Political Paralysis with Economic MomentumDiverse agendas in a convoluted region
Iran and Turkey flexing over Syria
Today, Russia, Turkey, and Iran are the guarantors of the Syrian ceasefire. Moscow is leading the pack and taking great lengths to broker an agreement that Russian President Vladimir Putin can promote. The Russian-convened Astana talks focused on guaranteeing the ceasefire, while the UN-led parallel Geneva talks focused on a comprehensive solution.
Although they may have opened the door to more substantial proceedings in Geneva, the Astana talks were largely a failure. Rather than compromise, Syrian President Bashar Al Assad would rather ride the momentum of the government’s Aleppo win, infighting between rebel groups, and a lack of strategic direction from the opposition. He is also reluctant to give up now after the new recognition he has won regionally, from Jordan, Turkey, and Egypt, and internationally – particularly following comments made at the start of the year by UK Foreign Minister Boris Johnson.
Russia finds itself mediating between Turkey and Iran as much as with Syria’s various parties. Tensions peaked in February when Turkish President Recep Tayyip Erdogan and his foreign minister accused Iran of pursuing ‘Persian nationalism’ in Syria and Iraq. Iran, in return, issued a thinly veiled threat: “We are acting patiently, but there is a limit to that. If our Turkish friends repeat these type of remarks, we will have to respond.” Strained relations between the two nations place a sustainable agreement on Syria far from reach.
At the end of January, in an attempt to entice Turkey and appear neutral, Moscow chided Damascus for blaming terrorists for attacks it had carried out. Moscow also allowed two armed rebel groups, once labelled extremists, to participate in the Astana talks. However, this new Russian pragmatism has little to show in terms of results.
Russia, cementing a regional presence
Following the Syrian government’s resounding success in Aleppo, Russia is looking for ways to cement its own victories, bolster its allies, and spread its realm of influence. Emboldened by a lack of regional leadership, Russia has made clear its intentions. However, this is easier said than done.
Now, Moscow has begun to pivot towards Libya. The North African country is a strategically important nexus between Africa and Europe, and Russia is acutely aware of the bruising Europeans have taken since the overthrow of former ruler Muammar Qaddafi. For Putin, the Libyan crisis could be the low-hanging fruit in his wider geostrategic plan to counterbalance Western influence in WANA.
“Over the medium to long term, Russia will likely position itself to recover some of the billions of dollars lost in arms sales and construction contracts after the onset of the 2011 Libyan revolution.”
Over the medium to long term, Russia will likely position itself to recover some of the billions of dollars lost in arms sales and construction contracts after the onset of the 2011 Libyan revolution. The first signal of this shift came in late February when Russian oil company Rosneft signed a deal with the technocratic Libyan National Oil Corporation. Russia’s support for General Khalifa Haftar, military commander of Libya's eastern government, was well-publicised after one of its warships, en route from Syria, stopped in Libyan waters. Haftar was flown aboard and given a personal tour following a video conference with Russian Defence Minister Sergey Shoigu.
Meanwhile, in the Mediterranean, Russia is also vying for access to Egyptian, Libyan, and Algerian ports. With a strategic naval base in Tartus, Syria, Russia wants to ensure its ships can access ports across the Mediterranean arc, enabling a military presence from anywhere between Morocco and Syria. Rebuilding Moscow’s military presence in the Mediterranean is one of the country’s maritime goals.
Outside of the fight against Daesh in Iraq and Syria, Yemen is the most active conflict zone across WANA. While the Countries section of the second WANA Quarterly hones in on the specificities of the battle, the fight for control over regional water passages is best illustrated by the fight for control over Bab Al Mandeb Strait. By way of example, in early February, a Saudi frigate was hit by a remote-controlled boat filled with explosives. The attack, claimed by Iranian-backed Houthi forces, killed two crew members.
“Bab Al Mandeb Strait and the Red Sea are passageways to the Suez Canal, and for the oil and gas industry more broadly.”
Bab Al Mandeb Strait and the Red Sea are passageways to the Suez Canal, and for the oil and gas industry more broadly. These inflexion points are safeguarded by the US, which recently introduced three warships in and around the strait, including the navy destroyer USS Cole. The additional defence was not without cause: A few weeks prior, the USS Mahan launched warning shots at four Iranian fast-attack vessels near the Strait of Hormuz. In late February, in response to the increased US naval presence and intimidation by the new US administration, Iran launched extensive naval drills across the Strait of Hormuz, Bab Al Mandeb Strait, Gulf of Oman, and northern parts of the Indian Ocean. With tensions escalating in these geopolitical hotspots, naval passages around the Gulf are likely to become the arenas for further country-to-country intimidation, thereby requiring close monitoring.
Fig leaves and olive branches in the Gulf
After assuming the presidency in late 2016, Lebanon’s Michel Aoun spent much of the last quarter engaging with the Gulf, most notably, Saudi Arabia. Following his January visit to Riyadh, Saudi Arabia’s Minister of State for Gulf Affairs Thamer Al Sabhan headed to Beirut with a new Saudi ambassador in tow. However, Hizbollah’s alliance with Aoun will limit any depth in relations – after he backed Hizbollah following leader Hassan Nasrallah’s statements on Yemen and Bahrain.
Aoun’s vocal support for Hizbollah at the beginning of March poured cold water on big GCC-Lebanon dreams, with Saudi Arabia’s King Salman cancelling a trip to Beirut in response. However, in an effort to reduce tensions, Lebanese Prime Minister Saad Al Hariri accompanied Aoun to an Arab League summit in Aqaba, Jordan, in late March.
Saudi Arabia is also reaching out to Iraq. In late February, Foreign Minister Adel Al Jubeir met with Iraqi Prime Minister Haider Al Abadi and Foreign Minister Ibrahim Al Jaafari, marking the first visit to Iraq by a Saudi foreign minister since 1990. During the meeting, Al Jubeir also announced he would appoint an ambassador to Baghdad. For the Saudis, this is an important opportunity to counterbalance Iranian influence in Iraq as the fight against Daesh in Mosul continues. It is also an occasion to show leadership while the US develops a wider regional agenda.
“While it may be tempting to forecast what impact US President Donald Trump will have on the region, his administration is still in its early days.”
While it may be tempting to forecast what impact US President Donald Trump will have on the region, his administration is still in its early days. So far, there have been many more conflicting words and statements than actions on Iran, Israel-Palestine, and the fight against Daesh. With little to dissect or conclude, the erratic Trump administration remains a wildcard in a region already thick with actors and plans.
Close by, a fig leaf was extended to Iran via Kuwait and Oman. Kuwait, after hosting peace talks last summer between Yemen's warring parties, welcomed Iranian President Hassan Rouhani in February. Although the visit could have been viewed as Kuwait asserting its independence (it has a sizeable population with Iranian roots), statements released afterwards highlighted it was speaking on behalf of the GCC in “pushing for normalisation and the opening of dialogue”.
Oil sticks; cuts and diversification are ongoing
With oil prices having jumped from less than $30 a barrel to more than $50 a barrel in the space of a year, regional producers have been handed a huge boon. Surprising analysts, the November 2016 OPEC deal has not only held, but has shown high levels of compliance, helping to shrink bloated oil inventories (especially in the US) that had until then kept a lid on prices. The International Energy Agency called it “one of the deepest cuts on record”, with an estimated 90% compliance rate after month one. While the UAE and Iraq were reported to be early laggards, Saudi Arabia has gone above and beyond. But, regardless of the deal’s success, the matter of diversified economies remains one of urgency for oil-exporting countries.
In Saudi Arabia, in line with Deputy Crown Prince Mohamed bin Salman’s Vision 2030 plan, cultural events are on the up. In Jeddah, the Saudi General Entertainment Authority (GEA) tacitly hosted the inaugural Comic Con exhibition as well as a public concert featuring Saudi singer Mohamed Abdu. When some of the kingdom’s highest religious authorities denounced the government for approving the concert and other mixed-gender cultural events, the GEA took a nuanced approach. Following Comic Con, the authority publicly expressed regret for “unspecified violations”. For the Saudi government, tact and acumen will be required to move forward on Vision 2030’s ambitious cultural objectives. Like Saudi Arabia, other countries in the region responded to the oil crisis by increasing financial support for cultural schemes. Some, however, went the other way: In January, Algeria announced spending for festivals was to be cut anywhere from 20% to 50%.
The advent of GCC taxation
The diversification of GCC government revenues continues to take shape; after a decade of discussions, GCC-wide VAT is now only a year away. On that front, the last quarter was an important litmus test for GCC countries to meet the January 1, 2018 deadline for a comprehensive rollout. In late January 2017, Saudi Arabia approved the introduction of VAT. The following month, Bahrain’s under-secretary for finance released more information to the press.
“All GCC countries are working together to build the legislative and bureaucratic framework needed for proper implementation of VAT.”
All GCC countries are working together to build the legislative and bureaucratic framework needed for proper implementation. The 5% tax is not expected to apply to the health and education sectors, or to products that could have a disproportionate impact on lower income brackets. The UAE alone is expected to yield Dh12bn [$3.2bn] in the first year of implementation and up to Dh20bn [$5.4bn] the following.
Oman, a country that felt the pinch of lower oil prices more than its Gulf neighbours, went one step further this last quarter, with Muscat amending tax legislation to include small businesses. Under the new tax code, all companies are now liable to pay a flexible tax rate depending on their profits.
A resilient but wary Egyptian economy
Months after Egypt made international headlines for allowing its currency to free float, the economy has begun to stabilise. This painful recovery is being led by several factors: A resurgence in foreign investment was highlighted by the pound gaining 14% against the US dollar in the first two weeks of February, and the sale of more than $1bn in Egyptian treasuries to foreign investors. The economy also received a boost following an increase in remittances and tourism, pointing to an estimated 10% drop in the government’s deficit and 1% drop in unemployment year-on-year.
But this positivity has not trickled down to the streets: The devaluation of the currency has made household goods and all imported products exponentially pricier for Egyptians, and a confident outlook on Egypt remains short-sighted. As inflation continues to rise (reaching more than 30% in February), the removal of bread subsidies has led to protests, with the potential for further social instability. Abdel Fatteh El Sisi’s government needs to prove it can transform painful reforms and short-term gains into a more substantial economic vision for sustainable growth.
Mosul: Critical fight and humanitarian situation
Security wise, regional fighting is focused on Daesh in and around Mosul. Though Raqqa is also gaining in importance, the move into the Syrian city has been slow; riddled with political and security obstacles (see Countries for more). Across the border, Iraqi Security Forces (ISF) have pushed Daesh out of east Mosul and are moving north from the airport towards the Old City, the historical centre.
The Battle for Western Mosul
Source: The Delma Institute, 2017
With the support of foreign troops that have grown increasingly active in the battle, Iraqi forces will need to internalise lessons from the first phase of fighting, learning how to limit casualties and damage to equipment. Mosul International Airport and the adjacent military base will serve as the springboard for operations into west Mosul.
This next phase of fighting is expected to be particularly difficult for many reasons, namely, that there are far more residential neighbourhoods west than east. Given the narrow streets and high population density, especially in and around the Old City, a significant amount of infrastructure is expected to be destroyed. More importantly, civilians are at great risk of becoming collateral damage – with several airstrikes having already caused mass civilian casualties.
There are an estimated 750,000 residents in the western half of the city, of whom the ISF have requested remain at home rather than flee neighbourhoods where fighting is taking place. Despite the ISF’s pleas, the UN Office for the Co-ordination of Humanitarian Affairs (OCHA) expects as many as 250,000 people to head off in search of a safer environment.
More than 350,000 people have been displaced since the Mosul offensive began, a number that was nevertheless managed by UN and Iraqi agencies whose well-established camps beyond the city limits were prepared for new arrivals. A prolonged fight in west Mosul would be far more difficult to manage: Bridges destroyed to block Daesh fighters from escaping into east Mosul have inadvertently trapped civilians, making escape to the south a perilous journey. In addition, OCHA estimates the camps can only accommodate a further 60,000 displaced people, far below the expected number of arrivals, while the UN says “available food and fuel supplies continue to dwindle, with residents resorting to burning furniture and rubbish to keep warm”.
Encircling Daesh in Iraq and Syria
Inching into Raqqa
From the north, squeezing Daesh out has proved to be a more convoluted affair. As they inch closer to Raqqa, Kurdish-led Syrian Democratic Forces (SDF) have seized the majority of Daesh-held territory in the province’s countryside. The SDF are now approximately 5 km north-east of the city and working to encircle it. But while they are best positioned to lead the move into Raqqa, competition with Turkey is fierce. While the SDF remain the principal ally for US forces in the fight against Daesh in Syria, Turkey could cause a major headache.
To sweeten its demands that the US cease all support to the Kurds, Turkey has proposed two options for seizing Raqqa without the SDF. Both are impossible without the involvement of Ahrar Al Sham, an extremist organisation by all counts and one that cannot be counted on by the Americans, Russians, or Syrian government. The US will need to engage its allies to ensure fighting is focused on Daesh and that a post-Daesh governance plan is bought by all potential spoilers. US reinforcement of the SDF serves to remind Turkey where US loyalty lies.