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Oct 10, 2016 | 09:33 GMT

Fourth-Quarter Forecast: Middle East/North Africa

Foreign interests will diverge more markedly in Syria.

Peace Eludes Syria

The interests of forces fighting in Syria and their foreign backers will diverge even more noticeably in the fourth quarter. Even as Washington pulls back from negotiations with Russia on the strategic level, the United States needs to maintain open lines of communication with Russia and close military coordination with Turkey to avoid major incidents on the Syrian battlefield that could distract it from its operations against the Islamic State. Russia will nonetheless work to demonstrate to the United States the cost of downgrading its talks with Moscow by escalating its military support for the loyalists and trying to interfere with U.S. and Turkish operations. Ankara, as it pushes deeper into northern Syria to block Kurdish fighters' territorial expansion, will work more closely with Moscow this quarter in hopes of avoiding clashes with Russian-backed forces. The Gulf Cooperation Council (GCC), led by Saudi Arabia, will reinforce Syria's Sunni rebels all the while, taking advantage of a deterioration in U.S.-Russian ties. For the fighters on the ground, the consequences of meddling by foreign powers with competing agendas will reinforce their mistrust in internationally mediated peace talks, compromising periodic attempts to establish cease-fires and dragging out the conflict even more.

Aleppo province will continue to be the central focus of the conflict. Loyalist troops will do their best to drive the Syrian rebels out of Aleppo city, while the rebels will concentrate their efforts on breaking the siege. Should the rebels fail, allowing the siege to remain firmly in place, the loyalists would be free to direct some attention toward the Islamic State-held city of al-Bab — a target of significant interest to all sides this quarter. To the north, Turkish-backed rebels will advance toward al-Bab despite stiff resistance from the Islamic State, stopping short of the loyalists' front lines. Their advance will block the Kurdish People's Protection Units from moving closer to the city. Meanwhile, Washington will try to redirect the Syrian Democratic Forces' attention from al-Bab to Raqqa. Of course, Aleppo will not be the only territory up for grabs this quarter; Hama province will also be the site of extensive military action as the year winds down. Loyalist troops in the area will do what they can to thwart rebels' plans to seize Hama city and the vital lines of communication around it.

Turkey Pushes Deeper Into Aleppo

Turkey's incursion into Syria and toward al-Bab will force it to maintain a working relationship with the other military powers operating in the area — namely, the United States and Russia. Ankara will not receive international endorsement for its plans to establish a safe zone on its border with Syria, but that will not stop it from pursuing one [LINK: Turkey's Careful Incursion Into Syria]. Turkey will make use of its own minimal troops and its Free Syrian Army allies to begin carving out a security perimeter and building temporary housing for refugees in the border region.

Though Turkey and Russia will be cautious in their dealings with each other on the Syrian battlefield, they will cooperate more comfortably in the economic realm. Commercial flights between the two countries will pick up, as will trade, which will gradually increase throughout the end of 2016. Turkey will highlight the merits of the TurkStream pipeline project, angling for more favorable prices in its natural gas contracts with Russia.

In the wake of Turkey's failed coup, Ankara has sped up its timetable for cracking down on Kurdish militants and their political affiliates in the name of national security. When the Turkish parliament reconvenes in October, the ruling party will likely sideline the pro-Kurd People's Democratic Party (HDP) as lawmakers prepare to debate a raft of proposed constitutional amendments aimed at eroding the military's political power. (Some compromise can be expected in amendments regarding the judiciary, but the legislature will avoid shifting to a presidential system of governance for now.) Faced with mounting political oppression, the HDP will try to revive peace talks between the Turkish government and the Kurdistan Workers' Party (PKK), offering Ankara an opportunity to mitigate the European Union's concerns about human rights abuses in Turkey. The ruling party, however, will engage only superficially in dialogue to improve its image abroad and boost its standing in negotiations with Brussels. It will not substantially alter its policy of cracking down on the Kurds, nor are Kurdish militant groups likely to lay down their arms as a precondition to the talks.

In the meantime, Turkey's negotiations with Europe will carry on, despite the fact that their migration deal is coming under increasing strain. Brussels will keep chastising Turkey for ignoring human rights, just as Ankara will keep complaining about the bloc dragging its feet on liberalizing visas for Turkish citizens. Because Turkey will refuse to reform its counterterrorism laws, as Europe has demanded, the Continental bloc will stretch its debate over liberalizing Turkish visas into 2017. The European Union will continue to offer Turkey money in exchange for relieving the Continent's migrant burden, even as Ankara continues to grumble about how those funds are delivered.

In Iraq, the Fight for Mosul Begins

To the south, Iraq will begin trying to recapture Mosul from the Islamic State in earnest toward the end of the year. And as in Syria, foreign powers with a stake in the conflict will shape how it unfolds. Turkey, Iran and the United States are all aware that any country with forces in the fray will have the ability to influence the political and economic future of Mosul once it is wrested from the Islamic State. To that end, each will be sure to have troops embedded within Iraqi units, playing an advisory role. Iran will work closely with the Shiite Popular Mobilization Units and Iraqi security forces, while Turkey will lend its support to the Sunni Hashd Watani group and the Kurdish peshmerga. The U.S.-led coalition against the Islamic State will funnel its aid to the Iraqi military, which — with the help of the Popular Mobilization Units and Western firepower — will advance on Mosul from the south and southwest. Once within striking range of the city, Iraqi forces will begin a concerted assault on Mosul proper. As the Islamic State struggles to hold its ground against the attacks on Mosul and Raqqa, its calls for its followers to conduct terrorist attacks abroad will grow louder in an effort to demonstrate the group's continued relevance.

The Mosul operation will force Baghdad and Iraq's Kurdistan Regional Government (KRG) to temporarily set aside their differences. But as the quarter progresses, efforts to clear the Islamic State will renew territorial disputes along the edges of Iraqi Kurdistan. Interference in the KRG's decision-making by Turkey and Iran will destabilize the region even more. As Ankara tries to insert itself in the Mosul offensive against Baghdad's — and by extension, Iran's — wishes, it will rely more heavily on its relationship with the KRG's ruling party. Tehran will look for deeper inroads into the KRG as well as it works to contain the growing threat of Kurdish insurgencies within its own borders.

Iranian and U.S. Political Races Intertwine

Meanwhile, the Islamic republic will prepare to hold its presidential election in the first half of 2017 — a race that the United States' upcoming November vote will factor heavily into. The United States' policies toward Iran will not change much during the fourth quarter, but Tehran's hard-line conservatives will point to the political rhetoric of U.S. candidates — particularly regarding Iran's nuclear deal with the West and threats of renewed sanctions — to undermine President Hassan Rouhani's more moderate camp. The Islamic Revolutionary Guard Corps will use missile launches, military operations and drills in the Strait of Hormuz to remind Iranian politicians across the ideological spectrum of its clout as the competition for the presidency heats up.

As Iran's factions try to discredit one another with scandals and attack campaigns, an important item to watch will be the degree of economic reform and re-engagement with foreign investors that takes place under Rouhani's administration. Iranian hard-liners will seek to protect their own interests in the face of external competition as Tehran takes concrete steps to open up its energy sector in the fourth quarter. Iran plans to hold oil and natural gas tenders under its new investment framework as early as October, though any deals it reaches with foreign investors will not be finalized until late in the year, at the earliest. In the meantime, Iran will continue to court domestic financiers for funding.

The Gulf Grapples With Budgets and War

During the first two months of the quarter, the OPEC members of the Gulf Cooperation Council (GCC) — Saudi Arabia, Kuwait, Qatar and the United Arab Emirates — will continue negotiating with other OPEC members on how to organize a supply cut for the group in the lead-up to OPEC's next meeting on Nov. 30 in Vienna. Iran, Libya and Nigeria will not be subject to cuts, and as exports from Libya and Nigeria return, they will add more pressure to the dispute between Iran and Saudi Arabia over who should shoulder cutting production and at what level Iran should freeze its production. Regardless of whether they reach an agreement, Saudi Arabia and the other GCC members will not attempt to jeopardize the recovery in oil markets. Instead, OPEC's members are moving toward a de facto freeze in production. With or without an agreement that reduces OPEC's overall production, Saudi Arabia will likely slowly pull back from its summer highs, when it used extra production to feed domestic power generation.

Iran's impending re-entry into the global energy market will doubtless be on the GCC’s mind as its members review their 2016 budgets and draft new ones for the coming year. Of the Gulf states, Saudi Arabia, Oman and Bahrain are experiencing the greatest financial stress, though Riyadh will probably manage to trim back its budget deficit as the year ends. Saudi Arabia will continue to introduce incremental economic reforms, unveiling the next phase of Saudization in December as it revises its labor laws amid growing demand for employment among Saudi youths. Riyadh, along with its fellow GCC members, is searching for ways to reduce its spending, in part by consolidating government ministries. Saudi Arabia will also issue upward of $10 billion in government bonds during the fourth quarter to replenish its coffers.

Economic strain will not be the only source of tension among GCC countries. Yemen's drawn-out war will put relationships within the bloc to the test as the country continues to fragment. An attempt to relocate Yemeni institutions to Aden will bolster southern separatists, driving a wedge between Saudi Arabia and the United Arab Emirates. (Abu Dhabi is more comfortable than Riyadh with the idea of a partitioned Yemeni state.) Saudi Arabia will be reluctant to make concessions to Yemen's Houthi rebels, who in turn will refuse to relinquish their weapons and territory, preventing any real headway from being made in the country's ongoing peace talks.

Violence Threatens Libya's Rising Oil Exports

To the west, another bloody and protracted conflict shows few signs of nearing a resolution. During the third quarter, Libyan Field Marshal Khalifa Hifter made strides in securing oil export terminals in the east, strengthening his position — and that of the House of Representatives — in talks with the Government of National Accord (GNA). Negotiations between the two will last through the end of the year, making some progress in unifying the rival governments' institutions. That said, the talks will fall short of creating a single, cohesive government. The fragility of the peace process will likely ensure that sporadic clashes between militias supporting either side occur throughout the fourth quarter. And as the Misratan militias fighting alongside the GNA wrap up their operations against the Islamic State forces in Sirte, the jihadist group will undoubtedly respond to its losses by launching more terrorist attacks against Libyan cities.

Oil fields in central Libya could continue to increase their output this quarter, though the Tripoli-based national oil company's expectation of ramping up production to a million barrels per day is overly optimistic. Clashes between rival militias, or the flight of Islamic State fighters from Sirte, could lead to attacks on the country's oil and natural gas infrastructure and volatility in Libyan energy exports.

Egypt Turns Its Economy Around

A busy economic quarter lies ahead for Egypt as it fortifies its defenses against Islamic State militants fleeing from Libya. Cairo, already in the final stages of securing the largest tranche of International Monetary Fund aid in the Middle East's history, will be working to garner additional funds from the World Bank, GCC and China. Egypt plans to use the money to scale back its costly subsidy scheme in 2017. Public opposition to the impending austerity measures will rise during the fourth quarter but will remain at tolerable levels as the government focuses on recovering its financial footing.

Fourth-Quarter Forecast: Middle East/North Africa
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