Wednesday, 12 December 2012

Chemicals, negotiations and jihadists - the Syrian conflict smoulders

The two year old conflict in Syria has changed considerably since those early days. Starting out as the small Syrian chapter of the 2011 iconic Arab Spring it evolved quickly into a serious armed insurgency fought by multiple rebel groups against the republican monarchy of Syrian President Bashar al Assad’s regime.

As rumour begins to surface of Mr al Assad’s intention to use Syria’s large stockpile of chemical weapons against the rebels swarming over the countryside, and a United States blacklisting of the Syrian rebel group Jabhat al-Nusra as jihadi terrorists, the desperate situation has once again made headline news.

The presence of foreign fighters in Syria’s rebellion has long been suspected. Such a diverse conglomerate of armed groups battle with regime troops, their official names changing constantly, that it is difficult to keep track.

While Damascus is under siege and Mr al Assad remains at the theoretical helm these fighters advance together, but how neatly they can amalgamate once the fighting stops and Mr al Assad is gone is entirely uncertain.

The potential for the Lebanonisation of Syria, in which ethnic groups occupy distinct and separate geographical regions falling extremely loosely under the rubric of a ‘nation-state’ in a slow-motion implosion, is disturbingly high. So long as the fighters remain distinct from each other, outside powers strong enough to tip the balance will continue to refuse assistance.

Handing weapons over to an ideologically friendly rebel group and expecting those guns not to fall into unsavoury hands is the fear keeping Washington and other Western powers at a safe distance from intervening in the burning Levant.

Supporting Bashar al Assad’s regime is not straightforward either. His army is tired, their munitions spread all over Syria and the rebels collectively still pose a significant threat to a huge swathe of his homeland.

Mr al Assad’s troops do control the vast majority of Syria and many of its densest population centres. But that control depends on how long they can hold out in the face of an extended, and wearying, campaign of attrition against stretched supply lines and beleaguered Syrian rifle teams.  

Almost the entire northern borderlands with Turkey are currently under implicit rebel control. The high command of the rebels is so comfortable with the rebellion’s progress that they recently announced their return to Syria from operating in Turkey.

Defections from the Alawite regime are still a constant stress for Mr al Assad. In order to retain command, however flimsy that command now is, he must ensure his support base stays loyal. Already some high profile members of his staff have left the country, although not all can be strictly classified as defections.

The Sunni-majority rebels have the Alawite regime on the back foot. There are enough supporters remaining to hold Mr al Assad in power, but it is unclear how long he will be needed as the face of the Alawite ruling clan.

Instead of the leader of a country, Mr al Assad appears as simply another warlord of the most powerful faction. The Syrian military have been unable to crush the insurgency with all their power. Regime troops have not been able to coax the rebels into a decisive engagement. Everything they have thrown at the rebels has been absorbed. The rebels prefer to conduct hit-and-run tactics in the face of potentially overwhelming firepower.  

On the other side, the inherent demographic advantage keeps the rebel’s momentum pushing forward. Yet the rebels are unable to capitalise on most gains due to a lack of heavy weaponry or strategic discipline and cohesion.

Overrunning the international airport in Damascus recently and defending much of Aleppo during the third quarter were impressive feats, but each success inevitably sees the rebels retreating for fear of becoming too vulnerable and presenting a solid target for the regime forces.

As Christmas approaches, the Syrian situation is stagnating. Neither side can force decisive victory while each side continues to receive arms from international benefactors. The question is how long will the Alawite regime leaders keep Mr al Assad in his position?

If the regime troops can hold a corridor open between Damascus and the mostly Alawite coast, it will leave open the possibility for some sort of departure for the embattled President. Syrian troops have diverted important strategic resources to keep this corridor open. Perhaps taking away the face of Mr al Assad from Damascus will quell the fury of the rebels, but his regime colleagues will remain.

Removing Mr al Assad from the Presidency would open up the potential for dialogue between the replacement leaders and the rebel command structure. This is the context surrounding this week’s threatened use of chemical weapons.

The Syrian regime knows that instructing Syrian troops to drop such weapons would incur quick and decisive international response against their forces, likely toppling them immediately. With a U.S. Navy aircraft-carrier group parked just offshore of the Syrian coast, testing international resolve to protect human rights in Syria would not be a smart move.

Given the unpredictable efficacy and tight tactical parameters of actually employing chemical weapons on the battlefield, the Syrian regime cannot even be sure they work.

Such weapons serve best as either a deterrent or as a negotiating tactic. Putting the rumours together with the larger Syrian picture, it becomes clear the Syrian President could be looking for a way out.

Recently the former Syrian Foreign Ministry spokesman Jihad Makdisi reportedly flew to the United States at the behest of Damascus. It has been suggested that his visit to Washington is to negotiate asylum for Bashar al Assad and members of his regime.

Whatever the next step, the quagmire is quickly becoming unbearable. Western governments, Russia included, urge that any power transition in Syria is stable. Threatening Mr al Assad with prosecution if he were to leave could redouble his efforts to go down swinging if he feels cornered. Although, granting convivial asylum for such a figure would be politically dangerous, it may be the most prudent path to save the destruction of Damascus.

Negotiations for such a deal will have to be handled deftly; Syrian peace in 2013 depends on them.

Wednesday, 5 December 2012

Protests return to Egypt after controversial power grab

It certainly isn't unusual these days to see protesters gathering in Egypt’s Tahrir square demonstrating against this and that. What is out of the ordinary is when those demonstrators storm down the road and overwhelm the presidential palace like they did on December 4. Such an event signals a broadening campaign against the Muslim Brotherhood’s government.

Egyptian President Mohammed Morsi was not residing in the palace at the time, scheduled instead to be at an “undisclosed location”, but the message was read loud and clear.

The protests are in response to a recent power consolidation attempt by Mr Morsi to write into the new Egyptian draft constitution important executive decrees granting the President absolute power, including immunity from all legal rulings.

Mr Morsi’s move to secure such draconian rules is itself a response to his opponent’s main weapon of bringing legal suits to challenge his government.

The Muslim Brotherhood is confronting Mubarak-era judicial authorities over the constitution. Simply put, the decree causing all the mayhem in downtown Cairo essentially stalemates the independent judiciary, places executive powers in command of the high court, and brings the institutionalisation of the Muslim Brotherhood closer to a reality.

It is the courts more than anything that has seriously impeded the recently elected Muslim Brotherhood government and any attempt by Mr Morsi to exact control over Egyptian politics.

This present crisis is an exercise to loosen some of these judicial constraints and set in motion the finalising of Egypt’s long-awaited constitution. Doing so would help tip the balance of power away from the courts and the military towards Mr Morsi and could win back control of the Egyptian parliament for the Brotherhood.

Since the 2011 so-called Arab Spring movement ignited large protests inside Egypt, the Muslim Brotherhood’s opponents have been united only rarely. The government’s decrees unified them completely, although for how long is unknown. The demonstrations in Egypt this week have included secularists and Copts along with many others, all seeing common cause in shouting down a new tactical move to further strengthen the ruling Islamist Muslim Brotherhood’s power.

Now, the only significant sector of Egypt deferring entry into the argument is the military. The power grab by Mr Morsi was orchestrated to display his power over the judiciary, and the judiciary is controlled by the powerful Egyptian military. It waits to be seen exactly how the military will respond, their silence already speaking volumes.

The military never exactly abdicated power after Mubarak stepped down last year. Generals were in control since the 1950s with Gamal Abdel Nasser and they are in essential control even now. The Arab Spring demonstrations and subsequent democratic election process served only to change the veneer of Egyptian politics, not the foundations.

Today, the Egyptian military’s central constraint is a desire to rule from behind the curtain, and leave the day-to-day details to an elected official. This limits how far they can intervene in the civilian government’s decisions. And so long as the status-quo is maintained, the Generals appear content to keep their distance despite rising calls from Mr Morsi’s opponents for assistance.

That the military haven’t intervened yet could signal a drastic weakening of their position or it could indicate their implicit agreement with Mr Morsi’s proposed direction for Egypt.

The Muslim Brotherhood must cooperate with the Egyptian military if it wishes to continue ruling. Forcing a scenario in which the military oust Mr Morsi and install a friendly face similar to the previous President Mubarak must be avoided as an imperative for the Brotherhood.

Even with the military in control it is clear the Muslim Brotherhood, and by extension Mr Morsi no matter far removed from his compatriots he claims to drift, is the principal force in Egypt. So while the military are still in a strong position, they have not intervened to stop Mr Morsi’s power grab perhaps because the more prudent path at the moment is cooperation.

The Muslim Brotherhood needs to balance the other great regional power, Israel, and they cannot do this without the assistance of the Egyptian military. Likewise, the military can think of better things to do than govern Egypt outright and would rather a civilian government catch the blame for a poorly performing economy and divisive social clefts.

However, the Egyptian military must avoid slipping down the dangerous path of allowing the Muslim Brotherhood to draft the constitution without some oversight. Doing this would risk the Brotherhood gaining control of all major government sectors in Egypt, a situation ideally avoidable for the military if they wish to retain some semblance of a power balance.

Mubarak’s Egypt was all but a puppet regime, moving only by inertia. Mr Morsi has clearly spotted a strategic opening and is moving rapidly to draft the new constitution and consolidate his power at home before he turns his gaze on the surrounding Middle East.

Fresh out of an impressive first-outing in mediating a cease-fire during the recent Gaza-Israel spat, Mr Morsi has shown how serious Egypt is becoming about reengaging with the wider region. This would be an important step as Egypt is the largest Arab country in the Middle East and holds a special geopolitical seat in the region.

A large number of Egyptian judges have come out against Mr Morsi’s decrees this week saying the President is assuming supreme power. But Mr Morsi is not backing down yet and there is good reason to hold his ground. It appears some sort of understanding between the Muslim Brotherhood and the military keeps the Generals from intervening.  

If the protests escalate in the coming weeks they could undermine Mr Morsi’s rule and convince the military to step in, a situation greatly favourable to the forces opposing Mr Morsi’s government. Yet if the military decide to work with the Muslim Brotherhood, Mr Morsi will be significantly stronger next year.

As it has been for over half a century, Egypt’s military hold the reigns. How they choose to move will once again determine Egypt’s future. Business as usual indeed.

Tuesday, 4 December 2012

Australia begins to grapple with falling coal prices

Australia is one of the wealthiest countries in the world, consistently placing in the top ten in terms of GDP. The united, rich, yet isolated country largely has the incredible Chinese economic miracle to thank for their prosperity, and this looks set to continue for some time in the future.

Yet Australia relies heavily on coal deposits as a pillar of this robust economy. The fuel is seeing its highest consumption rates since the 1960s but the underlying realities of economics and geopolitics could cause a serious stir in the coal market.

After a slump in coal prices midway through this year, and a failure for those prices to rise appreciably since, this stout Australian pillar could be weakening as the world looks to a potential post-coal reality.

Australia was one of the few advanced economies to grow during the recent financial crisis, a result principally down to enormous coal exports. Total Australian exports to China were 12 percent ten years ago. Today the figure hovers near 30 percent, much of it coal. Predictions expect the Chinese demand for coal to increase dramatically over the next decade.

Metallurgical coal exports from Australia, are expected to rise by between eight and eleven percent annually until at least 2017. A report published by the Bureau of Resource and Energy Economics in July agreed with the forecast.

It could be a tad optimistic however, especially given that current market signals reflect a coal market swimming in excess coal. Global coal prices have struggled to bounce back after a nasty fall in June despite Chinese assurances of new economic policies.

Of course, Australia’s opulence rests on two major economic pillars, among others. Beijing needs raw material to power the gigantic engine that is mainland China. And Australia needs China to continue their incredible decade-long run at an economic miracle.

Coal, this dirty pollutant, can be extracted in significant quantities domestically in China but Beijing has poured billions into foreign direct investment to secure mining rights in places stretching from Central Africa to Oceania and South America. There are few coal mines where Chinese chequebooks are not welcome, Australia included.

It is a dangerous feedback loop however, to assume an economy will grow indefinitely so long as more raw materials are delivered. Good management is one thing, but double-digit growth cannot be sustained forever.

There is lively debate around China’s growth prospects. But there is little disparity that the proper “cruising speed” for the behemoth country is significantly more sluggish than the 10+ percent growth over the past decade. The question being asked is how China’s trading partners will cope when this rebalancing necessity becomes apparent.

China’s new leaders arrive as the Middle Kingdom begins to display serious signs of slowing down economically. Aside from the Chinese people themselves, and the vast ocean of poor Chinese will bear the brunt, countries currently relying on a growing China will suffer if China contracts.

China is by far the world’s largest coal market. It produced close to 3.52 billion tons of coal in 2011, or 45 percent of global coal output, and consumed 3.7 billion tons. More than anything else it is Chinese domination of the coal market that determines coal prices, even though the country became a net importer of coal as of 2009.

Given the wild spending of state loans invested in local-level assets, China has competently consolidated domestic coal mining. But the profit impact of slowing domestic demand for coal could see Chinese mine closures resulting in a return of Beijing’s nemesis: unemployment.

China’s influence over the coal market has important consequences for major suppliers like Australia. But if demand is to taper off it will be domestic Chinese mines feeling the economic forces before Australia. And slowing Chinese demand for coal is already affecting Australian mining operations.

Two thermal coal mines will temporarily close down, according to Centennial Coal, a subsidiary of Thai coal company Banpu, revealed in an announcement last week. The mine owners anticipated the closures explaining that falling coal prices could see more occur in the near future. Rio Tinto, BHP Bilton, and Xstrata have all recently announced similar closures or temporary idling of mines.

Another huge impact on coal prices is the industrial impact of fracking. This technique has liberated vast deposits of previously untapped natural gas reserves sending prices for the fuel tumbling down 56 percent in 2012. Coal prices, as a far dirtier fuel, struggle to compete with natural gas tending to follow them down without sign of return to previous highs.

Faced on all sides by a changeable export market for coal, a decelerating Chinese real estate sector, and an unfriendly regulatory environment at home, Australia is facing new strains impacting an important economic foundation.

This highlights the potential vulnerability for Australia in relying on coal as a chief export product in the face of a rapidly changing economic reality in the Pacific and the world.