I) Political Developments
Regional Impact of Covid-19: Waiting for the Second Shoe to Fall
By end of May 2020, a modicum of usual disorder and instability began returning to the WANA region after three month long tryst with Covid-19 pandemic. While the uptick in infections and deaths continued in most countries, the issues concerning macro-economy and survival through oil price whiplash began taking precedence. Rearranging the deck of priorities also suited the regimes, most of which acquitted poorly against the epidemic and wanted to turn the page. Typically, the return to the “new normal” coincided with the Eid ul-Fitr festivities with the accompanied social decompression. The travails of lockdown against the corona virus were popularly accepted as an incremental addition to the hardships of the Ramadhan and were done with – unmindful of epidemiologists’ stern warning that unlike the fasting holy month, the pandemic was likely to return with a vengeance unless the prescribed vigils were kept. Country-wise details were as under:[*]
- For the second month, Turkey remained the most affected country of the region with Covid-19. Even as their populations were comparable and the number of cases higher, Turkey managed to keep the number of deaths at roughly half of Iran’s.
- Although Iran’s epic battle with the pandemic persisted, it continued with progressive relaxation of the lockdown conditions. By May 12, all mosques were open for prayers.
- Saudi Arabia, too, decided to open all mosques, with the exception of Grand Mosque at Makkah, to the faithful from May 30, subject to usual Coronavirus restrictions being observed.
- Al-Aqsa mosque in Jerusalem was opened on May 30 after staying closed for over two months.
- Aden was declared as “infested area” on May 12 after 10 Corona positive cases were detected.
- On May 21, IMF approved $396 mn emergency loan to Jordan to ease Covid-19 impact.
The 11th Parliament, the Majles, was inaugurated by President Hassan Rouhani on May 27 with a call for unity. He said, “I hope that in the year that remains for this government we will be able to cooperate and work together.” The elections for the 290-seat Majles were held in February, but it could not be convened earlier due to Covid-19 pandemic and holy month of Ramadhan.
While President Rouhani is considered a reformist-moderate, his administration would have to contend with a Majles dominated by the conservative faction. In a total reversal of the last Majles where 136 MPs belonged reformist-moderate camp, their number has come down now to mere 18. In comparison, the number of conservative MPs has gone up to 220. The remaining 38 MPs are independent. This lurch towards conservative camp can be traced to record low voter turn-out, popular disaffection with scant outcome of the JCPOA (Iran Nuclear Deal) signed by moderate government, anti-incumbency factor and the elimination of many moderate candidates by Council of Guardians. Although there exists a broad political consensus on national issues, President Rouhani is likely to find Majles endorsement of his policies during his last year in power more difficult than before.
In a resolute initiative, on May 17 Iran despatched a five oil tanker flotilla to Venezuela laden with 1.53 mn barrels of refined petrol and additives as well as refinery spare-parts to relieve the fellow OPEC member of a dire downstream situation leading to acute scarcity at pumps. Tehran repeatedly publicly and diplomatically warned the US – which has put both countries under strong economic sanctions – not to interfere with this flotilla hinting at unspecified repercussions. In the event, the flotilla arrived in Venezuelan ports before end of the month and delivered their much needed cargo. Iran later reiterated its readiness if required to assist Venezuela, despite the US threats.
Despite Trump administration’s “maximum pressure” policy, Washington shied away from stopping the Iranian flotilla going half way around the world to help President Maduro, who has also long been in American cross-wires. This passivity risks reducing US credibility in two of its traditional bastions: The Gulf and Latin America. James Munroe would be turning in his grave at his two century old doctrine being upended not by a European power, but by the unarmed oil tankers from Iran. While contents of the Iranian warnings to the US are not in public domain, it is safe to presume either of the two scenarios which compelled Washington to consider discretion at better part of valour in this case as President Trump approaches a tightening election: Either Iranians posed a substantive threat to the US interests in the Gulf, or some tectonic shift is underway between the two sides – particularly as the development also coincided with the withdrawal of some US military hardware from Saudi Arabia. (Even as some reports indicated that of the five tankers only two Iranian owned ones reached Venezuela, other three chartered vessels did not due to the US pressure on their owners.)
On May 6, President Trump vetoed the “Iran War Powers Resolution” passed by both Chambers of the Congress in the wake of the assassination of Iranian Gen. Qassem Soleimani in January 2020. As the resolution does not have two third support in Congress, the issue goes no further.
On May 6, Iraqi parliament approved the new cabinet led by Mustapha al-Kadhimi, the incoming prime minister. Of the proposed 23 member cabinet, the parliament approved 16, rejected 5 and postponed the decision on 2 ministers. Tellingly, neither of the two crucial ministers for oil and foreign affairs was appointed.
- Parliamentary Approval of majority of the ministers proposed by PM al-Kadhimi was an important achievement ending six month of political hiatus under a caretaker prime minister. During this period, a weak Iraqi government stayed largely passive as the country passed through difficult period that included US-Iran tensions following Gen Qassem Soleimani’s assassination, youth agitation against “Muhasasa” on political appointments, resurgence of Daesh and oil price turbulence.
- al-Kadhimi government has begun well by releasing the youth detained for agitation and has made the right noises about need for political and economic reforms. However, the horse-trading on the ministers showed that Muhasasa system still called the shots.
On May 1, ISIS claimed to have killed 10 members of Hashed Al-Shaabi or the Popular Mobilisation Forces (PMF), a Shia militia notionally part of Iraqi army. .
Rami Makhlouf, Syria’s richest tycoon (estimated worth $6 bn in 2008) posted three videos on the Facebook during the month alleging intimidation by unnamed financial authorities to force him to pay around $180 mn in unpaid taxes owed to Syriatel, the crown jewel in his vast business empire. These antics notwithstanding, Syria’s minister of finance ordered on May 17 “precautionary seizure” of all properties of Makhlouf and his family pending payment of due taxes. They were also banned from travelling out of Syria. On May 29, Makhlouf posted another video on Facebook announcing that he was transferring all his assets to “Ramek Humanitarian” – a charity headed by him for welfare of the martyrs’ families.
- Rami Makhlouf is a maternal cousin of President Bashar al-Assad and belongs to the ruling Alawaite minority. He epitomises crony capitalism and has gained from his symbiotic proximity to power centre over past two decades. His business interests span virtually entire Syrian private economy from mobile telephony to real estate, banking, FTZs, duty-free shopping, oil, etc. He has also helped in busting the economic sanctions imposed on Syria and has earned blacklisting by the US and the EU. He also runs a private charity and has an Iranian-trained 20,000 strong militia.
- After two decades of charmed life, Rami Makhlouf’s run in with Syrian authorities started an year ago. Since then his charity has been merged with the one run by President’s wife and his militia is being incorporated into the Special Forces under Maher Al-Assad, President’s brother.
- As ruling circle in Syria does not air its dirty linen, Rami Makhlouf’s public ranting against the establishment have attracted attention. It appears to be a part of wider campaign by the Syrian government to rearrange the economic order for post-war reconstruction – estimated by the UN in 2018 at $388 bn. Additionally, the regime has to ensure peace dividend to its loyalists. To this end, the crony capitalists such as Rami Makhlouf are being “rebalanced” to accommodate traditional business elite from the Sunni majority and to facilitate FDI inflow. However, as the instant episode illustrates, this process is unlikely to be either elegant or friction-free.
- Further Reading: http://go.pardot.com/e/827843/yrias-ruling-family-1-71783149/kkw1/42900260?h=n93O_Mo-XZTZDrPpluBR9DeTWZLulGR42_Laaw8lL5I
Prime Minister Benyamin Netanyahu consolidated his hold on power during the month, taking advantage of the coalition between his Likud and the “Blue and White” groups. On a reference from Attorney General about Mr Netanyahu’s indicted status barring him from taking over afresh, Israeli Supreme Court considered the matter and decided on May 5 that it saw no legal reason forbidding him from doing so. Next, on May 6 he was able to obtain Knesset’s approval with a comfortable majority of 71-37. On May 17, Knesset also approved (73-46) his cabinet with 36 members, a new record. Under this arrangement, Netanyahu will continue as Prime Minister till October 2021 when Benny Gantz would take over. Till then Mr Gantz would serve as the alternate Prime Minister and defence minister. This wobbly arrangement brought to an end the protracted political drama spanning three general elections in past one year.
On May 24, Mr Netanyahu finally made his appearance at the Jerusalem District Court to begin a much awaited trial on three charges of fraud, bribery and breach of trust. He milked the event to allege this trial to be a left wing conspiracy against a prime minister with a popular mandate. Mr Netanyahu, 70, has been in power for past 11 years.
US Secretary of State Mike Pompeo paid a low key visit to Israel on May 13. He was thought to have discussed the agenda of the new Israeli government.
On taking over, PM Netanyahu reiterated his plan to annex parts of the West Bank into Israel, as per the “Trump Plan” for the Middle East. In response, Palestine Authority President Mahmoud Abbas declared on May 20 that the PA was ending all agreements with Israel and the US. On the same day, the UN Special Envoy for Middle East called on Israel to drop plans to annex part of occupied West Bank. He also urged PA to resume talks with the Quartet comprising of the UN, the US, the EU and Russia.
On May 2, Israel permitted 40,000 Palestinian workers entry to enable them working in agriculture and construction sectors.
Forces of the Government of National Accord (GNA) captured the strategic al-Watiya airbase lying east of Tripoli from Gen. Khalifa Haftar’s Libyan National Army (LNA) on May 18 after two week long operation. By May 24, three more LNA military posts in the area also fell to the GNA. The intense fighting included a severe rocket attack on Tripoli on May 10 by LNA, unmindful of its own call for Ramadhan ceasefire. The civilian areas of the capital, including Mitiga airport, were hit causing considerable loss of life and material.
- Despite the UN Security Council resolution banning foreign military involvement in Libyan civil war, there were persistent reports to the contrary: While LNA was supported by Russia, the UAE and Egypt, GNA’s recent successes were attributed mainly to Turkey’s military support and Syrian rebel fighters. Recent phase in the conflict was, in fact described as the “world’s biggest drone war”, with Turkish drones on GNA side and the Chinese drones (operated by Emirati personnel) in support of LNA.
In a joint note on May 13, Cyprus, Greece, France, Egypt and the UAE criticised Turkey for her (military) activities in Libya and gas drilling operations within Cyprus waters. In a rejoinder, Turkish foreign ministry rejected the note and singled out the UAE of seeking to unsettle Libya, destroying Yemen and supporting al-Shabab terrorists in Somalia.
A UN report on May 7 alleged that 1200 mercenaries from Russia’s Wagner group were assisting LNA forces. Some media reports indicated them having fled al-Watiya airbase before its fall. US Centcom also alleged that 14 Russian fighter jets had arrived in Libya on May 26. There was no comment from Russia.
- There was speculation that Turkey and Russia were raising the ante by supporting their respective Libyan proxies to strengthen their hands at the bargaining table where after an inconclusive civil war, Libya’s economic assets (Africa’s largest oil reserves and reconstruction contracts, etc.) would eventually be divvied up among those with largest IOUs.
On May 28, family of a slain Libyan human trafficker killed 30 migrants in revenge in south west of the country. The dead included 26 Bangladeshis.
The United States decided to withdraw some military hardware including two Patriot missile batteries from Saudi Arabia during the month. Secretary of State Mike Pompeo confirmed the withdrawal on May 8 while denying that it was either linked to reduced Iranian threat or indicated bilateral policy differences on oil market. On the same day, President Trump spoke with King Salman to reaffirm strong defence partnership and joint quest for stability in the global energy market.
On May 23, the family of Jamal Khashoggi, Saudi dissident journalist assassinated in Saudi Consulate in Istanbul in October 2018, declared that they had forgiven the five Saudi officials sentenced to death for this crime. However, the deceased’s Turkish fiancée rejected this pardon by the family and insisted on justice being carried out to its logical conclusion.
Under Islamic Sharia followed by Saudi Arabia, if the family of the deceased forgives the assassin(s) the latter can be released on payment of al-Diyah (blood money).
Armed clashes erupted in various parts of southern Yemen following Southern Transitional Council (STC) declaration (26/4) of the “self-rule” and an “emergency”. STC units fought with Saudi-led coalition in Socotra island, Zinjibar, capital of Abayan province. While a truce was reached in Socotra on May 1 after a day of fighting, Zinjibar saw clashes during May 12-17.
On May 6, the United States announced $225 mn in emergency aid to Yemen to be routed through the World Food Programme.
On May 12 Sudanese Prime Minister Hamdok rejected Ethiopian proposal to have an initial agreement signed on $4.6 bn Great Ethiopian Renaissance Dam (GERD) so as to allow it being charged with Nile waters later this year. Sudan said that technical and legal issues needed to be overcome first. Sudan and Egypt have been at loggerheads with GERD as they fear their vital supply of Nile waters being affected.
On May 5, the United States granted agreement to first Sudanese ambassador to be appointed in over two decades. However, on May 18 the US Supreme Court added contretemps to early bilateral normalisation by ruling that Khartoum was liable for civil damages for its involvement in al-Qaeda bombing of the US embassies in Kenya and Tanzania in 1998 which killed 224 persons, including 12 Americans.
The first direct flight between the UAE and Israel took place on May 19, when Etihad Airways delivered medical aid for the Palestinians at Tel Aviv’s Ben Gurion airport. The Palestinian Authority, however, rejected the consignment as it was not coordinated with them and was a cover for normalisation of ties with Israel.
In two operations on May 2 and 23, the security forces claimed to have killed 18 and 19 Islamic State fighters in restive northern Sinai region. Five security personnel also died.
II) Economic Developments
After a tumultuous April, relative calm returned to the global oil market as the production cuts totalling 9.5 mbpd envisaged in OPEC+ deal took effect from beginning of May 2020 establishing a better demand-supply balance and firmer prices as Covid-19 lockdowns began easing around the world. In its monthly report on May 14, International Energy Agency (IEA) lowered it forecast for average global demand loss during 2020 y/y by 690,000 bpd to 8.5 mbpd – still a record fall. It nevertheless described the global economic return as a “gradual-but-fragile recovery.” The IEA report predicted that the US would make the biggest supply cut averaging 2.8 mbpd during 2020 and the cuts made by Gulf oil producers would be insufficient to balance the demand. Under ideal conditions, it saw the oil surplus generated during first half of the year continuing to depress the prices before being eventually soaked up by incremental demand by end of the year.
Other Country-Specific Economic Developments:
- Saudi Arabia, WANA’s largest economy, announced drastic austerity measures on May 11 under which the national budget was pruned by $26 bn with a number of contracts being cancelled. VAT was tripled to 15% (from July 1) and “Cost of Living Bonus” to Saudi state employees scrapped. Under some conditions, the private sector was allowed to cut employees’ salaries by 40% for six months.
- Despite drastic cuts in her oil production, Saudi Arabia continued to offer the Asian customers deep discounts of up to $5.90/barrel for June supplies, probably motivated by need to leverage post-Covid surge in demand in the regional economies.
- On May 3 Moody’s Investor Services downgraded Saudi Arabia’s economic outlook to “negative” from “stable” citing oil price crash and economic slowdown. The country is still rated “A” by Fitch and “A-” by Standard and Poor’s. It has raised $12 bn in international bonds this year.
- Despite tight revenue situation, Saudi Arabia made a new allocation of $40 bn to her Public Investment Fund (PIF), its Sovereign Wealth Fund, for aggressive investments abroad taking advantage of the falling asset valuations.
- The Paris – based BIE agreed on May 4 to the UAE request to postpone Dubai Expo 2020 by one year due to Covid-19 pandemic, even while retaining the same name for the event. All the main drivers of the Emirati economy, viz. oil, trade, transportation, tourism, real estate and retail have been badly affected.
- Hezbollah, Lebanon’s most powerful Shia group lent its indirect support to an IMF bailout, provided the decision to implementation the specific measures remained in Lebanese hands. Lira, the national currency, has lost half its value since the beginning of 2020. Lebanon’s Parliament on May 29 ratified a 1.2 trillion Lebanese pound ($300m) aid package for low-income families and vital sectors.
- Turkey and Qatar tripled their currency swap arrangement to $15 bn to shore up Turkish Lira which has lost 13% of its value in first five months of 2020 despite having spent $44 bn to defend its value. It was discussing similar arrangements with other countries. On May 21, Turkish Central Bank reduced the banking rate by 50 points to 8.50%, ninth reduction since July 2019.
- Through deluge of bad economic data all around, Iran’s stock market provided a counter intuitive narrative: with its index, Tedpix, having multiplied, in local currency, ten-fold in past two years and doubled during two months of lockdown. Even in hard currency terms, it has become world’s best performing index. Daily trading volumes are relatively small, in vicinity of $400 mn. The valuations are attractive to the domestic investors, loaded with so-called Justice Shares in state run companies. They have little choice with plummeting non-convertible currency and 30% annual inflation.
III) Bilateral Developments
- On May 19, the Permanent Representatives to the UN of the Organisation of Islamic Countries (OIC) met in New York. The agenda of the meeting included a Pakistani proposal for creation of a Working Group to take collective action against India for “Islamophobia”. The proposal was rejected due to opposition by Maldives, the UAE and Saudi Arabia.
- During April 2020, India imported on average 4.63 mbpd of crude. The figure was nearly 5% higher than for the previous month, but 4.1% lower than for the previous year. The actual crude processing was lower by 28.8% in April y/y as the demand was depressed by 45.8% y/y due to lockdown. The share of Middle East suppliers came down further to 56.6% of the total even as Saudi Arabia, Iraq and the UAE remained top three sources followed by Nigeria and Venezuela.
- India commenced “Vande Bharat Mission” on May 7 to bring back the Indian nationals stranded abroad, many of them in WANA countries. By May 28, 45,216 were brought back by air and sea from various parts of the world. Over 200,00 had registered to return from the UAE alone.
Bank of Baroda sued B.R. Shetty, founder of New Medical Centre of UAE in an Indian court to retrieve a loan of over $250 mn. In its interim decision, the court barred Mr Shetty and his family members from selling their assets held in India.
(The views expressed are personal)