The Weekly Rundown: Turkey, India and China Flex Their Naval Muscles, and Trump Considers Tariffs

7 MINS READFeb 18, 2018 | 18:01 GMT
The China-Maldives Friendship Bridge is under construction in Male, the Maldivian capital.

The China-Maldives Friendship Bridge in Male, the Maldivian capital, is one of many projects jointly developed by China and the Maldives.

(AFP/Getty Images)

On the Record

She may be the most powerful woman in the world, but the twilight of the gods has begun.

                                            Andrea Nahles, Social Democratic Party leader, on German Chancellor Angela Merkel

On Our Radar

Turkey and India Defend Their Naval Spheres. Naval posturing is on the rise in the eastern Mediterranean and Indian Ocean basin. The Turkish navy is blocking Eni, the Italian energy company, from exploring Cypriot waters, a Turkish patrol vessel collided with a Greek coast guard boat in the Aegean Sea, and Turkey may soon deploy a naval escort with its own deep-water drill ship in disputed waters around Cyprus. Even as big natural gas discoveries are taking place in the eastern Mediterranean, Eni and other international energy firms will be caught in the fray as Turkey defends its maritime sphere of influence.

Further east, China is encroaching on India's naval sphere with a rare naval deployment to the eastern Indian Ocean amid a simmering crisis in the Maldives. India has been flexing its own naval muscles with exercises in the Arabian Sea. Naval posturing aside, it remains to be seen whether India has the political stamina — and the capital — to compete effectively against Beijing in its backyard.

The World Awaits Trump's Trade Verdict. In line with a Section 232 investigation, the U.S. Commerce Department has recommended that President Donald Trump implement a wide range of import restrictions, including global tariffs, to mitigate the "national security risk" from steel and aluminum imports. Trump has 90 days to act. A potentially bigger trade action could come out of the Section 301 investigation on China's intellectual property violations and forced technology transfers. The European Union and Japan are joining the United States in filing World Trade Organization cases against China's tech transfer rules in March, but the multilateral approach still does not preclude a big unilateral move by the White House against China.

In South Africa and Israel, Dislodging Leaders Is Easier Said Than Done. Now that Jacob Zuma has successfully negotiated his departure as South Africa's president, we'll need to see whether his successor, Cyril Ramaphosa, can ease out of Zuma-era populism and restructure Africa's most industrialized economy without losing the African National Congress' base of support. Meanwhile, Israeli Prime Minister Benjamin Netanyahu is facing a litany of corruption charges and calls to step down, but he is not going out without a fight. We're keeping a close watch on potential defections in Netanyahu's Likud Party that could accelerate the prime minister's downfall. With or without Bibi at the helm, Israel's foreign policy is unlikely to shift course.

Riyadh and Moscow Search for Solidarity Amid U.S. Oil Rise. As U.S. oil production rises — it already has surpassed 10 million barrels per day — Saudi Arabia and Russia are trying to negotiate a more lasting pact to counterbalance U.S. production growth. That pact could extend into more strategic areas as well. Saudi Aramco will likely invest in a major Arctic liquefied natural gas export terminal this year and Russia, along with China, is hoping for a private sale to participate in Saudi Aramco's initial public offering.

Russia Prepares for Sanctions. Moscow is building up insulation in the event the West throws on more sanctions. Even as Russia's international financial transactions would still be at risk, Moscow has made some progress developing a domestic credit and financial transaction system in the event of a SWIFT cutoff or pullout by Visa and Mastercard. While Russian money is flowing back into the country out of a fear of sanctions, the Kremlin is also keeping its options open on the foreign policy front to ease pressure with the West. We'll be watching what shakes out of negotiations among Russia, Ukraine, Germany and France on a U.N. peacekeeping deployment to eastern Ukraine.

Brussels Is Getting Overzealous in EU Reforms. In an age of Euroskepticism, it may seem odd that Brussels is making all kinds of proposals aimed at enlarging the European Commission's powers and creating a supranational government. The commission proposed last week that EU members increase their budget contributions, restructure agricultural subsidies and empower Brussels to impose new taxes. Brussels is trying to take advantage of a pro-EU French president and a distracted Germany to push deeper integration, but the bolder the proposals, the more backlash we can expect from the northern Europeans who want a smaller budget and the central and eastern Europeans who believe Brussels is already too powerful.

On Our Minds

Is Iran Approaching a Political Turning Point? Iranian President Hassan Rouhani floated the idea of holding a popular referendum amid growing debate in Iran over popular demand for political and social reform. As sporadic, economically fueled protests continue to drive unrest, Rouhani is likely seeking an outlet for dissent as well as a popular mandate for enacting some changes. If Supreme Leader Ayatollah Ali Khamenei endorses Rouhani's referendum initiative, bigger political change could be coming to Iran.

Can Technology Solve the Irish Border Dilemma? As EU and British negotiators struggle to reach an agreement to keep the Irish border open, we think that technology could help them find a solution. In theory, the use of technology such as blockchain should make it easier for British and EU customs authorities to track goods and prevent the establishment of a hard border between Northern Ireland and the Irish Republic. But such a technology is still in its infancy, which means that it would require a significant degree of imagination and goodwill from the European Union and the United Kingdom to reach an agreement. They also would have to buy enough time for the technology to be implemented and tested, which in turn would consume substantial political capital in both camps. If successfully implemented in Ireland, this could set a precedent for future free trade agreements around the world, as the complex issue of enforcing rules of origin would be significantly simplified.

Gulfies Love Fintech and the Blockchain. Last week saw a string of announcements in Saudi Arabia and the United Arab Emirates on cryptocurrencies and blockchain-based financial technology. The biggest was Saudi Arabia's central bank signing a deal with Ripple for a pilot program for cross-border transaction processing. The two countries view emerging technologies as potential catalysts for their economic reform agendas, but they are also competing to attract the necessary investment and talent to make this vision a reality. The desire may be strong, but the jury is still out on whether the Gulf powers can position themselves as global leaders in this tech space.

Can Russia Handle the Economic Stress? The Russian government raised the minimum wage to "sustenance" levels, ahead of the presidential election in March and amid rising poverty levels. This legislation is now going to put more pressure on regional and corporate budgets at a time when the state is already burdened with bailouts. We'll have to watch how the Kremlin copes, especially if there is potential for Russia to face more sanctions from the West.

In Case You Missed It

Digital Tax Proposals Produce New Discord in the EU

Washington May Draw a Bull's-Eye on Central American Trade Pact

Turkey and Iran Push and Pull Over Syria

On Our Calendar

European Union Budget Commissioner Gunther Oettinger kicks off a busy week discussing the EU budget in Germany, Australian Prime Minister Malcolm Turnbull meets with U.S. President Donald Trump in Washington, and the Winter Olympics wrap up in Pyeongchang, South Korea. For more, see our Geopolitical Calendar for the week of Feb. 19.

Join the Discussion

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What do you think is most likely to happen next for Israeli Prime Minister Benjamin Netanyahu, who could face corruption charges?

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