BISHKEK (TCA) — The Times of Central Asia presents to its readers Stratfor’s Global Intelligence, a weekly review of the most important events that happened in the world — from Europe to Middle East to Russia to Central Asia to Afghanistan to China and the Americas.
The Week That Was
Turkish-Russian Rapprochement
Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan restored their geopolitical ties this week in St. Petersburg, with Erdogan going out of his way to refer to his “dear friend, the esteemed Vladimir” on multiple occasions. The two sides kept the press focused on the resumption of economic ties, from lifting the food ban to getting the Turkish Stream pipeline project back on track for 2019 completion. But the economics is the easy part. Far more contentious is the matter of Syria, where Turkey is intent on expanding its military presence and Russia still has a variety of means to frustrate Ankara’s ambitions.
Turkey wasted little time in submitting a proposal to Russia on tactical coordination in striking Islamic State targets. This was a clever move by Turkey. By using the threat of Islamic State as a way to draw Russia into a tactical discussion on Syria (much like the Russians have done with the United States) Turkey hopes to secure Russian guarantees on non-interference with Turkish operations in northern Syria. If Turkey resumes air operations in Syria, it will be a strong indicator that Putin is making progress in his negotiations with Erdogan on numerous issues. This would include Turkey’s noninterference in Russia’s plans for Nagorno-Karabakh, limits to NATO buildup in the Black Sea and forward movement on energy projects like Turkish Stream. Stratfor still expects Russia will use its military presence in Syria and threat to back Kurdish militants to hold Turkey to any pledges it makes as this negotiation evolves.
Iran was also eager to use the Turkish-Russian reconciliation as an opportunity to sway Turkey toward compromises on Syria. Iranian Foreign Minister Mohammad Javad Zarif traveled to Turkey where he discussed future steps on a Syrian power transition and to act as an interlocutor between Damascus and Ankara. Turkey will negotiate just enough with Tehran and Damascus on Syria to try and secure cooperation from them in containing the Kurdish People’s Protection Units (YPG), but Turkey is not about to abandon support for the rebels and the Turkish agenda to expand its presence in northern Syria is still ultimately threatening to the interests of Tehran and Damascus. Nonetheless, Russia was glad to use the opportunity to portray a developing tripartite alliance among Russia, Turkey and Iran. Moscow hopes to present these as the key powers to influence Syria, leaving the United States out of the cold. In reality, there remain deep fault lines among each of these players and their respective agendas for the region.
Putin Turns on an Ally
President Vladimir Putin offered his support to Turkish President Recep Tayyip Erdogan following the failed Turkey coup, yet Putin himself is facing the threat of a palace coup. This is what led Putin this week to sideline Kremlin heavyweight Sergei Ivanov, who lost his powerful position of chief of staff and was appointed special presidential envoy for environmental activity, ecology, transport. This was a big move. Ivanov comes from the same St. Petersburg clan and KGB background as Putin and has long been viewed as a potential challenger to the president.
Ivanov belongs to a security faction led by the Federal Security Service (FSB), which also includes Rosneft chief Igor Sechin and Security Council Chief Nikolai Patrushev. This faction has significant influence over national security matters, including the Ukraine portfolio, and has made a series of power grabs that have been causing Putin to lose his grip. As a result of those power grabs, the FSB faction now has extraordinary powers to pursue its adversaries by probing and charging them on financial crimes. Putin’s decision to stand up a national guard in April was the first major signal that he was taking action to insulate himself from this growing challenge coming from the FSB. He has also been surrounding himself with ultra-loyalists (for example, he replaced Ivanov with a non-threatening figure, Anton Viano, whose previous experience primarily consisted of managing Putin’s schedule).
This raises several questions for us as we monitor Russia: how will the purging of skilled veterans and Putin’s cadre of lesser skilled loyalists impact his ability to govern? Now that he has taken down Ivanov, will Putin go after Sechin and Rosneft? How far will the FSB faction go in pushing back against Putin? How will the power struggle play out in Chechnya and Ukraine? Ukraine, in fact, saw an uptick in activity this past week along the Ukraine-Crimea border, with Russian and Crimean leaders claiming they were pursuing Ukrainian saboteurs. In addition to remaining alert to any moves in Ukraine that can be leveraged by Russia to influence its broader negotiations with the West, we will also be watching closely for any signs that the Kremlin power struggle spills into a turf war between the Russian military and FSB in Ukraine as Putin tries to prevent FSB interference in his foreign policy agenda.
Russian media also revealed that Putin met with thirty of Russia’s most wealthy in Sochi on in late July. The Kremlin downplayed the meeting as a simple board meeting for a Russian educational center, but leaks suggest that Putin used the meeting to press wealthy businessmen to donate funds to various projects around Russia. Putin has twice before called mass meetings of the oligarchs and silovarchs to demand their financial help. In the 2008 recession, Putin called on the oligarchs to donate funds to the Russian financial system — and mysteriously millions, and at times billions, appeared in the markets and reserves. Then in 2014 Putin pressured the oligarchs and silovarchs to fund venues and aspects of the Sochi Olympic Games. This time, Putin is pressuring the billionaires to fund various projects — schools and infrastructure — across Russia. With the Russian economy still struggling, we need to see if this time the oligarchs and silovarchs comply with what we imagine to be a rather forceful request from Putin.
If it feels like it has been a Russia-heavy week, it could be “August syndrome,” a term Russians have used since the fall of the Soviet Union to describe how August yields strange and ominous developments.
Setting the British Precedent
Generally quiet Norway hit the headlines last week after a minister said that accepting the United Kingdom into the European Free Trade Association (which also includes Switzerland, Iceland and Liechtenstein) may not be in Oslo’s national interest. Membership in the European Free Trade Association is one of the few options available for the United Kingdom to preserve its access to the European internal market after it leaves the European Union. However, this would involve accepting EU workers, which is a very controversial issue in the United Kingdom.’
Formal negotiations between the European Union and the United Kingdom will not begin until 2017 at the earliest, but it is becoming increasingly clear that London and its European peers will look for a tailor-made agreement that goes beyond the existing institutional frameworks. In other words, instead of looking at a “Norway model,” we will see a British precedent take shape and that precedent will in turn be a model that other European members questioning the merits of the union can also latch onto in the future.
OPEC’s Freeze
The market was hanging on Saudi Arabia’s every word this week for signs that the kingdom could use an informal meeting of OPEC members on the sidelines of the International Energy Forum in Algeria from Sept. 26 to Sept. 28 meant to “coordinate action” to influence the price of oil. Whether or not OPEC members can come to a formal agreement to freeze production, the reality is that a de facto freeze is already largely in place. Iranian production at 3.85 million barrels per day is nearing pre-sanctions levels. It will take years and billions of dollars in investment for Iran to substantially raise production from this point onward.
Saudi Arabia predictably increased production during a summer of record heat while Kuwait recovered some production from earlier oil worker strikes and the United Arab Emirates from field maintenance. But this does not mean that Gulf suppliers plan to continue raising their production levels. Saudi Arabia, Kuwait and the United Arab Emirates are sticking to a plan to wait out a gradual market rebalancing, knowing that any action that buoys the price of oil toward $60 a barrel is only going to bring more U.S. producers back online and thus have a limited effect. The Saudis are still playing a game of patience.
Venezuela delays referendum until 2017
Venezuela’s National Electoral Council announced Aug. 9 that it would decide in mid-September whether the opposition’s request for a recall referendum against Venezuelan President Nicolas Maduro is allowed to proceed to its next phase. If the electoral council decides in September that the referendum may proceed, then the opposition coalition Democratic Unity Roundtable will have to collect the signatures of 20 percent of registered voters in late October — a necessary step in triggering an eventual recall referendum.
The timetable laid out for the referendum process will most likely delay a referendum until 2017. If the vote is successful, the vice president will take over from Maduro, which could allow the United Socialist Party to retain control of the presidency until the 2019 election. Some opposition leaders, such as former presidential candidate Henrique Capriles, will support a national demonstration on Sept. 1 to demand a recall referendum in 2016. The opposition is likely too weak to force the electoral council to change its timeline, but we do need to watch for the potential for those protests to turn violent – a scenario that the military badly wants to avoid.
Abdication in Japan
In a rare televised address, Japanese Emperor Akihito appealed to his countrymen to allow him to abdicate so he can tend to his health in old age. The appeal laid bare one of the many contradictions modern Japan is still grappling with in trying to shed constraining historical legacies. By U.S. constitutional design in 1947, the emperor is not permitted to engage in politics, and so Emperor Akihito cannot formally request for Imperial House Law and the constitution to be amended to dilute his divine role and enable him to step down before death.
Japan’s conservatives will actively opposes changes to the imperial system, but this is an issue that will be debated and Japan will likely see the emperor’s roles and responsibilities evolve in line with a more modern interpretation. The Diet debate itself could steal attention away from and thus delay Japanese Prime Minister Shinzo Abe’s critical efforts to reform the pacifist constitution to boost the role of the military. All signs, including the debate over the emperor’s abdication, point to Japan taking steps into a new era defined by internal economic and demographic pressures and a growing external challenge from China.
China
It was revealed this week that China’s top leaders and 56 invited experts convened their annual close-door meeting at a seaside resort in Beidaihe in Hebei province. Beidaihe is considered one of the most important Communist Party meetings each year, thanks in part to its secrecy and relative informality. This year’s conference came amidst sweeping organizational changes in historically powerful Party institutions like the Communist Youth League as well as the deepening of Xi Jinping’s anti-corruption and power consolidation efforts. China is also in the midst of weak economic conditions and indications of overall lack of coordination between different government bureaus or between Party and state.
Meanwhile, we are watching to see what comes out of a new plan by Beijing to establish bankruptcy and liquidation tribunals for “zombie” enterprises in first-tier Chinese cities. The tribunals are intended to ease bottlenecks in bankruptcy and liquidation cases at lower-level courts and accelerate consolidation efforts in industries like coal and steel by establishing dedicated channels for such cases (previously, local courts were authorized to handle bankruptcy cases but often lacked the manpower and expertise in practice to do so). Thus far, the courts have not played a significant role in issues like corporate bankruptcy, and in general the courts have an ambiguous place in the wider policy world in China. After a massive expansion of the courts system and both civil and criminal litigation in the 1990s-early 2000s, recent years have witnessed what Western legal scholars call China’s “turn against law” — pronouncements about strengthening the rule of law in China notwithstanding. Part of this “turn” has been a refocus in lower courts on more informal means of dispute resolution and mediation. These tribunals could signal a turn back towards litigation and a desire to raise the court’s profile, but whether this is the case will depend on how well these tribunals function, and in turn, what kind of actual policy support they receive.
Full Articles
The Fertile Common Ground Between Technology and Agriculture
At first glance, Silicon Valley and the vast cornfields of the U.S. Midwest may appear to have little in common. But a growing relationship between big data and agriculture is poised to improve yields, reduce raw material use and decrease production costs. Over the past year, the precision agriculture industry, which has pioneered the use of unmanned aerial vehicles and robotics to increase data collection and efficiency in agriculture, has continued to expand in the United States and around the world. As drone use in agriculture becomes even more prevalent and new achievements in machine learning and artificial intelligence are made, high technologies — the internet of things, big data, robotics and artificial intelligence — will overlap with agriculture more and more.
The Brexit Effect Is Starting to Show
More than six weeks have passed since voters in the United Kingdom authorized the country’s exit from the European Union, enough time for some of the referendum’s economic effects to manifest. In the aftermath of the Brexit vote, the British economy has already started to show signs of weakness, with data for July signaling slowdowns in manufacturing, services and construction. In the eurozone, the economic impact has been moderate, but uncertainty about the split will probably reduce investment, private consumption and trade. In all likelihood, the United Kingdom’s economy will decelerate even more in the months ahead.
The Limits of a Southern European Alliance
Only seven weeks after British voters elected to leave the European Union, the bloc has begun to fracture along regional lines. According to Greek media reports, Athens is attempting to organize a summit of Southern European countries in early September, just days before a scheduled EU-wide conference in Bratislava. The Greek initiative is but one indicator of a trend emerging across the European Union: The Brexit decision has raised questions about the bloc’s future, and its members are turning to their neighbors, not to Brussels, for answers.
Competing Interests on the Mighty Amur River
The Amur River, which delineates a portion of the China-Russia border as it flows from the desolate reaches of Mongolia into the Strait of Tartary, does not often make the same lists as other storied rivers, such as the Nile, the Danube or the Mississippi. But it has played a vital role in the dynamic between two vast nations. The Amur, one of the longest undammed rivers in the world, is navigable along much of its length and serves as a transport artery for agricultural products and raw materials from the immense Siberian territories of Russia.
As Moscow focuses east, maintaining its strategic detente with Beijing, there are opportunities for cooperation and trade between the nations, specifically in the areas of hydrocarbons and agriculture. But there is also the potential for conflict: The Chinese and Russian intentions for the river system fundamentally differ. Russia prizes the Amur for the security and transportation opportunities it provides, while China is more inclined to harness the river’s power for energy and agriculture. Even though the two nations’ relationship seems rosy, their history of conflict on the frontier suggests that the possibility of tensions flaring up again along the banks of the Amur is still very real.
OPEC’s Hands-Off Approach to Low Energy Prices
More than two years after oil prices fell to dangerous lows and stayed there, pressure is mounting for the oil industry’s pre-eminent cartel to respond with more decisive action. OPEC members will gather in Algeria in September for an informal meeting, where some members will no doubt reiterate familiar calls for a production freeze. Given the drop in prices since OPEC last met in June, the measure may seem both wise and timely, and when OPEC announced that it would convene again Sept. 26-28 in Algiers, on the sidelines of the International Energy Forum, prices rallied at the mere prospect of the meeting. Still, if producers’ last attempt to coordinate a freeze is any indication, mustering the political will for one now will be difficult.
No End in Sight in Aleppo
After a weeklong offensive, rebels outside of Aleppo broke through loyalist lines Aug. 6, linking up with their allies inside the city. Although there is now a direct ground link into the city, the rebel-held parts of Aleppo are still technically under siege: Loyalist forces are shelling the area, preventing an influx of significant supplies. The rebels have also managed, however, to cut the primary loyalist supply road into western Aleppo, so the loyalist and rebel areas of the city are now both under siege.
The Week Ahead
China Home Prices
On Aug. 18, China’s National Bureau of Statistics will release data on average home prices across the country’s 70 largest cities. The data follow two months of slowing price growth in first and second tier cities and come after the government reported Aug. 12 that year-on-year growth in fixed-asset investment — a key gauge of real estate construction activity — hit a 17-year low in July, with private sector investment growing only 2.1 percent from a year earlier.
Weak home price figures this month would reinforce Stratfor’s expectation that following an unusually strong (and stimulus-driven) first half of 2016, China’s housing sector will enter another trough in the months ahead. Indeed, surging home prices in first tier cities earlier this year has led some local governments to impose new home purchase requirements in an effort to prevent markets from overheating. These policy initiatives will likely contribute to structural factors to drive continued declines in home price growth going forward.
German and Russian Foreign Ministers Meet
German Foreign Minister Frank-Walter Steinmeier is expected to meet with Russian Foreign Minister Sergei Lavrov when he travels to the Russian city of Ekaterinburg on Aug. 14 to deliver a lecture at Boris Yeltsin University. This is a meeting we will watch closely, given the array of issues pertinent to both Moscow and Berlin at this juncture. Germany is looking for assurances from Russia on deescalating the conflict in Ukraine while Russia is looking for assurances from Germany on easing sanctions and limits to U.S.-led plans on NATO build-ups in Europe.
In the past week, Poland scored a victory in breaking up a consortium for the Nord Stream II project on regulatory violations, leaving Gazprom to carry the burden of the project moving forward. Russia is still waiting for the European Commission to rule on whether Third Energy Package regulations will apply to the project and Russia will be counting on Germany to continue trying to sway the European Commission toward ruling that the regulation barring a company from owning a pipeline and selling its own gas through it should not apply to offshore pipelines.
Violence in Ethiopia
Following last weekend’s intense protests in Ethiopia, and the body count that followed from it, the country is bracing itself for another round of massive demonstrations. Protests in the country have been ongoing for almost a year, but the weekends have typically brought more people in the streets and thus carry a higher potential for escalation. Over the past few weeks, the Amhara people of Ethiopia (34 percent of the population) had joined in the protests that had until then mostly been limited to the Oromo people (also 34 percent of the population) and this has led to a significant escalation.
This week, several difficult to confirm reports have also claimed local Amhara protesters attacked military convoys and took control of at least one military base around the Amhara dominated city of Gondar. While these incidents do not seem to present a strategic challenge to the Ethiopian government yet, the strong ethnic narrative that these protests are now taking on raises a red flag to government stability in the country. The country has been led since 1991 by an ethnic Tigray-dominated regime, while this group makes up only 6 percent of the population, it dominates the political and security institutions in Ethiopia.
In 2012, the long-time leader of this Tigray regime, Meles Zenawi, died, and this current resistance to the government raises the question of whether the Tigray regime will be able to survive beyond the Zenawi era. Right now, the limited information that is available on the protests and resistance actions do not suggest a real organized rebellion is blooming in Ethiopia, but this is a real risk, especially considering Ethiopia’s history and the way similar ethnically defined rebellions brought down the communist regime (and bringing Zenawi to power). Separately, potential fractures in cohesion of security forces could also threaten the government. While the Tigray dominate top positions in these security forces, they also include many Amhara and Oromo forces, and at least once incident of infighting over ethnic affiliations has already been reported within the military.
Stabilizing Spain
Spain’s ruling Popular Party will decide next week whether to accept demands made by the centrist Ciudadanos party in exchange for support during an upcoming vote to appoint the next government. General elections in late June produced a fragmented parliament, and acting Prime Minister Mariano Rajoy needs support from other parties to be reappointed.
Ciudadanos does not want to enter the government, but is willing to support Rajoy’s investiture if he introduces measures to fight corruption and increase transparency, in addition to electoral reform. But support from Ciudadanos alone is not enough, and Rajoy needs the Socialists to at least abstain during the vote of investiture, which will happen in late August or early September. Even if Rajoy manages to be sworn in, he would be leading a minority government that would have to deal with a hostile parliament.
Egypt IMF negotiation
Egypt and the International Monetary Fund reached a tentative resolution Aug. 11 following nearly a week and a half of talks in Cairo. Now, through the week ahead and the weeks beyond, both sides of negotiations will be number crunching and making final steps toward ratification by the International Monetary Fund and Egyptian authorities. The initial agreement hinges on Egypt’s proposal to follow an 18 month reform program that is already in line with Egypt’s ongoing reform efforts. Priorities include working toward cutting the budget deficit to 5.5 percent (currently nearly 12 percent of GDP) and working toward a currency devaluation that will help prop up Egypt’s ailing foreign exchange reserves. Egypt must submit a reasonable timeline for implementing a VAT tax and resume efforts to normalize subsidies. Egyptian officials will be discussing over the coming weeks the best ways to reform without harming the poorest of Egypt’s population.
