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Watch List Findings: Oct. 7, 2017

Russia’s new internet connection to North Korea, Turkey-Iran meetings, Japanese parties mull Article 9 reform ahead of elections

|October 6, 2017

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 Oct. 2

Iran: Unemployment in some Iranian cities has reportedly increased to 60 percent, although the nationwide level is still around 12 percent. To which cities are these reports referring? These kinds of figures can lead to civil unrest. Do they pose any serious challenge to the government?

  • Finding: The announcement came from Iran’s interior minister, but he didn’t specify which towns he was referring to. In Iran, anyone who works at least one hour per week is considered employed, so the 12 percent figure for nationwide unemployment almost certainly understates the true number of unemployed and underemployed.

India, Philippines: Two Indian warships are visiting the Philippines. What’s the future of Indian-Philippine ties? Is this anything more than an empty gesture?

  • Finding: India has an interest in deepening ties with the Philippines to raise the costs of Chinese coercion in the Indian Ocean basin. New Delhi also sees the Philippines as a potential customer for India’s burgeoning arms sector. Manila, meanwhile, is keen to strengthen ties with any and all outside powers. Thus, they have been gradually laying the foundation for military cooperation, but not in any way that signals a robust partnership anytime soon. Indian involvement in East Asian affairs will primarily be felt not through bilateral arrangements but as part of a loose U.S.-led alignment involving multiple powers, particularly Japan and Australia.

Russia: A Russian firm has apparently opened a new internet connection to North Korea. This comes just days after a senior North Korean official was in Moscow. Compared to China, South Korea and the U.S., Russia is a minor player in the North Korea crisis, but Moscow is looking for ways to enhance its role. What are this firm’s connections to Moscow? What can a move like this do for Moscow’s strategy?

  • Finding: The Russian firm in question, TransTelekom, is state-sponsored and headed by an associate of Vladimir Putin. This may turn out to be a substantial lifeline for Pyongyang. It appears the new connection is servicing about 60 percent of the North’s web traffic. Most important, it reduces North Korea’s reliance on what had been its sole link to the global internet, a China Unicom connection, at a time when U.S. cyber operations targeting the North have reportedly been intensifying. The North relies on its own sophisticated cyber operations to raise black market revenue and for certain potential battlefield purposes. Telecommunications cooperation is not covered by U.N. Security Council sanctions, allowing Russia to continue to assert that it is supporting international efforts to pressure Pyongyang while also giving it one more source of influence in North Korea.

Items from Oct. 3

Spain: Following the Catalonia independence referendum, Germany, France and Serbia have expressed their support for the government in Madrid. Others, such as the Czech Republic, have criticized Madrid. Catalonia is trying to internationalize the conflict, and though it is unclear if it will be successful, its efforts could reveal more divisions in the EU. Will the EU close ranks on the territorial integrity and sovereignty of Spain? We should begin by assessing the reactions of every member of the EU?

U.S.: HP turned over U.S. cyber defense software to Russia for scrutiny. How was a U.S. company compelled to do that? We need to understand the implications this may have for U.S. cybersecurity and international business in general.

  • Finding: Russia gained access to the ArcSight system, which is designed to analyze, rank and log cybersecurity threats. The system is the basis for the U.S. Army’s cybersecurity system. HP allowed Echelon, the Russian company that performed the software audit, to examine some source code information in an attempt to sign a business contract. This episode is a huge security risk because it could expose weaknesses in the software and thus open the U.S. military to cyberattacks. Security analysts have said, however, that reviewing the source code, even if it provided insights into vulnerabilities, would not allow enemies to enter military systems. This incident raises questions about how to balance business with national security. Technology companies’ sales to foreign countries are not heavily scrutinized, but events such as this may lead to more regulation and restrictive business practices. This would be problematic for massive firms like Google, Apple and Microsoft, some of which get up to 54 percent of corporate revenues from other countries.

Iran: The government of Oman will allow Iran to use one of its ports to conduct business with countries in Africa and in the Indian Ocean basin, according to the Iranian ambassador to Oman. We need a better understanding of Oman’s role in the region now more than ever, considering the changes underway in Iran and Saudi Arabia?

  • Finding: Oman has long maintained close relations with Iran. In fact, Oman remains a key channel through which the Iranians deal with the Americans. The Omanis played an important role in forging the Iran nuclear agreement. In the wake of the Saudi-Qatari spat and the weakening of the Gulf Cooperation Council, the Omanis feel emboldened to enhance ties with the Iranians.

Palestinian Territories: Hamas and the Palestinian Authority are meeting in Gaza for the first time in three years. What prompted the meeting? If Hamas is moving toward the mainstream, it will create space for a more radical third party. Will the Islamic State or another jihadist group fill the void? Does this mean the end of Hamas as an independent force in Palestine?

Russia: President Vladimir Putin has said the United Nations should discuss Russia’s proposal to place a mission in Donbass, the embattled region in eastern Ukraine. Little has been reported on the proposal since its announcement. Is this a dead letter? Are there signs that the United States and Russia are discussing the matter privately?

  • Finding: The U.S. special representative on Ukraine, Kurt Volker, will meet with a Russian presidential aide in Belgrade on Oct. 7. Russia is pushing the U.N. solution for eastern Ukraine because it would, from a legal perspective, freeze the conflict. Russia’s proposal is to station U.N. peacekeeping forces along the front line inside Ukraine, not along the Russian border, which would formalize the division of Ukraine. The U.S. opposes the plan; Volker has said that the Oct. 7 meeting will seek compromise on the Minsk accord and on “restoring Ukraine’s territorial integrity.” That the sides are meeting at all, however, indicates that talks on formalizing eastern Ukraine’s status are progressing.

Items from Oct. 4

Turkey, Iran: Turkish President Recep Tayyip Erdogan visited Tehran on Oct. 4. When was this meeting scheduled, and what, if anything, does it tell us about the short-term trajectory of Turkish-Iranian relations? Is this trip about Iraqi Kurdistan and its recent independence referendum or something else?

  • Finding: The visit was first talked about in mid-August. It was prompted by the Sept. 25 Iraqi Kurdish independence referendum. Turkey and Iran are fierce competitors for influence in the Middle East, but in the short term, they will cooperate on tactical issues where their interests converge. They have much to discuss at the moment: the civil wars in Syria and Iraq, the jihadist threat and bilateral trade.

Europe: In an attempt to reduce systemic risk, the European Central Bank is considering requiring banks to hold a greater amount of collateral against nonperforming loans. But since these new requirements will also restrict credit to potential borrowers, they could slow economic growth. How substantial are the new collateral requirements?

  • Finding: The ECB will require that banks hold reserves equal to 100 percent of the value of their nonperforming loans. Only loans classified as nonperforming after Jan. 1, 2018, however, will be subject to this new regulation. Banks will have two years to reserve the capital for unsecured loans and seven years for secured loans.

Japan: With elections looming, multiple parties in Japan have expressed interest in reforming Article 9, which relegates the nation’s military to a defensive force. What are the views of the major parties in the country, and what sort of change could we expect to see? How would this affect the regional geopolitics?

  • Finding: Of the three major political parties in Japan’s legislature, the majority Liberal Democratic Party and its coalition junior partner, Komeito, are in favor of amending Article 9. Within the LDP there is disagreement on how to amend it. Prime Minister Shinzo Abe’s wing of the party has pushed, with Komeito’s support, to clarify the constitutionality of the Self-Defense Forces, since its constitutionality is a matter of debatable. More hawkish elements of the LDP, however, want to expand the rights of the military to engage in international efforts, with some going so far as to suggest the Self-Defense Forces should be able to come to the aid of allies even if Japan is not directly threatened. The other major party in the legislature, the Democratic Party, doesn’t want to revise Article 9 for fear that it would lead to wider military activities without clear limits. On Sept. 27, Tokyo’s popular mayor, Yuriko Koike, formed the Party of Hope, a reform-minded conservative party that is likely to take a similar stance to that of the LDP.

Items from Oct. 5

Russia, Saudi Arabia: Russia’s nuclear agency Rosatom has sent proposals to Saudi Arabia for the construction of a nuclear power plant. Right now, cooperation between the two countries seems limited to energy. Is there any chance Russia could – or would want to – encourage Saudi Arabia’s nuclear capability? What would that mean for Iran?

  • Finding: Russia seems to be encouraging Saudi Arabia to pursue nuclear technology. A preliminary Russian-Saudi nuclear cooperation deal was inked in June 2015 during a meeting between Russian President Vladimir Putin and the current crown prince, Mohammed bin Salman, on the sidelines of the St. Petersburg International Economic Forum. It was reported at the time that the Kremlin would help the kingdom develop as many as 16 nuclear facilities. It’s worth mentioning that Iran is decades ahead of Saudi Arabia in the nuclear sphere. Russian assistance to the Saudis could undermine U.S. efforts to curb the Iranian nuclear program.

Turkey: According to the Yeni Safak newspaper, Turkey delivered its first military shipment to Idlib, Syria, on Oct. 5. We need to examine the size of the Turkish force operating in Syria. Is it possible Turkey will go after Afrin, a Syrian Kurdish area, too?

  • Finding: Russian news agency Interfax reported Sept. 30 that Turkey had begun to deploy its military to Idlib. Hurriyet, a Turkish media agency, said that up to 500 Turkish soldiers will be stationed in Idlib city, and Yeni Safak reported that up to 25,000 troops may be deployed in two districts within Hatay, near Idlib.

Japan: The U.S. approved the sale of 56 advanced medium-range missiles to Japan. What capabilities would these give the Japanese? What specific threats are they suited to address?

  • Finding: Japan received 17 of an earlier variant of the air-to-air missiles in 2014. The newly approved missiles (Congress still needs to sign off) are slightly more advanced. They will be compatible with Japan’s growing fleet of F-35 fighter jets. This suggests the purchase is motivated more by Japan’s longer-term aims of achieving aerial parity with China than by the much more limited air-to-air threat posed by North Korea’s outdated air force. The new missiles would not help address threats posed by North Korea’s ground-based air defenses.

Turkmenistan, Russia, Qatar: Russian President Vladimir Putin visited Turkmenistan on Oct. 2 and failed to reach agreements on a number of topics, ranging from economic to security issues. Separately, leaders of Turkmenistan and Qatar discussed trade cooperation and relations between the two countries on Oct. 4. This should be placed in the context of Turkmenistan’s energy outlook. Turkmenistan wants to find new markets for its energy exports, and instead of focusing on the Trans-Caspian Gas Pipeline, which would help bring its gas supplies to Europe, it is considering a gas pipeline project that would extend through Turkmenistan, Afghanistan, Pakistan and India. What is the role of Turkmenistan in the global gas market, and what is the prospect of closer ties between these countries?

  • Finding: After Russia, Turkmenistan has the largest natural gas reserves among former Soviet states, accounting for about 15 percent of the region’s reserves and about 10 percent of the output of the post-Soviet countries. Turkmen gas makes up about 16 percent of regional gas exports, according to OPEC. But Turkmenistan has long been characterized by a lack of economic development, mostly because of the absence of access to new markets for the sale of its gas. As a result, Turkmenistan has come to depend more on China, and its once-reliable partners, Russia and Iran, have stopped or reduced their imports of Turkmen gas. At this stage, Russia and Turkmenistan are mostly competitors on the global gas market.

Pakistan: The chairman of the U.S. Joint Chiefs of Staff said he believes Pakistan’s Inter-Services Intelligence agency has connections with terrorist groups. Though this is not a new accusation, in the current political climate, this should be viewed as an attack on Pakistan. Secretary of Defense James Mattis, however, has said that the U.S. will give Pakistan one more chance and that the U.S. has new rules of engagement in Afghanistan. Pakistan’s government has downplayed the issue. Is there a fundamental break between Pakistan and the U.S.?

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