Stratfor’s Global Intelligence: Week of Oct. 31, 2016

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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

Mosul

With the Mosul offensive underway, the United States is eager to get a twin offensive on Raqqa moving so it can double down on Islamic State while militants are on the run. There are a few complications, however. The Turks are telling the Americans that there is no need to include the Kurdish People’s Protection Units (YPG) in the fight for Raqqa and to allow some time for Turkey to build up the Arab component of the rebel force so that Turkey and the United States can lead the offensive together — without the Kurds. The United States is not going to ditch the YPG over Turkish concerns, however, and will forge ahead. As the U.S. administration tries to keep Turkey contained, Russia is also trying to edge its way into Raqqa with its own airstrikes. At the same time, the Russian-backed loyalists already have their hands full in trying to repel a large rebel counteroffensive in Aleppo that kicked off at the end of the week. The threat of Russian airstrikes on or near U.S.-backed rebels in the Raqqa offensive is still very real.

Lebanon’s Impasse Ending?

We saw growing signs this past week that Lebanon may be close to finally getting a president to end a power vacuum lasting nearly two and a half years. Ample distrust remains on all sides and we have seen efforts come close in the past, only to collapse at the last minute. That said, the main local and regional stakeholders are indicating that they may endorse, or at least not block, a deal for Maronite Christian leader Michel Aoun to become president when parliament meets Oct. 31. The architect of the plan, Sunni leader Saad al-Hariri, is trying to use the election of the president to then have himself appointed prime minister, but Iran, Hezbollah and Amal Movement are going to be very wary of Saudi-backed efforts to push back on Hezbollah’s influence. The Saudis themselves are not even confident in Saad’s ability to lead, either. If we do see a breakthrough on the presidency on Monday, we are still looking at months more of political gridlock over the formation of the government.

That said, even a small compromise between the Saudis and the Iranians in a place as deeply fractured as Lebanon raises the question of whether negotiations can extend to other proxy battles. We will be watching Yemen in particular for any signs of a revived dialogue between Tehran and Riyadh given Saudi Arabia’s interest in easing out of that military campaign and Iran’s ability to continue prodding the Saudi kingdom through its support for Houthi rebels. The Saudis were quite clever this week in framing recent Houthi attacks targeting Jeddah as an attack on the holy city of Mecca, trying to stir up a regional firestorm over Iran’s activities in Yemen. It is unclear if it will have the intended public relations effect, but both Riyadh and Washington’s concerns over Iranian meddling in Yemen is growing.

The World Discovers Wallonia

The past week started with the parliament in Belgium’s Wallonia region vetoing the free trade agreement between the European Union and Canada, and ended with the Belgian government announcing a last-minute agreement with the rebel region to save the deal. The agreement still has to be ratified by the national parliaments of the other EU member states, as well as by the European Parliament. The process to ratify the EU-Canada agreement offers a preview of what the negotiations over the United Kingdom’s departure from the European Union could look like. Considering the complexity of the issues at stake, it is almost certain that the final Brexit deal will require approval by the British parliament and by the national parliaments of the remaining 27 EU members. Giving EU members a say in the ratification also means giving them the opportunity to make demands in exchange for their support. Some of the demands might not even be directly linked to the deal, as governments could take advantage of the situation to seek concessions on other issues.

Russian Meddling in the Balkans

This past week saw a flurry of developments that seem to point to Russia trying to derail NATO integration in the Balkans. Russian Security Council chief, Nikolai Patrushev, made an unexpected visit to Serbia this week after Belgrade deported a handful of foreign nationals, believed to be Russians, under suspicion of planning a coup in neighboring Montenegro during its recent parliamentary elections. Montenegro’s Prime Minister Milo Djukanovic resigned that same day, and announced his government was looking into both Russia and Serbia’s roles in a suspected coup on election day, and collaborating with the Kremlin. Russian daily Kommersant – which is a typical source for Kremlin and Federal Security Service (FSB) leaks —followed up Friday with a report that the deported Russians were planning terror attacks and other actions, and linked Patrushev’s visit to calming down Belgrade after the scandal. Russia and Serbia have a vested interest in destabilizing Montenegro, as the country is on the path to joining NATO within the next few months. However, Serbia is cozying up to the European Union right now, and though they could be on board with a Russian scheme for destabilization, would not want to be publicly implicated in such a scandal — which may be why Serbia ejected the accused Russian activists, and why someone as high-ranking as Patrushev had to make an emergency visit to Belgrade.

Poland Takes on the European Commission Again

Much to the chagrin of Poland and the Visegrad Group, the European Commission struck a deal to allow Gazprom more access to the vital OPAL pipeline which pumps oil from the Nord Stream pipeline’s terminus at the German coastline into Central and Eastern Europe. Previously Gazprom’s access had been capped at 50 percent. In addition, Gazprom and the European Commission are nearing a settlement of the EU antitrust probe into its activities in eastern Europe, something that could be announced next week. Poland’s state owned natural gas company, Polskie Gornictwo Naftowe i Gazownictwo (PGNiG), has announced that it will sue the European Commission in the European Court of Justice over the agreements saying that they violate EU law and regulations, as well as the German energy regulator in the German court system.

Poland and Central Europe view Gazprom’s direct route to German as a strategic threat on their energy security because it makes it far easier for Gazprom to cut off their access to natural gas without affecting flows to Germany. Poland has already been a thorn in Gazprom’s side recently when its anti competition regulator successfully blocked the formation of the Nord Stream 2 AG consortium by preventing the Gazprom’s European partners from being approved to join it. Poland will remain being Gazprom’s biggest adversary in natural gas and energy issues in Europe.

Xi is the Core

On Thursday, China wrapped up the 6th Plenum, the Communist Party’s last major meeting before next year’s 19th Party Congress, at which five of seven members of the Politburo Standing Committee (China’s highest governing body) are set to retire and be replaced. The plenum closed with President Xi Jinping’s formal anointment as the country’s “core” leader, a title not attained by his milquetoast predecessor Hu Jintao. Xi’s “core leader” status gives him few if any powers he did not for all intents and purposes already possess. Nor does it make him an historical outlier: Being named core leader is more the norm than the exception among past Party General Secretaries in China. But viewed in combination with other factors — for example, Xi’s ongoing anti-corruption drive, as well as the fact unlike Jiang Zemin that he rose to “core” leader status without the backing of Deng Xiaoping, who died in 1997 — Xi’s new title suggests that his push to concentrate political power in his and his allies’ hands has continued apace.

Duterte Gets Concessions from Japan…and Scarborough Shoal Access from China?

Philippines President Rodrigo Duterte followed up his trip to China with a trip to Japan this week, where he secured $2 billion in investments and tightened maritime security cooperation with Tokyo. From the U.S. point of view, even as the U.S.-Philippines relations are tense under Duterte, the overall U.S.-led security architecture in the Asia-Pacific remains intact so long as the Philippines continues working closely with Japan. Still, Duterte is walking a fine line by reaping economic benefits from both Asian powers while reinforcing security relations with Japan. Lower on the radar, but no less important, were reports that surfaced late in the week that eight groups of fisherman entered the Scarborough Shoal on Oct. 26 without facing interference from the Chinese coast guard. Following Duterte’s visit to China last week, we suspected that Beijing may quietly allow the Philippines access to the shoal while reinforcing its security presence to demonstrate its territorial control. A temporary concession from China on the contested shoal could pave the way to a broader settlement on the South China Sea if Manila plays its cards right.

Political Trouble in Seoul

Political turmoil is gripping South Korea in the final year of President Park Geun Hye’s term. This week, the scandal-plagued president was dealt another blow with accusations she leaked state documents to a friend and cult leader. Public outcry has brought her approval rating to a historical low and opposition parties are threatening impeachment. The scandals, certainly prominent, are not exclusive to Park — nearly every South Korean president has ended their term amid scandal. This in part explained Park’s recent initiative for a constitutional amendment to remove the one-term limit on the presidency or switch to a parliamentary system. Nonetheless, as the political impasse continues, it will seriously limit Seoul’s ability to navigate the deepening security threat from North Korea and a slowing economy. Instability will also impact South Korea’s intention to sign a General Security of Military Information Agreement (GSOMIA) with Japan. The pact, the first of this sort between the two nations, would allow Tokyo and Seoul to directly exchange intelligence on North Korea and perhaps China.

Racing Toward a Colombian Peace Deal

Colombian President Juan Manuel Santos announced Oct. 27 that the government will try to ratify a new peace deal with the Revolutionary Armed Forces of Colombia (FARC) by the end of the year. The ratification of such a deal could go through congress, thereby avoiding a second defeat at the polls. The announcement shows the Santos administration’s new approach to reaching a deal to end the insurgency in Colombia. Santos will likely reach a deal with the FARC and possibly approve it through congress, which would avoid a potentially lengthy negotiation with Democratic Center (the main source of domestic political opposition to the deal) over the coming months. That way, Santos’ negotiators can try to reach a deal with the FARC and implement it over the remainder of Santos’ term prior to presidential elections in mid-2018. A peace deal is still far from certain—points such as transitional justice courts providing amnesty for FARC members still need to be crafted and the issue of whether FARC leaders will face any sort of legal punishment still needs to be settled. However, this path toward a deal is much more favorable for reaching a final agreement than a drawn out conversation with Democratic Center that could lead to further delays.

Full Articles

The Global Banking Cycle: A Visual Guide

After the devastating U.S. stock market crash of 1929, the United States introduced the Glass-Steagall Act in 1933 to prevent it from ever happening again. The law separated the activities of retail and investment banks, drawing a hard line between customer deposits and speculative trading activity in the markets. This separation, coupled with the constraints imposed by the Bretton Woods system that emerged after World War II, resulted in a long period uninterrupted by major financial shocks.

But international flows of capital loosened once again in the 1970s with the end of the Bretton Woods system. The creation of the eurodollar market in London in the 1960s also helped remove constraints on capital movement, increasing cross-Atlantic money flows and transforming London into an important financial hub. Since then, the financial cycle has become more pronounced in the United States, with higher highs and lower lows.

In Europe, Signs of Promise for Gazprom

After years of tension, Gazprom and the European Union seem to be overcoming some of their differences. On Oct. 28, the European Commission finally agreed to grant Gazprom greater access to the OPAL pipeline, something the company had sought since 2009. Gazprom and the European Union are also nearing a settlement on the bloc’s antitrust probe into the company’s practices, allowing Gazprom to avoid billions of dollars in fines. That the European Union is finding common ground with Gazprom reflects the company’s shifting priorities in Europe. But despite these hints of improvement in its relationship with Brussels, Gazprom still faces an uphill battle in getting some of its other projects in Europe off the ground.

In Syria, the Rebels Progress at Their Allies’ Peril

Syrian rebels, with the help of the Turkish military, are slowly making their way across northern Aleppo province. As the rebels draw closer to the strategic city of al-Bab, their progress is wreaking havoc on the plans of the Syrian civil war’s other participants. Kurdish and loyalist fighters — as well as their U.S., Russian and Iranian backers — will be forced to rethink their strategies as the risk of conflict with the advancing rebels rises.

Battery Technology: A Different Kind of Power Struggle

The lithium battery is in no danger of losing its spot atop the pile of commercial battery technologies anytime soon. The ubiquitous technology meets the two most important criteria for batteries used in consumer electronics and electric vehicles: It can store high amounts of energy for its size, and it can be recharged thousands of times. But if batteries are ever to reach their full potential as a geopolitically disruptive technology, they still have a long way to go in improving energy density and lifetime and, perhaps more important, reducing cost. In the long term, as more abundant elements are adapted for wider use in batteries, they may eventually force the lithium-ion battery from its throne. Until then, lithium will continue to play an integral role in powering our world.

The Week Ahead

Lebanon

The Lebanese parliament will likely reach a quorum to hold a vote on the presidency, potentially breaking a political gridlock that has lasted nearly two and a half years. Should Maronite leader Michel Aoun be elected president, it will come with the understanding that Sunni leader Saad al-Hariri will be appointed prime minister. However, Iran and its Shiite proxies in Lebanon have the means to push back on any Saud-backed and Sunni-led effort to weaken Iranian influence in Lebanon.
 
Venezuela’s Opposition Protests

Venezuela’s opposition coalition Democratic Unity Roundtable (MUD) has called for a protest march to the Miraflores presidential palace for Nov. 3. The march is an attempt to pressure the government into allowing a recall referendum against President Nicolas Maduro to proceed. This planned protest is significant because a demonstration to the presidential palace in western Caracas has the potential to turn violent, given that the government will likely attempt to prevent such a march from reaching its destination. The opposition demonstrated earlier in the week that it has the capacity to bring tens of thousands of people out into the streets to protest, and will likely keep using this relative popularity among Venezuelan voters as a means of pressuring the government. The Nov. 3 march may also be used as leverage during negotiations between the government and opposition planned for Oct. 30. Such a move remains risky for the opposition, as attempts to step up pressure on the Maduro government may raise the stakes for intransigent sections of the ruling party (such as the ruling party powerbroker Diosdado Cabello and his allies) to order political retribution against the MUD, possibly in the form of arrests against its members or leaders.

A Civil-Military Test in Pakistan

The week ahead in Pakistan could prove contentious just as the prime minister makes a critical decision regarding the country’s civilian-military dynamic. On Nov. 1, the Supreme Court is set to review a petition filed against Pakistani Prime Minister Nawaz Sharif regarding his family’s complicity in the Panama Papers leak. Leading the charge against Sharif is Imran Khan, chairman of the opposition Pakistan Tehreek-e-Insaaf party (PTI). Khan is planning on holding a “lockdown” of Islamabad on Nov. 2 to force Sharif to either submit himself to an investigation concerning his family’s assets or to resign. Defiant and determined, Khan will likely carry out his protest in spite of the government banning all public gatherings in the capital for the next two months. If Khan’s protests achieve critical mass, we may see Sharif distract the public by launching a limited strike across the Line of Control into Indian-held Kashmir. All of this is happening as Sharif —perhaps as early as next week — is set to announce the replacement of outgoing Chief of Army Staff General Raheel Sharif, the country’s most powerful military official.

Russia Defends its Position in the Eastern Med

Russian Foreign Minister Sergei Lavrov has a string of meetings next week, including with his Cypriot and Greek counterparts. Russia has a full agenda of items to discuss with both countries, including energy, sanctions, NATO and more. Russia is currently lobbying the more Russia-friendly countries in the European Union to possibly act as spoilers to help ease sanctions starting next year — with Cyprus and Greece at the top of the list. Cypriot Foreign Minister Ioannis Kasoulides will visit Moscow on Monday, just two weeks after opposition leader Andros Kyprianou also held meetings with Lavrov. Reunification talks between Greek and Turkish Cypriots have accelerated in recent months going into an official summit between their leaders Nov. 7 to Nov. 11, and Russia is known for scuttling such talks — especially when they rise to the U.N. level — in the past, preferring the Greek and Turkish sides focus on each other instead of pushing out Russian influence.
Moscow will probably ask Cypriot leaders for reassurances that a unified island will not seek NATO accession. Russia also has increased its focus on Russian money in Cyprus tax havens in recent years, and is concerned about Cypriot natural gas joining Israel’s project to Turkey, challenging Russian supplies. Russia is also focused on energy in its talks with Greece on Tuesday and Wednesday, now that the TurkStream pipeline is not only back on, but a major priority for the Kremlin. The two sides could re-affirm their commitment to the project, which would travel from Russia across the Black Sea to Turkey and then onward to Greece, and would like to restart talks on the later legs of the project beyond Greece into Europe.