The Weekly Rundown: Turkish Turmoil, Friction in the Balkans and Saudi Arabia Pushes Back Against Canada
On the Record
Don't forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now.
Turkish President Recep Tayyip Erdogan
On Our Radar
Trump vs. Turkey. U.S. President Donald Trump may have met his match when it comes to stubborn populists on the world stage. As evidenced by the Turkish lira's Black Friday free fall, about as much restraint goes into Turkish President Recep Tayyip Erdogan's speeches as Trump puts into his tweets. The perfect storm hit when, just as Erdogan's son-in-law was trying to reassure investors and stem the lira's fall after another bombastic Erdogan speech, Trump fired off a tweet saying he would double steel and aluminum tariffs on Turkey as punishm ent for its failure to strike a deal to release a detained American pastor. This move will only reinforce Erdogan's call for solidarity against foreign economic belligerents, raising the question of whether Turkey's dismal economic picture of rising inflation, falling foreign exchange reserves, a widening current account deficit and loads of dollar-denominated debt will be enough to force a shift in Erdogan's political behavior, or at least allow some space for fiscal and monetary tightening to avoid a more serious balance-of-payments crisis. Looking ahead, we'll be watching for any signs of movement in troubled U.S.-Turkey negotiations, signs pointing toward central bank intervention and possibly capital controls, negotiations over currency swaps and any hints of financial assistance, especially from less politically toxic non-International Monetary Fund sources like China or even Qatar.
The Balkan Powder Keg. A Sept. 30 referendum on Mace donia's controversial name-change agreement with Greece and increased chatter between Serbia and Kosovo over territorial swaps to make their own states more ethnically homogeneous are creating friction in the Western Balkans. Russia has been accused of backing anti-government nationalists in both Greece and Macedonia to derail the latter's NATO and European Union integration. We'll also be watching whether Russia will actually endorse Serbia's bid to redraw political and ethnic borders in Europe â" an idea that Brussels will want to immediately quash for fear of setting off a wider conflagration.
A Succession Path Is Laid in Congo. The Democratic Republic of the Congo's president, Joseph Kabila, finally showed his cards when the ruling party named a new candidate to stand in the country's Dec. 23 presidential election, ending years of speculation over whether Kabila would try to stick around. Nevertheless, Kabila faces potential pitfalls ahead. Indeed, longtime African presidents who step into the shadows sometimes face successors who buck against the former leaders, as recently evidenced by Angolan President Joao Lourenco systematically dismantling the economic gains of his predecessor's family. Between that risk and the Congo's coming â" and likely violent â" election, Kabila still has plenty to be worried about.
Venezuela's Citgo Assets Under Threat. Venezuela is already high on our coup radar for obvious reasons. So any development that aggravates its economic crisis, like a recent U.S. court ruling that puts Venezuela's U.S. refining arm Citgo's assets at risk, bears close watching. Canadian mining company Crystallex has been authorized by a U.S. court to seize shares in PDV Holding, a private company that administers Citgo. Venezuela owes Crystallex $1.4 billion as payment for nationalizing its assets in 2008. The judge in the case stopped short of ord ering a seizure of shares in Citgo â" likely to give the two sides time to negotiate a payment plan. But a successful seizure of Citgo shares could spur challenges from other companies and bondholders to whom Venezuela owes arbitration and debt payments. As the legal cases pile on, Venezuela stands to lose significant assets â" such as fuel stations, pipelines or oil terminals â" across the United States and the Caribbean.
On Our Minds
Staying Out of Saudi Arabia's Business. Saudi Arabia's big feud with Canada over the latter's tweet critiquing Riyadh on human rights was not particularly unusual for the hypersensitive kingdom (just ask Sweden and Germany, both of which saw their economic ties suffer following spats with Saudi Arabia under similar circumstances). But the geopolitical context surrounding the fight matters. On the one hand, Saudi Crown Prince Mohammed bin Salman wants to take advantage of the political cover he has from the White House (recall Trump's speech in May 2017 in Saudi Arabia, where he said, "We must seek partners, not perfection" and how his administration will "seek gradual reforms, not sudden intervention"). The last thing the future Saudi king needs is outside interference when he is trying to carefully manage a tumultuous reform path at home that's already hitting walls. On the other hand, Salman is telegraphing to already dubious investors globally that investing in Saudi Arabia comes with very real geopolitical risk. But as authoritarian heavyweights like China push back against the West's democratic liberal model, Saudi Arabia and others will have stronger backing in the international system to push back against foreign interference in domestic affairs.
Beijing Ponders Big Questions. Chinese political leaders have gathered for an important and often enigmatic summit in the resort town of Beidahe to debate policy on a number of critical issues. China's central bank and finance ministry already have been battling publicly over how to manage the economic slowdown amid intensifying trade assaults from the United States. Among the key questions under debate are how to modify the Made in China 2025 policy to align better with international trade rules while remaining steadfast in its goals for technological dominance; how to evolve the Belt and Road Initiative to reduce risk, downplay China's profile and invite more third-party investors; and whether a constructive economic negotiation with the Trump White House is even possible. These debates bear close watching, as they can reveal just how strong any internal challenges may be to Chinese President Xi Jinping and his policy path.
China and Russia Get Tighter With Islamabad. Pakistan's plummeting foreign exchange reserves amid a swelling import bill will force Imran Khan's incoming administration to seek $10 billio n from either the International Monetary Fund or China. What's the lesser of two evils for Pakistan? While an IMF loan would likely entail painful austerity measures anathema to Khan's populist mandate, a Chinese loan would add to Pakistan's already deep indebtedness to Beijing over the $62 billion China-Pakistan Economic Corridor. China isn't the only non-U.S. ally ready to build strategic ties with Islamabad at Washington's expense. Former Cold War adversaries Russia and Pakistan have signed a deal for Pakistani officers to train in Moscow. We'll also be watching an important meeting between China and Russia that begins Aug. 14 in Moscow on how to build a strategic security relationship to balance against the United States.
In Case You Missed It
The Missile Arsenal at the Heart of the Israeli-Iranian Rivalry
China's Belt and Road Initiative Finds Shaky Ground in Eastern Europe
The Agriculture Industry Is Losing Its Voice in American Politics
On Our Calendar
In the coming week, Brexit talks between the United Kingdom and the European Union resume in Brussels, Imran Khan takes the oath of office as Pakistan's next prime minister and Taiwanese President Tsai Ing-wen visits Paraguay and Belize, with plans to transit in Los Angeles and Houston. For more, see our Geopolitical Calendar.
Join the Discussion
Do the new sanctions the United States announced against Russia on Aug. 8 mark a turn away from President Donald Trump's more conciliatory approach?
Will Saudi Arabia's diplomatic spat with Canada discourage potential investors as well as criticism of the kingdom's human rights record?Source: Google News Saudi Arabia | Netizen 24 Saudi Arabia