I) Political DevelopmentsRegional Impact of Covid-19: Second Wave hits with a vengeance After a deceptive lull of few weeks, the region was, once again, afflicted by Covid-19 pandemic during July 2020. While this second wave was still ongoing, the number of daily cases rose dramatically – in some countries, such as Iran and Saudi Arabia, surpassing the old records. The second wave caused less alarm and panic than previous one, perhaps because people, the governments and the healthcare systems were already exhausted and inured of the pandemic. Besides, the crying need to resuscitate the economy often made the drastic option of a country-wide lockdown unviable. On July 1, WHO’s regional office warned that the MENA’s 22 countries were at a critical threshold of Corona virus resurgence. It found that 80% of cases were in five countries, viz. Egypt, Iran, Iraq, Pakistan and Saudi Arabia. By end of the month under review, Country-wise details were as under:
Covid-19 and Individual WANA Countries:
Iran re-assumed the dubious distinction of being most affected country of the region – both in confirmed cases and fatalities. On July 18, President Rouhani said that up to 25 million Iranians – or nearly 30% of population – might be infected by the virus.
Due to the pandemic, Saudi Arabia took the drastic step to curtail the Hajj this year to only 10,000 domestic pilgrims instead of the usual 2.5 million from the entire Islamic world.
On July 16, Sinopharm, a Chinese company, began testing its inactive vaccine against Covid-19 virus in the UAE which was reportedly chosen due to its multinational resident population.
A number of Iran’s strategic and economic sites suffered damage during three weeks beginning on June 26. These included the following:
June 26: Blast at a liquid fuel production facility for ballistic missiles in Khojir, close to Parchin, near Tehran; The same day, a fire at power plant in Shiraz, caused a blackout;
June 30: Explosion at a medical clinic in Tehran, 19 people killed;
July 2: Blast and fire at Natanz nuclear site;
July 3: Large fire in Shiraz;
July 4: Explosion and fire in power plant in Ahwaz; the same day a chlorine gas leak at Karoun petrochemical plant in Mahshahr;
July 16: Fire damaged 7 ships at Bushehr shipyard and port.
Iranian officials’ taciturnity regarding these incidents has added to the mystery. They have either denied or minimised them. The damage to Natanz nuclear site, most serious of these, was initially described as a fire, but later admitted as an explosion without any cause being ascribed.
Although a previously unknown group “Cheetahs of the Homeland” took responsibility for Natanz explosion, there was no such claim with respect to other incidents. On its part, the foreign ministry of Israel, the usual suspect, confined itself to remark “”our actions in Iran better left unsaid”.
An Iranian investigation into a Ukrainian Airline crash earlier this year blamed it on a human error and misaligned air-defence equipment for shooting down the plane. Iranians finally handed over the plane’s black-box to Ukraine and the latter claimed that it has been tempered with.
On July 23, an Iranian-owned Mahan Airline flight to Beirut was intercepted in the air over south-eastern Syria by two USAF planes. The airliner took evasive action to avoid mid-air collision which caused injuries to some of the passengers. While the US blamed the airliner for flying too close to Tanf garrison on Syria’s south-eastern border used by the American military, Iran called the USAF action “terrorism and aggression” and lodged a complaint with ICAO.
In a rare success for a social media campaign, the Iranian authorities halted execution of death penalty awarded by a local court to three Iranian young men accused of participating in anti-regime protests last year triggered by petrol price increase. In response to an online campaign, the Iranian Supreme Court ordered their retrial.
On July 10, the Council of State, Turkey’s top administrative court, decided that the 1934 cabinet decision (taken under Kemal Ataturk, father of modern Turkey) to convert Istanbul’s Hagia Sophia mosque into a museum “did not comply with laws.” President Racep Tayyip Erdogan welcomed the judgement that came after 16 years of proceedings and immediately declared the building to be a mosque all over again after a gap of 86 years. The decision was criticised by the Kemalists at home and major Christian powers such as Greece, Russia, the Pope, etc. which President Erdogan summarily brushed aside. He participated in the first Friday prayers held at Hagia Sophia on July 24.
Given Hagia Sophia’s iconic status, its controversial history during crusades and Islamist resurgence under AK Party led by President Erdogan, its reconversion into a mosque is politically symbolic and religiously emotive issue in a country which is 99% Muslim, but officially secular.
Hagia Sophia was initially built as an orthodox cathedral in 537 AD in Constantinople (present Istanbul) during the Byzantine era. Till medieval times, it was the largest church building in Eastern Orthodox Empire. After the Ottoman conquest of the city, Sultan Mohamet 1 converted the building into a mosque which continued till 1934 when avowedly secular Kemal Attaturk passed a decree to make it a museum.
During his 17 years at Turkey’s helms, Mr Erdogan has systematically reasserted country’s Islamic identity from under the secular straitjacket. Through populist and emotive gestures such as reconversion of Hagia Sophia, he hopes to also reverse the growing disenchantment among the Turks with his autocratic style and economic mismanagement. Last year his AK party lost the mayoral elections in both Istanbul (where Erdogan himself was mayor) and Ankara.
President Erdogan paid a three day visit to Qatar on July 2-4. This was his first visit abroad since Covid-19 pandemic.
On July 4, a Turkish court in Istanbul commenced the trial in absentia of 20 Saudi nationals accused of murdering Jamal Khashoggi, a Saudi journalist at Kingdom’s consulate in Istanbul in Oct. 2018.
The trial is likely to be an embarrassment to the Kingdom which hopes to put the gory incident under the carpet as it is set to host a G20 Summit in November 2020. Riyadh has already held trial of Saudis accused of complicity in the murder.
The European Union Foreign Ministers criticised Turkey on July 13 for undertaking oil exploration in the territorial waters of Cyprus, a member of the EU.
On July 21, Prime Minister Mustapha al-Kadhimi paid an official visit to Iran, his first outside Iraq since taking over two months ago. During the visit he called on Iranian Supreme Leader Ali Khamenei and held official talks with President Hassan Rouhani, who described the visit as “a turning point in bilateral ties.” The two sides agreed to raise bilateral trade from current $9 billion to $20 billion. Iraqi Prime Minister, who has alarmed Iranians by curbing the pro-Iranian Shia militias at home, vowed to disallow any threats to Iran from Iraqi soil. The Iraq-Iran Summit was preceded by a visit to Baghdad by Iranian Foreign Minister Javad Zarif on July 19.
Iraqi Prime Minister was originally scheduled to make his first visit abroad to Saudi Arabia on July 21; however, King Salman’s hospitalisation caused last minute cancellation of that visit – and change of destination to a different, but arguably more important, neighbour.
Bilateral relations between Baghdad and Tehran, though always sensitive and mercurial, have grown to a symbiotic level. The new Iraqi PM has made no secret of his determination to strengthen the state institutions and curb various para-statal religious fiefdoms and sectarian militias. With the US in withdrawal mode, Iraq also needs to reduce Iranian bear-hug without creating a blowback by Iranian proxies in the Shia majority country. On other hand, Iran needs an open border with Iraq to have a land corridor to Syria and Lebanon as well as to beat the US economic sanctions. Moreover, Iran also has minorities such as Sunnis and Kurds as well as motley anti regime groups who could use Iraq as spring board.
On July 31, Prime Minister Mustapha al-Kadhimi announced that the next general elections for the National Parliament would be held on June 6 2021 under the recently passed new electoral law. This announcement went some distance to meet the demand of protestors calling for an end to the “Muhasasa” system under which official favours are awarded on sectarian and confessional basis while man in the street suffers deprivation.
Though elections announced by PM al-Kadhimi are good ten months away, he seems to be aiming for multiple objectives: from creating a constituency for himself among the youth while putting current political wheeler-dealers on notice. Relevant to note that the announcement followed death of two persons on July 27 in police firing on the resumed anti-government demonstrations triggered by extensive power cuts as maximum temperature reached 52 Celsius.
However, the recent elections in Iraq have been largely farcical exercises. So, hosting an election based on freshly delimited constituencies with credible results is going to be a big challenge. (Perhaps India could help him out in this!)
In its report on the targeted assassination of Iranian Gen. Kassem Soleimani in early January 2020 in Baghdad by a US drone, the UN Committee on Extra Judicial killing described the act as an “unlawful, arbitrary killing”. The US denounced the report reiterating that Gen Soleimani was engaged in terrorist acts against the US and its allies.
Nearly 1600 candidates participated in the general elections for 250-seat National Parliament held on July 19; the turnout was down to around 33% as unsettled conditions and pandemic deterred the voters. Results declared on July 22 had ruling Baath Party and allies under the banner of “National Unity List” won 177 seats. The elections were initially scheduled for April but were postponed by two months on account of Coronavirus pandemic.
In Syrian polity, the National Parliament enjoyed limited powers. Still the elections were important on two scores. Firstly, the elections being held without large scale violence was a success for President Bashar Al-Assad’s government and proved its writ over most of the country. Secondly, the choice of the successful candidates could indicate the incoming nomenklatura for post-war era.
On July 1, Presidents of Russia, Iran and Turkey held a video conference to discuss political future of Syria. Held under Astana Process format, the Summit was first since September 2019.
The UN Security Council held protracted discussions on renewal of the two year arrangements for humanitarian supplies from Turkey to refugees in Syria which lapsed on July 10. Russia and China initially vetoed Western proposal to continue with the two border crossings from Turkey to Syria. Eventually on July 12, the UNSC passed a resolution permitting Baab Al-Hawa in northeast as the solitary crossing point for next one year.
The UNSC decision is likely to add to the humanitarian travails of 1.4 mn Syrian Sunni rebels and their supporters squeezed in Idlib de-escalation zone in north-western Syria now denied access to Turkey.
On July 7, a UN report indirectly accused Syrian government forces and allies of war crimes during its offensive in Idlib area in late 2019. It counted 17 attacks on hospitals, 14 on schools, 9 on markets and 12 on civilian homes.
On July 29, the US announced fresh sanctions on five persons and 9 entities in its drive to economically isolate Assad regime.
Despite weeks of anticipatory rhetoric, the new Israeli government of Binyamin Netanyahu did not take any steps to annex parts of the West Bank as per the Trump Plan. Meanwhile, the Foreign Ministers of Egypt, Jordan, France and Germany jointly warned Israel on July 6 against such a move.
Israeli Supreme Court decided to commence trial of PM Netanyahu on charges of corruption and misuse of office in January 2021. Meanwhile, public demonstrations in Israel gathered momentum demanding his resignation owing to the corruption charges and incompetent handling of the pandemic.
On July 27, PM Netanyahu warned Lebanon’s Hezbollah militia against making any infiltration attempt in Sheba Farm area along the common border.
The ongoing civil war remained largely in suspended animation as the two antagonists tried to strengthen their respective hands. Thus, Turkey, the main backer of Government of National Accord (GNA), had her Defence Minister and Foreign Minister visit Tripoli on July 4 and 12 respectively. Following these discussions, Turkey made acceptance of any ceasefire conditional upon Libyan National Army (LNA) forces vacating Sirte and Jafra and go back to their positions before 2015. On other hand, on July 13, the LNA Parliament authorised Egypt to intervene militarily in Libya. On July 16, Egyptian President Sisi received a group of Libyan tribal leaders who “invited” him to send Egyptian forces into Libya. In response, President Sisi said that Egypt will not stand “idly by”. On July 20, Egypt’s own Parliament unanimously authorised the government to despatch forces to Libya.
In a statement on July 9, the UN Secretary General Antonio Guterres described foreign interference in Libya having reached “an unprecedented level.”
On July 10, the National Oil Company of Libya announced resumption of oil exports after a hiatus of six months. However, two days later on July 12, it declared a force majeure accusing the UAE of being behind the oil blockade.
Russia, one of the main backers of LNA, decided to open an embassy in Libya temporarily resident in Tunis.
King Salman bin Abdulaziz, 84, was admitted to a Riyadh hospital on July 20 where he underwent an operation to remove his gallbladder. He was release from hospital on July 31, just in time for Hajj and Eid al-Adha. His indisposition caused cancellation of Iraqi Prime Minister’s visit to Saudi Arabia.
On July 7, the UK resumed arms sales to the Kingdom after a year long review of the humanitarian impact of their usage in the Yemeni campaign.
On July 30, Saudi Arabia decided to appeal against the WTO verdict which find her in breach of the international piracy laws via the TV network beoutQ based on its soil. The said network had broadcast international sporting events for which it had no rights, leading to a WTO complaint against the Kingdom by Qatar, where BeInQ (- the legitimate right holder) is based, This adverse WTO verdict also resulted in a Saudi led investor coalition forced to drop out of its high profile bid to acquire Newcastle United Football Club in UK for GBP300 mn.
On July 14, the International Court of Justice ruled by 15-1 majority against a case initiated by Saudi Arabia, the UAE, Bahrain and Egypt questioning International Civil Aviation Organisation’s competence to consider a Qatari complaint against closure of their airspace to the Qatari aircraft since 2017. The ICJ ruled that ICAO was competent to consider such a complaint. Buoyed by this ICJ verdict, Qatar Airways intiated an arbitration proceeding to seek $5 bn in damages from the four countries for denying the overflying rights.
Qatari Football Association released the schedule for FIFA World Cup it would host in 2022.
Under Saudi pressure, Southern Transitional Council (STC) and al-Hadi government on July 29 agreed on a political package to implement the Riyadh Agreement signed in November 2019. The STC agreed to rescind their declaration of self-rule for southern Yemen. In return, al-Hadi government promised that within next 30 days extensive reforms would be undertaken to make the political structure more broad-based and inclusive. The two sides also committed themselves to a ceasefire. The UAE, the power behind STC, welcomed the development.
The Saudi-led coalition resumed air attacks on al-Houthi targets from July 1. On July 13, al-Houthis claimed to have launched a rocket and armed drone attack at Saudi targets along the common border.
On July 12 Sudanese government amended the national criminal law to make it less draconian and more compatible with the secular norms. Death penalty for apostasy was abolished, public flogging and FGM were outlawed and alcohol was permitted to the non-Muslims. The government also promised other legal amendments to ensure religious freedoms and non-discrimination.
On July 15, the UN and AU Mission on Darfour condemned the violent incident on July 12 against IDP camps in the region which left 9 dead and 20 injured.
The Country’s political divide burst into open during the month with Prime Minister Eleyes Fakhfakh resigning on July 16 after only five months in power as Ennahda party withdrew its support over his alleged “conflict of interest”. President nominated Interior Minister Hichem Mechichi as his successor. A fortnight later, veteran Ennahda politician Rached Gannouchi, barely survived a confidence vote to unseat him as the Speaker of the Parliament.
With the launch of Amal (The Hope) probe to Mars on July 20 from Japan, the UAE became first Arab country with a space programme. If successful, the $200 mn project would have a payload orbit Mars in seven months. It is a part of festivities to mark the golden jubilee of country’s formation.
Ethiopia began water charging the Great Ethiopian Renaissance Dam (GERD) on July 8 to take advantage of higher rain water. On July 22 Prime Minister Abiy Ahmed hailed “historic” early filling for testing purposes. However, the negotiations for a multilateral legal and technical framework for GERD demanded by other two Nile basin riparian countries Egypt and Sudan remained unproductive despite these being held under African Union aegis with the US and EU as observers. On July 28, Egyptian President Sisi stated that the talks are likely to drag on but would hopefully result in a positive outcome.
“Showdown on the Nile: The bitter dispute over Africa’s largest dam” in The Economist, July 4 2020; http://go.pardot.com/e/827843/spute-over-africas-largest-dam/4nm7p/66583918?h=8hrx3LOsqKjppGnxTiDgm1vZppczS1xBKXiuHzm53K4
On July 19, Emir Sheikh Sabah Al-Ahmed Al-Sabah, 91, was operated upon in a Kuwaiti hospital for an unspecified condition. Three days later he was shifted to the United States for further treatment. Crown Prince Sheikh Nawaf al-Ahmed al-Sabah was to stand in for him.
The tensions between President Mohamed Abdullahi Mohamed and Prime Minister Hassan Ali Khaire came to a head on July 25 with Parliament passing a no confidence motion against the latter.
The country’s politics appeared headed towards a denouement with the Teachers’ Union at the forefront of anti-government public demonstrations to protest against economic hardships, corruption and slow reforms. On July 25, the Union was banned for two years and its leaders arrested.
II) Economic Developments
IMF Outlook for MENA Region:
In its revised outlook for Middle East and North Africa released on July 13, the IMF lowered the de-growth further by 2% and predicted that the region’s economy will shrink by 4.7% in 2020 under combined impact of low oil revenues and the pandemic. It also warned that such precipitous economic decline could rekindle social unrest as inequality and poverty deepen. The IMF Report cited considerable uncertainty about recovery in view of unpredictable course of the pandemic.
IMF’s revised outlook also predicted that the oil income for the region in 2020 would be $270 bn less than last year or by nearly half its value in 2019. As a result, the regional oil exporters may witness their collective GDPs decline by 7.3% in 2020 over last year.
As Saudi Arabia and the UAE restored their voluntary oil production cuts (beyond OPEC+ April deal), the OPEC oil production rose by 900,000 barrels in July to 23.43 mbpd, still within the committed collective limit. Iraq and Nigeria continue to pump above their quota in defiance of their commitment to compensate for past over-production. However, the collective restraint by OPEC+ boosted the Brent price to around $43/barrel by end of July.
A number of factors caused the global medium-term oil market to turn bearish. These included OPEC+ decision to raise collective output by 1.5 mbpd from August 1, continued lockdowns in major oil consuming economies due to second wave of Covid-19 pandemic, end of Chinese buying spree to fill their strategic reserves, near end of US driving holidays season, civil aviation and global tourism in suspended animation and resumption of shale drilling following recovery in oil prices. They also point out that though oil demand has recovered in past three months, it was likely to average around 91 mbpd in 2020 – nearly a tenth lower than 99.7 mbpd in 2019. These and other developments led to pessimism in further recovery in the global oil prices in foreseeable future. Indeed, some analysts even predicted their further decline from current levels in case pandemic continues to run amok.
Other Country-Specific Economic Developments:
IMF foresaw the economy of Saudi Arabia (biggest in WANA region) to shrink by 6.8% in 2020, the largest such decline in past three decades. While Saudi Finance Minister denied that the economy was in austerity mode, he did not rule out the Kingdom taking in a new debt of up to $16 billion by end of 2020 to get over the hard times caused by lower oil revenue, the pandemic and loss of Hajj revenues. He also hinted at other revenue boosting measures including asset sales, but ruled out introduction of an income tax. The Kingdom, which suffered fiscal deficit of $29 bn in Q2/2020, has already borrowed $12 bn and drawn down $40 bn from reserves so far in 2020. Various spending measures to boost the Saudi economy, set to expire in July this month, were extended indefinitely.
There were some unconfirmed reports about Iran and China at the verge of a $400 billion strategic mega-deal being negotiated for past four years since Chairman Xi’s visit to Tehran. Meanwhile, Iranian currency, the Rial, fell to a record low of 255,300 to a US Dollar on July 18 over six times the official rate of 42,000. The Rial has fallen by 48% during 2020, largely due to low oil income and impact of Coronavirus, now in its second wave. The current Iranian oil production was believed to be the lowest in four decades owing to impact of the US economic sanctions and the internal storage capacity being nearly full.
Due to the double jeopardy of lower oil prices and Corona pandemic, the economy of Kuwait was expected to contract in 2020 by 7.8%, biggest fall in the GCC. Its budgetary deficit could exceed 40% of the GDP necessitating a resort to up to $ 16 billion debt being raised this year. Among other measures being contemplated is reduction of expatriate population from 70% of the total to 30% – a move suggested by PM Sheikh Sabah Al-Khaled Al-Sabah that could push out nearly 800,000 Indian migrants from the country. A bill to such effect is to be tabled to Parliament.
A part from the challenges usual for the GCC states, Kuwaiti economy is dragged down by additional factors, including highly splintered political elite both in the Royal Family, Parliament and media as well as the state’s inability to diversify away from oil and promote the private enterprise.
Kuwait has even earlier tried to reduce the foreign workers without much success as they are found to be indispensible to run the families and private sector and are preferred for being more productive and pliable. Kuwaitis themselves are interested mostly in government jobs.
On July 5, the UAE affected a limited restructuring “to make the decision making more efficient”. While some economic ministries and entities were merged, some austerity moves were also announced. The move came amidst the reports of severe damage to the economy. For instance on July 10, Standard and Poors estimated that in 2020 Dubai’s economy is to shrink by 11%, four times the epochal decline in 2009. Dubai’s fiscal deficit/GDP ratio is to reach 4% in 2020 and 5% in 2021. S&P also downgraded a number of Dubai real estate companies to junk status. Separately, Dubai announced $400 mn economic support package for the Covid-19 affected.
Algeria launched an Economic and Social Revival Plan on July 8 aimed at reducing the reliance on oil/gas dependence, curbing bureaucracy and creating a level playing field between private and public sectors. The plan however did not address the issue of subsidies. The economy contracted by 3.9% in Q1/2020 y/y with the energy sector falling by 13.4%.
Algerian government is well aware of the need to jump start the economy but is wary of taking any steps which could hurt extensive economic interests of “le pouvoir” (“The Power” or the Military-Security establishment and its crony capitalists) as well as reigniting the popular protests which deposed President Bouteflika last year.
Lebanese economy continued to be in free-fall as politicians bickered and indulged in blame game. Although the country defaulted on its sovereign debt payments four months ago, there has been no headway in negotiations with IMF and other potential creditors. Meanwhile the GDP was expected to shrink by 13.8% this year. The currency has depreciated by 80% since public agitation commenced in October 2019 and the annual inflation was running at 56%. Investigation revealed that Central Bank Governor had allowed $6 billion illegally transferred abroad.
Bank of Israel projected the national economy to contract by 6% in 2020 with fiscal deficit rising to 13% of the GDP.
III) Bilateral Developments
According to a Reuters report on July 26, India’s oil import in June 2020 fell to 3.2 mbpd, the lowest level since October 2011. The figure was 0.4% lower than the previous month and about 28.5% lower than a year ago.
A Reuter report (16/7) mentioned that the mega-deal between Saudi Aramco and Reliance Industry Ltd, India’s largest listed company, to acquire 20% stake in the latter’s refining and petrochemical business was stuck due to a dispute over the revised valuation of the assets as the pandemic destroyed much of the demand for petroleum products. The deal was initially put at around $15 billion and was to be completed by March 2020. RIL Chairman Mukesh Ambani told shareholders on July 15 that the deal had been delayed due to “unforeseen circumstances in the energy market and the COVID-19 situation.”
On July 21, the Board of Control for Cricket in India (BCCI) decided to seek Indian government’s approval to hold next tournament of Indian Professional League (IPL) in the UAE in view of severe prevalence of Covid-19 in the country. The proposal, since approved by the Indian government is to host the matches of hugely popular IPL, with brand value of over $6.7 billion in 2019, in the UAE during September 13 to November 18. This was third time that 12-year history of the IPL that the tournament has been played abroad.
The Hindu (14/7) published an unconfirmed report that Iran had decided to complete Chabahar – Zahidan railway link on its own following lack of progress by IRCON during past four years since contract was awarded to the Indian company. Iran subsequently denied this report.
The discovery of 30 kgs of gold at Trivandrum airport on July 9 in a diplomatic bag consigned to the UAE consulate in the city opened a can of worms with ramifications for bilateral ties as well as Kerala’s domestic politics where it provided enormous fodder for the political blame game. While the UAE officially denied its involvement, there were indications that this was not a solitary case of smuggling in this manner with a cumulative figure of 107 kgs during 2020 being mentioned. The case was handed over to India’s National Investigation Agency (NIA) which made few high profile arrests.
The Economic Times revealed on July 15 that Delhi police investigations into the agitation and riots connected with Citizenship Amendment Act earlier this year were instigated by funding from the UAE and Oman. In the same vein, the Hindustan Times reported on July 30 quoting unnamed officials in Indian security establishment as saying that Turkey has emerged as a “New Dubai” as a hub for radicalising Indian Muslims, particularly from Kashmir and Kerala.
On July 16, Bank of Baroda sued UAE-based Indian tycoon B.R. Shetty, owner of NMC Group, for $250 million in an Indian court accusing him of breaking their March 2020 agreement offering 16 properties in India as collateral against the money owed to the bank. Mr Shetty called the agreement a “fraudulent document.” NMC Group has been under liquidation with over 4 billion dollars in unpaid loans from nearly 80 banks.
(The views expressed are personal)