Daily Memo: Iran Update, Credit Warnings, US-Turkey Trade

All the news worth knowing today.

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Iran update. U.S. President Donald Trump told Secretary of Defense Patrick Shanahan in a meeting on Wednesday that he does not want a war with Iran, according to anonymous U.S. government officials who spoke to The New York Times. A State Department official, however, told Al-Monitor that the Trump administration was planning a new series of measures to increase pressure on Iranian ally Syria, which is already struggling with an oil shortage. The goal effectively would be to force Bashar Assad to the negotiating table. If true, this would be the first U.S. move in a while to push for Assad’s ouster. The U.S. may also be hoping to force Iran into further overstretching its budget by supporting Syria financially. Meanwhile, a general in Iran’s Islamic Revolutionary Guard Corps has called for the establishment of an economic warfare headquarters to deal with growing U.S. economic pressure, and an Iranian lawmaker suggested that Iran open a “red desk” with the U.S. to manage the standoff between the two countries. Iran’s economic outlook doesn’t seem to be improving. In April, its oil production fell to the lowest level in five years – 2.6 million barrels per day. Saudi Arabia, for its part, seems to be encouraging conflict between the U.S. and Iran. An editorial in Saudi newspaper Arab News called for U.S. airstrikes against Iran. The paper also claimed, citing anonymous U.S. military sources, that in the event of a war Qatar would share military intelligence with Iran.

Credit warnings. Credit rating agencies Moody’s and Fitch have made three notable announcements. First, Fitch said an overhaul of Brazil’s social security system may not be enough to boost the country’s sovereign credit rating. Second, Fitch warned of increasing risks in Qatar stemming from a downturn in the real estate market. Rental prices fell 20 percent in the past three years, in part because of oversupply related to the country’s preparations for the 2022 World Cup. Fitch said that, while Qatar’s banking system already faced liquidity challenges from the loss of $30 billion following the 2017 Saudi-led boycott, the downturn in the real estate sector will exacerbate a liquidity crunch going forward. Last, and certainly not least, Moody’s warned Turkey that, if it doesn’t implement a plan to address its economic challenges – namely, high external debt and dwindling foreign reserves – its sovereign credit rating will be downgraded. Moody’s already lowered Turkey’s rating last August to Ba3, with a negative outlook indicating that another downgrade is possible within 12-18 months. This will only make things harder for Turkey, as a rating downgrade could force some foreign investors to reallocate funds just when Turkey needs foreign capital more than ever.

U.S.-Turkey trade. The U.S. announced a set of seemingly contradictory measures that will impact trade with Turkey. First, it reduced tariffs on Turkish steel imports by 50 percent. At the same time, it ended Turkey’s access to the Generalized System of Preferences program, a preferential trade agreement for developing economies, claiming that Turkey is now “sufficiently economically developed” that it doesn’t meet the criteria for participation. It’s unclear what effect these measures will have on the Turkish economy, which has been struggling under a rapidly falling currency.

Pakistan-China tensions. Pakistani officials removed security barricades at the Islamabad office of Chinese tech giant Huawei, claiming that the structures encroached on state land. The move angered Huawei officials who said they were forced to evacuate their staff, but Islamabad’s mayor claimed that it was approved by Pakistan’s Supreme Court. The timing is peculiar; last weekend, several gunmen attacked a luxury hotel in Pakistan’s Gwadar province, the location of a critical port for China’s Belt and Road Initiative and the hallmark of China-Pakistan infrastructure cooperation.

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