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The Weekly Rundown: Turkey's Offensive in Syria, a Dose of Brexit Optimism and Saudi Aramco's IPO Plans

8 MINS READOct 12, 2019 | 19:33 GMT
This photo shows smoke rising from the Syrian border town of Ras al-Ayn on Oct. 11, 2019, the third day of Turkey's military operation against Kurdish forces in northeastern Syria.

Smoke rises from Ras al-Ayn on Oct. 11, 2019. Turkey's military said its troops had entered the key Syrian border town on Oct. 12, the fourth day of Turkey's military operation against Kurdish forces in northeastern Syria.

(OZAN KOSE/AFP via Getty Images)

On the Record

These are very powerful sanctions. We hope we don't have to use them. But we can shut down the Turkish economy if we need to.

U.S. Treasury Secretary Steven Mnuchin


On Our Radar

Turkey Races to Beat a Sanctions Storm. Turkey's military operation in northeastern Syria continues to draw international condemnation and a building sanctions threat from its allies in Europe and the United States. The Turks, who are trying to build a buffer zone across the whole of Syria's border with Turkey, are moving as quickly as possible before the sanctions threat and other accompanying diplomatic threats can materialize. U.S. President Donald Trump on Oct. 11 authorized the U.S. Treasury Department to put sanctions on Turkey, but the administration's timeline for implementation, scope and scale are subject to debate. And the wider the net the sanctions cast, the wider the retaliation the Turks will take against those who penalize it — from negatively affecting U.S. and European businesses and citizens in Turkey to creating new opportunities for Russia and China to take advantage of the disruptions between Turkey and its Western allies.

Markets Remain Optimistic as the EU and the U.K. Enter a Next Phase of Brexit Talks. The possibility of an agreement between the European Union and the United Kingdom may have increased after Brussels announced the start of "intensive" Brexit negotiations with London before the EU summit on Oct. 17. The obstacles for an orderly Brexit on Oct. 31 are basically two. First, the United Kingdom will have to soften its pledge to exit the customs union, potentially to allow Northern Ireland to remain in it (a decision that would irritate the unionist Northern Irish lawmakers who support the government in Parliament). Second, Prime Minister Boris Johnson will have to persuade a skeptical House of Commons to approve a deal — which will be difficult, considering that the Commons have rejected Brexit deals three times in the past. Should the European Union and the United Kingdom fail to reach a deal, Johnson will be legally obliged to request an extension of the Oct. 31 Brexit deadline. The opposition in the Commons, in the meantime, will be ready to trigger a no-confidence motion against Johnson if he refuses to ask Brussels for more time.

U.S. and China Reach Tentative Narrow Trade Deal; Structural Issues Remain for a Larger Agreement. Negotiators from China and the United States reached a limited trade deal Oct. 11 — their fourth such agreement since the U.S.-China trade war began 18 months ago. The deal prompted U.S. President Donald Trump to say the White House would delay another tariff hike on $250 billion of Chinese goods, due to take effect Oct. 15. According to news reports, China agreed to extend agricultural and energy purchases and to commit to improving intellectual property protections and taking additional steps to remove foreign ownership limits on financial holdings. Trump said the deal has yet to be written so details will have to be worked out in the coming weeks, perhaps in time for a written agreement to be signed in mid-November at the Asia-Pacific Economic Cooperation summit in Chile, which both Trump and Chinese President Xi Jinping are scheduled to attend. Although both sides are politically motivated to score a victory, the partial deal doesn't go beyond the low-hanging fruit previously on the negotiating table. With neither side seemingly willing to make any of the hard, structural concessions necessary for a more comprehensive trade agreement, this week's deal is likely fragile at best. Judging by the Trump administration's continued search for leverage — now entering extreme territory that includes threats of divestment or even capital controls — a future uptick in hostilities between the United States and China is not only possible but perhaps also inevitable.

U.S.-North Korea Talks Break Down, Raising the Prospect of a Return to Confrontation. The high hopes for working-level talks between the United States and North Korea were dashed almost as rapidly as they rose last weekend. Shortly after the scheduled discussions concluded in Sweden on Oct. 5, North Korea issued harsh statements saying the talks had broken down and condemning the U.S. negotiating position. For its part, the United States partly denied the talks had broken down, saying that it had accepted a Swedish offer to facilitate another round of talks in two weeks. North Korea is dissatisfied with what the United States brought to the table and is pressing for greater compromise from Washington. Pyongyang may be calculating that U.S. President Donald Trump, facing political headwinds at home as he seeks reelection next year, will be eager to make a deal and avoid a high-profile return to tensions. However, North Korea risks miscalculating here. Any such deal would require serious compromise on both sides given the incompatibility of their strategic interests, keeping open the possibility of a return of tensions in 2020.


On Our Minds

Saudi Arabia Hastily Prepares the World's Largest IPO. Investment bankers working on pre-initial public offering preparations for the Saudi Arabian Oil Co. are expected to release a valuation in time for an Oct. 17 Saudi Aramco board meeting. Though the valuation isn't likely to be as high as Saudi Arabia initially hoped, Riyadh nonetheless is hastily preparing to list 1 percent or 2 percent of the state-owned oil company on the kingdom's Tadawul stock exchange by the end of November to help fund Saudi Arabia's economic diversification plans. Russian President Vladimir Putin will also be visiting Saudi Arabia next week and is expected to sign deals with the Saudi government worth billions of dollars, deepening the cooperation between the Saudi and Russian energy sectors.

O Bibi, Where Art Thou? Yom Kippur put the Knesset on a religious holiday, but that didn't stop Israeli politicians from scheming and planning for the future of Israel's government. Negotiations between the main contenders for prime minister, Benjamin Netanyahu of the Likud party and Benny Gantz of the Blue and White alliance, have largely broken down — and Netanyahu is facing a possible indictment on corruption charges in the coming weeks. Likud is famous for sticking by its leadership, but Netanyahu may not be the force he once was, and ambitious Likud members, particularly Gideon Saar, want his job at the top. The question now boils down to whether Likud members will stick by their leader as Netanyahu takes them into uncharted political waters, or dump him and in the aftermath avoid another election.

Ecuador's Unrest Risks Toppling the President. Ecuador's nationwide fuel subsidy protests endured and escalated this week, with President Lenin Moreno relocating his government to the port city of Guayaquil to avoid continued turmoil in Quito, the capital. Moreno has blamed the nationwide furor involving indigenous, labor and student groups on the country's exiled former president, Rafael Correa, and on the Venezuelan government. And with neither Moreno nor the protest leaders showing signs of compromise, the unrest is set to continue. Already the protests have hampered Ecuador's oil production, forcing the closure of key fields and an open-ended declaration of force majeure. The toppling of Moreno's government would risk the return to power by Correa or a close ally, ushering in the return to left-wing populist economic policies that would jeopardize foreign business operations through heavy restrictions or even nationalization.

Global Economic Leaders Convene but Cooperation Remains in Question. The International Monetary Fund and World Bank hold annual meetings in Washington on Oct. 15-20, along with various side groups such as the Group of Seven leading industrial nations and the Group of 20 leading industrial and emerging-market nations. Leaders will discuss a lagging global economy and risks in a number of developed and emerging economies, among other concerns. The meetings come at a time when multilateral cooperation and coordination are fraying. As information trickles out, we are looking for indications that governments will work together in adopting common approaches to address further global economic slowing [LINK: 2019 Fourth-Quarter Forecast] and whether policymakers have sufficient tools available, plus the will to respond effectively.


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On Our Calendar

In the coming week, Poland holds parliamentary elections, Mozambique holds presidential, provincial and legislative elections, European Union draft budgets for 2020 are due to the European Commission and EU leaders hold a two-day summit. For more, see our Geopolitical Calendar.


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