I) Political Developments
Regional Impact of Covid-19:
Even as the WANA region continued to be ravaged by the Covid-19, the pandemic gradually became part of the “new normal” for most of these countries. A number of factors pushed for this normalisation: gradual lifting of the local lockdown restriction and concomitant economic activity, the revival of the global economic activities and implementation of OPEC+ deal reversed the bearish trend in the oil prices and a sense of resignation about continuation of the disease spread. These improvements were mitigated by suspended apprehensions about second wave of the pandemic being imminent. The table below providing details about the individual WANA countries is from a well respected source, but needs being taken with due scepticism. For instance, in one country the number of Covid cases has more than doubled in past two months, but only one more patient has died. In another improbable case the death rate is around one in a thousand confirmed cases. Overall though, the region had nearly a tenth of incidence and twentieth of the deaths from the global pandemic.
In a press conference on June 30, WHO’s Head for Middle East said that more than 80% of all deaths in the region were in five countries: Egypt, Iran, Iraq, Pakistan and Saudi Arabia. He warned that the region was facing a “critical threshold” amid a relaxation of coronavirus measures following a surge in cases.
Though the pandemic continued to affect various WANA countries differently, the most visible impact was on economy. The fiscal deficits soared and currency values plummeted leading to higher inflation and lowering states’ capacity to ameliorate the vulnerable citizenry. Particularly affected countries were Lebanon, Sudan, Yemen and Syria. Their specifics are described in national coverage.
During the month under review, the two rival regimes in Libya (-and their backers) alternated between waging the hostilities and expressing readiness to negotiate. Both these tendencies were accentuated by the turn around in the battleground as Tripoli based Government of National Accord (GNA) went into offensive against Benghazi-based Libyan National Army (LNA) led by Gen Khalifa Haftar. After staunching the LNA’s year long offensive on Tripoli, GNA announced on June 4 that it had regained full control of greater capital region. Although the UN Support Mission in Libya (UNSMIL) yet again announced on June 2 that the two sides had agreed to hold ceasefire talks, these led nowhere. GNA Prime Minister Fayez al-Sarraj visited Ankara on June 4 for a Summit with President Erdogan of Turkey, his main backer. On other hand Gen Haftar rushed to Cairo the next day to meet Egyptian President Sisi, who proposed a ceasefire between the two sides. This was rejected by the GNA, which declared its intent to continue the military campaign against coastal city of Sirte and Jufra airbase. This escalation prompted President Sisi to visit an army base in western Egypt on June 20 and publicly ask his forces to be ready to intervene if GNA crosses the red-lines and attacked the two targets. Meanwhile, reports indicated LNA mobilising forces, including foreign mercenaries from Sudan, Chad, Syria and Russia to the front.
There was some speculation about Russia and Turkey coming to some “Syria-type” understanding on Libya during their foreign ministers’ proposed meeting on June 14. In the event, the meeting was postponed without assigning any reasons.
In a significant development, US CentCom General Stephen Townsend visited Tripoli to meet PM Fayez Al-Sarraj on June 23. The two sides agreed to cooperate to “fight terrorism.”
The US seems to have adopted a policy of dynamic neutrality on Libyan civil war. Gen Khalifa Haftar was an exile in the US before his re-emergence in Libya to lead the LNA. His foreign supporters include the UAE and Egypt, both pro-US regional powers. However, Russian support for him and his recent debacles on battle-field seems to have prompted the US gesture towards the rival GNA.
From June 6 onwards, a steady dribble of information from the latest IAEA report on Iranian nuclear compliance with the stipulation of the JCPOA was leaked by the western media. Accordingly, Iran seemed to have enriched Uranium to the tune of 4.5% – in excess of JCPOA limit of 3.67%. Further its stockpile of the metal had reached 1571 kgs – or eight times the permissible amount. The IAEA stated that its teams had not been allowed access to two Iranian nuclear sites.
A war of words was unleashed by the US and Iran to influence the UN Security Council debate on June 30 on lifting of the UN-imposed arms embargo on Iran scheduled to be lifted in October as stipulated in the JCPOA. While the US and Saudi Arabia argued that the embargo must extended to avoid a regional arms race, Iranian foreign minister said that lifting of the embargo on scheduled time was “inseparable part” of the JCPOA as endorsed by the concerned UNSC Resolution 2231.
On June 29, Iran caused some flutter by issuing warrants of arrest against the US President Donald Trump and 35 others over the killing of the IRGC Qods Force General Qassem Soleimani at Baghdad airport in early January 2020. It formally approached the Interpol for issuing of Red Corner notices, but the later declined to do so as its constitution forbade it to undertake “any intervention or activities of a political, military, religious or racial character”.
During the month, Iran and the US exchanged two detained Iranian nationals and a retired marine officer – even as both sides denied this to be part of any deal.
The US blacklisted 4 Iranian metallurgy concerns and their 4 foreign subsidiaries on June 26.
An Iranian ship delivered food items to Venezuela on June 22.
Worsening economy caused Iranian Rial to fall by 13% during June 2020.
With the approaching trigger of July 1 for launch of the “Trump Plan for the Middle East”, a number of statements were issued by various busybodies to thwart the annexation of Jordan Valley and other parts of the occupied West Bank by Israel led by Prime Minister Benyamin Netanyahu who has made no secret of his alacrity to do so. Such statements came from UNSG Antonio Guterres (in his address to an inconclusive UN Security Council convened on June 24 for this purpose), UN High Commissioner for Refugees, Arab League, over 1000 European MPs and the German Foreign Minister. In the event, differences on prioritising this issue emerged within the Grand Coalition ruling Israel causing delay in a final decision in this regard.
The countdown began for Amal (“Hope”) project under which the UAE is to become first Arab country to launch an outer space mission intended to orbit Mars next year. The space module – fabricated in the UAE in collaboration with three US universities – would be launched around July 14 from Japan using a Japanese rocket. The Amal project is a part of celebrations to mark golden jubilee of the UAE’s independence next year.
The emirate of Dubai announced easing of lockdown conditions enabling foreign residents to return from June 22. The foreign tourists would be able to visit from July 7.
The foreign companies operating in the UAE had deadline of June 30 to justify their presence there — with evidence of employees and assets to demonstrate that there is genuine economic activity — and explain that profits booked are indeed generated from activities undertaken in the region. The stipulation applied both to onshore and offshore entities and is intended to weed out the so-called paper companies establish to launder money “earned” elsewhere.
Relevant to note here that the UAE has recently been in the cross-wires of FATF.
With Addis Ababa determined to commence water-charging her $4 bn Grand Ethiopia Renaissance Dam (GERD) over the Blue Nile from next month, the negotiations with Egypt and Sudan over some contentious technical and legal aspects of water sharing acquired criticality. While Ethiopia wants to fill the dam at the earliest possible, say in 4 years, Egypt (which depends on the Nile for over 90% of its fresh water) wants it to be done over a much longer period and with guarantees for minimum level of discharge during draughts. Sudan, which has both irrigation and floods as concerns and would also benefit from some of the 6 GW of power generated by GERD, has been more ambivalent. The trilateral talks re-commenced on June 6 but reached a deadlock on June 17 – raising tensions. Egypt raised the ante by making a reference to the UN Security Council which did not take a position on the matter. Ultimately, on June 27, African Union aegis was used to resume negotiations for a settlement hopefully within next few weeks.
Reference for further reading: “Showdown on the Nile: The bitter dispute over Africa’s largest dam” The Economist, July 4; http://go.pardot.com/e/827843/spute-over-africas-largest-dam/2p1mz/54634517?h=NEvJw_gLQs30bLykIvY3FujGQfKFS6ycB6jrIwUOa4E
On June 6, Iraqi Parliament approved remaining seven nominees for the Cabinet including the ministers for foreign affairs and oil.
Although a US-Iraq strategic dialogue was held on June 6, it merely hinted at an agreement on the withdrawal of the American troops from Iraq without specifying any time frame.
In an unprecedented action on June 25, Iraq’s Counter-Terrorism Service (CTS) raided a Kataib Hezbollah camp and arrested its 14 cadres for planning to launch rocket attack on Baghdad’s Green Zone housing the US embassy and other high-value Iraqi official establishments. In an angry response, militants of Kataib Hezbollah, under pro-Iranian Popular Mobilisation Forces (PMF) surrounded the CTS establishment to demand release of their detainees.
While the situation was defused by releasing the detainees, the incident pointed to the dangers of new Iraqi Prime Minister Mustafa al-Kadhimi pursuing his stated policy of bringing the various militias under official control.
The United States Caesar Syria Civilian Protection Act went into effect from June 17. In addition to the existent US economic sanctions on Syria, it targeted travel and financial curbs on the foreigners providing significant assistance to Bashar Al-Assad government. Heralding the new sanctions, the US Secretary of State Mike Pompeo described them as the start of a “sustained campaign of economic and political pressure against Assad” and threatened to escalate them further. A Syrian foreign ministry source said that the US sanctions violated international law and accused the officials in Washington of behaving like a “gang”.
- In anticipation of the new sanction, the Syrian Pound (SP) plummeted to below 3,000 to a US Dollar on June 9, over four times the current official rate of 700. It was SP 47 to the Dollar in 2011 before beginning of the Syrian civil war.
- In a rare incident, deteriorating economic situation led to anti-government demonstrations in southern city of Sweida, populated by Druze minority traditionally loyal to the Assad regime. In an apparent attempt to deflect the blame, on June 11 President Bashar Al-Assad dismissed Prime Minister Imad Khamis, who had been in position since 2016.
On June 17, a French court pronounced Rifaat Al-Assad, estranged 81-year old uncle of the Syrian President, guilty of buying properties in France using money stolen from Syrian government and sentenced him to four year in jail.
Al-Houtis claimed to have launched their biggest offensive against Saudi Arabia on June 23 involving 8 armed drones and three missiles aimed at capital Riyadh and cities of Jizan and Najran.
On June 20 clashes broke out between Saudi-backed al-Hadi government forces and Southern Transitional Council militia (STC) armed by the UAE for control of Abayan province and Socotra island. By the next day the STC militia had captured Socotra island. An uneasy truce was agreed to in Abayan. Although on June 28 President al-Hadi appealed to the STC to abide by Riyadh agreement, the later seemed to have ignored it.
STC control over Socotra island has considerable significance on two accounts: firstly the island lies strategic at the mouth of Baab al-Mandeb strait connecting Red Sea with Indian Ocean – a choke point through which almost all the sea trade between Asia and Europe is conducted. Secondly, as Socotra is more than 200 kms off the Yemeni coast, it provides the STC semblance of a political identity.
On June 15, Turkish armed forces launched a concerted attack on PKK fighters in Iraqi Kurdistan. The attack involved air raids on over 500 targets followed by ground attack by Turkish Special Forces.
In an operation in northern Mali on June 3, French military forces killed Abdelmalek Droukdel, an Algerian Islamic militant who has been the head of Al Qaeda in Islamic Maghreb.
II) Economic Developments
On June 6, OPEC+ group of oil exporters decided to extend their collective oil cuts of 9.7 mbpd till June by a month. Saudi Arabia and her allies (Kuwait and the UAE) were satisfied with good compliance with the production cuts commitments so they decided to continue with their extra voluntary cuts totalling 1.1 mbpd till July end. Apparently buoyed by the tightening market, on June 8 Saudi Arabia decided to withdraw all discount to her normal oil price offered in May to Asian customers. Nigeria and Iraq, two producers which did not fully implement their production cut commitments agreed to compensate by lowering production.
- A month’s extension in OPEC+ cuts were meant to balance a tepid recovery in global oil consumption still reeling from Covid-19 related lockdowns. In the original deal reached in April 2020, the cuts were to be reduced to 7.7 mbpd from July 1.
- While production cuts by OPEC+ have nearly doubled the Brent prices to $43/barrel, the demand recovery was tentative with some major economies still having high instances of Covid-19 cases. Further, there was also an existent overhang of extra crude oil depressing the market.
- Recalling that only three months ago in March, aggressive Saudi overproduction had roiled the market, the roller coaster ride since raised fundamental questions about stability of this vital commodity as it faces myriad challenges ranging from political conflicts to renewables and from approaching peak oil to investment lag and from shape of Covid-19 recovery to Shale wildcats.
Global Economic Prospects for MENA Region:
On June 8, the World Bank released its report on the Global Economic Prospects (GEP) 2020. While traditionally regarded as a routine reference document, it was anything but so this time due to the unprecedented economic mayhem caused by the global pandemic. The GEP baseline projection for the global economy was a contraction by 5.2% in 2020. The GEP included the following summery projection for MENA region:
“Economic activity in the Middle East and North Africa is forecast to contract 4.2% as a result of the pandemic and oil market developments. Iran is expected to contract 5.3%, the third year of contraction in a row. In many oil exporters, growth will be significantly constrained by policy cuts in oil production. In Gulf Cooperation Council (GCC) countries (-4.1%), low oil prices and uncertainty related to outbreaks of the virus will further weigh on non-oil activity. Economic activity among oil importers is expected to contract by 0.8% in 2020, as tourism and exports decline.”
The following table, culled from the GEP, provides some economic statistics for the region and its countries:
On June 10, the UAE Central Bank projected that the national economy would contract by (-)3.6% during 2020 due to oil income decline and Corona pandemic. While the Hydrocarbon sector would fall by (-)2.4%, non-energy sectors would suffer a contraction of (-)4.1%. The employment would continue to drop before recovering in Q4/2020.
In an interview on June 16, UAE Energy Minister Suheil al-Mazrouei warned that if low oil prices persist for a long period, some of the current high-cost producers will drop out leaving a supply gap, eventually pushing prices higher.
On June 26, Abu Dhabi National Oil Company (ADNOC) signed a $20.7 bn deal with 6 international companies for a 49% stake in 20-year lease for 38 gas pipelines in the country.
It was officially disclosed on June 30 that Dubai’s economy had shrunk by 3.5% y/y in Q1/2020. The economy had grown by 2.2% y/y in 2019.
Emirate-backed “Dubai World” made the final payment of its debts owed since the last financial crisis dating back to 2008-9.
Ironically, this and other economic entities backed by the Emirate of Dubai are now bracing themselves for new set of liabilities arising out of the Covid-19 lockdown and resultant economic disruption.
At a virtual conference hosted by the United Nations and the European Union on June 30, international donors pledged $7.7 bn in humanitarian aid for war-ravaged Syria. While less than the $10bn sought by the UN agencies, the funds committed were higher than expected. Germany, which offered $1.78bn, was the highest country contributor. The money pledged will be used to finance food, medical aid and schooling for the millions of Syrians displaced or forced into exile.
Western and Arab countries have pledged $1.5bn at a conference hosted by Germany on June 25 to help Sudan ease an economic crisis hampering its transition towards democracy. Among the main contributors were: the US ($356 mn), the EU ($350 mn) including Germany ($168 mn) and France ($112 mn), the UK ($186 mn) and the UAE ($300 mn). In his intervention, Sudan PM Hamdok assured the donors of his government’s intention to rein in the economic role of the security establishments in his country.
The UN and Saudi Arabia organised a Yemeni Donors Conference on June 2 to garner urgently needed assistance for the contemporary world’s greatest humanitarian tragedity. Yemeni Civil War, currently in its sixth year, has caused over 100,000 deaths and displaced millions. The event succeded in collecting $1.35 bn. The main contributors were: Saudi Arabia ($500 mn), the US ($223 mn), the UK ($200 mn) and Germany ($140 mn)
Despite desperate macro-economic situation, the intense negotiations with IMF remained inconclusive during the month – causing further distress to the national economy. At least two prominent Finance Ministry officials resigned to express their dissatisfaction with the policies. The IMF put the cumulative losses to country’s Central Bank at $49 bn. Lira, the national currency, lost 75% of its value since public agitation demanding political reforms began in October 2019. The street protests resumed on June 11, this time against the unbearably high cost of living. The economic meltdown was also exacerbated by the new US economic sanctions on Syria whose economy is inter-twined with Lebanon.
Kuwaiti fiscal deficit during the current financial year beginning on April 1 was expected to reach 40% of the GDP due to low oil income and Corona virus lockdowns. This prompted Prime Minister Sheikh Sabah Al-Khalid Al-Sabah to declare on June 3 Kuwait’s intention to reduce the number of foreigners in the country from 70% of the total population (of 4.8 mn) to 30%. Some commentators thought this to be too ambitious, pointing out that the country has 650,000 housemaids alone.
The fiscal deficit for Oman was expected to reach 16.9% in 2020. While the country has run a fiscal deficit for each of past seven years due to low oil prices, this was the highest figure so far, prompting its leadership to look for external succour from Qatar and Kuwait.
On June 26th the IMF approved a loan of $5.2bn to Egypt.
Under an austerity drive, Qatari government decided on June 11 to cut the salaries of its expatriate employees by 30%. Some other perks were also reduced.
III) Bilateral Developments
FDI in RIL:
Among the 11 major foreign investments totalling over Rs 1.15 lakh crores in Reliance Industries Limited’s Jio Platforms till June 30 were the following three from Gulf countries:
- Abu Dhabi sovereign wealth fund Mubadala Investments picked up 1.85% stake in Jio Platforms for Rs 9,093.60 crore on June 5.
- Abu Dhabi Investment Authority (ADIA) on June 7 invested Rs 5,683.50 crore for a 1.16% stake.
- On June 18, Saudi Arabia’s sovereign wealth fund Public Investment Fund (PIF) acquired 2.32% stake in Jio Platforms for Rs 11,367 crore.
On June 23, the RIL annual report for FY2020 quoted Chairman Mukesh Ambani as having said “In the energy businesses, Reliance is working to complete the contours of a strategic partnership with Saudi Aramco. The partnership gives our refineries access to a wide portfolio of value-accretive crude grades and enhanced feedstock security for higher oil-to-chemicals conversion.” The proposed deal would have Saudi Aramco investing $15 bn for 20% stake in Reliance’s oil-to-chemical business.
On June 15, India launched Indian Gas Exchange (IGX), the first platform to trade in natural gas. Indian Petroleum Minister said that this move would help India to achieve the target of natural gas having 15% share in country’s energy mix by 2030 from 6.5% at present. The initiative was part of a comprehensive reform package for the sector that included setting more competitive tariff for the fuel. India, world’s 4th largest LNG importer, is currently in a $60 bn program to expand the gas network.
Oil Imports Rebound:
India’s hydrocarbon fuel consumption in June 2020 was 88% of its level one year ago – indicating fast economic recovery after Covid-19 lockdown. India is world’s third largest oil importer.
No Indian Hajis This Year:
Ministry of Minorities Affairs stated that following Saudi decision to restrict the coming Hajj pilgrimage only to Saudi-based Hajis, no pilgrims would be sent from India.
OIC Contact Group on J&K Criticises India:
The foreign ministers of the five member states (Azerbaijan, Niger, Pakistan, Saudi Arabia and Turkey) of the Organisation of Islamic Countries (OIC) “Contact Group on Jammu and Kashmir” held a virtual meeting on June 22, 2020.
The Contact Group reaffirmed its continued support for the people of Jammu and Kashmir and called on the UN Secretary-General to use his good offices to make India abide by the UN Security Council’s (UNSC) resolutions and engage in dialogue to calm the situation in the region.
The Contact Group called on India to “halt security operations against the people of Jammu and Kashmir immediately, respect basic human rights, refrain from changing the demographic structure of the disputed territory, and settle the conflict under the relevant UNSC’s resolutions.”
It also highly appreciated “the efforts made by the OIC General Secretariat through its Special Envoy to Jammu and Kashmir who visited the region in March 2020.”
After the meeting, the OIC Contact Group on Jammu and Kashmir issued a statement on the recent developments in Jammu and Kashmir region in which it welcomed “the efforts made by some Member States to calm the situation between India and Pakistan.”
Replying to a reference on the OIC statement, the Official Spokesman of Indian Ministry of External Affairs stated the following on June 25: “there is no ambiguity in our position and we have been clear and consistent. The OIC has no locus standi in matters strictly internal to India, including the Union Territory of Jammu and Kashmir. They have no locus standi to comment on the internal affairs of India. We have already said that the OIC must desist from making such unwarranted references.”
(The views expressed are personal)