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Daily Memo: Danger Abounds for May, Abe, North Korea Talks, and Iraqi Oil

All the news worth knowing today.

GPF Staff |July 13, 2018

The Brexit drama has entered its latest, but almost certainly not its final, act. British Prime Minister Theresa May was already in a precarious position with her “soft” Brexit plan, which turned hardline Brexiteers from her own party against her and cast doubt on the sustainability of her government. Now, U.S. President Donald Trump has joined the fray. In an interview with The Sun, a British tabloid, Trump said her plan would likely kill any chance for a trade deal with the U.S. Importantly, the U.K. cannot strike its own trade deals if it remains in the EU customs union, and the plan outlined in a white paper released by May’s government on Friday twists itself into knots trying to leave the U.K.’s options open. The fact remains the EU and the U.K. need each other, even if neither can agree on how to split up. But the U.K. also needs the U.S., and its relationship with Washington becomes all the more important if London and Brussels can’t finalize a deal before the Brexit deadline.

Trump proudly tweeted out a nice note he received from Kim Jong Un on Thursday, saying great progress has been made with North Korea since the Singapore summit last month. But the evidence suggests things are not going according to Washington’s plan. On Thursday, the White House asked the United Nations to ban oil-product sales to North Korea for the rest of the year and accused China and Russia of violating U.N. sanctions against Pyongyang – an expression of U.S. concern of losing its leverage against the North. Also on Thursday, North Korean officials reportedly stood up to their U.S. counterparts at planned talks at the demilitarized zone over the return of U.S. war remains. Let’s not forget that it was less than a week ago that Kim spurned U.S. Secretary of State Mike Pompeo during a largely fruitless visit to Pyongyang. Some of this can be explained away as typical North Korean negotiating behavior, but the fact remains: The U.S. and North Korea are still miles apart on any negotiating positions of substance.

Japanese Prime Minister Shinzo Abe’s enemies smell blood in the water. Former Defense Minister Shigeru Ishiba, Abe’s long-time rival within the ruling Liberal Democratic Party, is publishing a book that pans “Abenomics,” Abe’s signature strategy for pulling Japan out of its decadeslong economic slump. Some observers see this as a de facto announcement to replace Abe at the LDP’s leadership race in September. Abe’s former foreign minister, Fumio Kishida, and his current internal affairs minister, Seiko Noda, are also reportedly considering a run. Abe is by no means bulletproof; this month, the Bank of Japan is expected to project that the economy won’t reach its two percent inflation target — an important goal of Abenomics — for another three years. Yet the country’s overall trajectory appears unlikely to change. The LDP itself isn’t at major risk of losing power anytime soon, and Ishiba is even more hawkish than Abe on remilitarizing Japan.

Major protests have erupted in Basra, Iraq’s main oil hub. Protesters are targeting local and international oil companies alike, threatening to cripple production if demands for jobs and improved government services go ignored. Early on Thursday, thousands of protesters even tried to storm offices of international firms like Russia’s Lukoil, forcing the company to vacate its facilities. Now, Iran-backed militias in Iraq are throwing their support behind the demonstrations. It’s hard to see this as anything other than Iranian retaliation for U.S. sanctions. Over the past few days, countries such as India and Japan that had been indifferent about complying with the new sanctions have signaled that they would rather not defy Washington on this front.

Honorable Mentions

  • The presidents of Turkey, Iran and Russia are making plans to meet in Tehran to discuss Syria.
  • The Chinese Banking Association says Chinese banks are basically fine, with assets dropping to their lowest level since 2001, non-performing loans shrinking on pace, and profits growing 6 percent year on year.
  • A U.S. delegation headed by Pompeo will meet with new Mexican President Andres Manuel Lopez Obrador on Friday.
  • The U.S. has given some bite to Trump’s bark about the Nord Stream 2 pipeline, saying that Western firms investing in the Russian natural gas pipeline may run afoul of U.S. sanctions.