sanctions list. This decision follows months of negotiations between the Treasury Department and Deripaska to reduce the latter's stakes in the sanctioned companies and to overhaul their boards of directors to get the sanctions lifted. This serves as an important compromise between the Trump administration and Rusal, one of the world's leading aluminum producers and exporters, as the sanctions had a significant impact on global aluminum prices and production when they were introduced in April. However, additional sanctions imposed by the Treasury Department on more than a dozen members of Russia's GRU military intelligence agency on the same day shows that the United States intends to keep up the pressure on Russia when it comes to its broader sanctions campaign, which can be expected to intensify in the coming year.
Congo Election Delay. After two years of delays, the Democratic Republic of the Congo's election wait will last just a bit longer. On Dec. 20, the country's electoral commission delayed the Dec. 23 vote, citing a fire that reportedly destroyed electronic voting machines and other problems. The election is now scheduled for Dec. 30. Tensions are high in the Central African country and election-related violence already has claimed many victims. As the Congo lumbers toward its election fate, the results and aftermath will affect how outside powers — like the United States, the European Union, China and regional powers — react.
On Our Minds
The Ongoing Nuclear Negotiation. With the U.S.-North Korea dynamic at a lull and a second Trump-Kim Jong Un summit still not booked, North Korea is making it even more clear what it expects next. This week, a commentary by North Korea's official news agency, the Korean Central News Agency, said North Korea had never agreed to U.S. calls for complete, verifiable and irreversible denuclearization. Instead, it specified that North Korea wanted complete denuclearization of the Korean Peninsula, elaborating that this means removal of nuclear threats from both Koreas and surrounding areas that target North Korea. With North Korea appeared set to maintain its push for U.S. concessions and the Trump administration needing to show its approach is yielding steps toward denuclearization, one side will need to flex.
More Tensions Between Ukraine and Russia. Several developments indicate that the Sea of Azov could be heating up into an escalation between Ukraine and Russia following a standoff in late November that led to the detention of Ukrainian sailors and ships by Russia. Kurt Volker, the U.S. special representative to Ukraine, met with Ukrainian President Petro Poroshenko this week to discuss the Sea of Azov standoff and promised that the United States would send Ukraine additional weapons in the coming months. In the meantime, the HMS Echo, a survey ship from the British Royal Navy, docked in Ukraine's port city of Odessa — the first NATO ship to visit Ukraine with a direct connection to the Azov standoff — just as there were reports that a Russian missile frigate was moving from Crimea toward the Sea of Azov. We'll be watching for Russian military buildups and military maneuvers in the area and closely tracking actions by NATO countries (and especially the United States) to provide security support for Ukraine.
Brazil Considers Moving Its Embassy to Jerusalem. Israeli Prime Minister Benjamin Netanyahu will travel to Brazil on Dec. 27 to lobby President-elect Jair Bolsanaro, who takes office Jan. 1, to move his country's embassy to Jerusalem. The move is fraught with business risk, especially for Brazil's agricultural exporters, who may endure boycotts or sanctions from Muslim countries that oppose the move. Brazil may yet take the halfway measure taken recently by Australia, which faces similar business risks, and recognize Jerusalem as Israel's capital but put off moving its embassy there until there's a peace settlement between Israel and the Palestinians.
In Case You Missed It
On Our Calendar
In the coming week, Christians celebrates Christmas and North and South Korea plan to hold a groundbreaking ceremony on road and rail linkages. For more, see our Geopolitical Calendar.
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