- Political Developments
- Economic Developments
- Bilateral Developments
IA) Political Developments: Pan-Regional and Global Issues
- Islamic New Year 1444 AH commenced on July 30.
- After two years of the Covid-19 pandemic, the Haj pilgrimage returned to a semblance of normalcy in 2022. It concluded with Eid al-Adha on July 9. Nearly one mn foreign Hajis came to Saudi Arabia this time as compared to 2.6 mn in 2019. The longish Eid al-Adha festivities affected the tempo of developments in the region.
US Presidential Tour of WANA Region:
- President Joe Biden toured Israel (July 13-14), Palestine (July 14) and Saudi Arabia (July 15-16). During the visit to Israel, he recommitted the US to support Israel’s security but advocated a two-state solution to the Palestine problem. On July 14, President Biden and Israeli Premier Yair Lapid sign the “Jerusalem Declaration”, which included a joint pledge U.S. President Joe Biden and Israeli Prime Minister Yair Lapid signed a joint pledge to deny Iran nuclear arms, a show of unity by allies long divided over diplomacy with Tehran. While in Jerusalem, he also participated in an I2U2 virtual summit on July 14 with PM Modi, President Mohammed bin Zayed of UAE and Israeli PM Lapid. They focused on food security issues. He visited a Palestinian hospital in east Jerusalem and offered $100 mn to improve the health facilities in Palestine. President Biden’s remarks after his meeting with PA President Mahmoud Abbas were sympathetic (he spoke of the daily “indignities” that Palestinians face living under Israeli occupation, saying that “Palestinian people are hurting now”). Although he reiterated the US support for a two-state solution, he, nevertheless, shied away from any new peace initiative in this regard, cryptically saying that the ground was “not right at this moment.” President Abbas lamented that the chance for such a solution “may not remain for a long time.”
- President Biden’s visit to Jeddah was arguably the most critical part of the tour, aimed at the revival of the bilateral relationship passing through a bad patch. He met King Salman and Crown Prince Mohammed bin Salman (MbS), with whom he had hitherto refused to communicate over his alleged role in the killing of Jamal Khashoggi, a Saudi-American journalist at the Kingdom’s consulate in Istanbul in 2018. During the visit, the two sides signed 18 partnership agreements in several fields including defence, energy, communications, nuclear energy and uranium, space and healthcare. The visit also led to new geo-security arrangements for Saudi control over the Tiran and Sanafir islands at the mouth of the strategic Gulf of Aqaba in the upper Read Sea. President Biden also held a multilateral summit with six GCC states, Egypt, Jordan and Iraq. He sought to dispel the impression that the US was in a state of withdrawal from WANA, telling the Arab Summit, “The United States is invested in building a positive future of the region, in partnership with all of you—and the United States is not going anywhere.” (Comment: Historically, the eight-decades old US-Saudi symbiosis has currently been having its longest hiatus since the Yom Kippur war and OAPEC oil embargo of 1973. While maintaining the essential links, the two sides have drifted apart since Arab Spring in 2011 – and the process has accelerated in the Biden era. Several factors – including Iran, Yemen and diplomatic miss-steps as well as unmet mutual expectations on security, oil and human rights – have contributed to this trend. A fundamental change in this US-Saudi compact has been the show of a greater assertion and defiance by Riyadh, which declined to raise oil production to help douse the US inflation. Against this decade-old build-up of tensions, the visit seems to have several unstated objectives: in the short-to-medium run, med the ties with Saudi Arabia in general and MbS in particular, get Riyadh to produce more oil and reaffirm Washington’s commitments to the Gulf security. Over the longer run, it was aimed at more effective defence and security linkage between Israel and the GCC states beginning under the rubric of the Middle East Air Defence Alliance (MEADA). Given Saudi penchant for laconicism and glacial comeback, it was too early to judge if Biden had achieved his state objective to “reorient, not rapture” the bilateral ties with MbS. For now, MbS’ “fist-pump-ed” Joe Biden into a not too-subtle reality check. Further Reading: “What does the Middle East offer America? America’s president embarks on an aimless trip” The Economist Jul 14.)
Regional Security and Extremism:
- A US drone attack killed al-Qaeda Chief Dr Ayman al-Zawahri, 71, in Kabul on July 29. While confirming the attack, the Taliban did not announce the name of the deceased; they, nevertheless, blamed the US for violating the terms of the Doha Accord. (Comment: The assassination of al-Zawahri has multiple implications. Firstly, it exposed the duplicity of the Taliban government which gave explicit commitments in the Doha Accords and later to disallow the use of its territory for terror attacks on foreign countries. The Discovery that al-Qaeda’s main architect of 9/11 was living in a Kabul house provided by the Taliban was unlikely to help the international rehabilitation and assistance that the Taliban desperately seek. Secondly, it also ripped open the internal disunity among the Taliban leadership mainstream and the hardline Haqqani faction, which reportedly hosted al-Zawahri. Thirdly, it further weakened al-Qaeda in Afghanistan vis a vis ISIS and Khorasan terror groups. Fourthly, it demonstrated the US military’s outreach nearly one year after its ignominious withdrawal from Afghanistan. Fifthly, there was no obvious successor to the deceased leader of al-Qaeda, which in any case has morphed into autonomous regional franchises from West Africa to Indonesia. Lastly, al-Zawahri’s demise offered some cold comfort to India: one of his last statements was a 9-minute video clip on April 7 2022 about the Hijab controversy in Karnataka. He asked Muslims not to be deceived by “the mirage of the pagan Hindu democracy” and composed a poem in praise of Ms Muskan Khan. But then, Afghanistan with resurgent ISIS, responsible for the attacks on Gurudwaras in that country last October, is likely to remain a hotbed for breeding terror against India.)
- On July 12, the U.S. Central Command said Maher al-Agal, was killed in a drone strike in the Aleppo region in northwestern Syria. He was the leader of the Islamic State in Syria, one of the top five leaders of the militant group, responsible for developing ISIS networks outside of Iraq and Syria.
WANA and Ukraine Conflict:
- After arduous and indirect negotiations, a complex arrangement to enable Ukraine to resume its export of agricultural products (e.g., wheat, sunflower oil, fertilisers, etc.) from its three Black Sea ports (Odesa, Chernomorsk and Yuzhny) was finalised on July 22 in Istanbul. Ukraine and Russia, the two warring sides, signed separate enabling documents to operationalise the long-awaited deal to be implemented under the supervision of the United Nations and Turkey. The deal, which would also facilitate similar exports by Russia, would be monitored by Joint Coordination Centre in Istanbul that went functional on July 26. The deal would lift the Russian naval blockade of Ukrainian ports for four months – a period which can be further extended. It envisages Ukraine being able to export around 5 mn tons of wheat every month. (Comment: Russia and Ukraine are two of the world’s major wheat exporters with 37.3 MT and 18.1 MT exported in 2020 mostly through the Black Sea. Their conflict, now in its fifth month, has disrupted the global wheat supply chain leading to a dramatic surge in international prices, particularly after India banned most wheat exports on May 13. The UN estimates that this situation has put 47 mn people, mostly in Africa, in “acute hunger.” If implemented fully and over time, it would alleviate the global famine. The deal was also the first significant positive breakthrough between the two antagonists and enhanced Turkey’s regional and international profile. It also raised hopes that the conflict could be contained.)
- At the onset of his three-country Africa tour, Russian Foreign Minister Sergei Lavrov visited Cairo on July 24. He was received by President Abdel Fattah al-Sisi and the representatives of Arab League member states. In his public statements, Lavrov denied that Russia was responsible for the global wheat shortage. (Comment: Egypt is the world’s largest importer of wheat.)
- Following the Ukrainian decision to break diplomatic ties with Syria for recognising the independence of Donetsk and Luhansk republics, Syria, too, broke relations with Ukraine on July 20. (Comment: Damascus decision seemed timed to coincide with Astana Process Summit in Tehran.)
Pandemics and Other Regional Disasters:
- Monkeypox surfaced in some parts of WANA. As of August 2, these included: Israel (153 cases), UAE (16) and Lebanon (4). Morocco, Qatar, Saudi Arabia and Turkey have reported one case each.
- Unseasonal Torrential rains during the last week caused widespread death and devastation in the Strait of Hormuz area. In Iran, flash floods and landslides, mostly in Fars province in the south, caused the death of at least 69 people and 45 others were missing. In UAE, heavy rains caused the closure of the Fujairah oil terminal, the UAE’s only port in the Gulf of Oman. It led to the death of 7 persons, all expatriates.
WANA and Afghanistan:
- In an exclusive on July 7, Reuters reported that the Taliban government had agreed to the UAE managing air and ground operations of Kabul international airport. The Afghan security personnel would be deployed under Emirati management. The deal was to be implemented in the coming weeks, the agency reported. (Comment: If realised, this would be a major geo-political coup by the UAE and would upend the longstanding Qatari role as the main interlocutor with the Taliban. Apart from managing the main air entrepot of landlocked Afghanistan, it would also open a back window to Iran, with whom the UAE has had mercurial relations. Taliban seem to perceive the need to come out of Doha’s shadow. Relevant to note that during the previous Taliban administration, too, the UAE was one of the only three countries with diplomatic ties with Kabul, the other two being Pakistan and Saudi Arabia.)
- A local skirmish over the common border in Hirmand between Iranian forces and Taliban troops on July 31 resulted in one dead and one injured on the Afghan side.
IB) Political Developments
Although the suspended animation in indirect talks for the revival of the JCPOA was lifted early in the month, a deal could not be reached by the end of the month. On Aug 4 the EU mediated talks resumed in Geneva to iron out the differences between the US and Iran. The EU presented Iran with a “Final Text” of the document on Aug 8 and sought comments while urging Tehran not to make unrealistic demands. Iran responded to the EU text on Aug 15. In a terse statement on the same day, the US State Department emphasised that the only way to revive the 2015 Iran nuclear deal is for Tehran to abandon its extraneous demands, adding that Washington believed everything that can be negotiated had already been undertaken. On Aug 21, President Biden held virtual consultations with leaders of the UK, France and Germany regarding Iran’s response. On Aug 23, the US response was conveyed to Iran which two days later said that it was carefully reviewing the matter. There was a noticeable hardening of the positions towards the end of the month. President Raisi demanded on Aug 29 that the IAEA must conclude its pending enquiries before a deal can be reached and should not make “excessive demands.” On Aug 31, Iran sought stronger US guarantees that it would not abandon JCPOA again – a demand that Washington has already rejected. On its part, President Biden told Israeli PM Lapid on Aug 31 that the US would never allow Iran to have nuclear weapons.” A visit by Iranian Foreign minister Hossein Amirabdollahian to Moscow on Aug 31 and Tehran visit by a senior Qatari diplomat on Aug 28 seemed both linked to the JCPOA negotiations. (Comment: The last-ditch attempt by the EU negotiators to push the nuclear deal seems to ignite a brief spark of optimism. At the same time, it revealed that the positions on issues such as the US guarantees and pending IAEA investigations into radioactive traces at three undeclared sites were unreconciled. On balance, Iran would have to contemplate if it can make any more concessions, or if the time is on its side as it approaches the “nuclear breakout point.” On other hand, the incumbents in both the US and Israel face an uphill electoral battle in November which may predicate them making haste slowly on this hot-button electoral issue. Further Reading: “Stakes are High for India if Iran, US Sign Nuclear Pact” by Mahesh Sachdev, Hindustan Times, Aug 27; and “Never-ending nuclear talks with Iran are bordering on the absurd” The Economist Sep 8.
On Aug 1, the US imposed sanctions on 6 companies (4 in Hong Kong, 1 each in Singapore and the UAE) for helping to sell tens of millions of dollars in Iranian oil and petrochemical products.
On Aug 9, Russia launched an Iranian remote sensing satellite titled “Omar Khayyam.”
On Aug 24, the Iranian ambassador to Kuwait told al-Rai newspaper that the sixth round of talks between Saudi Arabia and Iran in Baghdad was delayed due to unsettled conditions in Iraq and would take place when the conditions are right.
On Aug 30, the US Navy claimed to have foiled the Iranian attempt to capture its unmanned sea drone in the Gulf international waters.
President Recep Tayyip Erdogan travelled to Sochi on Aug 5 for a summit with Russian President Vladimir Putin. (Comment: Despite nuanced positions on several issues of regional volatility, esp. with Ukraine and Syria, the two nationalist leaders have maintained a semblance of normalcy in their bilateral ties and deftly avoided getting into each other’s ways. On his part, President Erdogan, facing an uphill election next year, is keen to square off his domestic economic travails against the foreign policy gains.)
There was a perceptible softening of Turkey’s hitherto staunch opposition to any talks with the Syrian government. Thus on Aug 11, the Turkish foreign minister called for a reconciliation between the opposition and the al-Assad government. On Aug 19, President Erdogan went even further, saying that he did not rule out talks with Syria. On Aug 23, the Turkish foreign minister added that there were no preconditions for talks with Syria. These shifts sent a chill down the spines of anti-regime Sunni militants in the Idlib exclusion zone who have so far had a symbiotic relationship with Turkey. (Comment: Ankara’s change of heart on the Syrian conflict could be based on several factors: The need to send Syrian refugees, numbering over 3.5 mn, back before elections next year as they are unpopular with Turks and a drain on the weak national economy; acceptance of the fait accompli of Bashar al-Assad’s preponderance over most of Syria; the need for his help in containing YPG/SDF Kurdish militancy on the bilateral border without a costly military engagement; and possible gains from Syrian infrastructure reconstruction contracts. The summit with Putin could have nudged Erdogan into this shift.)
On Aug 17, Turkey and Israel decided to raise their bilateral diplomatic relations to ambassador level after four-year-long hiatus.
Turkish officials met with their Finnish and Swedish counterparts in Helsinki on Aug 26 to carry forward the Madrid MoU on the repatriation of some anti-regime persons living in these two countries.
Turkish forces were involved in fighting with Kurdish militias in Syria and Iraq during the month. Three Syrian troops were also killed in a skirmish with YPG/SDF fighters on Aug 16. Turkey claimed to have killed 9 PKK fighters in northern Iraq on Aug 26.
On Aug 21 the UAE said that its ambassador to Iran would return to Tehran “in coming days”, upgrading the bilateral diplomatic ties after more than six years.
On Aug 26 three former U.S. intelligence operatives who illegally worked as cyber spies for the UAE and admitted to hacking American networks reached a deal with the US State Department temporarily barring them from any arms export activities.
Against the backdrop of US House Speaker Nancy Pelosi’s Taiwan visit, a statement issued on Aug 4, the UAE Foreign Ministry said the following: “The UAE affirmed its support for China’s sovereignty and territorial integrity, as well as the importance of respecting the “One China” principle while calling for adherence to relevant UN resolutions. The UAE indicated its concern over the impact of any provocative visits on stability and international peace. The Ministry urged prioritizing diplomatic dialogue to ensure regional and international stability.” (Comment: While checking all boxes that Beijing looks for, the statement carefully avoided mentioning either the US or Nancy Pelosi’s visit to the Republic of China.)
Following the Emirates Cricket Board’s confirmation that the inaugural International League T20 (ILT20) League will be played between January 6 to February 12, 2023, the participants, including the RIL-sponsored Mumbai Indians began enlisting their players in August. The six-team franchise-style league will be played over a 34-match schedule in the UAE.
On Aug 1, Israeli forces in West Bank arrested Bassam al-Saadi, a senior militant of Gaza-based Palestinian Islamic Jihad (PIJ), which threatened retaliation. Citing this imminent threat, Israeli authorities closed the Gaza border on Aug 4 and launched air and rocket strikes on Gaza the next day that lasted 56 hours. PIJ launched over 400 rockets on Israel some of them reaching the outskirts of the capital Jerusalem, but 97% of them were claimed to be intercepted by the Iron Dome. Egyptian intervention yielded a ceasefire late on Aug 7, but not before 44 Palestinians had been killed and many more injured and property destroyed. The border crossings were reopened on Aug 8. Israel did not declare any losses. Bassam al-Saadi was indicted by an Israeli court on Aug 25 (Comment: This was the fourth clash between Israeli forces and Gaza-based militants since the Israeli withdrawal from the territory in 2005. It was noteworthy on two accounts. Firstly, Hamas, the leading Gaza militant organisation which is allied to PIJ, did not join the battle. Secondly, the political situation on both sides seems to be hardening. Israel has a caretaker government in the run-up to Nov 1 general election which may be trying to gain some popularity by acting muscular. On Palestinian Authority (PA) side, old divisions between al-Fateh on West Bank and Hamas-PIJ in Gaza are being upstaged as 88-year-old President Mahmoud Abbas cedes control. Hamas and PIJ are both trying to gain popularity at al-Fateh’s expense with West Bank’s frustrated youth. Thus, both Israel and al-Fatah which have long had a modus vivendi do not want Gaza-based militant groups to expand their turf to the West Bank. This also explains the reason for frequent forays by the Israeli forces into the militancy hotspots such as Jenin on the West Bank.)
As the EU’s final text on JCPOA was bandied around between Iran and the US this month, the Israeli government intensified its lobbying against it. Prime Minister Yair Lapid spoke with leaders of France and Germany against the Iran nuclear deal. On Aug 24, he said that the deal would hand over $100 bn to Tehran to destabilise the region.
The CEO of NSO, the Israeli company that created Pegasus cyber snooping software, resigned on Aug 21.
The long-simmering Inter-Shia political dispute reached a flashpoint on Aug 29-30 when armed clashes between Saraya Salam militia loyal to Imam Muqtada al-Sadr and Hashd al-Sha’abi militia belonging to Coordination Network (CN) resulted in at least 30 deaths in the Green Zone of Baghdad. The violence ceased only when al-Sadr asked his followers to leave the Green Zone “to avoid spilling Iraqi blood.” The showdown was preceded by incremental escalation from the beginning of the month when al-Sadr’s followers occupied the parliament building to prevent a CN-led coalition from forming the government. They withdrew after 4 days on Aug 3. A week later, al-Sadr asked the Iraqi Supreme Court to dissolve the parliament and order fresh elections – which the Court declined on Aug 14 citing a lack of authority in this legislative matter. Meanwhile, on Aug 12 the rival CN organised their demonstration. The deadly clashes on Aug 30 led to global consequences: the oil prices became volatile for while (Iraq being OPEC’s second-largest producer with a quota of 4.5 mbpd of which 3.4 mbpd is exported); the prices settled down after the oil production remained unaffected by the Green Zone violence. Iran announced the closure of its land border with Iraq and several airlines cancelled flights to Baghdad. On Aug 31, Iraqi Prime Minister Mustafa al-Kadhimi threatened his resignation, in case the violence was to reoccur. On Aug 31, US President Biden spoke with the Iraqi PM to discuss the situation in Iraq. On the same day, Inter-Shia clashes erupted in the southern Iraqi city of Basrah leading to 4 deaths. (Further Reading: (i) “Why India should not avert its eyes from Iraq” by Mahesh Sachdev, Hindustan Times, Sep 09; (ii)“Iraq’s political deadlock turns violent” The Economist 3/9/22.
On Aug 10, US President Joe Biden issued a statement calling on Damascus to help repatriate Justin Tice, an American journalist and ex-marine who disappeared in Syria a decade ago. He claimed that he knew “with certainty that Tice had been held by the Syrian regime.” In a sharply worded response on Aug 17, Syrian Foreign Ministry Syria’s foreign ministry issued a statement that denied Biden’s accusation, describing it as a “baseless allegation.” It further denied that it had “kidnapped or forcibly disappeared any American citizen who entered its territory or resided in areas under its authority.” (Comment: While the US remained ostensibly opposed to any normalization with Syria, the Presidential statement seem to indicate a degree of flexibility as the civil war in the country winds down with Bashar al-Assad government prevalent.)
On Aug 23, the US forces conducted military strikes on multiple facilities of pro-Iran fighters in Syria. Their retaliation triggered an exchange of shelling for the next two days. An unconfirmed report indicated that the fighters belonged to the “Fatimiyun” group of Shia Afghans deployed by Iran in Syria. (Comment: Most of the 900 US troops in Syria are deployed in the strategic and oil-rich Deir al-Zor district bordering Turkey and Iraq and divided by the Euphrates river. Iranian forces and their allies use this area as a land corridor to Iran to bring their men and supplies. Moreover, it is also an area dominated by the Kurds forces, many of their pro-US militias such as the SDF have been instrumental in defeating Daesh. The US also has some troops deployed at Tunf on trijunction of Iraq, Jordan and Syria.)
On Aug 31, Israel attacked Aleppo airport with rockets damaging its infrastructure. (Comment: With Iraq’s domestic situation disturbed, the supplies for Iranian and pro-Iranian forces in Syria are increasingly reliant on air logistics. This has made Israeli attacks on the country’s two major airports in Damascus and Aleppo more frequent. These attacks try to disrupt the runways for extended periods.)
On Aug 19, 14 persons were killed in the shelling of a marketplace in the al-Bab area in northwest Syria controlled by pro-Turkish forces.
The unsettled political situation under a military-led regime continues to provoke popular unrest. On Aug 14, the military leader Gen Abdel Fattah al-Burhan inaugurated a conference in Khartoum in support of the initiative, known as “The Call of Sudan’s People” aimed at ending Sudan’s political crisis through a participative transition to the elections. The initiative has gained the support of Egypt, Saudi Arabia and the African Union, whose diplomats attended a conference on Saturday. The mainstream opposition has, however, remained unrelenting in their demand for the military’s immediate handover of power to civilians. In renewed demonstrations on Aug 31, one protestor was killed.
The first resident US ambassador arrived in Sudan on Aug 24, signaling full normalisation of bilateral relations after a hiatus lasting 25 years.
On Aug 15, the fiftieth anniversary of the killing of Israeli sportspersons at the Munich Olympics, President Mahmoud Abbas accused Israel of committing “fifty holocausts on the Palestinian people.” The statement was condemned by both Israel and Germany. (Further Reading: “The ageing, ailing Palestinian leader does not do much governing” The Economist, Aug 23.
On Aug 2 Kuwaiti Crown Prince Sheikh Meshal al-Ahmad al-Sabah issued a decree formally dissolving parliament in a decree. Only on the previous day, he had approved a cabinet headed by a new prime minister, Emir’s son Sheikh Ahmad Nawaf al-Sabah. Subsequently, on Aug 28, the elections for the new parliament were set for September 29. The dissolution of the parliament left the country without the passage of a national budget for 2022. (Further Reading: “The world’s oldest crown prince nears the throne of Kuwait” The Economist, Aug 27.
On Aug 13, the first Kuwaiti ambassador in six years presented copies of his credentials to the Iranian foreign ministers. The ambassador was withdrawn in Jan 2016 following the sacking of the Saudi embassy in Tehran by the Iranian demonstrators protesting against the Kingdom’s execution of a Saudi Shia cleric.
French President Emmanuel Macron paid a three-day visit to Algeria on Aug 25-27 aimed at normalising the relations with the former French colony which have simultaneously been extensive and acerbic and have passed through a rough patch in recent months. He signed with his Algerian counterpart Abdelmadjid Tebboune a Joint Declaration state with a typical Gallic flourish said “France and Algeria have decided to open a new era … laying the foundation for a renewed partnership expressed through a concrete and constructive approach, focused on future projects and youth.” (Comment: Apart from mending official ties and engaging in PR and soft-power diplomacy, Macron’s visit had at least two hard-nosed objectives: persuading Algeria to increase its supplies of natural gas to France struggling to cope with uncertain supplies from Russia and hoping to gain popularity among nearly 4 mn ethnic Algerians living in France to stem a decline in his popularity.)
On Aug 2, the two sides in the civil war, the internationally recognised Yemeni government and al-Houthi militia agreed to extend their UN-facilitated ceasefire by two months. However, on Aug 8, the government Foreign Minister demanded that the al-Houthi militia permit road access to the besieged city of Taiz as agreed to in terms of the ceasefire.
On Aug 20, the UAE supported the Giants Brigade (Liwa al-Aumlaqa) militarily evicting al-Islah party allied militia from the oil-rich district of Shabwa in central Yemen. They followed it up by launching an operation against terrorist bases in neighbouring Abayan province. On Aug 23, Rashad al-Alimi, head of Yemen’s Presidential Leadership Council (PLC) “ordered” the UAE-backed separatists, formally called Southern Transitional Council (STC) to stop military operations in the country’s south. (Comment: The UAE has pursued a more nuanced agenda in Yemen as compared to Saudi Arabia. It has strongly supported Yemeni outfits, such as the Southern Transitional Council (STC) and the Giants Brigade, working for the restoration of an independent south Yemen and for the purging of political Islam in that area. While both STC and Islah Islamist Party (supported by Saudi Arabia) are nominally members of the PLC, their intrinsic contradictions keep them at each other’s throats and their sponsors on the edge.)
In a cabinet reshuffle on Aug 14, President al-Sisi sworn in 13 new ministers
A church fire in Giza on the outskirts of Cairo on Aug 14 killed 41 people.
On Aug 23, Egypt signed a G2G deal with Russia to import 240,000 tons of wheat.
President of Uzbekistan Shavkat Mirziyoyev began a state visit to Saudi Arabia on Aug 17 which led to the signing of 10 agreements involving Saudi investment of SR45 bn in the Central Asian country.
On Aug 31 Lebanese President Michel Aoun returned the amended bank secrecy bill to the parliament asking for reconsideration to tighten the document’s provisions. (Comment: The passage of the bill is a crucial pre-condition for the IMF bailout the country’s economy desperately needs.)
On Aug 29, the Lebanese had a piece of rare good news when its national team qualified for the Basketball World Cup by defeating India 95-63 in Bengaluru.
On Aug 27 armed clashes in the capital Tripoli between the militias loyal to the two rival prime ministers resulted in the death of 12 and injury to 87.
Rabat recalled its ambassador from Tunis over an invitation to the Sahraoui Democratic Arab Republic (SADR) for the eighth Tokyo International Conference on African Development (TICAD8). Tunisia also took the reciprocal measure. The conference concluded with a virtual address by the Japanese PM committing $30 bn during the next three years as development assistance to Africa.
II) Economic Developments
Oil & Gas Related Developments:
- During July, the global oil and gas sectors continued to show two broad trends reacting to their respective stimuli: Turbulence and Tactical Mutual Decoupling.
- The international oil supply-demand equilibrium was largely stable at a slightly higher plane and the prices remained range bound with the brent ending July at $110.01/barrel, down 4% during the month. The price recovered after falling below $100/b on July 7, the first time since April 22. There were reports about Russia offering lower discounts resulting in lower volumes exported during the month. Despite outages in several member states, such as Libya and Nigeria, OPEC managed to raise its output by 310,000 bpd in July 22 over the previous month. Yet, it collectively produced only around 28.98 mbpd, undershooting its July target by 1.3 mbpd. While on June 30 OPEC+ had decided to raise its incremental production by 50% to 648,000 bpd in July, there was no hard data about how far was this target met. To deflect the doubts about the spare production capacity the Saudi foreign minister stated on July 19 that the price rise was not due to lower crude production, but was caused by the insufficient global refining capacity instead. The July 26 US decision to release further 20 mn barrels from its strategic reserves also cooled the market. For the record, the following two tables based on the authoritative BP Energy review for the year provide the oil situation data in 2021:
- OPEC’s monthly bulletin on July 12 projected lower demand growth in 2023 to 2.7 mbpd. It also foresaw no dramatic surge in shale oil production in the US, despite the recently reported breakthrough in so-called “Re-Fracs” technology in which old shale wells are given a second, high-pressure blast to lift output for a fraction of the cost of a new well.
- Despite its recent decline, Reuters reported on August 1 that both Brent and WTI crude futures contracts were up about 30% so far this year, while the MSCI’s All Country World Index (ACWI) of stock markets was down about 15%. (Comment: This was an interesting reversal of the two indices in the Covid-19 era.)
- British leftist daily “The Guardian” reported a study claiming that over the past 50 years the global oil and gas industry has delivered, on average, $2.8bn a day in pure profit. The study by Prof. Aviel Verbruggen is yet to be published in an academic journal. (Comment: The environmentalists and others have often demonised the conspiratorial nexus between the rent-seeking fossil fuel companies and the producing countries, the study is one of the rare attempts to quantify the issue. Further Reading: “Revealed: oil sector’s ‘staggering’ $3bn-a-day profits for last 50 years”, The Guardian, July 21.)
- The 10-day maintenance shut down from July 11 of the main Nord Stream pipeline that carries Russian natural gas to Germany highlighted West Europe’s energy vulnerability providing a foretaste of the potential crisis this winter. On July 26. EU ministers agreed to undertake a 15% voluntary cut in their gas consumption between August 22 and March 23. As if on cue, the next day Gazprom, the state-owned Russian gas monopoly announced reducing the Nord Stream supplies by half to a mere 20% of its capacity, citing the non-delivery of equipment by Canada due to the US sanctions. Although the US has raised its natural gas production capacity making it the world’s top LNG producer in H1/22 (11.2 bcf/d), 71% of which is exported to Europe, this is still insufficient to compensate for the shortfall on the continent. Hence the scrimmage by the EU countries to make alternate arrangements causing the local gas prices to surge by an astronomical figure of 700% since the beginning of 2021. (Comment: Historically, the Ukraine war is proving to be as disruptive for natural gas as the Yom Kippur war was for crude nearly 50 years ago. The “new normal” for gas would have turbulence for the foreseeable future and could put paid to the strategy to rely on this relatively cleaner source of energy as an intermediate medium to a carbon-neutral future. Further Reading: “Natural Gas Soars 700%, Becoming Driving Force In The New Cold War” Bloomberg, July 5.)
- Energy ministers of Saudi Arabia and Russia met in Riyadh on July 29 to discuss their cooperation ahead of the OPEC+ meeting.
- On July 4, the three big American oil and gas services companies, namely Schlumberger, Baker Hughes and Halliburton, pledged to comply with an Iraqi federal supreme court ruling and withdraw from the country’s Kurdistan region. On July 10, the Iraqi government announced that 140,000 bpd Karbala refinery would commence operations before end of 2022.
- On July 5, Royal Dutch Shell joined the $30 bn Qatar LNG Expansion Project for its North Field with a share of 6.25%.
Following economy-related developments took place in WANA countries:
- Turkey’s economic performance continued to churn out extreme headlines. According to an analysis of the IMF WEO, the country was expected to be the world’s fastest-growing major economy during the 2020-23 four-year period, recording an annualised GDP growth of 5.1%. China (4.55%), Egypt (4.3%) and India (3.9%) followed. The tourism sector produced a spectacular rebound: Turkey’s tourism revenues nearly tripled in the Q2/22 y/y while first-half foreign visitor numbers surged close to 2019 levels. The country was expected to have 47 mn foreign tourists this year spending $37 bn as compared to $34.5 bn. The sector was helped by the removal of covid-19 restrictions and 44% devaluation in the Lira last year and 27% so far in 2022. The bad news was also in droves: the annual inflation rose further to 78.62% in June 22, the Lira plummets back to near 18 to the Dollar and Fitch downgraded the country’s debt rating to B from B+. (Further Reading: “Recep for trouble: Lessons from Turkey on the evils of high inflation” The Economist, July 21.)
- Saudi Arabia’s economy grew by 11.8% in Q2/22 y/y leveraging the 23.1% growth in oil-related activities. The non-oil sector grew by 5.4%.
- On July 27, all GCC Central banks, except Kuwait, announced a 75 bps hike in their discount rates mirroring Federal Reserves’ decision. This is to maintain their currencies fixed peg to the Dollar.
- On July 4, with Eid al-Adha approaching, Saudi Arabia and the UAE each announced an economic package to mitigate the adverse impact of high inflation on their citizens.
- On July 1, the UAE and Indonesia signed a Fre Trade Agreement during President Widodo’s visit to Abu Dhabi. It is expected to boost the annual bilateral trade from the current low level of $3 bn. (Comment: Indonesia’s FTA could raise the competition with India for the UAE market to a higher level.)
- On July 29 Dubai granted full approval to the cryptocurrency outfit FTX to operate its exchange and clearing house in the emirate. It has already granted a virtual asset license to Binance to conduct some operations. (Comment: The UAE has been on a drive to become a hub for the virtual asset sector even as regulators elsewhere flag concerns over the technology. Dubai, in particular, took an early lead by setting up the Virtual Assets Regulatory Authority (VARA) as a sectoral regulator on Feb 28 2022. This act of dancing with the financial wolves, shunned by much of the world including India, could complicate the UAE’s efforts to come out of the FATF’s listing. The UAE move, nevertheless, was not without a financial logic: The overall crypto volumes on the global exchanges were $4.51 trillion in July 22.)
- On July 6, the UAE announced several administrative measures to cut the red tape making it easier and quicker for digital companies to incorporate. It set a target for 300 digital companies to incorporate within a year.
- The United Kingdom and Israel launched negotiations on July 20 for a bilateral Free Trade Agreement.
- Israeli exports are expected to clock a growth of 15% y/y in 2022 to reach a figure of $165 bn. However, funding to the country’s high-tech sector declined to $9.8 bn in H1/22, lower by nearly a third over H1/21 as over-valuation and the fears of a global recession took hold. The sector provides nearly a tenth of the jobs and 15% of the GDP.
- On July 4, Egypt’s Suez Canal Authority stated that its revenue hit a record high of $7 bn in the financial year to June 30, up 20.7% from the previous year. The total number of ships using the canal rose by 15.7% and the cargo carried by them was up by 10.9%.
- On July 4, the “Brazil and Arab Countries Economic Forum” was held in Brasilia. Brazil has already concluded an investment facilitation agreement with Morocco and has a free trade agreement with Egypt and is holding trade agreement negotiations with Saudi Arabia, Lebanon and the UAE. (Comment: India overtook Brazil last year as the largest supplier of foodstuff to the Arab countries, a title that the Latin American country had long held.)
III) Bilateral Developments
- On July 10, Prime Minister Narendra Modi sent messages of greetings on Eid al-Adha to his counterparts in WANA countries including those of Saudi Arabia, Oman, the UAE, Kuwait, Algeria, Morocco, Iraq Turkey and Palestine Authority.
- On July 14, PM Modi participated in the I2U2 virtual summit with leaders of Israel, the US and the UAE. Among the projects announced by the summit were two specific to India: a 300 MW hybrid renewable energy project in Gujarat and a $2 bn investment by UAE for developing integrated food parks in India. (Further Reading: “UAE’s $2 billion and US, Israel tech for India food parks” Times of India, July 15.)
- India’s trade with GCC during FY22 grew by 77.06% to $154.66 bn, main driver being higher volume of pricier crude imports to fuel India’s post-pandemic economic recovery. Imports from GCC stood at $110.73 bn while exports were $43.93 bn – yielding a trade deficit of $66.80 bn. (Further Reading: “India in the Gulf: Time to Join the Big League” by Mahesh Sachdev, Hindustan Times, July 15.)
- Early results from Indo-UAE CEPA were mixed. During the first two months (May-June 2022) India’s exports to the UAE rose by 17.5% to $5.4 bn. On the other hand, our imports grew 67% to $9.3 bn in the period, mainly due to a spike in oil shipments in both volume and value terms amid soaring global prices. As a result, India’s trade deficit with the UAE quadrupled to $3.92 bn in the two months from $980 mn the year earlier.
- The Dubai real estate sales surged 60% during H1/22 y/y with Indians continuing as the top buyers.
- On July 20, NTPC signed an MoU on cooperation in the renewable energy sector with Morocco’s Agency for sustainable energy (MASEN)
- An article in RBI’s Bulletin for July 2022 analysed the impact of the Covid-19 pandemic on inward remittances during FY21 to India based on the World Bank data. It made the following broad conclusions: (a) India remained the largest recipient of inward remittances in 2021 with a total of $87 bn (12% of the world’s total). These grew by 4.6% y/y despite a global decline in such remittances by around 3%. (b) The remittances from the GCC states to India had fallen sharply during 2021 when they were overtaken by those from the advanced countries (30% to 36% shares respectively). Specifically, the remittances from the US overtook those from the UAE (c) The inward remittances comprised nearly 3% of India’s GDP and were higher than the FDI received during this period. (d) The Top-5 states receiving remittances were: Maharashtra (35.2% of the total remittances); Kerala (10.2%), Tamil Nadu (9.7%), Delhi (9.3%), Karnataka (5.2%). Two relevant Charts from the article are placed below. (Further Reading: Headwinds of COVID-19 and India’s Inward Remittances)
- On July 20 Minister of State for Commerce & Industry (MoS) Smt. Anupriya Patel met Mrs Amal Salih Saad Mohamed, Minister of Trade and Supply, Republic of Sudan
- On July 31, “Chabahar Day” was celebrated in Mumbai to mark the beginning of the International North-South Transport Corridor (INSTC) – an Indian vision to economise the movement of cargo between India and CIS countries. Indian Minister of ports, shipping and waterways Sarbananda Sonowal led the event which was also attended by several India-based diplomats/consular officials from Iran and Central Asian countries. (Comment: After several years of dormancy, INSTC seems to have acquired added traction due to expanded trade with Russia after the Ukraine war.)
- The 5th session of the India-Egypt Joint Trade Committee and the 5th India-Egypt Joint Business Council Meeting were both held on July 25-26 in Cairo at the Joint Secretary level. These were held after a gap of 3 and 6 years respectively. The bilateral trade reached a historic record high of $7.26 bn in FY22 and there are Indian investments of $3.15 bn in that country. On July 27, an Egyptian cabinet statement announced the signing of an MoU with RENew Power Pvt Ltd of India to build an $8 bn plant in the Suez Canal Economic Zone to produce 20,000 tons of green hydrogen a year.
- There were unconfirmed reports in a section of Indian media during the month about India and Iran discussing the resumption of supply of crude to India on Russia-like concessional terms on barter, etc. According to these reports, these possibilities were first raised during Iranian FM’s visit in June and were followed up by Iran at the deputy foreign minister level. The report was not commented upon officially by either side. These speculations were also spurred by the RBI’s introduction on July 11 of an additional mechanism for invoicing, payment, and settlement of export/import transactions in the Indian rupee.
- There was a string of reports about the supply of discounted Russian oil supplies to India having peaked during the month. Bloomberg reported on July 18 about these having come down 30% below their peak. A Reuters report on the same day mentioned that Russia wanted the oil payments in UAE Dirhams. The same agency had put out on July 8 that the discount offered by Russia had come down to a mere $7-$8 per barrel from $20 to $30 initially.