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COVID-19-induced impact on oil, tourism sectors to have wide-ranging economic, social ramifications on GCC countries over coming months – GCC Analysis

Executive Summary

The decline in global oil prices and tourism due to ongoing COVID-19-induced travel and business restrictions has led to severe economic challenges for the Gulf Cooperation Council (GCC) states, which heavily depend on these sectors for revenue. This will likely lead to a recession, as per International Monetary Fund (IMF) projections that the GCC economy will contract by 7.1 percent in 2020.

The ongoing repatriation of thousands of expats from the region to their countries of origin as a result of the crisis is likely to have multiple social and economic ramifications, particularly in countries like the UAE and Qatar, where foreign nationals make up almost 90 percent of the total population.

This will lead to labor shortages, increasing the need to expedite the nationalization of the workforce and rapidly train domestic workers, which is unlikely to occur in such a short time span.

Those operating in the GCC states are advised to remain abreast of COVID-19-triggered restrictions and related economic and labor measures that are being undertaken by the respective governments, and to take mitigating actions against potential resultant risks.

Please be advised

In light of the ongoing COVID-19 pandemic, Gulf Cooperation Council (GCC) countries have adopted various measures, the most prominent of which include:

Bahrain

On March 17, the government announced an economic stimulus package worth 11.4 billion USD to support the country’s private sector.

On April 20, Bahrain announced that the budget of ministries and government departments will be reduced by 30 percent, for an unspecified period, in order to mitigate the impact of COVID-19.

According to June 12 reports, the state-owned oil company decided to terminate the contracts of “hundreds of foreign employees”.

On June 15, the government approved a draft law to allocate approximately 470 million USD to the budget of 2020 in order to “deal with emergency expenses required for mitigating COVID-19 impacts and curbing its spread.”

Kuwait

On June 3, Kuwait’s Prime Minister vowed to “resolve the demographic imbalance” by reducing the expat population from 70 to 30 percent.

On June 10, the government announced that expats will no longer be hired in the oil sector.

Oman

On March 17, Oman’s Ministry of Finance announced a five percent reduction in the budget allocated to government agencies.

On April 29, Oman ordered public sector companies to accelerate the process of replacing foreign staff with Omani nationals.

Qatar

According to June 11 reports, Qatar directed ministries and government-funded entities to reduce costs through layoffs or salary cuts of non-Qatari employees.

On July 8, the Qatari cabinet approved a draft law, which stipulates that state-owned private sector companies must strive towards ensuring that their overall workforce is made up of at least 60 percent Qatari nationals.

Saudi Arabia

On April 12, the Organization of Petroleum Exporting Countries (OPEC) Plus, which is de-facto led by Saudi Arabia, agreed to reduce production by 9.7 million barrels per day (mbpd) until July, then by 7.7 mbpd from August-December, and then by 5.5 mbpd until April 2022. The group also called upon “all major producers to contribute to the efforts aimed at stabilizing the market”.

On April 15, the Saudi government allocated 13.3 billion USD to support the private sector.

On May 11, Saudi Arabia announced budgetary cuts totaling eight billion USD to “Vision 2030”-related programs and increased the value-added tax (VAT) on goods and services from five to 15 percent for an unspecified period.

UAE

On July 5, the UAE announced a broad government restructuring for “agile and swift” decision-making amid the pandemic. This includes the merging of energy and infrastructure ministries as well as abolishing several government service centers and converting them to digital platforms within two years.

The UAE has announced a phased stimulus package for businesses, totaling approximately 1.7 billion USD, the most recent part of which was announced on July 11. This has included postponement of rent payments, customs reimbursements, and refunds of 50 percent on municipality fees on sales for hotels and restaurants.

Background

There are several common features that characterize the six GCC economies, namely, Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, and Oman. These include high dependency on hydrocarbon revenue, a young and rapidly growing national labor force, and high reliance on the expat workforce. Together, they account for approximately one-fifth of the world’s crude oil production and possess approximately two trillion USD worth of financial wealth.

However, there is a wide variation in resource endowments across these states, which, in turn, poses unique risks and challenges for these economies. For instance, Kuwait, Qatar, and the UAE have substantial energy reserves, with relatively small populations, as compared to Saudi Arabia, which has the largest reserves of oil but is spread across a much larger territory and population. Bahrain and Oman, with oil and gas reserves that are relatively limited, are more vulnerable to economic deficiencies when compared to the other GCC states. While plans to diversify their energy-based economies have been in place across the Gulf states in varied scale since the 1970s, the drop in oil prices since 2014 has brought forward the urgency of economic diversification in GCC states.

COVID-19-related restrictions on travel and business operations have had an overall adverse impact on the global economy. The economic ramifications of these restrictions have been severely witnessed in GCC states amid a decrease in the global demand for oil, approximated at 18 percent since the start of 2020. This has led to a steep decline of more than 70 percent in the price of oil, the lowest in over 20 years. According to an IMF report on July 13, oil revenues are now projected to decline by more than 270 billion USD in 2020, relative to 2019.

Assessments & Forecast

COVID-19-related restrictions on business, travel pose significant economic challenges to Gulf countries

Challenges posed by steep decline in oil prices

The hydrocarbon sector, namely oil, petroleum, and gas, as well as their derivatives, contribute significantly to the GDP and government revenue of GCC countries. In the case of states such as Kuwait, Qatar, and Saudi Arabia, the GDP derived from the oil and gas sector accounts for almost 50 percent of their total GDP. At the onset of the global spread of the COVID-19 pandemic, an initial catalyst that contributed to the plummeting of oil prices in the February and March was the failure of Saudi Arabia and Russia, two of the world’s largest major oil producers, to reach a consensus to slash oil production, which led to a price war between the two countries. Thereafter, Riyadh propelled its output to an unprecedented 12 million mbpd in early April in a bid to defend its share in a shrinking market. On April 12, the OPEC Plus reached a deal to slash production by 9.7 mbpd until the end of July, which underscores joint efforts to rebalance the demand and supply in the market. Despite this, oil prices have fluctuated over recent months, largely due to oscillations in global uncertainty amid the spread of the pandemic. FORECAST: While it is likely that the expected easing of restrictions on travel and businesses will boost demand for crude oil over the coming months, the ongoing uncertainty surrounding the pandemic, and potential for additional waves of infection, threatens to derail this recovery.

The decline in oil prices of more than 70 percent over recent months has led to increased financial constraints for all GCC states. This has compelled authorities to slash public spending while simultaneously redirecting funds to help citizens and the private sector cope with the significant financial challenges resulting from the virus. This has been particularly evidenced by reductions in the state budget for 2020 in Bahrain and Oman, as well as the allocation of millions of USD by Saudi Arabia and UAE to boost liquidity in the economy.

FORECAST: Overall, given that government spending is a key driver for economic growth, and is mostly derived from the energy sector, the recent cuts in capital and current spending will likely lead to an economic recession in at least some of the GCC states. This is bolstered by the IMF’s prediction, as of July 13, that the GCC economy is expected to shrink by 7.1 percent this year, both in the oil and non-oil sectors. The fact that this is a revision of the 2.7 percent predicted contraction in April, indicates the overall downward economic trend that is likely to be experienced by all six countries over the coming year, albeit in varying degrees. Most notably, the largest GCC economy, Saudi Arabia, is predicted to shrink by 6.8 percent, per June 24 reports quoting the IMF, compared to a 2.3 percent contraction that was predicted in April.

Meanwhile, GCC countries have long sought to diversify their hydrocarbon export-driven economies in order to decrease the vulnerability of their revenues. To this effect, all of the GCC countries have set out ambitious targets and strategic visions that are also designed to appeal to global investors. These include Bahrain’s Vision 2030, Kuwait’s New Vision 2035, Oman’s Vision 2040, Qatar’s National Vision 2030, Saudi’s Vision 2030, and UAE’s Vision 2021. However, given that commitment to these reforms have been inconsistent over the past years, most governments continue to rely on oil revenues. FORECAST: In this context, the slump in oil prices, as well as the overall depreciation of government revenue over the recent months indicates that investments in non-essential projects, such as in the sectors of infrastructure and real estate, will likely be postponed, which will further prolong the countries’ efforts to diversify their sources of income.

Challenges posed by decline in tourism, hospitality industry

Most GCC states have made significant efforts to transform to a hub for tourism and hospitality over recent years, constituting a major economic driver in terms of these countries’ economic diversification strategies. To this effect, GCC states have laid out long-term plans for airport expansions to increase the handling capacity of projected visitor inflow, further supported by the relaxation of visa rules to further boost tourist arrivals. Moreover, the hosting of mega-events, such as the Expo 2020 in Dubai and the FIFA World Cup 2022 in Qatar, were expected to grow the GCC’s leisure and hospitality construction sector expenditure from 467 billion USD in 2019 to 642.3 billion in 2023, implying a five-year compound annual growth of 8.6 percent, compared to the 5.7 percent achieved in 2013-18.

FORECAST: In this context, the effect of COVID-19-induced restrictions on travel between countries will have a significant economic impact on the GCC countries. For example, according to reports, the forecasted revenue loss for the UAE airline industry alone is projected at 5.3 billion USD, due to the drop in approximately 23.8 million passengers. Additionally, the postponement of highly anticipated events will exacerbate these losses. For instance, the Expo 2020 in Dubai, which was originally scheduled to take place in October 2020-April 2021 and was expected to contribute approximately 30 billion USD to the economy, will add to the decline in predicted revenues. Saudi Arabia will likely face similar challenges, given that authorities have banned pilgrims from other countries from traveling for the Hajj pilgrimage, which is slated to begin on July 28. This is particularly given that Hajj, which witnesses the arrival of almost 2.5 million pilgrims every year, generates an annual revenue of approximately 12 billion USD.

Measures adopted to mitigate economic challenges likely to increase socio-economic grievances, labor shortages

The “rentier state” model in the Gulf region has been long associated with the overall lack of taxation due to the abundance of allocated resources, wherein the state offers its citizens goods and services in return for substantial autonomy in decision-making, which is often characterized by a reduction in political engagement. However, economic conditions that have persisted across recent years, particularly in the wake of declining oil prices since 2014 and increased budget deficits in 2015-16, indicate that this pattern of governance is no longer feasible, especially as prolonged low oil prices could worsen the fiscal situation. Along with increased borrowing through the issuing of local and international bonds, in 2016, all GCC states signed an unprecedented framework for the introduction of Value Added Tax (VAT), known as the Common VAT Agreement. While the measure came into effect in the UAE and Saudi Arabia on January 1, 2018, and in Bahrain on January 1, 2019, other countries have stated that they needed more time to implement the reform. In the former states, a five percent levy has been imposed on several designated essential products and services including gasoline and diesel, food, clothes, utility bills, and hotel rooms, with the exception of public transport, medical treatment, and financial services. Similarly, a 50-100 percent “sin tax” has been imposed on certain products, including soft drinks and tobacco, in the UAE, Saudi Arabia, and Oman. In this context, Saudi Arabia’s tripling of VAT from five to 15 percent on May 11 highlights the Kingdom’s efforts to accelerate revenue generation through the collection of taxes.

FORECAST: These measures, combined with the cutting of the cost of living allowance for state workers that has been in place since 2018, will likely increase socio-economic grievances among the local population due to the increase in the cost of living. While Riyadh’s move was expected to cause a ripple effect across the region, the UAE’s Ministry of Finance indicated on May 12 that the country did not have immediate plans to raise taxes. Oman and Kuwait are expected to introduce VAT systems by 2021. However, given the possibility of protracted economic effects of COVID-19, there remains a potential for the introduction of tax reforms and other austerity measures by the remaining GCC states over the coming months.

Furthermore, the COVID-19 pandemic has forced many sectors across the GCC to shore up spending through layoffs and employee salary cuts. In this context, given that a high percentage of the population of most GCC states’ workforce consists of expats, it is this community that is liable to be most impacted by the economic downturn. While several governments have implemented policies that seek to prioritize employment for local citizens at the expense of foreign workers over the recent years, since the outbreak of the health pandemic, an acceleration of these measures has been witnessed in countries such as Oman, Qatar, Bahrain, and Kuwait.

This is evident by Oman’s April 29 decision to replace expats with Omani nationals in its public sector, as well as Qatar’s June 11 directive to all state-owned entities to curb spending through layoffs and salary cuts of expats, rather than Qataris. Meanwhile, Kuwait has explicitly stated its objective to reduce the expat population from the current 70 percent to 30 percent, although no timeframe was attached to this objective. This is part of an effort to address the demographic imbalance in the country, as indicated by the Kuwaiti PM’s statement on June 3. Kuwait has further passed measures such as a ban on the hiring of expats in the country’s oil and municipality sectors. Furthermore, several lawmakers have also tabled a bill in the parliament to introduce a quota system, wherein the percentage of expat population from different countries will be capped at certain ceilings.

To some extent, the sense of urgency in passing such expat-focused legislation has also been triggered by the growing perception that the spread of the virus in some of the GCC countries has been caused by foreigners, particularly by blue-collar workers that make up a high percentage of the countries’ migrant population. This is primarily due to the fact that a majority of such workers live in low-cost, overcrowded labor camps, a number of which had emerged as hotspots for the spread of the virus, as in the case of Doha’s Industrial Area. This may have increased resentment among parts of the local citizenry towards the migrant population, due to the pressure placed on the country’s resources and infrastructure amid the current health crisis.

That said, such policies and sentiments vis-a-vis the expat population do not resonate uniformly across all GCC states. For instance, per June 11 reports, UAE’s Minister for Infrastructure Development stated that the “UAE is a place where expats are well-skilled and we definitely need them. The pandemic is not going to be here for a long time…then we would regret that we got rid of our skilled workforce, whether it is nationals or expats. We would like to keep them”. This indicates the country’s recognition that the expat population, especially skilled migrants that constitute a majority of the middle class in the UAE, are vital for economic growth and development. This is further evidenced by the fact that the UAE and Saudi Arabia have not passed any major legislation over the recent months that seeks to specifically slash the expat population by denying them employment. FORECAST: Regardless of the absence of long-term policies to “address the demographic imbalance”, as in the case of Kuwait, the large departure of the migrant population, some of whom who are being repatriated to their home countries from the Gulf amid the COVID-19 pandemic, is liable to have several far-reaching social consequences. This will be explored in the next section.

Social, economic implications of economic slump, expat-focused measures over coming months

Domestic impact on economy, potential for labor shortage

FORECAST: The sudden exit of the migrant worker population will significantly alter the demographics, especially in countries like the UAE and Qatar, where foreign residents comprise approximately 90 percent of the population. In the UAE alone, more than 350,000 Indian nationals, and over 60,000 Pakistani nationals, have registered to be repatriated, as of the time of writing. Similarly, over 25,000 Indians have reportedly registered for repatriation due to job losses in Saudi, while 10,000 such nationals have already departed from Qatar. Moreover, countries like Kuwait also announced amnesty schemes for the evacuation of workers of all nationalities, which has reportedly benefitted over 45,000 Indians and other nationals. This will therefore have substantial economic and social implications over the coming months and years, which is expected to be larger than those witnessed during the 2008-2009 financial crisis.

FORECAST: The uprooting of middle-class residents and their families is liable to negatively impact the domestic economy, as sectors that relied on these customers such as restaurants, schools, clinics, and the retail sector, will suffer major losses. Without government support, these services will be forced to lay off more people, which may trigger a deflationary impact and likely lead to a secondary wave of migrant exodus. The exit of low-income earners, such as domestic assistance, will also lead to social implications, as this may force a change in the overall lifestyles of locals. In the UAE, it is suggested that 96 percent of Emirati families employ domestic help to raise their children, highlighting the dependence of the local population on expat workers.
FORECAST: The utility of expats as consumers and sources of revenue in the form of taxes and fees, including VAT on goods and services, road tolls, and visa renewal fees will decrease. For example, in 2018, the UAE collected approximately seven billion USD in VAT collection, which accounted for almost 1.7 percent of the country’s nominal GDP that year. Similarly, Saudi Arabia collected almost 9.3 billion USD in the form of VAT in 2018. Saudi was also expected to raise 17.3 billion USD in 2020 in the form of expat visa renewal fees, as well as the charges that are to be paid by companies for every foreign worker they hire. Therefore, this will contribute to a further reduction in government revenue.

FORECAST: A labor shortage will likely be experienced in the market over the coming months due to the departure of expat personnel, both high-earning professionals and low-income workers. This will likely be most acutely felt when the economy and oil prices rebound and stabilize to a relative degree, which will, in turn, facilitate the resumption of several infrastructural and development projects that have been currently postponed. The implementation of these projects will be hindered by the labor shortage. This is given that ambitious development plans adopted by the GCC states have largely led to an extensive, unregulated import of both skilled and unskilled labor. Moreover, the financial ability of these countries to purchase technology and knowledge also meant that professional development has not always been a top priority. This has led to a disconnect between rewards offered to nationals in the form of lucrative jobs in the public sector, unemployment and other benefits, and their level of merit and competency.

FORECAST: Therefore, GCC governments will likely face significant challenges in developing the skill sets of its national workforce to fill the gaps within the labor market over the short term. Authorities will be forced to provide substantial incentives for citizens in order to attract them towards the private sector at a time of diminishing resources, as employment in the public sector for most countries has either been or are approaching saturation. In the absence of such incentives, there also remains a possibility for protests in demand of better employment and economic opportunities. However, in many states, the overall lack of large civil society organizations and protest groups as well as a broader absence of a protest culture will render it difficult for a potential anti-government movement to mobilize.

FORECAST: Overall, COVID-19-triggered restrictions and resulting losses in revenue in both the private and public sectors have, and will likely continue to lead to, job layoffs and salary cuts across the region. For short-term delay, most GCC governments have announced emergency economic stimulus packages. These have included the expansion of government loans provided to businesses, direct cash transfers as partial payment of salaries, as well as deferments on rent and utility payments to help citizens and residents cope with the economic impact of the pandemic. Additionally, governments have been forced to utilize resources on protective measures and health infrastructure to mitigate the spread of the pandemic, bolstered by the free testing and treatment of the virus in several countries, including the UAE and Saudi Arabia. These costs are liable to increase in the event of further waves of infection. However, over the coming years, restrictions will gradually be eased in order to restore economic activity. Given the already diminished government revenue as well as the pressure to curb state expenditure and bolster public finances, states will be compelled to mitigate economic challenges by increasing taxes and training the local workforce. However, as noted, this will have a profound impact on the economic structure, social dynamics, and functionality of these societies.

Recommendations

Travel and operations can continue in GCC states while remaining abreast of COVID-19-related restrictions and procedures, as well as of social and economic developments due to changes to the workforce and reductions in state revenue.

It is therefore advised to take necessary measures to mitigate the potential adverse effect of these developments to ensure business continuity, while allotting for potential disruptions and service failures in these countries.

Furthermore, it is advised to maintain vigilance due to the heightened risk of anti-foreign sentiment in the GCC states on account of the perception among some parts of the local populace that expats are a burden on their resources.

Implications of recent escalation in US-Iran tensions on Iranian domestic, foreign policy – Iran Analysis

Executive Summary

Over the months of April and May, the US took multiple measures as part of its “maximum pressure” campaign vis-a-vis Iran, including the revocation of sanction waivers to importers of Iranian oil and deployment of US military assets to the Middle East.

As a response to the perceived provocations, on May 8, Iran announced its decision to partially halt its commitments to the Joint Comprehensive Plan of Action (JCPOA) and set a 60-day deadline for European states to renegotiate the financial terms of the agreement, marking a highly significant development since the ratification of the nuclear deal in 2015.

The purported involvement of Iran and its affiliates in the recent uptick in attacks against US allies, particularly the May 12 attack against four naval vessels, including two Saudi oil tankers, off the coast of the UAE, has further fueled tensions in the region.

Iran has resisted direct negotiations with the US thus far, which indicates the high level of influence wielded by hardliners on the country’s foreign policy. Tensions are liable to remain high as both Iran and the US are likely to continue their strategic posturing in the region over the short term, in order to eventually coerce each other onto the negotiating table.

Western nationals operating or residing in Iran are advised to regularly review emergency and contingency protocols as a basic security precaution due to the risk of limited hostilities between Iran, the US, and its Gulf allies. Those operating in Lebanon, Iraq, and Syria are advised to maintain a low profile due to threat of attacks by Iranian-linked elements.

Current Situation

On May 8, Iran’s SCNS released a statement announcing Tehran’s decision to partially halt its commitments to the JCPOA and setting a 60-day deadline for European states to take steps to counteract the negative effects of US sanctions.

The US President Donald Trump subsequently issued an executive order to impose sanctions on Iran’s metal industry.

On May 11, the US sent Patriot air defense systems to US CENTCOM based in Qatar’s al-Udeid Air Base.

On May 12, the US Embassy in Baghdad issued a security alert advising “all US citizens of heightened tensions in Iraq” and the “requirement to remain vigilant.”

On May 12, Saudi Arabia’s official news agency stated that two out of the four civilian commercial cargo ships that were subject to a “sabotage attempt” near UAE territorial waters in the Gulf of Oman, off the eastern coast near Fujairah, were Saudi oil tankers.

On May 14, the Yemeni Houthis claimed unmanned aerial vehicle (UAV) attack against an oil pipeline belonging to the official Saudi Arabian Oil Company in Riyadh Province’s towns of al-Duwadimi and Afif.

On May 15, the US ordered the departure of all non-emergency US government employees stationed at the US Embassy in Baghdad and the US Consulate in Erbil from Iraq.

On May 18, the Federal Aviation Authority (FAA) issued an advisory warning of risks to civil aviation over the Persian Gulf and the Gulf of Oman.

On May 19, a rocket landed in the vicinity of Baghdad’s Green Zone, less than two kilometers away from the US Embassy.

On May 20, the Spokesperson of the Atomic Energy Organization of Iran (AEOI), Behrouz Kamalvandi stated that Iran’s 3.67 percent production capacity of enriched uranium had increased by four-fold.

On May 20, two ballistic missiles were reportedly intercepted over Mecca Province’s Taif and Jeddah. Yemeni Houthis denied involvement in the attack.

On May 24, the US announced additional deployment of 1,500 military personnel to the Middle East.

Background

In May 2018, the US President Donald Trump unilaterally withdrew from the JCPOA, also known as the Iran nuclear deal, which was negotiated between Iran and P5 +1 (US, UK, France, Russia, China and Germany) countries in 2015. Subsequently, the US re-imposed sanctions related to Iran’s export of oil in November 2018, but granted sanction waivers to eight countries including India, China, South Korea, Taiwan, Japan, Italy, and Turkey for a period of 180 days. On April 8, 2019, the US designated the Iranian Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organisation (FTO). This was followed by the US’s decision to end sanction waivers to importers of Iranian oil starting on May 2, 2019. Out of the seven sanctions related to Iran’s uranium enrichment and civilian nuclear energy cooperation, the US revoked two sanction waivers related to Iran’s uranium enrichment process under the JCPOA – one that allowed Iran to store excess heavy water produced in the uranium enrichment process in Oman and one that allowed Iran to swap enriched uranium for raw yellowcake with Russia. On May 5, US officials announced their decision to deploy an aircraft carrier and bomber task force to the Middle East citing indications of Iranian threat, but provided no further details. This prompted Tehran’s decision to partially halt its commitments to the JCPOA on May 8, 2019.

Assessments & Forecast

Impact of IRGC’s designation as an FTO:

The designation of the IRGC in its entirety, including its extraterritorial wing, the Quds Force, as a “terrorist entity” marks a highly significant development, as it constitutes the first ever instance wherein the US has labelled a country’s military organization as an FTO. Such a designation comes amid the US’s continued policy to apply “maximum pressure” on the Iranian government to end its alleged role in destabilization activities across the regional as well as the international stage. It forms part of the US’s efforts to depict the Iranian administration as “rogue” or an “outlaw”, and is aimed at further isolating Iran on the international stage.

The move is largely symbolic, given the fact that US sanctions already target the IRGC and its leaders, affiliates, and subsidiaries such the Basij Resistance and the Quds Force and the US had already designated the IRGC as a “Specially Designated Global Terrorist” in 2017. However, the latest step will likely augment the existing pressure on Iran. Any individual or entity knowingly providing material support to the IRGC will now face the possibility of a 20-year US prison sentence. It will also impose immigration restrictions on members of the IRGC who attempt to travel to the US simply by virtue of their membership or affiliation to the organization. FORECAST: Given that the IRGC has significant stake in the Iranian economy, through this measure, the US likely intends to make it further difficult for foreign entities to conduct business with Iran, which, in turn, would have a negative impact upon the Islamic Republic’s economy. However, the fact that a large extent of the IRGC’s business dealings are known to be carried out through illicit channels, such dealings are unlikely to be significantly affected by the recent designation.

FORECAST: Moreover, such a move is also unlikely to alter Iran’s policies on the regional setting, like its involvement in supporting proxies such as the Lebanese Hezbollah, the Yemeni Houthis, and Shiite militias in Iraq such as the Harakat al-Nujaba (HNA). Rather, given the increased restraints faced by the IRGC, the recent move is liable to increase Iran’s motivation to expand its regional footprint through the above-mentioned proxies as well as other sponsored militias. To this effect, the Iranian government will continue to divert large funds, at the expense of its domestic population, in order to sustain its influence in neighboring countries. This, in turn, is likely to inflame already existing local grievances, which may result in further instances of widespread civil unrest in the country. However, on a broad basis, given Iran’s history of strategic culture and great power rhetoric, a majority of the Iranian populace views the US sanctions as the source of their economic hardship, as compared to the Iranian government’s policies. While this is partly aided by the intensive propaganda campaigns in the country, it nevertheless galvanizes unity in the face of a “foreign aggression”. Thus, it is likely that the Iranian administration will attempt to placate the inherent domestic concerns related to the government’s regional activities and support for its proxies amidst an economic crisis, by attempting to project strength vis-a-vis the US. This may take place through the continued portrayal of strength through military exercises, display of new defense equipment, such as the unveiling of the new domestically produced “Khordad 15” air defense system on June 9. Moreover, the Islamic Republic will seek to counteract the US’s measures by maintaining a relatively belligerent posture, given the influence wielded by hardliners on the country’s foreign policy.”

FORECAST: By continuing, or rather increasing support for its proxies, the IRGC may be able to effectively target its adversaries, namely the US, Israel, and Saudi Arabia-aligned countries in the Gulf over the coming months. In this regard, given that much of the recent attacks in the region, such as the May 19 rocket landing in Baghdad’s Green Zone near the US Embassy, the June 1 rocket attack into Israel’s Mount Hermon from Syria, or the spate of attacks against Saudi targets have consistently targeted Iran’s adversaries, it is likely that they were encouraged by Tehran in an effort to destabilize the region. Moreover, the fact that some of the attacks were carried out against energy-related targets, such as the May 12 targeting of Saudi oil tankers off the coast of UAE’s Fujairah in the Gulf of Oman and the May 14 Houthi-claimed UAV attack on the oil pipeline in Riyadh Province, suggests that Iran may be attempting to weaken the economies of Saudi-aligned countries, given their significant dependence on oil revenues. This would align with Tehran’s strategy of preventing its rival, Saudi Arabia, from expanding its influence in the region and subsequently positioning itself as the dominant regional power in the Middle East. This, in turn, would allow Iran to prevent the regional balance of power from significantly shifting away from itself, particularly in light of the reimposition of US sanctions.

Potential Ramifications of the imposition of various sanctions on Iran:

A) Oil-related sanctions:

The US’s refusal to extend the 180-day sanctions exemptions for importers of Iranian oil (China, India, South Korea, Turkey and Japan) from May 2 constitutes a core segment of the US’s “maximum pressure” campaign, as it aims to completely diminish Iran’s oil revenue. Although India and China, the two top importers of Iranian oil, were envisaged to face significant setbacks to its energy security policy due to the US move, it appears that both countries have planned for this eventuality and are effectively looking at alternate sources to fulfill their energy requirements. In this scenario, while neither of the two countries have officially announced their position on the future of Iranian crude imports, it is likely that imports from other key energy players such as Iraq, Saudi Arabia, and the UAE will feature on a higher side, specifically in the case of India. This will put further strain on Iran’s revenues from its oil sector, which, in turn, will have a significant adverse impact upon its national economy.

FORECAST: Given that the move has been anticipated since the reinstatement of US sanctions on Iran in November 2018, early indications suggests that apart from the initial shock, the decision has not drastically impacted the global oil market, despite fears of an oil price surge and supply disruptions. This is primarily due to a boost in Saudi Arabia’s oil production in May to fill the gap of Iranian crude, along with similar boosts in production by Iraq and Libya. However, Iran may resort to illegal trade of its oil in the black market, particularly in countries such as Yemen, where the Houthis have been reportedly deriving a majority of its income by selling Iranian oil. Furthermore, Iran may also attempt to export its oil through the use of “switch-off-the-transponder” tactics, which makes tracking ships increasingly difficult.

B) Uranium enrichment-related sanctions:

The May 8 statement released by the SNSC, which was reiterated by Iranian President Rouhani in a televised address, represents a pronounced effort by the Islamic Republic to project strength in response to perceived US provocations in recent years. The decision to halt its partial commitments under the JCPOA regarding enriched uranium and heavy water reserves follows the US’s May 4 revocation of the two sanction waivers, which practically forces Iran to completely overhaul its production of heavy water and uranium enrichment or continue production and find itself in breach of the JCPOA. Moreover, the five sanction waivers that were extended were also reduced from 180 days to 90 days, in which the remaining adherents of the JCPOA are allowed to cooperate with Iran on the sites of Bushehr, Arak, and Fordow without facing US sanctions.

This was followed by the May 20 announcement from the Spokesperson of the Atomic Energy Organization of Iran (AEOI), Behrouz Kamalvandi according to which, Iran’s 3.67 percent production capacity of uranium had increased by four-fold. However, Iranian officials reportedly stressed that the uranium would be enriched only to the 3.67 percent limit set under the JCPOA. Thus, although Tehran still remains party to the JCPOA, its increased capacity to produce enriched uranium suggests that Iran is likely to soon exceed the 300 kg uranium stockpile limitation set by the accord. FORECAST: However, as indicated in Rouhani’s speech, Tehran will likely retain its enriched uranium (upto 300 kg) and heavy water (upto 130 tons) rather than selling them to other nations while remaining within the limits prescribed in the nuclear deal over the short term, at least until July 8. This would allow Iran to project its adherence to the terms set under the JCPOA.

FORECAST: However, as per the joint statement released by France, Germany, and the UK on May 9, while the European states expressed “regret” over the reinstatement of US sanctions and continued to pledge their willingness to support alternate trade mechanisms such as the Instrument in Support of Trade Exchanges (INSTEX), they also categorically rejected Tehran’s 60-day ultimatum for negotiations. While this highlights their unwillingness to publicly be strong armed onto the negotiation table, it is also indicative of their reluctance to oppose US policies. Furthermore, the reimposition of the US sanctions has increased the risk of conducting business with Tehran for foreign companies, several of whom have already ceased their operations in the Islamic Republic. This is likely to have a significant adverse impact upon Iran’s economy over the coming months.

C) Metal industry-related sanctions:

The US President Donald Trump’s May 8 decision to impose new sanctions on Iran’s metal industry are aimed at undermining Iran’s revenue from the export of industrial metals, the country’s largest non-oil sector, which reportedly accounts for approximately ten percent of its export economy. While Iran’s mining industry was already facing severe setbacks due to shipping and payment restrictions, the recent move is liable to inherently impact employment provided by the metal as well as the automotive industry, which reportedly constitutes almost six percent of Iran’s total labor force. This is liable to significantly exacerbate domestic workers’ grievances, which have manifested in the form of persistent localized demonstrations across Iran over the recent months.

FORECAST: In this context, public protests surrounding employment, pensions, inflation, increase in the prices of basic commodities and other economic-related issues are liable to continue in a significant manner over the coming weeks and months. Such demonstrations will likely take place across Iran, including in major cities such as Tehran, as well as in outlying provinces such as Khuzestan and Kordestan, where the locals comprising of an Arab-majority or Kurdish population perceive themselves as marginalized by the Shiite Iranian government’s policies. This will not only increase the threat of civil unrest in the country as a whole, but also exacerbate sectarian tensions between the countries minority communities and the Shiite-led government.

Lack of direct engagement, continued strategic posturing liable to prolong tensions in the region:

The Iranian administration’s current position to resist direct negotiations with the US, albeit agreeing to mediation talks with Japan, highlights the high degree of influence wielded by hardliners on the country’s foreign policy at this juncture. Such elements continue to criticize the Rouhani administration’s moderate approach towards dealing with the US and aspire to correct the perceived weakness with which the terms of the JCPOA were negotiated in 2015. FORECAST: This, combined with the relative lack of tangible economic benefits from JCPOA, is liable to further embolden segments of hardliners and conservative elements within Iran’s political sphere. This may result in further appointments of such elements in key leadership posts, which is liable to significantly hinder the popularity of more moderate officials, consisting of figures such as President Hassan Rouhani and Foreign Minister Javad Zarif. This is underscored by the appointment of General Hossein Salami, a prominent hardliner within Iran’s military establishment as the IRGC’s Commander-in-Chief on April 21. Such appointments are not only liable to increase the anti-US rhetoric emanating from the Islamic Republic but also significantly hamper the potential for backchannel negotiations with the US, which are generally conducted by more moderate officials.

FORECAST: On a regional level, tensions are liable to remain high due to the strategic posturing of the two countries, in order to eventually coerce each other onto the negotiating table. The deployment of US warships, including an aircraft carrier and a bomber task force on May 5, the sending of Patriot missile systems on May 11, as well as the decision to deploy an additional 1500 US military personnel to the region, is likely to significantly increase tensions in the Persian Gulf waters and the Strait of Hormuz over the coming weeks and months. This is particularly in light of Tehran’s persistent effort to assert its authority as the legitimate custodian of security across its territorial waters. These tensions may manifest in the form of limited confrontation between the naval forces of the two sides, which constitutes a general risk to shipping through the critical energy choke point.

FORECAST: Tensions are also likely to increase between Saudi-aligned countries and Israel on one side and Iran on the other. Iran may encourage its backed elements, particularly the Yemeni Houthis, to increase their attacks against targets in Saudi Arabia and the UAE. This would also align with the Houthis’ aim of weakening the economies of countries that are part of the Saudi-led Coalition in Yemen in order to reduce their ability to engage in the ongoing civil war in the country. Iran may also use its proxies and backed elements in Syria and Lebanon, such as the Lebanese Hezbollah, to put pressure on the US by using them as leverage against Israel, the US’s closest ally in the Middle East. This may manifest in the form of attacks against Israel by Iranian-backed elements in Syria, as witnessed on June 1, when a rocket was launched from Syria towards Israel’s Mount Hermon. However, such attacks are likely to remain limited and constrained to areas within close proximity to the Syria-Israel border. This is because an attack deep inside Israeli territory would trigger a large-scale conflict between Israel on one side and Syria and Lebanon on the other, and Syria is currently not interested in such a scenario given its preoccupation in hostilities with rebel forces.

FORECAST: Overall, as tensions between the US and Iran get prolonged, the risk of a military confrontation between the two countries will increase. Such a military confrontation is likely to be limited at least in the short term, with Iran attempting to use its proxies as a means to put pressure on the US and its Gulf allies and the US retaliating with a further increase in military presence in the Persian Gulf. While Iran is currently not interested in a broad conflict with the US given that its economy is unlikely to be able to sustain such a cost, as previously assessed, the influence of hardliners on the country’s foreign policy reduces the possibility of backchannel negotiations. This combined with the fact that the US is unlikely to agree to any terms that do not significantly diminish Iran’s nuclear and military capabilities, further reduces the possibility of successful negotiations. Therefore, as these tensions persist over a long period of time, the risk of a full scale conflict between the US and Iran cannot be ruled out.

Recommendations

Travelers are advised to regularly review their emergency and contingency procedures as a basic security precaution, as the current tensions between Iran on one side and the US and its Gulf allies on the other may manifest in some form of cold war or even a limited or full military confrontation.

Western nationals operating or residing in Iran are advised to remain cognizant to prevailing negative sentiment toward the United States and other North American and Western European countries.

US citizens and other Western nationals operating or residing in other countries in the Middle East with sizeable Iranian-backed elements are advised to keep a low profile and maintain heightened vigilance, given the potential for attacks by such groups.

Those operating vital infrastructure, particularly in the oil sector, in Saudi Arabia are advised to review security protocols in light of the threat posed by Yemeni Houthi-perpetrated attacks, particularly through the use of UAVs.

Those planning to operate commercial aircraft over the Persian Gulf and the Gulf of Oman are advised to exercise heightened caution and remain apprised of further FAA notices regarding the increased threat to aviation in this region.

Cartel Entry Into Mexico’s Illicit Fuel Market Brings About New Security Challenges – Mexico Analysis

Executive Summary

Fuel thefts have emerged as a leading cause for increased rates of violent crime in states with major oil pipelines.

The increase in violence stems from the entry of cartels into the illicit fuel trade, due to its lucrative, low-risk nature.

Security threats stemming from such thefts and related attacks on both state-owned and private oil companies are likely to increase going into 2019.

Avoid nonessential travel to states with an extreme or high risk of cartel and gang-related violence, especially in central Mexico, which is the heart of the fuel distribution system.

Current Situation

On December 22, Mexican authorities announced that an additional 4,000 soldiers will be deployed to protect assets of the state-owned oil company, PEMEX, throughout the country in the coming weeks. Military officials took over 73 strategic pipelines, six refineries, and several fuel monitoring centers across the country, which are responsible for observing the levels of fuel in pipes and ensure the functioning of the distribution system, and closed pipelines. The announcement came after a December 4 report outlining fuel shortages in 57 gas stations in the States of Mexico and Guanajuato due to thefts and attacks on the Tula-Azcapotzalco and Salamanca-Azcapotzalco pipelines. On November 7, Jalisco State reported fuel shortages in 500 stations due to the closure of a pipeline over illegal taps.

On January 9, five employees of the state-owned oil company, PEMEX, were arrested for failing to report the drop in pressure in gasoline ducts, an indication of a sudden loss of fuel from the pipeline. The Secretary of Energy also said that ongoing fuel shortages would resolve over the coming days as several pipelines were scheduled to reopen following investigations.

Several states in Central Mexico, as well as Mexico City, continued to experience fuel shortages as of January 13. Long waiting times were witnessed at fuel stations across the region, with a number of stations reportedly running out of supply. Furthermore, businesses are facing shortages of goods due to trucks being unable to obtain the necessary fuel to facilitate transportation.

Download the 2019 Global Travel Risk Map now.

Timeline of notable oil-related crimes prior to December 2018

July 28 – Five security personnel were reportedly killed in Puebla by local oil-theft gangs.

August 4 – Local oil syphoning gangs set two trucks on fire on the Mexico City-Puebla highway to block the road in response to security forces detaining the head of one of the gangs.

September 20 – The Cartel Jalisco Nueva Generacion (CJNG) claimed the killing a worker of the national oil company, PEMEX, in Salamanca, accusing him of informing the local Santa Rosa Lima cartel of the CJNG’s oil syphoning operations in the area. Authorities had stepped up security at a PEMEX-owned oil refinery in Salamanca in July, following allegations of cartels stealing oil with the help of several refinery workers.

October 6 – Five individuals were shot dead near Salamanca, Guanajuato in a suspected cartel dispute over control of the illicit oil trade in the state.

November 29 – A PEMEX pipeline located in the municipality of Cardenas, Tabasco, exploded during a fuel theft operation, causing the deaths of two and injuring several others.

Background

In the first ten months of 2018, the number of illegal taps on oil pipelines rose 45 percent from the same period in 2017 to over 12,500 nationwide. Fuel thefts have led to a 30 percent decrease in deliveries to centrally located fuel stations, and according to President Andres Manuel Lopez Obrador (AMLO), have cost the country over USD 3.5 billion annually.

In June 2018, 15 trucking firms contracted to the national oil company, PEMEX, ceased operations due to repeated threats to their drivers and vehicles. Trucking unions have accused PEMEX of indifference, as it receives insurance payouts, while drivers pay deductibles in the event of theft. PEMEX has said that it will shift from pipelines to other modes of gasoline delivery due to the rise in fuel thefts and subsequent decrease in the amount of fuel being delivered to gas stations, despite such modes being more expensive.

The center of the violence lies in the so-called ‘Red Triangle’ region in Puebla, encompassing the municipalities of Acajete, Acatzingo, Palmar de Bravo, Quecholac, Tecamachalco, and Tepeaca. It acts as a transit zone for 40 percent of the fuel distributed from Mexico City to the rest of the country. The most affected states are thus primarily located in the country’s central region, including Puebla, Hidalgo, and Guanajuato.

While fuel thieves, locally known as ‘huachicoleros’, have operated in the country for years, violence increased in 2017, following the government liberalizing fuel prices, which created a lucrative black market for cartels. Today, huachicoleros operate both as part of local standalone gangs and as extensions of powerful cartels, with the most notable being the CJNG. Further, the ongoing splintering of larger gangs since the government’s ‘War on Drugs’ strategy in 2011 has led to increased cartel disputes over the fuel trade, catalyzing more violence.

Assessments & Forecast

Military deployment, consolidation of illicit fuel gangs to lead to increased violence

Given the rampant corruption in local police forces, the proposed deployment of military personnel, who are perceived to be less entrenched in organized crime and huachicolero gangs, is likely to hinder these groups’ operational capabilities, as they are often reliant on cooperation and assistance from law enforcement. However, as seen with previous instances of an enhanced role of the military in domestic security issues, violence emanating from clashes between security forces and fuel thieves is likely to ensue. Thus, an improvement in the overall security situation seems unlikely in the medium term.

Moreover, with the entry of larger cartels into the illicit fuel trade, who have significantly more resources and connections, smaller huachicolero gangs will likely be forced to cease operations or declare allegiance to one of the rival cartels in the region. This will translate into turf wars becoming more two-sided and thus more deadly in the medium term, with opposing sides reverting to increasingly violent tactics to gain control of the region’s fuel trade.

Fuel thefts have now expanded to include truck robberies and hold-ups targeting fuel transport vehicles, with such attacks carrying a higher chance of turning violent and leaving casualties. Attacks on PEMEX pipelines and buildings also involve high casualty rates, especially in the event that fuel theft gangs seek to exact revenge on corrupt workers who shift allegiances.

Illicit fuel trade to become more lucrative to cartels with entry of foreign companies, complexities of drug trade

With one of AMLO’s campaign promises revolving around the legalization of drugs, such as marijuana, and bolstered security on the US border narco-trafficking groups may increasingly seek to divest into other revenue-generating operations, due to the increasing volatility within the drug trade. As a number of the larger cartels have splintered in recent years, local gangs affiliated to these groups have attempted to seek more reliable sources of revenue which offer a comparatively lower risk to the perpetrators compared to trafficking drugs, for which they may be targeted by rival groups. Gasoline, in particular, has emerged as a viable option, due to the elimination of issues such as smuggling the product across country borders and the availability of a much broader market than illicit drugs and thus has begun to be capitalized on by cartels.

Further, Mexico opened its markets to foreign oil companies for the first time in 2014, and the 2017 removal of fuel subsidies to PEMEX has made for a competitive market into which investors are keen to enter. Given the government’s increasingly aggressive approach to combating internal corruption in PEMEX, huachicolero gangs and cartels may seek to infiltrate or attack foreign-owned assets. This assessment is bolstered by the increased number of kidnappings targeting foreign workers in 2018, as they are seen as more likely to elicit higher ransoms and thus prove more lucrative targets.

Recommendations

Avoid nonessential travel to states with an extreme or high risk of cartel and gang-related violence, especially in the vicinity of the Red Triangle region.

Those with continuing essential operations in such states are advised to maintain an adequate private security contingent in order to secure any facilities or transport plans. Minimize employee exposure to areas with a known cartel presence.

Avoid non-essential travel on state highways due to the heightened risk of armed robberies and kidnappings, especially during the late night and early morning hours. If confronted by muggers, it is advised to cooperate fully and not engage in any behavior that could raise tensions and lead to violence.

Update your office or company of your travel plans and whereabouts. Use travel-tracking or satellite monitoring applications to indicate your location. In the event of an abduction, use the panic button on such apps.

In the event that a facility or operation begins to be targeted by cartel members, it is advised to evacuate all personnel immediately from the site, while avoiding any interaction with the criminal groups where possible.

Remain cognizant of local media updates regarding areas with a significant cartel presence, given the dynamic nature of the violence.

The 2019 Global Travel Risk Map is now available

Israeli attack on Iran: Unlikely in the near term

By Ron G.

Throughout the last few months and even more so in the past few weeks, discussions of a possible Israeli strike on Iran has come to the forefront of the agenda for many politicians, security analysts, and entities with interests in the region. Despite the increased rhetoric on all sides of this issue, which has been enhanced with the coverage of a frenzied media, the reality is that the probability of such an attack against Iran likely remains low for the near term.

Iran Uranium Conversion Facility — Iranian uranium conversion facility outside of Isfahan (AP)

The increased chatter regarding an Israeli strike on Iran’s nuclear facilities is a direct result of decisions by both the United States and the European Union to impose sanctions on the Islamic Republic. The decision to enforce such sanctions by the aforementioned powers likely arose due to three primary factors: the understanding that negotiations with Iran surrounding its nuclear program are futile, persistent pressure from leadership within the United States’ security and political leadership, and the over-implied threats by Israel that the military option is ‘on the table’.

Continue reading Israeli attack on Iran: Unlikely in the near term →

Egypt’s Anti-Western Future: Rhetoric or Reality?

By Ron G. and Daniel N.

Despite the risks, both the SCAF and the Muslim Brotherhood have much to gain by exploiting anti-western conspiracies which are rooted in Egyptian Society.

Egypt continues to reel from the aftermath of the recent high profile raids against foreign-backed NGO’s by state security forces. Egyptian human rights watchdogs have condemned the raids as an effort by the SCAF to subdue the groups which are fomenting criticism against its policies, while ignoring the large amounts of funds being illicitly transferred to Islamist parties from the Persian Gulf. The United States and European Union have also stepped up their criticism, with Washington hinting at cutting off its longtime financial aid package.

Soldiers stand guard during a raid on a pro-democracy NGO headquarters in Cairo.

The American threats have sparked an outcry amongst Egypt’s conservative groups, including the Muslim Brotherhood’s Freedom and Justice Party, which is slated emerge the dominant party in parliamentary elections. The FJP’s legal advisor, Ahmad Abu-Baraka, said on Sunday that the party will ask the newly-elected parliament to abolish the US aid, which he claimed “serves as a means to interfere with Egypt’s internal issues’; reportedly adding that ‘America and its money can go to hell”.

American foreign aid to Egypt is estimated at roughly 2 billion dollars annually, with $1.3 billion infused to military support. Egypt has enjoyed this financial support since the signing of the peace treaty with Israel in 1979, in which the aid was a crucial factor in keeping the country’s crumbling economy functioning at a basic level. Most recently, governmental officials have warned that Egypt’s national economy is currently facing its most serious crisis in years. Since the January 2011 revolution, the economy has suffered repeated blows to tourism and foreign investment as a result of the unrest, in addition to ongoing attacks on its natural gas pipeline in the Sinai Peninsula. Continue reading Egypt’s Anti-Western Future: Rhetoric or Reality? →

Yemen’s Greatest Challenge

By Gabi A.

Getting the oil flowing again is a basic requirement for the success of any future government.

yemen oil — An oil pipeline in Northern Yemen.

Even as fears of continued factional conflict continue to attract media attention, the question of economic stability and sustainability in Yemen has barely received the consideration needed to avoid a spiral into the status of a failed state. The interim government in the country faces difficult political challenges in the weeks ahead as it prepares for what many observers are hoping will be the country’s first free election. The head of the interim government, Vice President Abed Rabbo Mansour Hadi, is already facing calls to resign as protests continue to rage in the streets of the capital city of Sanaa with demonstrators facing off against forces loyal to now supposedly deposed President Ali Abdullah Saleh.

The destruction brought on by the nearly-ten-month uprising against the regime of Saleh has wreaked havoc not only on the delicate political system but also on the nation’s oil production infrastructure that provides the lifeblood for the economy. Oil exports are responsible for somewhere between 60-70% of government revenues and 90% of overall national exports. Continue reading Yemen’s Greatest Challenge →

What’s Behind the Iranian Naval Drills

By Max Security’s Intelligence Department

Upcoming naval exercises are the Islamic Republic’s language of choice for highlighting the detrimental impact of a Western military strike on the global economy.

iran navy — The Strait of Hormuz. (Google Earth)

Iranian officials announced that their armed forces will commence a 10-day naval exercise on December 24, stretching from the Persian Gulf to the Gulf of Aden. The announcement comes after several US defense officials issued strong warnings against the Islamic Republic’s nuclear ambitions, while Saudi Arabia announced its intentions to form a unified foreign policy for Gulf Cooperation States. In addition, Israel has announced increased military cooperation on a number of fronts, including renewed cooperation with the Turkish air force, and large scale anti-missile drills with United States scheduled for the Spring of 2012.

The upcoming maneuvers are meant as a message against the West and its regional allies, who in recent days have increased their rhetoric against the Islamic Republic. Naval exercises, missile drills, and land maneuvers are common forms of response after opponents make provocative statements. Continue reading What’s Behind the Iranian Naval Drills →

Erdogan’s Cypriot Quagmire

Turkish warships on maneuvers in the eastern Mediterranean. Turkey has since backtracked on recent threats against Cypriot natural resource exploration.

By Jay R.

As the Arab Spring has forced successive leaders from their posts, Turkey has been positioning itself to be the hegemon of influence in the region. This effort can be seen through the visits of Prime Minister Erdogan to Egypt and Libya, in addition to his nation’s strong stance against Assad’s Allawite regime in Syria.

Turkey has also been the sole voice of contention with regard to Cyprus’s natural gas exploration efforts in the eastern Mediterranean – a voice that has threatened a gamut of responses from the severing of its ties with the European Union to an all out attack on Cyprus’ drilling installations. This last stance however may have been the bite that was too much for Turkey and quite possibly the reasoning behind its recently softened position on the issue.

Turkish-Cypriot relations persist in contradiction to the rest of the world, as it is the only nation that recognizes the breakaway Turkish Republic of Northern Cyprus, while not acknowledging the Greek-administered Republic of Cyprus. This lone fact has led to the espousal of anti-Greek Cypriot rhetoric – rhetoric that seems to have backed Turkey into a corner of which it is now trying to break out of.

Continue reading Erdogan’s Cypriot Quagmire →