West Asia & North Africa Digest by Ambassador Mahesh Sachdev | April 2020

  1. I) Political Developments

    Regional Impact of Covid-19:

    By end of March almost all countries of WANA region were affected by Covid-19 pandemic albeit to varying measure. The impact was both direct – with increasing number of patients with concomitant human despair, as well as indirect, with mounting collateral economic and political costs. Further, while the virulent malaise came as a rude shock to both governing and the governed, it further laid bare their mutual disconnect. The rulers quickly regrouped to react along their respective hymn sheets from living in denial to throwing more money to tighter government controls and blaming their usual suspects. In collective terms, by March end, fighting Covid-19 had become overriding priority of the governments of the region which cumulatively had over 73,500 confirmed Covid-19 cases (nearly tenth of the world’s total) and at least 3,381 deaths.

    Covid-19 Pandemic: Cumulative Cases in WANA (as of March 31 2020)
     
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Source: Johns Hopkins University Coronavirus Resource Center

Covid-19 and Individual WANA Countries:

As the table above details, Iran took an early hit from Corona virus and remained the most corona affected WANA country, with over 60% of the regional incidence of the disease and over 85% of its deaths. Yet, Iranian authorities were accused, both internally and externally of suppressing the real figures, which were believed to be significantly higher. They seem to have dithered in acknowledging the seriousness of the threat and acting on it in order not to disrupt the Majlis elections and Nowruz festivities. There was an initial reluctance to prohibit public movement and religious gatherings, but eventually Supreme Leader Ali Khamenei’s traditional annual Nowruz speech at Mashhad was cancelled. Over 70,000 prisoners were paroled to avoid overcrowded jails becoming a corona breeding ground. Iran also initially refused foreign assistance, such as from MSF, accusing it of being a tool of the US espionage. Eventually, however, ferocity of the disease made Iranian leadership relent to accept the EU assistance through INSTEX mechanism which arrived on March 31. Earlier, they had also formally requested  $5 billion IMF emergency funding to fight Covid-19, even while continue blaming the US sanctions for their inability to do so. In his rebuttal of the alleged bungling, President Rouhani said on March 29 that he had to weigh protecting the country’s sanctions-hit economy while tackling the disease. While a number of appeals (Including by Pakistani PM on March 20) were made to ask the Trump administration to relax the US economic sanctions, this was not done.
 

  • The authorities in Algeria, Lebanon and Iraq used the threat of Corona virus from large gatherings to break the momentum of longstanding demonstrations for political reforms. 
  • Saudi Arabia banned all public prayers, including the Friday sermons at mosques. In a TV interview on March 31, Saudi Hajj Minister Mohammed Banten asked the global Muslim community to wait for clarity on Covid pandemic before making plans for participating in next Hajj pilgrimage, scheduled for late July 2020. Riyadh also unveiled a $32 billion emergency support package to support Saudi businesses and banks. 
  • Israeli authorities invoked war time phone surveillance powers to ensure social distancing. PM Netanyahu also successfully exploited Covid-19 threat to stay in power through a national unity government after inconclusive third general elections. 
  • While the UN sought cessation in hostilities in Syria and Yemen to combat Covid-19, these pleas were ignored.


Israel:
The third Israeli general election for Knesset in less than an year on March 2 also failed to produce a clear winner. While Prime Minister Benyamin Netanyahu’s Likud emerged as the biggest party in Knesset with 36 seat out of total 120. Its coalition still had only 58 seats – three short of majority.  Its rival,  “Blue and White” party led by Benny Gantz got 33 seats but was marginally ahead as a coalition (61 seats out of total 120). Accordingly, Israeli President mandated Gantz on March 15 to form a new government. However, on March 26, the two sides, quite unexpectedly, agreed to form a “national unity government” citing an emergency due to fast-spreading Covid-19 pandemic. Under the deal, Gantz was to serve as Knesset Speaker while Netanyahu was to continue as Prime Minister till Set 2021, when Gantz would take-over. The deal caused bitter falling apart of the “Blue and White” coalition. In an unrelated but linked move, citing Covid-19 pandemic, Israeli Supreme Court decided to postpone taking up Netanyahu’s corruption trial till at least May 24.
A conspicuous outcome of the election was emergence of “The Joint List”, an umbrella group of Arab-led parties, as the third largest with 15 seats, an all-time high for a Palestinian-majority electoral alliance. This group supported Gantz’s “Blue and White” party.

Syria:
A tenuous ceasefire in Syria’s Idlib governorate was brokered at Turkey-Russia Summit in Moscow held on March 5. During the preceding week, direct fighting between Syrian and Turkish forces in the area involving aircraft and drones had led to serious escalation. While it did not resolve the basis of confrontation between government forces and the rebels, it provided for creation of a security corridor, joint patrolling of M4 highway by forces of Russia and Turkey from March 15 and prevented the uprooting of civilians in the zone of conflict. The Turkey-Russia agreement did not grant two key Ankara demands: withdrawal of the Syrian government forces from their recent territorial gains; and creation of new safe zone for civilians. Reports of sporadic fighting in Idlib, the last rebel held territory in Syria, continue to come during rest of the month.

Turkey:
Following Turkey’s decision to open its borders with Greece and Bulgaria for foreign refugees to cross into the two EU countries, thousands of asylum seekers attempted to do just that creating a piquant situation that lasted for two weeks. The problem receded from headlines after protracted talks between the EU authorities and Turkey.

Iraq:
On March 16, President Barham Saleh nominated Adnan al-Zurfi as Iraq’s next Prime Minister designate. Under Iraqi constitution, he has 30 days to name a cabinet and get parliamentary approval. The Presidential announcement wished him success in his new tasks to work for early and fair elections. al-Zurfi has served three terms (2004-15) as the governor for Najaf province and is currently a member of al-Nasr parliamentary group. If successful, he would succeed Adel Abdul Mahdi, who resigned in November 2019 in response to the popular anti-government demonstrations, but has continued in a caretaker capacity due to lack of parliamentary consensus about his successor. Previously nominated PM designate Mohammed Tawfiq Allawi failed to get parliamentary approval.

Comments:

  • Iraq faces myriad existential challenges – ranging from wise-spread anti-establishment sentiments to proxy-war between Iran and the US, from sectarianism to threat of Covid-19 and from plummeting oil revenue to crumbling infrastructure.  
  • Yet Iraq’s capacity to handle these myriad challenges is seriously compromised due to its nearly dysfunctional polity as her politicians play to their respective sectarian galleries without fixing the systemic flaws.

There was a spate of rocket attacks at various US establishments in Iraq during the month. Most serious of these was at Camp Taji north of Baghdad on March 11 which led to death of two US and a UK military personnel and injury to a dozen. The US retaliated hours later by air strikes targeting five weapons storage facilities belonging to Kataib Hezbollah of Iraq’s Popular Mobilisation Force, a pro-Iran Militia. On March 13, President Barham Salih condemned the US attacks as such “repeated violations” could cause Iraq to unravel into a failed state and revive the ISIS. However, Pentagon also decided to withdraw US military and allied personnel from three bases in Iraq, viz. K1, Qayyarah and Qaim, during the month to larger and better defended ones at Baghdad and Ain al-Assad airbase. The number of the coalition troops based in Iraq was estimated at 7500, including 5000 US forces. In their subsequent statements, both President Trump and Secretary of State Pompeo hinted at Iranian involvement in these attacks. On its part, Iran criticised these American attacks.

Saudi Arabia:
There were persistent reports from March 6 onwards in credible western news-media (esp. WSJ, NYT, Guardian) about detention of some senior members of the ruling Al-Saud family. Prince Ahmed bin Abdul Aziz (78 year old full brother of King Salman who is 84), Prince Mohammed bin Nayef (former Crown Prince), Prince Nayef bin Ahmed and Prince Nawaf bin Nayef were reportedly detained for plotting against 34 year old Crown Prince Mohammed bin Salman (MbS). There was no official Saudi reaction to these reports.

Comments

  • In absence of any official confirmation or even denial, the reports of detention of senior royals appears to indicate a simmering power struggle among Al-Saud ruling family about marginalisation of a number of claimants to the throne or the high table. The most frequent speculation was about these detentions being preventive as the King Salman could formally abdicate in favour of his son Mohammed bin Salman, the current Crown Prince.  
  • Such a transition would be unprecedented in 120 year history of Saudi Arabia under current Al-Saud dynasty in at least two ways: No ruling monarch has ever abdicated and the transfer of power so far has been among the brothers (all sons of King Abdulaziz, founder of the dynasty) and not from father-to-son.

Separately on March 15, Saudi National Anti-Corruption Commission (Nazaha) arrested 298 officials, including those in military and judiciary, over allegations of bribery and embezzlement amounting to 379 million Saudi riyals ($101m).
According to Palestinian militant group Hamas, on March 8 a Saudi court began proceedings against 68 Palestinians and Jordanians – all long term residents in the Kingdom – accused of supporting Hamas. They have been under Saudi detention since April last year.

Yemen:    
Saudi air-defences intercepted one rocket each over Riyadh and Jizan on March 28. These attacks, believed to be launched by al-Houthis, ended a relative lull in the conflict which entered its sixth year two days ago. In apparent retaliation, Saudi led coalition conducted over a dozen airstrikes on targets in Sana’a on March 30.           
On March 1, al-Houthi militia gained control of Hazm, capital of strategic Jawf province, dealing government forces a serious blow.

Iran-US Conflict:
On March 11, US Congress approved a War Powers Resolution aimed at limiting President Donald Trump’s ability to wage war against Iran. The resolution was conceived in the wake of targeted US assassination of Iranian General Qassim Soleimani in early January. The measure was set to go to President Trump, who has threatened to veto it. A two-thirds vote in both the House and Senate would be needed to override the likely veto.

On March 30, the State Department extended the waivers from existing US sanctions for the companies of Russia, China and the EU to continue their work at the Iranian nuclear facilities.

An International Atomic Energy Agency (IAEA) report released on March 3 said as of February 19, 2020, the Iranian stockpile stood at 1,510 kg, as opposed to the 300kg limit set under the JCPOA of 2015. However, the report also said that Iran had not been enriching uranium above 4.5 percent. An enrichment level of about 90 percent would be needed for weapons use. The UN watchdog also admonished Tehran for failing to provide access to two undeclared locations or fully answer its questions about past activities there.

Libya:
Despite some progress under the UN brokered process at Geneva last month to bring peace to the civil war in Libya, the sporadic fighting continued during the month between the forces of Government of National Accord (GNA, led by PM Fayez al-Sarraj) and those of Libyan National Alliance (LNA) led by Gen Khalifa Haftar. Haftar’s forces control most of Libya’s east and south, while the UN-recognised GNA holds a shrinking area in the west, including the capital Tripoli. Haftar’s forces also continued to impose a naval blockade on GNA’s oil exports which by March 4 had cost $2.6 billion in lost GNA revenues. The North African country holds the continent’s biggest oil reserves and the ninth-largest in the world.

Turkey supports the Libyan government, while Haftar is believed to be supported by the UAE, Egypt and Russia. The civil war in Libya, in its tenth year, is estimated to have already cost $40 billion.

On March 9-10, Gen Haftar travelled to France and Germany where he was received by President  President Emmanuel Macron and Chancellor Angela Merkel respectively.

Sudan:
Prime Minister Abdulla Hamdok, 64, survived unharmed after a bomb and gun attack targeted his motorcade in the capital, Khartoum. While authorities claimed to have caught some suspects, no organised group was either held responsible or made a claim to have carried out the act. Mr Hamdok heads an interim administration comprising of military and civilian leaders since August 2019 following ouster of long-time President Omar al-Bashir due to months-long pro-democracy protests.

Egypt:
On March 9, a military court sentenced 112 alleged members of Hazm movement, a militant offshoot of the proscribed Muslim Brotherhood, to life sentences for their involvement in 14 terror operations.

Nile River Dispute:
The US mediation in resolving the dispute between Ethiopia, Egypt and Sudan was put in question on March 4, with Addis Ababa saying that the US position that the controversial dam project should not be completed without an agreement was “totally unacceptable”. At the same time, Ethiopian Foreign Minister said Ethiopia would continue to attend the talks. On his part, President Donald Trump told Egyptian President that the US would continue its “tireless efforts” to resolve the dispute.

Algeria:
On March 26, Algerian Supreme Court rejected the appeals from the two former Prime Ministers against their long jail sentences for corruption.  Ahmed Ouyahia and Abdelmalek Sellal were both allies of former President Abdelaziz Bouteflika, who was deposed last year.

II) Economic Developments

Oil Matters:  
During March, many WANA countries were held hostage to the international oil market which had a rare “perfect storm” with both demand and supply moving in mutually reinforcing directions. Firstly, the already slack demand for crude crashed precipitously as country after country imposed lockdown to combat the Covind-19 pandemic. This not only cut the transportation, but also affected general economic activity and trade as well as usage of the petrochemicals. As a result, a March 31 Goldman Sachs report estimated that global oil demand in the previous week was 28 mbpd lower than 2019 average of around 100 mbpd. By beginning of March, the crude demand drop was already quite significant and the prices were drifting downwards.

However, the attempts to balance this nose-diving demand by the producers collectively restricting crude exports floundered on March 12 when OPEC+ (a 3 year old alliance between OPEC, Russia and some other producers) failed to agree on extension and expansion of their ongoing production restricting agreement which was set to expire on March 31. While Saudi Arabia, OPEC’s biggest producer, reportedly wanted the existing 2.1 mbpd production cut to be deepened further by 1.5 mbpd till end of 2020, Russia, world’s second largest producer, refused to do that pointing out that relatively high oil prices were only helping the high-cost  US shale oil producers. Their bitter disagreement immediately triggered an oil price war, with Saudi Arabia offering (March 14) a discount up to $8 per barrel for some European customers to wean them away from the Russian crude. On March 17, Saudis announced their intention to boost their oil production by 2.6 mbpd to 12.3 mbpd with further expansion to 13 mbpd planned. The UAE, too, boosted its production to 4 mbpd.

As the pincer of sharply lower demand and no holds barred oil price war among world’s two top most oil exporter waged, the oil market became very volatile and uncertain. By March 31, it had fallen by 55% during the month – a record – to have WTI price stand at $20.10 per barrel, lowest since 2002.

Almost all WANA countries dependent either on oil exports or expatriate remittances/largesse from oil exporting countries. The unexpected and precipitous decline in oil market made their economies vulnerable.

In a rare joint statement on March 16, heads of OPEC and IEA expressed their “deep concern” at the falling crude prices. They expected the developing countries to have their oil incomes decline by 50% to 85% during 2020 with potentially far-reaching economic and social consequences. While the production cost in the Gulf were much lower, these countries need high oil prices to balance their national budgets. 

The oil price decline was expected to upend the high-cost shale production, which has made the US world’s largest oil producer. However, on March 30, President Trump confined himself to calling the oil price war “crazy” and promised to intervene at the right time.

US-Iran:
On March 19, the US department of treasury blacklisted of five UAE-based companies for purchasing Iranian petroleum products in 2019 in violation of the American sanctions on Iran. Earlier in the month, it has blacklisted one company each from China and South Africa for dealing with National Iranian Oil Company. These actions came despite multiple appeals, including by Pakistani PM, to ease the American “maximum pressure” policy against Iran as the latter was fighting a desperate battle to contain raging Covid-19 epidemic.

Lebanon:
In a TV address to the nation on March 7, Prime Minister Hassan Diab announced that the Lebanon government would not repay a $1.2 bn bond due on March 9, triggering the country’s first ever sovereign default. As a consequence, Lebanese dollar bonds have since lost half of their value. Mr Diab also said that negotiations to restructure the country’s debt, which stands at more than $30bn, would continue “with all creditors… in a manner consistent with the national interest”.

Comment:

The Sovereign default by Lebanon was the denouement of a string of negative developments exacerbated by crony capitalism and the sheer incompetence of the political elite. Lebanon precarious finances were caused by a welter of political and economic factors precipitated by ongoing anti-government agitation since November 2019, resultant political vacuum, prolonged closure of banks and loss of tourism revenues. All these developments were exacerbated by political factors such as tapering off of the financial assistance from the Gulf monarchies which disapprove of Hezbollah’s sway over Lebanon and the civil war in neighbouring Syria.   

UAE:
In a typical ventriloquism, on March 30 Dubai emirates’ organising body for Expo 2020 decided “to back a proposal (by the foreign participants) to postpone” the six-month long event, slated to commence in October 2020 for one year due to the Covid-19 pandemic. The final decision in this regard is likely to be taken in June 2020 by member states of the Paris-based Bureau International des Expositions

Comment

  • The expo, to herald the golden jubilee year of founding of the UAE, was intended as a extravaganza of culture, business and technology featuring pavilions from 192 countries. The expo, with total outlay of around eight billion dollars was expected to have 11 million foreign visitors with the Indians being the largest group. 
  • It was expected to provide a gust of tailwind to Dubai’s economy in general and hospitality sector in particular. Its postponement would be a serious setback to the Dubai emirate which has already been disproportionately affected by collapse of its vital tourism and trade sectors due to the global Covid-19 lockdown and the nose-diving oil revenue.  


III) Bilateral Developments

  • At least two high Iranian officials expressed their concerns at the alleged killing of Muslims during recent riots in India triggered by opposition to the Citizenship Amendment Act. On March 2, Foreign Minister Mohammad Javad Zarif tweeted “Iran condemns the wave of organized violence against Indian Muslims.” In response, Indian Ministry of External Affairs summoned Iranian ambassador to lodge a protest. Subsequently, the ministry spokesman said in a statement “We do not expect such comments from a country like Iran.” However, Iranian Supreme leader Ali Khamenei followed up the matter on March 5 by tweeting in English “The hearts of Muslims all over the world are grieving over the massacre of Muslims in India” and urging India to “confront extremist Hindus.” 
  • Reuters reported on March 27 that Indian Oil Corp and Mangalore Refinery & Petrochemicals Ltd have declared force majeure over sudden loss of Indian fuel demand due to Covid-19 lockdown. The two refiners, who together control over 40% of Indian refining capacity, are seeking to either delay or cancel purchases of crude in April from Middle East.
  • Reuters also reported on March 27 that the Reliance Industries Limited, operator of world’s largest refining complex at Jamnagar was offering to sell April-loading crude cargoes for slack demand for refined products both domestically in India and internationally. The company was also in talks with producers to defer some cargoes.
  • An unconfirmed but reliable media report on March 17 indicated Indian plan to take advantage of current low oil prices to top up her Strategic Petroleum Reserves maintained by Indian Strategic Petroleum Reserves Ltd (ISPRL) at three locations.

On March 26, Prime Minister Narendra Modi participated in G20 Virtual Summit hosted by Saudi Arabia to consider collective measures totaling up to $5 billion to combat Covid-19 pandemic. Similarly, Finance Minister Nirmala Sitaraman participated in the second G20 Virtual Conference of Finance Ministers and Central Bankers on March 31.

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(The views expressed are personal)

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