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Watch List Findings: May 12, 2018

Iran and Israel raise the stakes in Syria, U.S. talks trade with China and NAFTA partners

|May 11, 2018

What follows are the preliminary findings for issues identified in the daily Watch Lists this week. We are only sending findings that we regard as significant or potentially significant to keep this list manageable. We have findings for all the Watch List items. Should you be interested in findings not listed here, please contact us and we will email them to you.

To emphasize, you can contact us if there is an item not included here for which you’d like to see the findings.

Our goal, as always, is to focus on what matters and not on things that don’t.

Items from May 7

Venezuela: ConocoPhillips may take over refineries and terminals owned by Venezuelan state-owned oil company Petroleos de Venezuela, S.A., in the Caribbean. Venezuela is already in economic disrepair and so cannot afford to lose any more money. Let’s find out exactly how much money it stands to lose if it does indeed lose these refineries and how this could affect Venezuelan influence in the Caribbean (which has been in decline for some time anyway).

  • Finding: PDVSA’s assets in the Caribbean include an oil terminal and a refinery on the island of Curacao with a capacity to produce 335,000 barrels per day. It also has oil storage tanks on St. Eustatius island and an export terminal that can handle 10 million barrels on Bonaire island. The company accounts for roughly 16 percent of Venezuela’s refined oil exports and 70 percent of its crude oil exports. But Venezuela has recently limited oil extraction, and refineries are operating at just above 30 percent capacity. In December, about 80 percent of Venezuela’s refineries halted operations.

China: President Xi Jinping and other top Chinese officials were notably effusive in their praise of Karl Marx during celebrations of his 200th birthday May 5. Xi has always been an enthusiastic proponent of Marxist thought, so this isn’t completely surprising, but still, it appears to be a calculated move. What, then, is the calculation? Is it a bid for legitimacy among the people? Is Marxism shaping Chinese policy? We tend to downplay fastidious idealism, but these are questions worth asking in light of the pressure China is under.

  • Finding: Xi’s ideology bears little resemblance to what Karl Marx had in mind; Beijing continues to embrace its own peculiar version of capitalism. But he sees Marxism as something that can be adapted over time, and more important, he believes strongly in the power of state-driven ideology as a tool to unify the country. Marxism is just the latest iteration of a narrative China has spun since the 1800s: that China was bullied, carved up and subjugated by foreign imperialists during a century of humiliation, subjecting what was once the world’s pre-eminent civilization to untold suffering. All Chinese leaders have been molded by this narrative. And all have sought to use it to inspire the masses to share in the project of perpetual reform and national rejuvenation.

Turkey: The government in Ankara has threatened to retaliate if U.S. lawmakers suspend arms sales to Turkey. This comes after U.S. criticism of Turkey’s decision to buy S-400 surface-to-air missile systems from Russia. Turkish Foreign Minister Mevlut Cavusoglu is expected to meet with U.S. Secretary of State Mike Pompeo later this week. How exactly can Turkey retaliate?

  • Finding: The House Armed Services Committee will meet next week to discuss the issue, but the suspension of arms sales would be temporary. The Defense Department may be asked to write a report on U.S.-Turkey relations, and in the meantime, arms sales to Turkey would be suspended. If Turkey wanted to retaliate, its main leverage over the U.S. would be the military base in Incirlik. Turkey could either prohibit the U.S. from using the base or, if it wanted to do something less drastic, require that the U.S. remove its nuclear weapons arsenal (mainly B61 gravity bombs) from Incirlik. Turkey could also threaten to take in fewer Syrian refugees or expel the ones it has already accepted, which would put pressure on Europe. Another option would be to buy more weapon systems from Russia. In addition, Turkey has detained an American pastor on charges that he aided a terrorist group; his case could also be used to gain leverage in the arms dispute.

Russia: Russian President Vladimir Putin is meeting with Serbian President Aleksander Vucic on May 7, Israeli Prime Minister Benjamin Netanyahu on May 9 and German Chancellor Angela Merkel on May 18. We need to stay on top of what, if anything, comes from these meetings.

  • Finding: The goal of the meetings is to lobby for foreign backing of Serbia’s position on Kosovo. Tensions have been rising between Serbia and Kosovo, partly over renewed efforts in Kosovo to create an army and Kosovo’s failure to form the Community of Serb Municipalities (a self-governing association for Serb minorities in Kosovo), which it is obligated to do under the 2013 EU-brokered Brussels Agreement with Serbia.

Oman: Iran and Oman will hold joint maritime security drills in the coming days. The two countries have done this periodically since 2010. But given Oman’s strategic geographic position, and its proximity to enemies Iran and Saudi Arabia, we need a fresh look at how outside powers are attempting to gain a foothold there.

  • Finding: Oman is located just south of the Strait of Hormuz and often finds itself caught between its more powerful neighbors. Oman’s strategy is to serve as a mediator and avoid taking sides in regional conflicts. For example, it remained neutral when several Middle Eastern countries abruptly cut off diplomatic ties with Qatar in June 2017. The country is vulnerable to its neighbors given its dependence on oil, which accounts for roughly 80 percent of government revenue. Youth unemployment has recently soared to 49 per cent and the budget deficit to 21 percent of gross domestic product. Oman depends on investment from wealthier neighbors and imports from abroad. Knowing this weakness, Saudi Arabia and the United Arab Emirates are applying economic pressure on Oman to align with them against Iran – including by delaying deals and tightening trade.

Items from May 8

Iran: U.S. President Donald Trump is expected to announce his decision on whether to scrap the Iran nuclear deal, formally the Joint Comprehensive Plan of Action. If he withdraws from it, as he has repeatedly said he would, we’ll have a few things we need to watch for: signs that Iran will or will not resume its nuclear program; the willingness of Europe, China and Russian to enforce renewed U.S. sanctions; and the United States’ ability to limit Iran’s missile program. We also need to keep an eye on moves by Iranian hard-liners to use this against Iranian President Hassan Rouhani.

  • Finding: See our Real Time published May 8.

North Korea: North Korean leader Kim Jong Un made another secret visit to China to meet with President Xi Jinping in the border city of Dalian. This comes amid reports that South Korean President Moon Jae-in gave Kim a “blueprint” for economic cooperation – including a plan for an economic belt connecting the west coast of the Korean Peninsula to China – that could be made possible by continued reconciliation. Meanwhile, Russia and North Korea appear to be moving forward with plans to build a bridge across the Tumen River, which runs along part of the border of Russia, China and North Korea. The North has repeatedly aborted attempts to follow China’s lead in economic reform, but Kim has said that Pyongyang’s missile and nuclear successes have made the country ready to focus on its economy. Let’s take Kim at his word, for the moment. Can this time be any different? What role would South Korea, China and other outside powers play, and what would a concerted attempt at an economic opening mean for the nuclear standoff?

Venezuela: The U.S. imposed a fresh round of sanctions on several Venezuelan companies with ties to President Nicolas Maduro. Meanwhile, U.S. Vice President Mike Pence urged Organization of American States countries to take additional steps to isolate the government. The new sanctions appear minor, but let’s take a deeper look to see whether they might cause any major problems for Caracas.

  • Finding: The sanctions, which are intended to squeeze government officials financially, are against three individuals linked to drug trafficking and money laundering as well as the 20 companies they own and use to support illicit activities. Sixteen of the companies are based in Venezuela and four in Panama. The sanctions will have minimal economic impact on Venezuela. In addition, Venezuela started the process of leaving the OAS in April 2017, so isolating the country from OAS members will also have limited impact. Pence said Venezuela should suspend its May 20 elections because of corruption concerns. The United States’ ultimate goal is to see the fall of the Maduro government.

China: Liu He, the Chinese president’s top economic adviser, is headed to Washington for additional talks on heading off a trade war. This comes after talks between the U.S. delegation and Beijing in China late last week failed to produce a meaningful compromise. Let’s take stock of where the trade dispute stands.

  • Finding: The U.S. is still primarily focused on lowering the trade deficit with China (reportedly by $200 billion in two years) and compelling Beijing to stop “unfair” practices such as subsidizing Chinese industries. The U.S. is also increasingly focusing on curbing Chinese theft of U.S. technologies, though it’s not clear what specifically the U.S. demanded in the latest talks on this front. In response, China reportedly demanded that the U.S. back off its ongoing probe into Chinese industrial policy, relax its limits on high-tech exports to China, ease scrutiny of Chinese investments in the U.S. and support China’s goal of receiving market economy status at the World Trade Organization. As something of an olive branch, China’s Commerce Ministry said it is studying ways to lower tariffs on certain imports from the U.S., such as food and health care products, but this is unlikely to reduce the deficit by anywhere close to $200 billion. China has already been making life difficult for some U.S. exporters by ramping up customs inspections of their products, creating costly delays at Chinese ports.

China, Philippines: China has promised to protect the Philippines from external threats, according to Philippine President Rodrigo Duterte. Meanwhile, the Philippines dismissed reports about China installing anti-ship and anti-air missiles in the Spratlys, saying they were intended only to deter the U.S. and allies like Japan and Australia. Duterte says a lot of things, but we’re watching for signs that Manila and Beijing may be nearing a political accommodation that resolves one of China’s core strategic problems: its vulnerability to chokepoints along the First Island Chain. Notably, this comes as major annual U.S.-Philippine joint drills launched this week at their pre-Duterte size (with expanded participation from Japan and Australia), despite earlier attempts by Duterte to cancel the drills.

  • Finding: There is no evidence of a substantive push to strike a formal treaty with China, and doing so would create enormous political and constitutional hurdles. Duterte is presumably just advancing the narrative that China does not pose a major threat to the Philippines and that his own continued outreach to Beijing is not coming at the expense of Philippine sovereignty or other interests.

Items from May 9

Israel, Iran: Israel wasted no time raising the pressure on Iran with another round of airstrikes against what monitors say were weapons depots and missile launchers operated by the Islamic Revolutionary Guard Corps at an outpost south of Damascus. (Unsurprisingly, the head of the IRGC welcomed the U.S. withdrawal from the Iran deal.) This comes as Israeli Prime Minister Benjamin Netanyahu and Nechirvan Barzani, the prime minister of the Kurdistan Regional Government, are off to Moscow for a chat with Russian President Vladimir Putin. There’s a lot for us to track, though troop movements on either side are at the top of the list. Stay frosty.

  • Finding: See our Real Time published May 9.

Eastern Mediterranean: Cyprus, Israel and Greece agreed to proceed with a pipeline project to take natural gas from the Eastern Mediterranean to Europe. Let’s explore why the decision was made now and what each country stands to gain from the pipeline (other than the obvious).

  • Finding: The main goal of the countries involved is to generate revenue. For Israel, though, this deal has been long in the making. Israel-Greece relations have been improving since 2010, and countries have been looking for ways to develop and exploit natural gas reserves in the Eastern Mediterranean since at least 2015. Israel and Cyprus maintain close military cooperation; they participated in three joint exercises in 2017 and one in March 2018. For its part, Europe would benefit from any natural gas pipeline that is an alternative to Russia’s.

Montenegro: Details have been leaked of a U.S. and Montenegro intelligence-sharing deal reached in February. Russia thinks of the Balkans as its turf. Let’s pore through what’s in the deal.

  • Finding: The deal, known as the General Security of Information Agreement, gives Montenegro access to U.S. defense and military intelligence data and new intelligence technologies. But in some ways, it is as much a reflection of U.S. military cooperation as NATO military cooperation. It was signed, for example, the first time the U.S. and Montenegro met after Montenegro became a NATO member. Montenegro’s NATO accession has stoked tensions between Russia and the U.S. in the Balkans. Russia wants to stop, or at least slow, the progress of Western orientation among Balkan countries. This is particularly the case in Montenegro, in which Russia is a big investor.

NAFTA: Mexico is considering a compromise on auto manufacturing as a way to break the impasse in NAFTA negotiations. A deal on a revised agreement needs to be reached by the end of this month for the deal to be approved by the current legislatures in each country. Will this be enough? What happens if they miss the deadline?

  • Finding: Both sides are trying to reach an agreement before their respective elections, which could change the composition of their governments and thus lead to less favorable conditions for compromise. U.S. President Donald Trump loses some of his negotiating power on July 1, when a fast-track mechanism expires. In Mexico, a lame duck congress is not expected to deal with the issue, especially since presidential candidate Andres Manuel Lopez Obrador is so far ahead in the polls. The biggest sticking points in talks are rules of origin and wages in the automotive industry and the sunset clause. If the deadline passes, negotiations may be suspended, a partial agreement may be reached (i.e., contentious issues separated if possible) or talks may get dragged out at least into 2019.

Items From May 10

Iran, Israel: Israel Defense Forces have destroyed “nearly all” of Iran’s military infrastructure sites in Syria with airstrikes May 10, Israeli Defense Minister Avigdor Liberman said. It was Israel’s largest barrage since the Syrian conflict began, and it came in response to missile fire into the Golan Heights allegedly by the Islamic Revolutionary Guard Corps’ Quds force. Israeli officials have gone out of their way to say the fighting is contained to Syria and relegated only to Iranian targets. This suggests Israel is attempting to drive a wedge between Syria and Iran. Stay on top of all developments.

  • Finding: See our Real Time published May 9.

Malaysia: Malaysia’s once and future strongman, Mahathir Mohamad, won in the country’s general elections May 9, teaming up with a protege he once jailed to defeat another protege, scandal-ridden Prime Minister Najib Razak, and end the United Malays National Organization’s uninterrupted hold on power since independence in 1952. It’s high political drama, but our interest is in whether this electoral shift will change Malaysia’s strategic orientation, considering its valuable position alongside critical sea lanes in Southeast Asia. Notably, on May 10, Mahathir said several Belt and Road-related deals with China may be reconsidered under his government. (Mahathir was notably antagonistic toward the West during his 22 years in power.) Let’s figure out if his election frees Malaysian foreign policy up, especially with regard to China.

  • Finding: Malaysia is in uncharted political territory here, even though Mahathir served as prime minister from 1986 to 2002. Deeply entrenched patronage relationships will need to be reset, and the new ruling coalition – a fractious alliance with no experience in power and little in the way of a unified platform – will struggle to hit the ground running. Furthermore, at 92 years old, Mahathir is unlikely to hold the top post for long, so preparations for another transfer of power within the coalition are probably imminent. In other words, Malaysia will be too preoccupied with trouble at home to think much about foreign policy. Progress on some Chinese projects may grind to a halt as the new government makes a show of demonstrating its independence. But Malaysia’s strategic orientation is unlikely to fundamentally change.

India, U.S.: Legislation is moving through the U.S. Congress that would grant India the same level of access to U.S. arms sales as other core U.S. allies. Will it pass? If it does, what is India interested in buying?

  • Finding: To clarify, the legislation in question does not address India specifically – rather, it means to empower the U.S. government to support countries, organizations and actors deemed “major defense partners” by the U.S. India now falls under that category. The legislation is likely to pass. It has bipartisan support, and generic national security issues are comparatively easier for lawmakers to agree on. The Indian military will prioritize technology transfers and joint production rather than direct purchases. It wants small arms for border patrols, fighter jets, amphibious aircraft, attack helicopters, air-defense systems and anti-tank guided missile systems.