Thursday, 12 December 2013

Despite economic woes, Europe appears on the mend, EU diplomat says

Eurozone optimism has dissolved, despite signs of strength in the UK and Germany. After a three-year wait, the UK’s economic recovery appears to have finally taken hold. This is no ordinary recovery and it has required the coalition government to take the bold step of releasing household credit from the strictures of tight bank regulation to help it along. Aggregate inflation and growth - once the weaker economies of southern Europe are included - paint a picture that worries politicians and bankers. They fear renewed pressure could again test political and monetary union in Europe, setting the stage for additional bailouts and extended austerity. The countries of northern Europe also appear to demonstrate high levels of entrepreneurial activity, so the region is likely to maintain an economic advantage over their southern and eastern neighbours in Europe. Despite tremendous opportunities for growth, however, a number of obstacles block the Continent from reaching its full potential. 
Michalis Rokas, Chargé d'Affaires for the EU
Delegation to New Zealand (left) with NZ Foreign
Minister Murray McCully (right)

All this bodes well for the EU-NZ trading relationship as Michalis Rokas, Chargé d'Affaires for the European Union Delegation to New Zealand, points out in an interview with INTEL and Analysis.

How does the ongoing EU crisis affect New Zealand trade with the union? What measures are being implemented by Brussels and Wellington, if any, to insulate the trade partnership with NZ and ensure the worst of the effects of the crisis do not hurt our exports?

Let's first address the successes of the EU in response to the crisis. Firstly, the Eurozone did not break up – both the single market and in preserving the common currency were upheld. The EU will also expand when Lithuania will become the 18th member state to complete the transition to Economic and Monetary Union by adopting the single currency in 2014.

Throughout the crisis, the EU maintained its strong trading relationship with New Zealand as New Zealand's third largest trading partner after China and Australia. The EU's trade in goods and commercial services with New Zealand has increased every year since 2010, the peak of the economic crisis. Trade between us is now valued at NZ$12 billion, representing 26% of New Zealand's total trade. The EU is also New Zealand's third-largest source of foreign investment, with stocks worth nearly NZ$9 billion at the end of 2012.

The key lesson from the crisis was the need to strengthen the mechanisms and policies of Economic and Monetary Union in the EU. Important strengthening measures are being formulated and will only bolster trade with all partners, including the already strong EU-New Zealand trading relationship.

As things improve in Europe, the opportunities for New Zealand exporters will continue to increase. With the EU's increasing banking sector stability, the timing is also good for New Zealand firms to look at investments, mergers, or acquisitions in Europe.

The regional picture is mixed. Germany continues to be the engine of economic growth in the eurozone, even though it continues a hurtful trade surplus. France is flat lining. In Spain and Greece, austerity measures have reduced expenditures and led to economic stagnation. Policy prescriptions might be quite different if each country still had its own currency; but since they all use the euro, the ECB is in a quandary. What is the right path forward for the EU at this point in the crisis? How can we expect the EU to evolve in the next 5 years?

Economic growth has returned to the euro area: Germany and the UK posted better-than-expected positive growth figures, mirrored in other northern European countries; while Ireland has managed to secure an imminent exit from the international bailout programme.

The way forward for Europe is more Europe in well-designed and targeted areas. The EU has made the political commitment to strengthen Economic and Monetary Union. The logistics of that decision involve three interrelated elements in order to sustain economic recovery and ensure against a repeat of the crisis.

Firstly, the crisis highlighted that, in the long term, monetary union cannot work without steps towards a fiscal union. A fiscal union, as proposed by the European Commission, would ensure sound public finances across Europe and solidarity mechanisms for extenuating crisis situations. These include indicators that can alert policymakers to incipient threats which may require timely responses.

Secondly, while banks in Europe have been operating increasingly across borders, oversight of their activities has remained a national responsibility. A shared currency and close financial integration make the euro area particularly vulnerable to banking crises spilling over from one EU country to another. As part of a wider banking union, the European Commission recently proposed a single supervisory mechanism which would give the ECB new powers to monitor the performance of the 6,000 banks in the eurozone. If a bank breaches – or is at risk of breaching – capital requirements, the ECB would be able to ask the bank to take corrective action. Meanwhile, national supervisors would continue to carry out day-to-day checks. A single rulebook on capital requirements, standardised deposit protection schemes, and new recovery and resolution provisions – all proposed earlier in the year – would complete the ‘banking union’.

The third component lies in deeper and wider political integration. The sovereign debt crisis exposed the unsustainable economic policies pursued by some euro area countries. An integrated economic policy framework is necessary to guide the policies of member states towards strong and sustainable economic growth and employment. In the absence of exchange rate adjustments, a well-functioning EMU requires efficient labour and product markets. This is essential to fight large scale unemployment, and to facilitate price and cost adjustments.

The crisis exposed weaknesses in the original policy framework of the EMU. However, rather than dwell on these deficiencies, the EU is seizing the opportunity to both strengthen policies and mechanisms to bring the wider EU closer. We are confident that the euro will return to its position of strength and stability in the global economy and that the EU will extend its role as a pre-eminent global actor.

In the United States and the UK, a program of quantitative easing and low interest rates delivered a turnaround. In Japan, a combination of currency depreciation, stimulus and asset purchases has produced a current GDP growth rate of 2.7 percent. Some economists have articulated concerns that the ECB is not doing enough and should consider following the example of United States and Japan. Should the ECB purchase bonds directly and introduce a greater scheme of quantitative easing and lower interest rates? How would this help the ECB?

The European economy is the largest economy in the world. Unlike the United States or Japan, the EU is a unique political entity - although each of the 28 member states are independent countries, each has agreed to pool sovereignty in some areas in order to gain strength and the efficiencies of size. In this way, some decision-making powers, such as trade, are delegated to the shared institutions so matters of joint interest are resolved at the European level, while other decisions reside with the governments of the member states.

The question of the European Central Bank purchasing bonds directly and introducing a greater scheme of quantitative easing and lower interest rates, for example, tests the delegation of powers within the EU’s structure. The ECB has independent control over monetary policy and its overriding objective is to maintain price stability within the euro area. At the same time, however, the ECB is forbidden from creating money to finance public debts directly in order to maintain its political independence. In this way, member states must decide whether it will be the Commission or the finance ministers who determine whether schemes such as quantitative easing should be used to stimulate the economies worst affected by the crisis.

The EU is a vitally important market for New Zealand, second only to Australia in importance as a market for New Zealand goods. Two-way trade is approximately NZ$12 billion annually. What can the New Zealand government do to retain these numbers? What can they do to boost trade? How are NZ businesses encouraged to set down roots in the EU?

The EU is a predictable market for New Zealand. Our commitment to a rules-based trading system means, for example, that we do not arbitrarily shut our borders; we engage in a thorough process with our exporting partner to check the extent of the problem. For example, the EU did not shut its borders to New Zealand dairy products at any stage during the recent whey protein contamination scare. The European Commission was in early and close contact with the New Zealand regulator and was able to quickly determine that the scare posed no health risk to European consumers.

Trade remains very important but the wider political and economic relationship has broadened considerably in scope over the last years. Areas of cooperation and common concern include climate change, openness of world trade, security and development in the Asia Pacific regions, and promotion of human rights. In all these areas, the EU and New Zealand endeavour to help reinforce one another’s positions at international meetings.

Lots of gloomy news reaches us from the EU. At the same time NZ is bombarded with public relations material touting our blooming relationship with China. The general feeling is that New Zealand is an Asia Pacific country and our concerns should be with our immediate neighbours. Why does the EU still rate very highly on our trade numbers? How long will it be until trade with China and the ASEAN nations overwhelm trade with the EU? Will this even happen?

As the world's largest single market, Europe is home to half a billion people representing 7% of the world's population and producing 25% of global output. While the United Kingdom remains New Zealand's first export destination in the EU, other countries, such as Germany and the Netherlands, have become more important. In 2012, over 73.3% of EU imports from New Zealand were primary products for a total of NZ$3.3 million, and 24.4% manufactures (NZ$1.1 million). While 87.6% (NZ$6.4 million) of EU exports were manufactures and only 8.2% (NZ$690,000) primary product. Although the primary focus of New Zealand's trading relations may currently lie in the Asia Pacific region, the size of the European economy and the important historical links with New Zealand ensures that the EU will always remain an important trading partner for New Zealand.

New Zealand is also important in the Asia Pacific region, which is currently the fastest growing region in the world. In recognition of the economic importance of this region, the EU has stepped up involvement in east and southeast Asia, through political presence at meetings such as ASEM, in bilateral cooperation, with humanitarian aid, and in bilateral trade deals, including with Singapore, Japan, South Korea, and China. Strong relations with New Zealand inherently strengthen the EU's engagement with the Asia Pacific region.

Very quickly in the timeline of the crisis after 2008, the problem for the EU moved from a fiscal issue to a political problem. Many of the countries on the continent still harbour animosity for other European cultures. What needs to change politically in Europe to pull the eurozone out of this serious quagmire? How can the eurozone survive with so much pushing and pulling from different directions among the members?

The sovereign debt crisis exposed the unsustainable economic policies. Current trade imbalances between member states might also be harming economic recovery of the euro area.

However, the crisis has taught us that it is simply not enough to try to solve each country's situation in isolation. Rather, the crisis revealed our deep interdependence. Member states have had to pull together like never before and so the solution to full economic recovery will come from the Union as a whole working together. Accordingly, the EU has made the political commitment to strengthen the policies and mechanisms of Economic and Monetary Union within the EU.

The major divergences in the effects of the crisis and in the rate of economic recovery between member states highlights the pertinence of an integrated economic policy framework to guide the policies of member states towards strong and sustainable economic growth and employment. In the near term, it is essential to complete the Single Market as it provides a powerful tool to promote growth.

The solution to economic recovery is not through dwelling on the deficiencies in policy or divergences between member states, but rather through bringing the wider EU closer and strengthening the policies and mechanisms in the euro area.

Because unemployment will remain at seriously high levels in most EU member countries for the foreseeable future, the gap between the rulers and the ruled will not narrow anytime soon. The position of the ruling elites is weakening, but the anti-establishment groups which seek to replace them are not strong enough to take over. How long till a double digit unemployment rate last in many EU countries and is it a time-bomb waiting to explode in regards to trade?

We do not underestimate the social and political risks incurred by widespread high unemployment. It threatens growth and trade in the short term by weakening demand, as well as our relationships with our major trading partners. However, as the crisis of the last three years revealed the depth of our economic and financial interdependence, it also revealed our social dependence, rather than our independence.

Overcoming the existential threats to the euro was the first step towards recovery. Next year, economic growth is projected for all but one of our 28 countries. In 2014, consumer spending is expected to rebound by 1.5% in the EU and 1.3% in the euro area, as labour market conditions start improving more visibly and the recovery gains strength. As a result, the economic outlook is promising.

Yet employment remains weak and uneven and the social situation is precarious in a number of countries, with a rise in poverty, inequality and lack of access to basic healthcare. We cannot wait for economic growth to eventually lead to jobs and for these jobs to improve social conditions. Growth is a necessary condition for job creation, but it is not an end in itself. Our social objectives extend well beyond employment and the strength of our labour markets to include guaranteeing adequate social protection, combating social exclusion and ensuring a high level of education, training, and protection of human health.

Accordingly, it is essential that our continued economic recovery addresses not only economic and fiscal solutions, but also the social dimension of Economic and Monetary Union. After all, social cohesion is a feature that distinguishes European society from alternative models. Stability, fiscal consolidation and reforms are not an aim in themselves but instruments to create well-being and jobs. Our objective is in essence social: employment is the social dimension.

Which parts of Europe will struggle more with protests than others?

Before the introduction of the euro, the average unemployment rate in the EU was 10.7% for the years 1994-1998, with an economic growth rate of 2%. In 2008, despite artificial economic growth based on rapid expansion of private and public credit in many countries, unemployment stayed at around 9%.

Although unemployment figures have reached unacceptably high levels of 10.9% in the first half of 2013, these figures indicate that despite the crisis making action more urgent, we are facing longstanding structural problems. The labour market is a national competence, and therefore a national responsibility. Some countries have managed to reduce structural unemployment substantially, and others not at all. While unemployment fell by 3.6% in Latvia in the first half of the year, it rose by 4.3% in Cyprus and by 4.1% in Greece. This concerns us all both collectively and individually.

However, the EU has identified this problem and is undertaking measures to boost both economic growth and employment. The European Commission has recently published a report on the problems of the labour market in the EU: onerous taxation on low-income workers, low transition rates to more permanent forms of work and continued growth in youth unemployment and in undeclared work.

In response, the EU has launched a number of programmes, particularly ones designed to increase youth employment - programmes such as the Youth Employment Initiative, Entrepreneurship 2020 Action Plan, the PROGRESS Microfinance Facility. But more skills will not be enough on their own. The overall conditions also need to be right: this implies a well-financed economy, especially when it comes to small and medium-sized enterprises.

Good progress has also been made in relation to lifting the retirement age and making adjustments to minimum or public-sector wages. Employment will remain the cornerstone of the European Council's work. But, as most employment policies are determined at national level, the real challenges involved in implementing them rapidly are first and foremost a matter for the member states. It is a question of working together – a joint effort which also involves social partners at all levels. It is also a question of credibility and only concrete results will convince Europe's citizens and Europe's major trading partners.

New Zealand and 12 other countries are supposedly in the final throes of sorting out the details of the TPP. The EU and the United States are also moving down the path of their own free trade deal with TTIP. Together, these partnerships appear to give quite a bit of benefit to the United States. How do these kinds of deals affect bilateral trade partnerships with existing links, say between New Zealand and the EU? Will they succeed in the long term?

Together Europe and the United States are the backbone of the world economy. It is only logical to move towards bringing these two economies together through agreements such as the proposed TTIP. The benefits and opportunities for businesses and consumers not just of our economies, but also those of our trading partners, make such an agreement particularly attractive.

Although an agreement between the EU and the United States would create the largest free trade zone in the world, the EU will always remain focussed on preserving and strengthening existing trading relationships, including with New Zealand, through the multilateral trading system. The expansion of the TPP agreement would only increase New Zealand's presence in trading relations in this region.

Assessing Afghanistan and Central Asia in a Post-ISAF/US environment

Security in Central Asia could take a turn for the worse when the United States and the NATO International Security Assistance Force (ISAF) remove the bulk of their combat troops next year. Afghanistan is still the current main centre of gravity for Islamic radicalism in the region, but other countries are experiencing their own struggles with home-grown militant movements.

On top of the diplomatic foot dragging, Afghanistan’s poppy harvest is still churning out phenomenal amounts of opiates each season. Despite almost US$7 billion spent by the US government in attempts to eradicate the poppy harvests in the country since 2001, the production of black tar heroin (a less refined version of its better-known cousin, white heroin) threatens to reach historic highs.

This is having destabilising effects in downstream trafficking destinations such as Russia and Iran. Iran has fought hard against the trafficking of heroin into their country. According to estimates by the UN Office on Drugs and Crime, in 2008 Iranian youth consumed almost half of the total 2,800 tons of heroin produced in Afghanistan that year.

This has lead to a disturbing rise in HIV and AIDS infection in the Islamic Republic over the years. Official estimates place the numbers of addicts today between 2 million and 3.5 million heroin users in the country, with that amount quickly growing. While their government has devoted impressive resources to fight traffickers, with over 3,200 Iranian soldiers dead in the struggle to date, the supply of heroin keeps coming.

Afghanistan is still the major growing platform and ground floor for heroin production, although Mexico’s drug cartels are trying close that gap. The Taliban use the profits gained from selling opiates abroad to finance their battle against international troops.

Given these dynamics, working to limit the spread of heroin could be something Iran and the US may wish to cooperate on in the future. This will, of course, depend on whether some US forces are allowed to stay in the country after 2014.

Afghanistan's defence minister could sign a security pact allowing some US troops to remain in the country after 2014, US Secretary of State John Kerry suggested December 3. Afghan President Hamid Karzai has been reluctant to sign such a deal, saying he might not do so until after elections in April 2014. Both al Qaeda and the Taliban are eager to exploit any power vacuum while other groups around the region will be ready to join the battle for ideological supremacy should the Americans leave for good.

None of this was likely foreseen when the US government decided to intervene in Central Asian affairs back in 2001. But changing the status quo revealed the barely healed rifts between tribes and ideologies which have proved impossible to repair since.

Picking up the broom to sweep the Taliban and al Qaeda from the country was meant to be a short-term mission. Al Qaeda has been eviscerated in the past decade and is now only a shadow of its former trans-national self, yet the Taliban has proven to be a different beast altogether.

They were far more resilient than their international terrorist friends and enjoyed a deep interaction with the Afghan populace, which they exploited for their own gains. The current and future strength of the Taliban was in their ability to melt convincingly into the surrounding cities and countryside when the Americans and ISAF launched their campaign. In the face of overwhelming force, the group decided that discretion was the better part of valour.

Only when the combat had calmed down did the Taliban regroup. They returned to the battlefield in far larger numbers to wage a brutal guerrilla war against the international forces. That battle has been cycling through ups and downs of violence for over a decade and the United States is only marginally in a better strategic place today than it was in 2001. The future for the broken country remains bleak, and there are few tangible results to show for more than ten years of fighting.

The high dispersion of tribes, ethnicities, and religion – and their almost ritualistic preference for combat - was never going to easily cohere with the Western model for centralised government or our common understanding of a nation-state. So there is little surprise Afghanistan is today only a semi-functioning state.

Afghanistan and many of the other “stan” nations (Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan and Uzbekistan) have certainly benefited from US military presence and diplomatic interaction. Yet they remain very worried about their precarious security situations. And each will require continued support once the US departs.

Ironically, Western support for a few ethnic groups has proven to be a double-edged sword. Not only has the strange mix of repressive and pseudo-democratic governments of the “stan” countries been bolstered, militant groups such as Tehrik-e Taliban Pakistan (TTP) and the Haqqani network (HQN) has grown in strength for similar reasons.

Although each group shares a vague Islamic religious affinity, coordination between the groups is probably unlikely to develop.  It is not clear whether the various group’s goals are built to destabilise their own governments or whether they are looking only to carve out autonomous zones.

How the security forces of these weak countries intend to achieve long-term safety when the Americans leave the region is still unknown. Few of them possess sufficient resources to divide between day-to-day responsibilities and fighting militants.

Russia and China would be happy to offer their services, because controlling the spread of militancy is in all of their national interests. However, the result of encouraging two massive rival countries into further competition in Central Asia could itself undermine the security of these states.

US General Douglas MacArthur cautioned for decades against the folly of attempting to fight wars in Asia. He was referring at the time to the lessons he learned in Korea, but the message is worth pondering today. Those campaigns never end very well for the larger powers. The horrible Russian and British experiences should have been instructive for US planners before they committed so much treasure and personnel to the Afghanistan effort.

Central Asia and Afghanistan especially, are poised to experience significant economic growth should they develop their large energy fields and mineral deposits. But the threat of militancy could deter foreign investors and economic development if it cannot be shown to be under control.

There is a growing feeling of urgency among American and NATO strategists to create a more robust and longer-lasting presence of security in Afghanistan before their expiry is up. Using Afghanistan as a base of operations takes obvious advantage of the existing network of military bases and a decade-long history of interaction with the people on the ground.

However, if a good plan for security is not implemented by the close of 2014, instability could begin to grip the region earlier than expected and undo even the small advancements made by the international effort. The clock is ticking for Kabul, Washington, and Brussels to come up with a plan.

Friday, 6 December 2013

A strong South Korea plans for future maritime security

The Korean peninsula sits in the middle of two much larger powers in the northwestern Pacific - Japan and China. Both of those countries vie for influence with ever more dangerous tactics even though trade ties remain strong, and will likely continue to be strong into the future.

Competition between the two heavyweights has stunted South Korea’s growth in the past, but an evolution is already well underway and the peninsula is set to grow both economically and militarily.

But the same cannot be said for South Korea. The country is a buzzing economy primed to take early advantage of a global trade recovery. It is also quietly upgrading its own naval forces to better protect its regional interests. Assuming nothing significant changes in the current system, North Korea is not going to include itself in the international system in the near term. This gives Seoul at least a bit of breathing room.

The global financial crisis in 2007/8 affected South Korea slightly as its GDP declined only briefly. It managed to recover relatively quickly due to a mix of direct government intervention, speedy central bank action, and a valuable overflow from proximity to the Chinese fiscal surplus.

However, as the rest of the world wallows in the economic doldrums, South Korea has had a loss of momentum since the worst periods of 2008. Growth in the peninsula averaged just 3.2% from 2008 through to today, which is well below the 4.8% averaged in the seven years to 2007.

The finger of blame has been pointed at weakening consumer expenditure growth and export growth, coupled with a dip in construction deals. A government boost to the economy in 2013 pushed the GDP growth rate up to 4.4%, the highest in two years. Their technology sector - especially in mobile phones and semiconductors - has been the key driver of Korea’s export strength and was relatively untouched by the yen depreciation - and concurrent won strengthening - which occurred as a result of Japan’s aggressive monetary stimulus.

The Korean won today remains around 35% below its 2007 peak. But according to a recent Goldman Sachs analysis, only 30% of Korean exports are affected by a weakening Japanese yen, whereas 70% either benefit or are only slightly affected. The report suggested that at the macro level Korea will be less affected by the yen depreciation that many at first assumed.

Other countries in the Asia Pacific have a lot of faith in the South Korean model. Australia and South Korea finished negotiations on a free trade agreement, the two nations announced December 5, Kyodo reported. Seoul and Canberra spent four years negotiating the deal, which was finalized December 4 during a meeting in Indonesia between the countries' trade ministers. The countries' parliaments now must ratify the deal.

Even while the economy seems to be on a balanced keel, investors are still a bit worried about Korea. The country’s export dependence is the main concern, accounting for 54% of GDP in 2013 - up from 44% before 2008, 30% in 2003, and significantly higher than the 23% figures of 1997. This high export performance is also influencing domestic demand and could become more detrimental to the health of the Korean economy as both domestic and external demand wanes.

So although South Korea’s economy is vulnerable to exchange rate appreciation and sluggish emerging market growth, its exposure these problems is probably less than many analysts think.

The same could be said for the perceived dangers of a depreciating Japanese yen to hurt the Korean economy. All of which places the country in a good position to tackle other problems emerging around the region. For instance, there is a great opportunity for South Korea’s to develop a competent blue water navy.

Reports in recent media highlight the South Korean ambitions to build its own true blue water navy are moving into the fast track. Such a fleet will be able to both project force from its peninsula and embrace the responsibility of protecting its trade routes and sea lines of communication. But even though their economy might be able to afford the expected significant and expensive upgrades to their fleet, South Korea will have plenty of obstacles to overcome on this route.

Seoul is encountering similar problems to Japan in regards to their long-term security guarantee with the United States. Washington is looking to create a more inclusive partnership with its allies in the region by dividing the responsibility of security between them all.

The US is likely to remain in strong control of the whole dynamic, but there’s still a lot that countries like Japan, the Philippines and South Korea could be doing themselves. Washington would like to encourage independence as much as they can but there are obvious limits. If the US can remain as the military strong-point in the region, other countries will not need to shoulder 100% of their security burden.

This is the way Washington wants it to be for as long as possible. The US probably wants to avoid its partners becoming too independent too quickly. So the exact percentage split between the various partners is still largely an unknown. In the past, South Korea has spent a lot of its military efforts in defending the demilitarised zone with North Korea. But it is geographically constrained to be more of a sea power because, like Japan, it is highly dependent on the oceans for trade and interaction with other nations.

And while Seoul prioritised its land forces, South Korea is so much further advanced compared to their northern neighbour today that it now feels it can begin to focus on shipbuilding without too much worry about ceding important ground to Pyongyang. To this end, Seoul plans to commission at least three more highly capable destroyers by 2023 and add larger, more powerful submarines. There are also ideas to build two 30,000-tonne light aircraft carriers between 2028 and 2036.

In addition, the larger 3,000-tonne submarines they plan to build will be far better suited for blue water operations than the 1,800-tonne vessels currently active.

Ultimately though, Japan and South Korea are very aware that protecting their national interests is best left to the US Navy. Because no matter how well their economies are flourishing, maintaining a strong naval fleet is very expensive and will inevitably ratchet up tensions between the powers by increasing the amount of military traffic in the region.

While the tensions rise between Japan and China over the Senkaku/Diaoyu islands and the controversial proper demarcation of each country’s historic territory, it is easy to forget that South Korea has quite a bit to lose as its two neighbours duel for supremacy. Neither China nor Japan has historically been long-term friends with the various owners of the Korean peninsula, even going so far as to occupy the peninsula on occasion.

On top of this, the growing close relationship between Japan and the United States is giving South Korea further incentive to build up its naval capabilities. So long as Seoul can hold onto its economic good weather, the country might be able to return to its historic position as a regional sea power within the next few decades.

Wednesday, 4 December 2013

In Thailand, anti-government protests turn violent

At least four people have been killed and another 57 have been wounded during clashes between pro- and anti-government protesters – numbering between 30,000 and 70,000 - near Rajamangala Stadium in Bangkok's Bang Kapi district on November 30-December 1, Bangkok Post and Reuters reported...At least five people received gunshot wounds and five others were injured by knives or rocks...It is unclear who fired the gunshots...The protestors attacked government buildings demanding that Prime Minister Yingluck Shinawatra resign...Mrs Shinawatra has reportedly been moved to a secure location as a result of the demonstrations...Riot police and rapid deployment forces will take "peaceful steps" to clear all government premises in Bangkok of anti-government protesters, Xinhua reported, which will inevitably mean force...The speed of escalation in these protests underlines the fractured political landscape in Thailand which has already reached dangerous levels and could result in a military crackdown if violent protests continue...Despite its past interventions in protests, the military may want to stay on the sidelines if involving themselves could weaken their own political influence...Mrs Shinawatra’s government remains highly popular despite the unrest and she would probably win if a new election were to be called...However, many foreign interests in the region have an economic stake in Thailand’s government, and Bangkok is developing a new outlook for its affairs which could make any rushed political transition messy...Mixed in with the political strife is Thailand’s economic problems, especially with a growing credit bubble, which will only worsen the political crisis.

How China’s Air Defence Zone changes Asia’s geopolitical outline

Tensions between three intrinsically linked powers – China, Japan, and the United States - escalated appreciably in the western Pacific following China’s sudden declaration of an “air defence” identification zone (ADIZ) in the East China Sea on November 23.

The announcement changes the geopolitical framework in the western Pacific by positioning China as the lone provocateur, bonding regional nations together against China, alleviating Japan as China’s sole target, and reconfirming the United States as the critical preserver of peace and stability in the region.

At first, China’s new zone included only an economically strategic group of islands administered by the Japanese – known as Senkaku in Japan and Diaoyu in China. The declared zone itself might not have been so unusual or dangerous if it excluded these disputed islands, but now Japan feels threatened, and by extension, so does the US.

Beijing’s unilateral move was immediately condemned by both Tokyo and Washington as a destabilising step, making tensions much harder to manage. Neither of these powers has officially recognised the new zone, with US defence officials aggressively reminding Beijing that it does not accept other nation’s requirements on its military aircraft.

And in a show of both strength and defiance, the US dispatched two B-52 strategic bombers to fly through the area last week without complying with any of the rules outlined by China. Japan plans to also maintain its air patrols and told its civilian aircraft to ignore the rules.

The new zone falls on the eastern fringes of China’s claimed exclusive economic zone and overlaps parts of both South Korea’s and Japan’s own extended ADIZ.

What was striking about the official Chinese announcement was that it went on to say that “China will establish other Air Defense Identification Zones at the right moment after necessary preparations are completed.” That seemed to warn of more extensions to come. Then, as if to confirm this, Beijing announced on December 1 it now wishes to extend the zone over the entire disputed island chain. Such a move would constitute a substantial part of the South China Sea, and it sounds like it won’t end there.

An ADIZ is a unilateral means for a country to monitor aircraft approaching its territory and requires aircraft to report their flight plans and identify themselves when travelling through the zone, whereas airspace is the sky above a territory plus 22 kilometres of coastal waterway. These zones are something many nations have used in contested airspace to enhance air security since the early 1960s. In theory, an ADIZ does not constrain aerial passage as long as the aircraft – whether civilian or military – gives advance notice and follows all the rules.

The United States on December 4 called on China to lift its ADIZ procedures due to the risk of accidents. Later, a Chinese Foreign Ministry spokesman stressed the difference between the ADIZ and China's territorial airspace, saying the zone will not affect the normal flight of other countries' aircraft.

If China’s motive with the ADIZ was about genuinely wishing to prevent risky accidents in the disputed seas, it could have found a more diplomatically friendly way of talking to Japan and surrounding nations. After all, Beijing has emphasised publically that it wishes to craft effective “confidence building measures” with Washington and Tokyo especially. Instead, China has overplayed its hand in trying to isolate Japan in this particular dispute.

Whatever historical reasoning leftover from World War II compels China’s aggression against Japan, they are now more likely to be viewed as an unreasonable and dangerous provocateur in the eyes of Japan, South Korea, Taiwan, Australia, New Zealand, and the United States. Also helping to tilt the region away from China and towards a regional pseudo-alliance against Beijing’s advances is the blurry territorial lines claimed by China all over the place. No one quite knows where China will lay claims next.

The notorious “nine-dash line” is a perfect example of the vagueness of China’s claims to sovereignty. It roughly loops nine unconnected dots across the South China Sea, straight through multiple nations’ own internationally recognised economic zones. Other territory disputes with India, Vietnam, Myanmar, and the Philippines follow a similar pattern.

However, the newly announced ADIZ is different because it is exact and precise. And it portends more demarcation steps elsewhere which must be worrying nations like India, Myanmar, and the Philippines. It also changes the status quo regarding the string of islands by directly challenging Japan’s de facto control.

China wants to find both a balance which benefits their interests in the region while testing the resolve of the United States’ security agreement with their allies. Beijing, just like the rest of Asia, has noticed that US President Barack Obama’s policy of a “pivot” both embraces and encounters China’s rise. Mr Obama’s strategy has had its fair share of obstacles and feels like it’s rolling on too slowly for major US partners in the region. Over time, a gradual transfer of defence responsibilities has been falling on Japan and South Korea and away from the US military.

So Tokyo, sensing it might not be able to rely completely on US protection, has built an impressive naval force to protect its interests in the crowded space while the United States drags its diplomatic feet in the Middle East. What makes this latest move from China so interesting is the opportunity it offers for Japan, South Korea, and the US to mend some fraying defence ties.

Asian nations had their reasons for being equally wary of Japan’s rise as they are of China’s, now the tables have turned somewhat. The question is: will they reach out to the United States as mediator and security guarantor and keep a wary eye on both Japan and China?

Or is the perceived US reluctance over the past year forcing them to align together against China? Either way, the US has its work cut out for them. Defense Secretary Chuck Hagel’s hard-line statements condemning the move indicates Washington intends to step in front of Tokyo to deal with the fallout of China’s new zone itself, rather than let the situation deteriorate by allowing Japan to take the lead.

Other US actions following the ADIZ announcement reaffirmed America’s defence commitment to Japan and South Korea. Sending B-52 aircraft over the zone put only American pilots in danger instead of Japanese, and reminded all players that the US is the effective third party to the dispute.

Overall, the ADIZ debacle could have been handled better if Beijing had just talked to its neighbours rather than announcing its controversial plans unilaterally. Dealing with the reality of the zone will probably not lead to outright conflict – as there’s simply too much to lose for all sides - but the potential for mistakes compound with each escalation and anything is possible.

And in a bizarre way, the situation has breathed new life into Mr Obama’s pivot strategy. He can now take this opportunity to display to his allies in the region how crucial the United States Navy really is for preserving peace and security in the troubled waters. It also offers Washington another chance to show Beijing how vast the huge gulf of military capability really is separating the US from China.

Ratcheting up the tensions is causing all players to readjust their behaviour. China’s increasingly hostile actions will push other claimants around the western Pacific to seek the support of the United States, which will place the role of the US military in an influential pole position in the coming months.

Thursday, 28 November 2013

Iranian deal fails to hit the nuclear brakes

A deal struck late last Saturday night between western powers and Iran over the latter’s controversial nuclear programme was termed a “first step” by US President Barack Obama towards a normalisation of relations between the international community and the pariah government.

Reports from Tehran indicate the regime considers the deal to be a significant win for the radical Islamic leaders; large street demonstrations in support of the regime apparently broke out after news of the deal was released.

The deal arose during the third round of multilateral talks in Geneva. Few predicted a successful agreement after the tough conditions implemented by French President Francois Hollande before the talks began. But the crippling sanctions on Iran and their new leadership, coupled with Mr Obama’s sense of urgency and a series of secret meetings leading up to the talks, all set the stage for the latest deal.

Many experts are sceptical the agreement will do much to halt Iran’s pursuit of nuclear weapons. Billions of dollars worth of investment and frozen assets are expected to pour into the Iranian economy as the rest of the sanctions may be lifted in the year ahead.

But all those next steps are at best tenuous because Tehran’s history of adhering to other negotiation deals is less than satisfactory. According to the text of the agreement, the following steps must be followed by Iran over a maximum of six months, during which time a more comprehensive text will be compiled.

Iran must halt its enrichment of uranium above 5% U-235 (which is the isotope necessary for a specific type of nuclear weapons), and any uranium already enriched above this grade must be reduced below.

No further centrifuges should be built or any additional enrichment facilities.

Iran also must not increase its reactor-grade fuel stockpiles, although it can continue to produce this grade to maintain current levels.

The heavy water reactor plant at Arak will not be commissioned or fuelled. Other work on the reactor will be permitted.

International Atomic Energy Agency inspections must be legally recognized on most nuclear sites without restrictions.

In return, Iran will have “limited, temporary, and reversible relief” of economic sanctions. Much of this relief will be resumed access to frozen funds held in Western banks, estimated to be some US$4.2 billion. Other sanctions on gold, precious metals, Iran’s automobile sector, and even its petrochemical exports will also be lifted.

The White House made it clear many sanctions will remain in place on Iran’s oil, finance, and banking sectors. But no new sanctions will be imposed on Iran during the next six months. Western powers also reiterated these sanctions could be returned and reinforced if Iran does not comply or shows duplicity.

Already official responses from Tehran indicate the regime is looking for gaps. The Iranian Foreign Ministry said November 26 that the text of the Geneva agreement released by Washington is inaccurate, Fars News Agency reported. The ministry's spokeswoman said parts of the White House's fact sheet contradict the text of the agreement.

And even though the agreement specifically curbs enrichment to above 5% and for the Arak reactor to cease much of its construction, Iranian Foreign Minister Javad Zarif said construction at the Arak nuclear facility would continue but that no new fuel would be produced and no new equipment would be installed.

This reactor will be a source of plutonium, but wasn’t planned for completion until at least a year from now. The wording of the agreement neatly sidesteps the provisions of adding new components to the reactor while leaving the existing plans free to continue as they don’t violate the new deal.

Mr Zarif also said in front of lawmakers November 27 that uranium enrichment at the Natanz and Fordow facilities will continue at levels around 3.5-5% purity, but the facilities' capacities will not be expanded.

Over the next six months, Iran is likely to keep its current levels of reactor-grade uranium and refrain from increasing them, because it doesn’t need to. Increased monitoring from international agencies should keep them on their toes.

However, their existing stocks of uranium can still be converted to 20% enrichment - where it would be suitable for weapons-grade - in a timeframe of perhaps only a few months should the regime choose. All the machines necessary for this are already in place, according to assessments.

Analyses by the American Enterprise Institute, the Institute for Science and International Security, and the Nuclear Proliferation Education Centre suggest Iran already has enough enriched uranium to produce seven or eight nuclear weapons if they decide to enrich it further.

None of the provisions in the latest agreement do anything at all to limit the amount of uranium Iran currently possesses. Much of what Iran uses for their reactors is uranium oxide. This can be converted back into the uranium compound known as uranium hexafluoride, or UF6, which can be enriched to weapons-grade.

Ultimately, while Iran wanted to appear to be bowing to harsh sanctions and making significant concessions, Tehran has managed to pull off a huge ideological victory with this deal and the regime is likely to get a popularity boost. The happy crowds in the capital understand the agreement will only suspend Iran’s weapons programme, not end it.

But signing the deal effectively told the Iranians their years of circumventing sanctions would go unpunished. Even more worrisome for international security, in not specifically leaning on the regime to shut down its nuclear programme, and instead only asking for existing facilities to not be increased, western powers are effectively condoning Iran’s nuclear programme.

Just like in North Korea in 1994, when a framework for freezing that country’s nuclear programme was enacted and IAEA inspectors were allowed in, the Geneva agreement for Iran has many gaps. North Korea never quite complied with all of its provisions at the time, even secretly developing a parallel nuclear weapons programme before exploding their own bomb about a decade after. The exact details around Iran’s ability to create a nuclear weapon are still obscure, but that is the problem. The Geneva deal doesn't fill these gaps.

The latest agreement brings Iran and the US closer together, and sets the stage for further steps in the future. Iran’s economy will bounce back, the Islamic regime should be strengthened which may encourage greater civic freedoms, Tehran will enjoy deeper influence around the region, oil prices should drop further, and the precious metals trading market shouldn't feel too much effect once Iran can return to using its own currency again.

However, the deal is a gamble that Iran will adhere to the path set before it and look kindly on a more robust agreement in the future. It is difficult to predict, but the US and western powers might have conceded too much ground in favour of a political quick-fix. The way it stands now, there is nothing compelling Tehran to agree to conditions where its entire nuclear programme will be shut down. Essentially, they can continue on as they please with secret reactors while looking like they are fully complying at known plants.

Most arms control and non-proliferation agreements are intended to be permanent. Things might change as the months progress, but the Geneva deal is of limited duration and everything could revert back to square one in six months.

Reader reply - Deal in Geneva

Hi Nathan,

Thank you for your comments on Geneva talks outcome.

The deal was above all a deal between Iran and the US. And for the first time in three decades, a will to go through the diplomatic path emanated from both sides. During the Khatami era, Iran showed openness and a desire to ease up tensions through Khatami's Dialogue among civilisations. After 9/11, there was even a cooperation between Tehran and Washington to fight against the Taliban.

Unfortunately, George W. Bush branded Iran on the axis of evil and Iran went for a hard liner president with the election of Ahmadinejad. The latter adopted a provocative discourse against the West and Israel, using the nuclear issue to divert attention from domestic problems, their disastrous economic situation, and human rights issues.

The former French ambassador to Iran told me that at some point, President Sarkosy, once elected, was ready to negotiate with Iran on the nuclear issue but Ahmadinejad made things not happen. On the other hand, the former Iranian Ambassador to France told me that he had met with 400 French officials and that all diplomatic or trade negotiations were booked once reached to Sarkozy. In fact, after the lack of success to negotiate with Iran, the French adopted a harder line. We also saw that in 2010 the Iran/Turkey/Brazil deal did not convince the Great Powers to negotiate further with Iran. And this despite US previous approval of Brazil going ahead. This showed any deal had to be done between the US and Iran and that the will to dialogue was each time absent from one side or the other.

I don't think that the Iranians who have made all these efforts and have the support of the supreme leader will not respect the deal they have just reached with the P5+1. This is a little step, but a very good start.

Hi ....,

Very happy about the Geneva result. The imperatives and geopolitical realities leading to the agreement have been taking shape for years. It could be a very significant geopolitical pivot in the Middle East. This first step required only very mild concessions by Iran for sanctions relief. The next step will be much more difficult and apparently will require Iran to make much more significant concessions. The deal was reached because both the US and Iran believe cooperation is in their interests both now and in the future. Mr Obama looks like he’s been under some serious pressure and urgency lately to get this sorted out, but I think the greater movement in the end came from Mr Rouhani.

Overall, this deal gambles that small steps now might create political space for Mr Rouhani to agree to more extensive agreements down the road. A final agreement resolving the nuclear threat should include halting all uranium enrichment, removing all enriched uranium from the country, dismantling all centrifuges, halting work on the Arak reactor, and full access by the IAEA to suspected nuclear sites. There are no indications this pact will lead Iran to agree to such conditions and it could instead be read by Iran that it will retain the right to enrich reactor-grade uranium which could be one day be quickly converted into weapons-grade nuclear fuel.

Baby steps though. It’s very early in the progress, but it is a good sign.


Wednesday, 27 November 2013

US bombers transit China's air defence zone

A pair of US long-range bombers carried out a pre-planned training mission November 26 through international air space designated last week as an 'air defense identification zone' (ADIZ) by China, The New York Times reported...China said November 23 that it reserves the right to oversee air traffic in the contested East China Sea region and to take action if necessary...None of the protocols insisted by Chinese defence forces were reportedly observed by the two US aircraft...Pentagon officials said the unarmed B-52s took off from Guam on a routine training exercise called “Coral Lightning” - scheduled before China's announcement - and that the United States will continue to assert its right to transit what is regarded as international air space...China’s options to enforce its own rules in the ADIZ are likely more rhetorical than physical, in many ways its military looks stronger than it really is, but Beijing is not likely to back down from its maritime expansion...With this latest move, the Pentagon is strongly responding to China’s unilateral demarcation and not letting the ADIZ affect its military’s transit schedule...Washington, realising the potential for heating relations between China and Japan, has wisely but still dangerously used its own aircraft in “bomber diplomacy”, rather than let Japan react in its own way...Tokyo is not pleased with the recent Chinese announcement and will respond by increasing its sea patrols and become even more militarily assertive, but the United States would prefer if the US airforce acted as a third party to the conflict...Japan has been relying less on the US military for protection over the past two years, so sending bombers flying over the disputed islands tells China that Washington will not be bullied by artificial lines while at the same time tells Tokyo that the US is still in overall control of the situation and is ready to step in at any time should the flashpoint ignite.

China’s blurry plan for market reform

China held its eagerly anticipated Third Plenum earlier this month, a closed-door meeting of the country’s top party leaders, to compile a reform package with the goal of avoiding the risk of an outright hard landing as its economy moves into a new phase of growth. The meeting set the year of 2020 as the date when many of the expected breakthroughs charted in the major reform areas can be expected to be achieved.

That date is a long way off, but the reform package itself is broad and will require time anyway. 11 key policies were enacted during planning sessions according to a white paper, but few details were provided in the communiqué.

So far they include: a new role for market-driven resource allocation, SOE restructuring, fiscal reform, integrated rural-urban development, greater democratic consultation, judiciary reform, a brief nod to President Xi Jinping’s anti-corruption campaign, social media and internet management, a new State Security Committee, environmental protection, and the creation of a group to coordinate these reforms.

These are the Chinese Communist Party’s (CCP) - and more importantly President Xi Jinping’s - set of plans to guide their policymaking over the next decade. Their current economic model, and to a great extent their social and political model, is quickly reaching its effective limits and it is time for a change. But there remain serious ideological obstacles and potentially whole structural upheavals waiting just around the corner, so just how the party intends to put their reforms into practice is the question they cannot ignore for much longer.

Two aspects immediately jump out about the new proposed direction. First, the language around the public and private sectors suggest the two are declared equal, but the contradictory statement in the communiqué that the reforms must “bring about the leading role of the public-owned economy” points to some unfinished hierarchical disputes at the highest levels in Beijing.

Second, it is an encouraging sign that the party plans a move to let the market play a larger role in resource allocation. China’s inefficient and uncompetitive public sector is already stunting the country’s economic development. If the Communist Party is to prevent economic stagnation it will need to create a wealthy middle class and a buzzing private sector. To achieve this, ending the monopoly status enjoyed by state-owned enterprises will be important.

For a very long time, their standard growth model has been high-volume manufacturing of low-margin products. Chinese central planning artificially subsidised both efficient and inefficient businesses associated with such goods. This created excess capacity, large-scale employment, and rising wages – all good things for the ruling party. But declining profitability over the past few years and rising global competitiveness offered far cheaper low-margin goods from other developing countries. To fix this, rule-bound markets are increasingly being seen as the right path for China’s economy, and Beijing says it wants to extract itself from the top-down administrative approach which has served it so successfully over the past 33 years. However their actions indicate they may not be comfortable loosening the reins just yet.

Perhaps the communiqué revealed so few details because the scope of China’s desperately needed economic changes is so overwhelmingly large. Letting the market become more involved, or at least indicating a motivation to open the doors a bit more, doesn’t immediately answer the question of how comfortable Beijing will be to let the natural market cycles of boom and bust equalise the Chinese economy.

Left to the natural forces, many inefficient Chinese businesses will simply bow to global and domestic competitive pressures, potentially sending thousands of semi-skilled people onto the streets in search of ever-rarer jobs.

There is little doubt that China’s leaders recognise a need for some kind of change. The party is saying all the right things, but the real test will be the implementation. The emerging ideological tug of war in Beijing might be enough to keep the party ahead of the expected changes their policy pronouncements and their shifting global position will create. But the general feeling from the Third Plenum is that this will be a struggle.

The meeting was not about westernising the Chinese economic model. It was all about reshaping the association between the CCP, the fluttering economy, and the Chinese people while ensuring the legitimacy and centrality of the ruling party. In this contest, the self-preservation of the CCP will always take priority. Much of that legitimacy rests on the promise of continued employment for everybody and a steadily rising income level. Let the assured jobs fall away while the economy adjusts to a new market-centred path and Beijing can expect social instability, which it greatly fears. Real changes will take much longer to implement in a system as complex as China’s, and 2020 might not be far enough away.

Market forces are strong and Darwinian, so the exact meaning of “market involvement” and how it will fit into the unique Chinese framework without upsetting too many elites either will be the trick. Ultimately the party will need to find a way balance a contradictory desire to both increase market forces in the economy and bolster centralised control. And that’s going to be tough.

It appears the best thing the party can do for the foreseeable future is try to keep the weak and dying businesses alive for as long as it can while espousing a rhetorical commitment to reform. Unfortunately it looks like the party will sit on its hands and keep the existing model in place until there really is no other option but to change its entrenched ways.

This looks distinctly like a contradiction and disconnect between political and economic policies. The Third Plenum can only be considered a success if its reforms lead to more precise changes in the future to invigorate China’s governmental and economic system. If not, China faces a grim period of economic stagnation and social instability.

Tuesday, 26 November 2013

China escalates tension in the East China Sea

China has demarcated an "air-defence identification zone" (ADIZ) over an area of the East China Sea that includes the Senkaku/Diaoyu islands, which are also claimed by Japan, the Chinese Defense Ministry announced November 23, BBC reported...The ministry said aircraft entering the zone must obey Chinese rules - such as reporting flight plans, responding to logo and transponder identification inquiries, and maintaining two-way radio communications - or face emergency defensive measures...The Japanese Foreign Ministry lodged a strong protest over what it called a unilateral escalation that risks leading to an unexpected situation, causing the Chinese Foreign Ministry to summon the Japanese Ambassador to express its displeasure with Tokyo's response...The proposed ADIZ is approximately two-thirds the size of the United Kingdom sitting right on top of the disputed islands and puts Japan in a tight spot and directly challenges the United States...Japan has previously said it would shoot down any Chinese UAV entering Japanese airspace, causing Beijing to say such a move would constitute an act of war...In response to Beijing’s ADIZ, both Japan and the United States indicated they will continue to conduct operations in the area without any changes...Tension is already high and both countries appear unwilling to formalise anything like a standard Incidents at Sea-type agreement, relying on tit-for-tat military escalation instead...Adding more unilateral protocols will increase the chances of a diplomatically embarrassing interception or even a miscalculation sparking conflict.

Egypt severs diplomatic ties with Turkey

Turkish Prime Minister Recep Tayyip Erdogan
Egypt has asked Turkey's ambassador to the country to leave, accusing Ankara of backing unnamed organisations intent on spreading instability, an Egyptian Foreign Ministry spokesman said November 23, Reuters reported...Ankara is attempting to influence public opinion against Egyptian interests, the spokesman said...Though Turkish President Abdullah Gul expressed hope on Turkish state television that bilateral relations would soon be normalised, a Turkish Foreign Ministry spokesman said Ankara would respond with reciprocal steps...Both countries recalled their ambassadors in August after Egyptian security forces killed hundreds of people protesting the removal of former Egyptian President Mohammed Morsi - diplomatic relations are now effectively severed...Turkey's ruling party has been a close ally with the Muslim Brotherhood (MB) and it was Turkish Prime Minister Recep Tayyip Erdogan’s “provocative” statements about Egypt’s military leaders which led to the expelling of the Turkish ambassador...Mr Erdogan used the MB’s control in Egypt to increase Turkey’s influence in the region, and both Ankara and Mr Erdogan took a strategic hit when the Egyptian military removed Mr Morsi...Egypt’s military leaders realise shunning Turkey hurts their future and will exacerbate Cairo’s worries of seclusion, but there is an aspect to the recent diplomatic events of purging old ties before forging new ones.

Monday, 25 November 2013

Iran-US deal reached, questions remain

Iranian Foreign Minister Mohammad Javad Zarif
hugs French Foreign Minister Laurent Fabius
in Geneva Nov. 24, 2013
Initial leaked reports indicate that the nuclear deal reached between Iran and Western powers in Geneva on November 24 includes a recognition of Iran's right to enrich uranium and a cessation of oil sanctions, Iran's Fars News Agency reported...Iran will be allowed to sell oil at current levels, and its oil revenues will be released...Other sanctions against Iranian transportation, gold, and insurance industries will also be lifted...US Secretary of State John Kerry said the International Atomic Energy Agency will gain daily access to key nuclear facilities according to a statement...He also said that if continuing negotiations toward a more comprehensive deal over the next six months falter and Iran does not honour the terms of the deal, sanctions could be ratcheted up once again...Some $4.2 billion from these sales will be transferred to Iran, while remaining oil revenues - roughly $14 billion to $16 billion - will remain frozen...The Geneva deal was reached because both the US and Iran believe cooperation is in their interests both now and in the future...US President Barack Obama pushed very hard to sort out the Iranian nuclear program, but in this case the greater consolation came from Tehran...The next six months will be crucial in estimating whether Iran is serious about the agreement or whether it is obfuscating once again to ease sanctions without giving up too much too early...Overall, this deal gambles that small steps now might create political space for Mr Rouhani to agree to more extensive agreements down the road...This first step required only very mild concessions by Iran for sanctions relief...Any next step will be much more difficult and will require Iran to make much more significant concessions...Nonetheless, if the agreement holds it will be a significant geopolitical pivot in the Middle East...However, completing a robust deal with the US could boost Iran’s image in the Middle East, encouraging Tehran to increase its use of proxies like Hezbollah now that the US have shown their hand.

Sinai jihadists target Egyptian troops with suicide bomb

A suicide bomber slammed a vehicle-borne explosive device (VBIED) into a bus carrying Egyptian troops between Rafah and el-Arish, AP reported November 20...11 soldiers were killed and 35 were wounded...The Egyptian troops, in agreement with Israeli security forces, were deployed to destroy militant tunnels along the southern border of Gaza...More than 100 Egyptian soldiers have been killed over the last two months by jihadists retaliating to Cairo’s ongoing security clampdown in the Sinai...Suicide VBIEDs are a significant escalation in any conflict, but in Egypt they are extremely rare...Even though the explosion occurred near the border with Gaza on the Sinai it still targeted Egyptian troops and not Israeli troops, indicating the attack was responding to recently destroyed arms caches and militant hideouts...The ruling Supreme Council of the Armed Forces (SCAF) in Cairo is working hard to keep jihadists under control by focusing on al-Qaeda-linked jihadists in the Sinai, hoping the lawlessness and radical Islamism thriving in the peninsula does not spread westward...There are still some ongoing protests in Cairo by Muslim Brotherhood (MB) supporters which the SCAF hope to keep unconnected to the Islamist terrorism elsewhere...From the SCAF’s perspective, if bombs keep exploding far near the Israeli border just who the jihadists were targeting or who is responsible will be ambiguous...The closer the bombs creep to Cairo however – and the closer the militants align with MB supporters - the more politically dangerous they become. 

Thursday, 21 November 2013

Jihadists violently strike at Iran and Hezbollah in Lebanon

Twin explosions at the Iranian Embassy in Lebanon on November 19 in Beirut's Jnah neighbourhood killed 23 people and wounded 146 others. The al Qaeda-linked group Abdullah Azzam Brigades claimed responsibility for the attacks. The explosions are Sunni jihadist’s response to Iran’s heavy involvement with Syrian President Bashar al Assad, but are unlikely to deter Tehran from further support for the regime.

Hojatoleslam Ebrahim Ansari, the Iranian cultural attache in Lebanon, was among those killed in the Beirut embassy bombing, an Iranian Foreign Ministry spokeswoman confirmed. The Iranian Embassy in Lebanon's cultural adviser, Sheikh Ibrahim Al-Ansari, was also killed in the blasts.

Initial reports from the scene said rockets hit the Embassy, while others said it was a car bomb. However, security footage emerging later showed a man in an explosives belt rushing toward the outer wall of the Embassy before detonating the explosives, Lebanese officials said. Different reports describe the first bomber on either a motorcycle or on foot.

The first explosion was likely meant to weaken or remove the outer gate of the compound in preparation for the second strike with a vehicle-borne improvised explosive device (VBIED). However, it is also possible the first bomber succumbed to environmental pressure, panicked, and rushed the plan before his associates were ready with the second strike.

Lebanese officials said the second explosion was caused by the VBIED. According to CCTV footage, a Renault Rapid van was used to deliver explosives to the Embassy gate about a minute after the first blast. That explosion damaged the facade of the Embassy, but did little structural damage, suggesting the van was either unable to breach the Embassy gate or the amount of explosives was too little to cause large-scale damage. Judging by pictures of the damage at the scene, estimates that the van carried about 50 kilograms of explosives are likely fairly accurate.

The high casualty rate reflects the early morning timing of the attack. Both explosions occurred in succession around 9:42 am local time, indicating the bombers intended to inflict maximum casualties. Many of the Embassy staff would have been arriving or setting up for the day when the blasts struck. Many pedestrians would also have been moving past the Embassy at the time, increasing the amounts of people injured.

Both the Iranian Embassy and the ambassador’s residence were targeted in the attack. This was the third successful jihadist strike on a hardened target in Hezbollah-controlled territory in Lebanon in the past five months. The attack ruptured more than two months of relative quiet in Lebanon. Violent spillover from the Syrian civil war has given Lebanon plenty to worry about in 2013, and a return of violence could disrupt the fragile political atmosphere in the broken nation.

Sunni militants, probably operating out of Syria, targeted the Iranian Embassy in response to Iran’s heavy support on the side of the Syrian regime. The objective for this particular strike was meant to hit back unexpectedly in Lebanon at a distracted and fatigued Hezbollah and at an Iranian regional command centre while both of those forces focus on supporting the Syrian regime in its fight against rebels.

Secondarily, Sunni militants have been trying to erode Hezbollah’s political influence in Lebanon as much as possible with similar attacks in the past. The latest attack is a continuation of this pattern.

But instead of deterring further Iranian and Hezbollah assistance to the embattled Syrian regime, these attacks are likely to encourage more support for Syria from Iran and could precipitate tit-for-tat attacks on Sunni targets in Syria or elsewhere in the Levant. Tehran and Hezbollah understand the need to stay firmly behind the Syrian regime at this time. Iran is entering into deeper negotiations with the United States to discuss both the Iranian nuclear program and the larger issue of influence over the Middle East.

Alongside this, Iran and Syria hold a strong position in the civil war while the rebel’s only arms provider is Saudi Arabia and other Gulf countries. Western support for the rebels is on hold while the negotiations continue. The latest bombings against the Embassy will likely be brushed aside as tragic but not strategically important for Iran or Hezbollah.

This leaves the secondary goals. Stirring the political waters in Lebanon will probably be more successful, but not entirely predictable.  More attacks are certainly likely in the future which could lead to potentially harsh reprisals on Lebanese Sunnis by Hezbollah members attempting to crack down on militants.

Crackdowns will exacerbate the already deep sectarian fissures in Lebanon. It will also facilitate wrenching the Sunni population and Hezbollah further apart, further undermining Hezbollah’s already struggling political power in Lebanon. Hurting Hezbollah’s political gains in Lebanon will indirectly help the Syrian rebel effort, but this particular effect will likely take time to emerge.

Iran has been involved in Syria’s internecine conflict since the beginning of the uprising in 2011. As a long-time ally to Syrian President Bashar al Assad, Iran supported the Syrian regime through thick and thin. Tehran dispatched members of its elite Iranian Revolutionary Guard Corps (IRGC) to Syria on multiple occasions to assist Syrian loyalists in their fight.

Syria was an integral part of Iran’s effort to extend influence across the Middle East and Levant, but the raging uprising scuttled Tehran’s plans. Now Iran is trying to salvage as much of their influence in Syria as they can, even though the Syrian President actually more closely resembles the country’s strongest warlord rather than a functional head-of-state.

As well as IRGC troops fighting in Syria, Iran also activated its Shiite Muslim proxy militant group Hezbollah. The group’s involvement in the Syrian conflict has significantly helped the regime to push rebel forces from key positions in southwest Syria. During 2013, Hezbollah have also lost substantial numbers of troops in the conflict which has made the group hesitant to commit further.

Hezbollah’s efforts in Syria have fatigued the group immensely, both politically and operationally. Losing hundreds of fighters in the war is clearly having an effect back in their traditional enclaves in Lebanon as the explosions indicate. While the attack might still have occurred if the group were at full strength, their control over large areas of Beirut, and Lebanon in general, has limited attacks in years past.

More attacks by Sunni rebel forces acting out of Syria can be expected in Lebanon. The goals of the militants have not yet been fully realised. Hezbollah and Iranian strongholds and neighbourhoods will continue to remain attractive targets. However, these attacks are unlikely to deter Iran or its proxy into limiting their involvement in Syria.

Wednesday, 20 November 2013

The quiet daily humanitarian benefits of the US Navy

Before one of history's most powerful typhoons made landfall, the United States was speedily losing important credibility in Asia. The loss came not because Washington decided it would continue with its historic path in Asia, but because it tried to do something different with US President Barack Obama’s “Pivot”.

Mr Obama might not have been able to attend some recent high-profile international meetings in South Asia, choosing instead to remain in his office to deal with the fiscal partisan belligerency conducted by his political rivals. Acting as the US President, Mr Obama’s first responsibility is to the American people, and of course fighting political fires at home is always going to be more important than any chin-wagging in Bali.

But his absence left a nasty taste in the mouths of long-time allies in the Asia Pacific, especially the Philippines, Vietnam, Thailand and Malaysia.

Symbolism is very important in Asia, so when an American head of state declines to meet with other leaders in the region, many consider it an insult first and a cultural difference second. US plans for the region appeared to be unable get off the ground.

Then Typhoon Haiyan tumbled over the southern Philippine islands on November 8.

Thousands of locals were killed by the storm as Manilla seemed powerless to help its citizens and the serious limits of governmental control over the country were exposed. Food and water for the survivors were suddenly not available and disease became a real threat.

America responded to the disaster in a truly American fashion: by sending in its military.

The US aircraft carrier group CVN 73 George Washington is underway near the Philippine region of Leyte where US General Douglas MacArthur’s force landed on October 20, 1944. US military forces are currently ferrying supplies to the stricken country and will continue until the job is complete, according to a Department of Defense spokesperson.

Washington has also pledged more than US$37 million in humanitarian aid, which is expected to rise as the extent of the damage is assessed. China, which is locked in a bitter dispute with the Philippines over desolate islands in the South China Sea, has to date raised US$1.64 million in aid.

So if symbolism truly is important in Asia, then the US effort in the Philippines has to be speaking thousands of unsaid words. The Philippines was already one of the tightest US allies in the region before the typhoon, but almost any country facing similar humanitarian tribulations would probably receive the same response from Washington. That’s just the way the US Navy works.

That’s because every day of every year hundreds of US ships steams across the world’s oceans, patrolling hotspots, exercising with allies, and protecting international trade routes. Billions of US treasury dollars are spent annually on safeguarding the world’s market system and logistics.

US aircraft carrier group CVN 73 George Washington
Sure, this political strategy directly boosts the American market first and foremost, but the ancillary benefit makes it possible for every nation to trade effectively on the world’s oceans. US power, for instance, makes it possible to send Fonterra’s dairy products halfway around the world, with the expectation they’ll arrive safely.

In times of struggle, the quiet power and effectively unlimited reach of the enormous American naval forces moves temporarily into the spotlight. There is effectively no competition to the US Navy and it will always be a maritime merchant power.

And for all the frets about a rapidly growing Chinese naval capability, Beijing cannot yet field anything like the US carrier group for humanitarian relief – even if they wanted to.

Yet the US Navy not only has supremacy over the world’s oceans, allowing nations without robust navies to rely on the US Navy for protection - thereby limiting the chances of more wars - it can bring huge amounts of relief to countries facing horrific natural disasters with simply breathtaking speed.

As the US troops fly helicopters with tarpaulins and meals to the Philippines, Mr Obama’s slowly unfolding strategy for the Pacific could be getting new life. This impressive display of American hard power should translate very clearly into an important step for its other soft power strategy in Asia.

Saturday, 16 November 2013

Summer of attacks expected in India

As many as 700 members of Islamic suicide squads could already have crossed into India to conduct attacks, according to a leaked intelligence report, reported by Headline Today…The intelligence report suggests the militants in India are being tasked to attack schools, hospitals, marketplaces, and temples around Diwali and Dussehra…Pakistan has historically assisted and controlled Islamic militant groups, such as Lashkar-e-Taiba (LeT) and Hizbul Mujahideen… Indian security services apparently lost track of the militants soon after they entered Indian Kashmir and are unable to continue to intercept their communications, even though the wireless callsigns of the group are known to be “88” and “Hotel 4” on a compromised frequency…Pakistan has become increasingly aggressive over the disputed Kashmir territory by turning more often to militants to better leverage their position against India…The ISI also appear to be in implicit control of large sections of Pakistan’s foreign policy… A recent report by India’s Ministry of Home Affairs found that 60 percent of militants in Pakistan are controlled by Pakistan’s Inter-Service Intelligence Directorate (ISI)…What makes these events more worrisome is that generally, silence on a known wireless communication router indicate impending attacks or a change of communication protocols, either way the Indian Intelligence Bureau will be looking hard for the suicide squads…The leaked intelligence report warns of attacks during summer 2014, but strikes could occur sooner…These militants will be used as a tool to affect the expected political transition and departure of ISAF troops in Afghanistan in Pakistan’s favour…On top of this, Pakistan’s Army Chief Ashfaq Parvez Kayani is set to retire next year and his as-yet unnamed successor could use the groups to establish credibility…And the upcoming Indian election will introduce a new Prime Minister looking to show his strong nationalist credentials also…India will likely endure a summer of militant attacks as both countries fight a low-lever proxy war…Because of this, progress in bilateral relations will deteriorate but outright war will probably be avoided.

Wednesday, 13 November 2013

Hezbollah clashes with pro-regime Shiite forces in Syria

Several militants were killed in clashes between Hezbollah and the Shiite pro-regime Abu al-Fadl Abbas Brigade, Now Media reported November 12, citing a November 11 report by the Saudi Al-Watan newspaper...Hezbollah members reportedly described the Abu al-Fadl Abbas fighters as mercenaries...Clashes between loyalist forces in Syria are unusual...Hezbollah have publically disparaged the brigade’s behaviour in the past, calling it thuggish...If the reports are accurate - coming as they are from a Saudi newspaper with incentive to embellish any news negative to Syrian President Bashar al Assad - they might point to breaks appearing in the regime ranks...Multiple Shiite groups operate in Syria, and not all of them cooperate, so clashes could be possible even while motivation for the arguments are presently unknown...But unless more skirmishes occur in the near future, this incident will remain an isolated event and probably not undermine the Syrian regime’s strategy...Pro-regime forces in Syria will be fighting in close proximity potentially for years to come, so clashes like this will be relatively common.