Heads continue to roll over Iran’s economic woes. On Sunday, the parliament voted to impeach the minister of economic affairs and finance. This comes a month after President Hasan Rouhani was forced to replace the governor of the central bank, and weeks after the minister of cooperatives, labor and social welfare lost a vote of confidence. Rouhani himself will be grilled by parliament on Tuesday over issues such as the government’s plan to control the depreciation of the rial, U.S. sanctions and so on. As the crisis drags on, the relative silence of the country’s hard-liners is becoming more difficult to ignore. We’d expect them to blame the country’s economic problems on the United States, rallying the country around the flag to divert the public’s collective anger from moderates such as Rouhani. So far they haven’t. But Iran’s economic problems promise only to get worse. Data from Platts showed that exports of Iranian crude and condensate dropped to 1.68 million barrels per day in the first two weeks in August — more than 600,000 bpd lower than in July — and U.S. oil sanctions haven’t even kicked in yet.
The U.S. may be quietly dialing up the pressure on North Korea again. President Donald Trump canceled Secretary of State Mike Pompeo’s planned visit to North Korea, a slight to which Pyongyang has responded with the usual fire and fury, accusing Washington of “double-dealing” and “hatching a criminal plot.” The statement in North Korean state media contained an interesting accusation, though: that U.S. special operations forces stationed in Japan have been conducting drills in the Philippine island of Luzon — roughly the same distance from Okinawa as Pyongyang — intended to simulate an invasion of the North. Pyongyang also claimed that U.S. special operations units stationed in Japan have arrived in the city of Jinhae for training. North Korea has a habit of making outlandish claims about U.S. military movements, of course, and the Pentagon said there’s nothing unusual about the recent troop movements. But unnamed South Korean sources have confirmed that the U.S. special operations forces arrived in Jinhae two weeks ago. This isn’t an outright break with the tacit “freeze-for-freeze” agreement believed to be in place between Washington and Pyongyang, but Seoul isn’t treating this as if it’s business as usual. South Korean President Moon Jae-in has even offered to mediate between the two sides. (Curiously, Moon hasn’t spoken to Trump in more than two months, according to South Korean media.) And Moon’s spokesman said the cancellation of Pompeo’s trip has hindered plans to open an inter-Korean liaison office. Look for the North to show off new missile capabilities at its upcoming military parade as the shadow boxing picks up.
Construction in China is slowing down. China’s National Development and Reform Commission on Sunday announced that “intended infrastructure investment” – referring to contracts that have been signed but not yet financed or officially approved – plummeted by a staggering 35 percent year-over-year through the first half of 2018. The NDRC expects infrastructure investment to slow further in the coming months. The drop can be explained in small part by increased regulatory uncertainty. Investors are wary of running afoul of Beijing’s sweeping deleveraging and financial de-risking campaigns, and of its efforts to rein in speculative real estate investment. But the main driver is the slowdown in the Chinese economy, which is likely to continue through the end of the year as the pain from Beijing’s reform agenda and the trade war set in. In July, in fact, infrastructure investment contracted year-over-year for the first time in modern Chinese history. Chinese economic growth has been overly dependent on investment for more than a decade now. But since the decline is not the result of what the government intended – namely, a greater dependence on domestic consumer spending and the services sector – Beijing has cause for alarm. As a result, it has been scrambling to goose infrastructure investment by, for example, loosening restrictions on purchases of local government infrastructure bonds. On Monday, senior policy adviser Liu Shijin became the latest senior official to make the case that the trade war with the U.S. is a sideshow that’s obscuring deeper economic problems. In other words, Beijing is past the point where it stopped pretending that everything will return to normal once the trade war ends.
- New Australian Prime Minister Scott Morrison will head to Jakarta this week to push through late-stage negotiations over an Australian-Indonesian free trade agreement, quieting the concern that political instability would derail major Australian foreign policy initiatives.
- The U.S. and Mexico have made a breakthrough in NAFTA talks and reached a partial deal on Monday, allowing for Canada to rejoin the negotiations, Bloomberg reported.
- Chinese President Xi Jinping endorsed a revised set of rules issued by the Chinese Communist Party governing the behavior of party cadres, including strict new punishments for spreading political rumors and expulsion for holding religious beliefs.
- Japan’s coast guard said the presence of North Korean fishing boats in Japanese waters decreased nearly 80 percent year-over-year in July.
- Japan and the U.S. will adopt a new system by 2020 that will integrate Japanese forces into the U.S. military’s radar and sensor network, allowing for a more robust missile defense shield in Northeast Asia.
- Iranian President Hasan Rouhani and Qatari Emir Sheikh Tamim bin Hamad al-Thani discussed enhancing maritime cooperation.
- U.S. sanctions have taken effect on Russian officials allegedly involved in the recent poisoning of a former Russian spy and his daughter in the U.K. in March.