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20 Oct 22. Turkey, Kazakhstan deepen relations in space tech, drone production. Kazakhstan and Turkey have signaled plans to develop “long-term strategic cooperation” that would involve the co-production of satellites and other space systems.
The agreement came as Turkish President Recep Tayyip Erdoğan visited Kazakhstan on Oct. 16 with his chief defense procurement official, Ismail Demir, who stopped by the Central Asian country’s national space center.
Demir, who leads the government’s Presidency of Defence Industries, met with Mussin Bagdat, Kazakhstan’s minister for digital development, innovation, space and aviation.
Turkish Aerospace Industries signed the memorandum of understanding with two Kazakh aerospace companies, Kazsat and Ghalam, for “long-term strategic cooperation.” The memorandum calls for the co-production of satellites and subsystems, including space-observation capabilities.
“This is the first step in strong cooperation with Kazakhstan in the field of space. The MoU we signed with Kazsat and Ghalam companies on the establishment of long-term strategic cooperation in the fields of satellite and space will be beneficial to our country and nation,” TAI said.
The company also recently signed a deal with Kazakhstan Engineering for the co-production of its Anka drone in the Central Asian republic.
The Anka has evolved into a modular platform with synthetic aperture radar, precise weaponry and satellite communication.
The basic version, the Anka-A, is a medium-altitude, long-endurance UAV meant for reconnaissance missions. Introduced in 2010, the Anka won its first contract in 2013 from the Turkish Air Force. The Anka-B variant made its first flight in 2014 and completed factory tests in 2015.
In 2017, TAI introduced the Anka-S, the satellite-controlled version. The Anka-I was developed specifically for Turkey’s National Intelligence Organization for signals intelligence operations. The Anka family of systems has accumulated more than 90,000 flight hours as of March 2021. (Source: Defense News)
18 Oct 22. New Zealand delays defence review. The publication of the first part of New Zealand’s new defence review has been pushed back to March 2023 – a delay of almost six months. Under the Terms of Reference for the review, announced in July, a ‘defence policy and strategy statement’ was scheduled to be released in October. The statement is the first of the four to be produced under the review.
Michael Swain, deputy secretary for defence policy and planning, New Zealand Ministry of Defence (MoD), told Janes, “A defence policy and strategy statement will now be provided to the government in March, followed by a future force design principles statement in June 2023. This is a delay from the original dates in the terms of reference, although we expect the full review to still be completed by the original timeline of mid-2024.”
Swain said that the reason for the delay is that extra time is needed to ensure that the policy and strategy statement is sound. (Source: Janes)
20 Oct 22. Australia, Fiji sign Status of Forces Agreement. A new legal framework has been established to underpin increased defence and security cooperation between the nations.
Deputy Prime Minister and Minister for Defence Richard Marles has announced the signing of a Status of Forces Agreement (SOFA) with Fiji, formalising a joint commitment to enhancing defence and security ties.
The agreement was signed by Deputy PM Marles and Fiji’s Minister for Defence, National Security, and Policing and Minister for Agriculture, Rural and Maritime Development, and National Disaster Management, Inia Seruiratu.
The SOFA aims to establish a comprehensive legal framework for the presence of forces in the partner nation’s sovereign territory.
This includes:
- immigration and custom arrangements;
- protocols for visiting forces to wear uniforms while in the other country; and
- criminal and civil jurisdiction over visiting forces while in the other country.
The SOFA is reciprocal, with the same obligations to apply to both Australia and Fiji.
The bilateral agreement forms part of a broader effort to strengthen bilateral ties under the Vuvale Partnership amid growing instability in the Indo-Pacific.
“I am honoured to have signed the Status of Forces Agreement, which underlines the reciprocal nature and closeness of our partnership with Fiji,” Deputy Prime Minister Marles said.
“We share an interest in a peaceful, secure and resilient Pacific and need to work together to effectively respond to common security challenges — both traditional and non-traditional.”
The Deputy Prime Minister said the nations would build on a strong record of cooperation, which most recently included the deployment of Bula Force to Operation Bushfire Assist and Flood Assist, and the deployment of the Australian Defence Force to Operation Fiji Assist.
“The Status of Forces Agreement will make it easier to deploy to each other’s territories at times of need,” he added.
Minister Seruiratu welcomed the signing of SOFA and reflected on the “strong family bonds” felt between Fiji and Australia.
“The signing of this agreement marks a new height of security cooperation between our two nations,” the Minister said.
“Our security forces train and deploy together in our homes and across the region. This agreement reflects the increased cooperation between our forces to address traditional and non-traditional security threats including climate change, humanitarian crises and disasters.
“Fiji and Australia’s security cooperation forms the bedrock of our Vuvale Partnership and helps maintain regional stability, resilience, and peace.”
The signing of the SOFA forms part of Deputy PM Marles’ tour of the region, which includes a visit to Tonga.
Australia’s role in the South Pacific has come under intense scrutiny this year amid China’s growing presence in the region.
Earlier this year, China struck a security deal with the Solomon Islands, which reportedly includes Chinese commitments to deploy “police, armed police, military personnel and other law enforcement and armed forces” personnel to the Solomon Islands.
This would build on existing security ties between the nations, with China previously sending liaison officers and anti-riot equipment to train the Royal Solomon Islands Police Force in public order.
The security agreement also reportedly provides China with greater maritime access to the island nation by facilitating, with the consent of the government, ship visits, logistical support and stopovers.
China’s Foreign Minister, Wang Yi, had also proposed the “China-Pacific Island Countries Common Development Vision”, which offered intermediate and high-level police training for Samoa, Tonga, Fiji, Kiribati, Papua New Guinea, Solomon Islands, the Cook Islands, Niue, Vanuatu, and the Federated States of Micronesia (FSM).
This was accompanied by a five-year action plan, which calls for ministerial dialogue on law enforcement capacity and police cooperation.
This included the provision of forensic laboratories, cooperation on data networks, cyber security, and smart customs systems.
The plan also advocated for a “balanced approach” on technological progress, economic development and national security — backing a China-Pacific Islands free trade area and joint action on climate change and health. However, Beijing reportedly withdrew its proposal after it was met with resistance from some Pacific Islands leaders. (Source: Defence Connect)
20 Oct 22. Defexpo 2022: India announces fourth ‘indigenisation list.’ India has announced another ‘positive indigenisation list’ to support its long-running effort to reduce dependency on defence imports.
The new list – the fourth to be issued by the Indian Ministry of Defence (MoD) since August 2020 – identifies 101 products that New Delhi wants to source only from local sources. The list was announced at the Defexpo 2022 exhibition being held from 18 to 22 October in Gandhinagar, Gujarat.
The MoD said the new list “lays special focus on equipment [and] systems, which are being developed and likely to translate into firm orders in the next five to 10 years”.
According to the list, the MoD intends to progressively indigenise the products from December 2022 until December 2032. As indicated by the MoD, all the products are at various stages of development in India’s defence technology and industrial base.
Products designated for indigenisation from December 2022 include next-generation frigates and remote-control support systems for naval ships.
(Source: Janes)
18 Oct 22. Israel/Palestine: Flare Up.
Key Takeaways
- Business staff and assets will be exposed to elevated operational and physical security risks in the near term in the West Bank and Jerusalem due to the continuing violent clashes and attacks that have taken place in recent weeks. Risks will primarily remain linked to the likelihood of business personnel being caught up in violent confrontations and the high likelihood of travel disruption in the West Bank.
- The reduced Palestinian Authority (PA) oversight over the northern West Bank and the loose organisational structure of emerging Palestinian groups, such as the Nablus-based Lion’s Den, will challenge containment efforts by Israeli Defence and Security Forces. Additional Israeli security operations in the West Bank will drive the likelihood of further low-capability attacks and violent unrest.
- Elevated partisan rhetoric by Israeli right-wing parties in the final weeks of political campaigning ahead of elections on 1 November will maintain elevated ethnoreligious tensions. This will sustain the likelihood of provocative actions by members of right-wing parties in Jerusalem and attacks by Israeli settlers targeting Palestinians across the West Bank.
Context
Ethno-religious tensions have remained elevated across Israel and the Palestinian Territories (see Sibylline Global Weekly Review – 12 October 2022), following a shooting incident which wounded two Israeli soldiers and killed Israeli Sergeant Noa Lazar, while on duty at the Shu’fat checkpoint near Jerusalem, on 8 October. Additional attacks and violent clashes have sustained a heightened Israeli security posture during the final weeks of the Jewish High Holiday period and triggered the calling up of four Border Police reserve companies (see Sibylline Daily Analytical Update – 14 October 2022). Jenin and Nablus in the northern West Bank, as well as the Shu’fat refugee camp and the Jerusalem neighbourhoods of Silwan and Sheik Jarrah have been key flashpoints areas of incidents. Underpinning a worsening security environment, there are now growing concerns that the current flare-up will trigger a more severe escalation with the upcoming Israeli elections on 1 November.
Israeli security operations will continue to trigger retaliatory attacks vis-à-vis diminished PA control. Israeli security and defence forces have continued to conduct security operations across the West Bank in recent months, with continued efforts focused on the Nablus and Jenin areas, as part of Operation Breaking the Wave. Following the spate of attacks between March and May, these have increasingly leveraged the so-called “pressure cooker” tactic, entailing the use of large forces to besiege a location and force the target to surrender. While the limited use of the tactic in previous instances has led to the surrender of the barricaded individual, recent incidents have resulted in viral content being shared from the barricades fuelling anti-Israeli rhetoric by Palestinian groups. This has been particularly the case after the death of the leader of the al-Aqsa Martyrs Brigades in Nablus, Ibrahim al-Nabulsi, during an Israeli military raid in August. As a result, continued Israeli operations in the near term will sustain elevated ethnoreligious tensions across the West Bank and increase the likelihood of retaliatory attacks.
The emergence of the Nablus-based Palestinian group, the Lion’s Den, highlights the growing volatility of the security environment in the West Bank amid a significantly diminished PA oversight and control in northern areas (see Sibylline Situation Update Brief – 14 April 2022). Israeli officials currently believe that the group is mostly comprised of young men aged between 18 and 24 with no particular affiliation, though many are former members of the al-Aqsa Martyrs Brigades, associated with the Fatah party, and Palestinian Islamic Jihad. The loose hierarchical structure of the group, exacerbated by the lack of formal leadership, will challenge the effectiveness of Israeli security operations making it harder to identify operatives and pre-empt actions in the coming days and weeks.
Political campaigning ahead of Israeli polls will further exacerbate ethnoreligious tensions. The reported alignment between ultra-nationalist Knesset member Itamar Ben-Gvir, head of the Jewish Power party, and opposition leader Benjamin Netanyahu is likely to represent a pivotal factor in sustaining current levels of civil unrest in Jerusalem. In recent weeks, Ben-Gvir and his Knesset allies have taken part in a number of provocative acts. For instance, on 13 October, Ben-Gvir joined the ongoing protests in Sheik Jarrah, in East Jerusalem, and pulled out a gun while confronting demonstrators. Similar incidents are likely to continue in the coming days, particularly due to the high likelihood of Ben-Gvir seeking out further provocative situations, elevating the possibility of violent confrontations in Jerusalem and during Friday prayers.
With less than two weeks before the 1 November elections, polls continue to show a narrow gap between Caretaker Prime Minister Yair Lapid and Netanyahu. According to a survey by the popular Israeli news outlet Channel 12, published on 12 October, Netanyahu’s right-wing bloc is currently expected to receive 59 seats, with Lapid’s outgoing coalition receiving 57 and Israeli-Arab Hadash-Ta’al taking the remaining four. With Netanyahu already strongly criticising the finalisation of the maritime demarcation deal between Lebanon and Israel (see Sibylline Situation Update Brief – 14 October 2022), the former prime minister will continue to display aggressive rhetoric in challenging Lapid’s protection of Israel’s national security interests. This will further increase the likelihood of incidents involving Israeli settlers targeting Palestinians and gatherings by right-wing groups in the coming days in major urban centres, including Tel Aviv, and in the vicinity of the governmental buildings in Jerusalem.
Forecast
In the immediate term, the security environment will remain volatile, particularly across the West Bank in hotspot areas such Nablus, Jenin and Hebron, as well as Jerusalem. Checkpoints, junctions and public transport will continue to represent soft targets for shooting, stabbing and car-ramming incidents, particularly around flashpoint areas including Israeli settlements, religious sites and mixed Arab-Jewish communities. Of note, business travel across the West Bank with an Israeli car numberplate could lead to increased scrutiny and verbal, and in rare cases physical, aggression by Palestinians.
Links between the Lion’s Den and Hamas are likely to embolden the Gaza-based group, with further hostile rhetoric fuelling the likelihood of additional incidents and low-capability attacks in the coming days and weeks. As mentioned in our previous reporting (see Sibylline Situational Update Brief – 1 April 2022), the growing number of shooting incidents in the West Bank and Jerusalem sustains elevated bystander risks for business staff and assets. Nonetheless, a cross-border flare-up between Israel and Gaza remains a low-probability scenario at the time of writing due to diminished capabilities among Palestinian armed groups.
Lapid’s response to the current unrest is likely to be a significant factor influencing the electoral campaign debates in the week ahead of polls. While a military escalation akin to Operation Breaking Dawn in Gaza (see Sibylline Alert – 5 August 2022) remains less likely due to the high-risk profile of such an operation involving Israeli civilians living in the West Bank, a more targeted surge in security operations in line with Operation Breaking the Wave remains more likely. As such, the re-introduction of short-notice preventative measures, including lockdowns and the restriction of movement across the West Bank with the closure of security checkpoints, is highly likely in the coming weeks. These will elevate and sustain existing travel and logistical disruptions for businesses. (Source: Sibylline)
18 Oct 22. Libya-Turkey: Energy Deal.
Key Takeaways
- The signing of a preliminary oil and gas agreement between Turkey and Libya’s UN-backed Government of National Unity (GNU) underscores the revitalisation of Ankara’s regional hydrocarbon exploration ambitions in the Eastern Mediterranean. The deal is set to spur investment into Libya’s energy infrastructure by facilitating joint sectoral activities while strengthening bilateral trade, with Turkey aiming to secure cheaper domestic energy sources.
- However, the agreement has exacerbated tensions between Libya’s rival eastern and western governments. Material progress in implementing the agreement is likely to drive domestic unrest, including protests and blockades targeting oil terminals and oilfields. Any such unrest will undermine the GNU’s objective of increasing oil production levels. There is a realistic possibility that unrest will impact energy exports to Europe, further exacerbating pressures on the EU’s energy security.
- The increased likelihood of military escalation between Libya’s rival factions in flashpoint cities, including Sirte, Tobruk and the capital Tripoli, will elevate bystander risks for personnel. A further deterioration in the country’s security environment in the coming months is likely to deter prospective foreign investors, undermining long-term investment into Libya’s ailing energy infrastructure and jeopardising the expansion of the country’s crude oil export capacity.
- European and Middle Eastern governments which have displayed opposition to the agreement are highly likely to engage in increased diplomatic and military co-operation. This is likely to drive maritime competition in the Mediterranean Sea, increasing the risk of military standoffs and hostilities in response to joint Libya-Turkey hydrocarbon exploration activities in the coming months. There is a realistic possibility any such scenario will disrupt maritime supply chains.
Context
On 3 October, the GNU signed a multi-sectoral Memorandum of Understanding (MoU) with Turkey regarding media, security training and the energy sector. Notably, the MoU aims to promote the ‘development of scientific, technical and technological bilateral legal, administrative and commercial co-operation between the two parties in the field of hydrocarbons’. This will entail strengthened offshore co-operation in the exploration and production of oil and gas in Libya’s maritime waters. The recent preliminary agreement builds on the Maritime Boundary Treaty signed in 2019 between Turkey and the GNU’s predecessor, the Government of National Accord (GNA). The treaty demarcated the two countries’ maritime boundary and aimed to establish an exclusive economic zone (EEZ) in the Mediterranean Sea.
However, the signing of the MoU comes after the GNU’s mandate expired on 24 December 2021, the planned date for cancelled presidential elections (see Sibylline Alert – 22 December 2021). Libya’s security environment has since deteriorated. Indeed, the political landscape has become increasingly polarised, particularly with the appointment of Fathi Bashagha by the Libyan House of Representatives (HoR) as the prime minister of the rival eastern-based Government of National Stability (GNS) in February (see Sibylline Alert – 18 February 2022). The volatility of Libya’s political and security climate will challenge the implementation of the oil and gas MoU in the coming months, as will regional actors.
MoU will boost bilateral trade and generate commercial opportunities
Following the signing of the recent Turkey-GNU agreement, Turkey’s president, Recep Tayyip Erdogan, stated that Ankara will begin hydrocarbon exploration activities in Libya’s waters. These waters hold natural gas resources estimated to be worth USD 30 trillion. The deal will support Turkey’s wider ambitions to secure new hydrocarbon resources and production opportunities. For example, Turkey is working with Azerbaijan to double the capacity of the Trans-Adriatic Natural Gas Pipeline to 32 bn cubic metres per annum. It is also working with Russia to establish a gas distribution centre in Turkey’s Thrace region. Turkey will likely aim to leverage the recent agreement with Libya’s GNU to secure energy supplies and meet domestic needs at a lower cost against the backdrop of a global energy crisis, in turn reducing Ankara’s public deficit and generating in-country business opportunities.
More broadly, the GNU-Turkey agreement will likely strengthen bilateral economic ties between Turkey and Libya, aiding their respective domestic and foreign policy objectives. Between 2019 and 2021, bilateral trade between the two countries increased by 43 percent, reaching USD 2.3 bn. The recent MoU between the GNU and Turkey will further boost bilateral trade flows in the coming months and years. These currently stand at approximately USD 4 bn. Meanwhile, the deal will support Turkey’s objective of expanding its influence in Libya, in tandem with the extension of Ankara’s troop deployment in support of the GNU for a further 18 months as of June. Therefore, Turkey’s expanding partnership with the GNU is likely to generate long-term cross-sectoral commercial opportunities.
Rival executives will drive protests and possible armed escalations, threatening to disrupt oil exports
The MoU has exacerbated existing domestic political divisions in Libya. It was subsequently rejected by the Presidential Council, the Tobruk-based HoR and the Sirte-based GNS. Such opposition is in part underpinned by claims that the prime minister of the western-based GNU, Abdul Hamid Dbeibeh, lacks the mandate to sign international agreements. This follows the expiration on 22 June of the UN-sponsored Libyan Political Dialogue Forum (LPDF) roadmap for the country’s political transition, which authorised the GNU’s mandate.
Joint land-based oil and gas projects are therefore unlikely to be implemented in eastern Libya, which is controlled by the rival eastern-based GNS. Broader tensions over the implementation of the agreement will increase the risk of protests and subsequent port closures aimed at undermining the GNU and forcing the resignation of Dbeibeh. The suspension of output in recent months from eastern oil terminals, including Brega, As Sidr and Zuwetina, has resulted in Libya’s oil production dropping from 1.2 m crude oil barrels per day to fewer than 200,000 barrels, according to the Ministry of Oil and Gas (see Sibylline Alert – 23 June 2022).
Meanwhile, reports of progress in joint land-based energy sector activities will heighten territorial competition between armed factions aligned with Libya’s western- and eastern-based governments. This follows recent armed clashes between militias in Tripoli on 30 August, which resulted in at least 32 deaths and 159 injuries. Clashes in Zawiya on 26 September resulted in at least five deaths and 13 injuries. Reports of progress in joint land-based energy sector activities will therefore increase the threat of further military build-ups and violent clashes in hotspots, including Sirte, Tobruk and Tripoli.
Heightened tensions with regional powers will elevate maritime competition and the risk of hostilities
The MoU between the GNU and Turkey has attracted condemnation by regional governments, including those of Greece and Egypt. On 9 October, the Greek foreign minister, Nikos Dendias, said that the agreement ‘threatens stability and security in the Mediterranean’ during a meeting with his Egyptian counterpart, Sameh Shoukry. This reflects the regional opposition to the 2019 GNA-Turkey treaty. This outcry was led by Cyprus, Egypt, Greece and Israel due to alleged violations of their economic rights in the Mediterranean Sea. They were supported by other southern European governments, including France and Italy. In response, Greece and Egypt signed a maritime demarcation agreement in 2020, establishing an EEZ for hydrocarbon exploration and extraction rights. As such, the recent MoU is likely to strengthen maritime partnerships between countries such as Greece and Egypt in the coming months, increasing the likelihood of regional maritime competition.
The revitalisation of Turkey’s hydrocarbon exploration ambitions and activities in the Mediterranean Sea will exacerbate existing maritime tensions with European governments. These are already heightened due to Erdogan’s warning in early September that Ankara will ‘do what is necessary’ to prevent Greece’s alleged militarisation of islands in the Aegean Sea. The launch of joint exploration activities in contested waters will possibly trigger stand-offs between rival vessels (as witnessed in July and August 2020 between Turkish and Greek warships), driving military brinkmanship.
Forecast
Overall, the MoU will spur Turkish investment into joint exploration and extraction activities in Libya, which will likely increase investment in related infrastructure, such as pipelines and port terminals. Infrastructural investment will support the objective of the GNU to re-establish Libya as a reliable oil producer by boosting production capacity and improving safety standards. However, the deal is likely to exacerbate the volatility of Libya’s political and security environment in the coming months, reducing the likelihood of non-Turkish foreign investment into Libya’s energy sector.
Land-based projects are likely to prompt protests and blockades at port terminals and pipelines by factions and tribal communities loyal to the GNS and opposed to the GNU. Such events will most likely force the National Oil Company (NOC) to declare a force majeure and suspend output from affected oil fields and ports, in turn undermining Libya’s crude output recovery. This would jeopardise short-term economic stability by reducing energy revenues vital for social programmes. This would in turn drive domestic unrest. Furthermore, it is possible that any significant or prolonged disruption to crude output as a result of domestic unrest in the coming months will drive price instability within already volatile global oil markets.
An increased on-the-ground presence of Turkish forces in the coming months will signify the material implementation of the MoU. This will heighten tensions with rival armed factions in flashpoint areas, including Tripoli. The increased likelihood of violent clashes will elevate bystander risks to business personnel, as well as collateral damage to in-country assets. In addition, economic assets belonging to Turkish entities and Libyan energy assets will face heightened vulnerability due to the increased presence of armed factions.
The regional fallout from the GNU-Turkey agreement is highly likely to take the form of increased maritime competition in the Mediterranean Sea through 2022 and 2023, and will include the emergence of parallel investments. Furthermore, joint GNU-Turkey exploration activities are likely to drive military co-operation in the form of arms purchases and joint exercises. Regional co-operation is likely to include Cyprus, Egypt, France, Greece and the EU. This will increase maritime competition and the threat of military hostilities in the Mediterranean Sea in the coming months. Potential stand-offs between rival vessels will further increase the risk of miscalculation, heightening the risk of supply chain disruption in the region. (Source: Sibylline)
17 Oct 22. China: Calls for ‘normalisation’ of military power will likely increase regional tensions. According to a report published following President Xi Jinping’s speech at the opening ceremony of the 20th National Congress of the Chinese Communist Party (CCP), Xi called for ‘[t]he use of military power needs to be normalised and used in diverse ways’. He also stated that the People’s Liberation Army (PLA) needs to ‘win regional wars’. This does not indicate that the PLA will start wars against regional neighbours and competitors to maximise national interests. According to the report, China will continue to maintain a risk-averse and national security-focused posture. However, it will likely increase its assertiveness to ‘safeguard’ its ‘dignity and core interests’. For example, Xi reiterated that the peaceful reunification with Taiwan remains a priority, with the use of military force to be used as a last resort. China’s Taiwan policy therefore remains unchanged, as does the risk of military confrontation. Nonetheless, Beijing’s regional assertiveness, including in the South China Sea, will likely increase over the next five years. As such, there remains a risk of military confrontation (below the threshold of full-blown war) between China and other regional powers, as well as the US. (Source: Sibylline)
17 Oct 22. Ethiopia: Continuation of conflict will disrupt IMF support, increasing foreign currency shortages. On 17 October, the authorities announced their intent to take back control of all airports and other federal facilities in Tigray region. This comes after the African Union (AU) called for an immediate truce, which the rebel Tigray People’s Liberation Front (TPLF) claimed it would respect. The US also called for Ethiopia and Eritrea to halt their offensive. The government’s statement indicates the likely continuation of the conflict, particularly around Shire in northern Tigray. However, Ethiopia’s military operations have made limited progress. Should this continue in the coming weeks, the pressure to agree to a ceasefire will increase. The conflict is impacting the agreement of an IMF deal which is vital for debt restructuring under the G20 Common Framework process. Without this, foreign currency reserves will continue to decline. This has already prompted Ethiopia’s central bank to freeze foreign currency access for the import of 38 non-priority goods. (Source: Sibylline)
17 Oct 22. Pakistan: PTI victory will heighten calls for early elections, elevating government stability risks. On 16 October, Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party won the most seats in the by-election for Pakistan’s National Assembly. Khan personally contested seven of eight seats, winning six of them. The Pakistan Muslim League Nawaz (PML-N) won only one seat, indicating public discontent with the ruling party. However, the results are unlikely to be solely due to Khan’s anti-government campaign. Rather, they are likely a result of tough living conditions, which include high inflation, recurring power cuts and the government’s response to recent devastating floods. Nevertheless, the results indicate Khan’s growing popularity compared to Prime Minister Shahbaz Sharif. They will also embolden the PTI’s efforts to call for early elections and a ‘long march’ to the capital Islamabad (see Sibylline Daily Analytical Update – 12 October, 2022), increasing government stability risks. (Source: Sibylline)
14 Oct 22. GCC-US: Biden Maintains Rhetoric.
Key Takeaways:
- US President Joseph Biden will likely maintain a hardline rhetorical stance towards US–Gulf Cooperation Council (GCC) relations in the aftermath of the decision by the Organisation of Petroleum Exporting Countries (OPEC+) to reduce oil production. This comes despite assurances from Saudi Arabia and the UAE during meetings in August to assist Western partners amid supply concerns ahead of winter months.
- Saudi Arabia and the UAE’s decision to cut oil output will elevate concerns among Western partners over deepening ties between the GCC and Russia. While OPEC+-driven price hikes will benefit the macroeconomic outlook of the Gulf region, the increase in oil prices threatens to undermine EU and US financial sanctions on Moscow.
- President Biden’s alleged ‘re-assessment’ of US – Saudi relations represents an opportunity to bolster support among Democrats ahead of the mid-term elections in November, as recent polls suggest diminished overall support ahead of the vote. However, the transactional nature of relations with Saudi Arabia and the UAE will likely prevent a full-scale diplomatic fallout in the coming months.
Context
On 5 October, members of the Organisation of Petroleum Exporting Countries (OPEC+), including Saudi Arabia and the UAE agreed to cut oil output by two m barrels per day (bpd), equal to two percent of global supply. The decision prompted considerable backlash from the US and European partners amid global concerns over energy security (see Sibylline Daily Analytical Update – 6 October 2022). The decision represents a U-turn after leaders from Saudi Arabia and the UAE ‘vowed’ to significantly increase their output ahead of winter months to ease a global supply crisis.
In the aftermath of the OPEC+ decision, UAE President Sheikh Mohammed bin Zayed al-Nahyan visited Moscow on 11 October, underscoring efforts by the GCC to balance competing diplomatic pressures amid Russia’s military action in Ukraine. In tandem, the American Embassy in Riyadh confirmed the cancellation of a meeting between the GCC and US representatives, scheduled to take place on 17 October. The cancellation signals US discontent at the OPEC+ decision, with US Security spokesperson John Kirby suggesting a ‘re-evaluation’ of Saudi – US ties in the coming weeks.
OPEC+ decision to cut oil production exacerbates US concerns over GCC ties with Russia
Members of OPEC+, including Russia, the UAE and Saudi Arabia, maintain that the output reduction aims to boost oil prices and stabilise the market as fears of a global economic recession heighten. However, OPEC+’s decision largely blindsided Western partners, who believed that Gulf oil exporters would play a key role in mitigating anticipated supply crises ahead of winter months. State visits to Saudi Arabia and the UAE in August by US and German leaders appeared to reassure Western partners of their ability to assist in the diversification of energy flows away from Russian markets. While OPEC+’s strategy will bolster energy revenues for Gulf states and guarantee the region’s macro-economic stability in the short term, the decision undermines the West’s strategy to undercut Russian revenue streams, including the EU’s implementation of a price cap on Russian energy exports.
Moreover, OPEC+’s decision elevates the probability of the US activating the ‘NOPEC’ law, which permits the US Attorney General to sue OPEC+ members according to a US antitrust law drafted in 2007. The reduction in oil output, representing purposeful manipulation of global oil markets, exposes OPEC+ to allegations of engagement in anti-competitive behaviour. In response, the NOPEC bill could provide a mechanism to reduce oil prices in the coming months, easing business costs due to the lowering of energy bills, particularly for the hospitality, aviation, and logistic sectors, whose operations are especially fuel reliant. However, prior attempts to pass the NOPEC bill faced bureaucratic resistance, namely by lobby groups such as the American Petroleum Institute (API). The bill also exposes the US to accusations of hypocrisy after it announced intentions to release oil reserves in November.
Moreover, the UAE’s President Sheikh Mohammed al-Nahyan’s visit to Saint Petersburg on 11 October, coupled with OPEC+’s production cuts, has exacerbated concerns amongst Western governments over a deepening of GCC relations with Russia. In the aftermath of Russia’s invasion of Ukraine in February, Gulf states have sought to maintain a relatively neutral stance towards warring parties, seeking to benefit from their impartiality financially and diplomatically. In recent weeks, Saudi Arabia and the UAE have pursued an increasingly mediatory role in the conflict, assisting in prisoner swaps and urging dialogue. The GCC’s impartiality assists in their evasion of economic sanctions but also represents an extension of Saudi Arabia’s regional competition with Turkey which has equally maintained a mediatory role in the aftermath of the conflict.
Saudi-US ties will remain tense ahead of mid-terms, but transactional relations will prevent major diplomatic fallout. The perceived consolidation of Saudi Arabia and the UAE’s ties with Russia, coupled with their U-turn on oil production, will likely strengthen congressional opposition to Saudi-US ties ahead of mid-term elections in November. Washington’s relations with Riyadh have steadily deteriorated since the perceived involvement of Saudi Arabia’s royal family in the killing of Saudi American journalist, Jamal Khashoggi in 2018, further exacerbated by the perceived military and economic disengagement of the US from the region in recent years. Saudi Arabia’s human rights record and shortfalls in money laundering enforcement have long represented points of contention amongst US Congress members, including the attempted blocking of arms sales and defensive cooperation. For instance, following the OPEC+ decision, Democrat Senator Robert Menendez noted that he would veto any cooperation with Riyadh unless the Kingdom ‘reassess its position with respect to the war in Ukraine’.
Recent developments do represent a significant deterioration in diplomatic relations, prompting US lawmakers to draft legislation which would mandate the removal of US troops and missile defence systems from the UAE and Saudi Arabia within 90 days. Equally, Democrat Senator Richard Blumenthal and Republican Ro Khanna introduced a bill on 11 October which would halt all arms sales to the Kingdom for at least 12 months. However, in practice, the interwoven nature of US-Saudi economic and security pacts complicates the ability of either side to renege on current contracts. The renewed threat of aerial attacks on critical infrastructure in Saudi Arabia and the UAE following the expiration of the Yemen conflict ceasefire heightens the need for US interceptor missiles and defence systems to protect US investments in the Gulf. Additionally, some Republican Senators have expressed strategic concern over geopolitical consequences if US disengagement consolidates Saudi Arabia’s shift towards eastern markets, namely with China. Therefore, the transactional nature of US-GCC relations will limit the likelihood of a major diplomatic fallout in the near future.
Forecast
The tangible impact of OPEC+ production cuts on oil supplies will be minimal in the coming months, as industry reports suggest that global oil reserves remain in a ‘production surplus’. Moreover, the US Energy Department slashed its forecast for global oil demand in 2023, with OPEC+ reports corroborating a likely reduced demand for crude oil next year. This is expected to sustain the current surplus until the end of 2022, despite concerns over fuel shortages and output fluctuations in the aftermath of announced cuts. Therefore, deteriorations in global security, geopolitical disputes and the expansion of financial penalties on Russian energy exports will likely have a greater impact on the volatility of oil markets and drive price hikes in the short term.
Lawmakers will continue to threaten OPEC+ members with the NOPEC bill in the coming days, seeking to reduce global consumer costs and ease business concerns over energy prices. However, there is a high likelihood that possible adverse impacts of the NOPEC bill on Washington will deter the US Justice Department from enforcing the law. For instance, oil producers might opt to establish bilateral trade in national currencies with China, India and/or Russia, triggering concerns over de-dollarisation and the impact of economic sanctions (see Sibylline Monthly Forecast – October 2022).
Ahead of the mid-terms, the Biden administration will maintain its claim of “reassessing” relations with the Kingdom and foreign policy with Gulf states to convince the US Congress that national interests remain the priority. Ultimately, the US will continue to utilise defence pacts with the Gulf as political leverage, but reneging on bilateral economic and security pacts will serve little strategic purpose amid deteriorations in global and financial security. There is therefore unlikely to be any change to the physical or operational business environment in Saudi Arabia or the UAE in the coming weeks due to inflamed US-GCC relations, posing minimal disruptions for US or European assets based in-country. (Source: Sibylline)
14 Oct 22. Israel-Lebanon: Maritime Demarcation.
Key Takeaways:
- The maritime demarcation deal will significantly reduce the risk of a cross-border military escalation between Israel and Lebanon in the short term, after months of heightened tensions. This will improve the operational environment for businesses based in northern Israel and firms operating in and out of the port of Haifa, highly exposed to maritime and aerial attacks from Lebanon.
- Lebanese Hizballah’s tacit approval of the latest draft agreement is unlikely to diminish its anti-Israeli rhetoric in the longer term. Hizballah leader, Hassan Nasrallah’s comments highlight the recognition of the maritime border by the state of Lebanon and not by the group itself, underscoring the possibility of renewed tensions, particularly over the implementation of the agreement terms.
- A finalised deal will boost energy sector economic prospects and investments for Israel, particularly as the Karish gas field is likely to be intended mainly as an export source. This will sustain Israel’s geopolitical standing vis-à-vis relations with European partners and support its bid to expand energy exports beyond the Middle East and North Africa region.
- Lebanon is unlikely to reap the economic benefits of increased energy sector revenues in the short term, with the commercialisation of the Qana hydrocarbon field likely to take years. However, the agreement will likely ease tensions with the international community and increase investor confidence, enhancing the prospects of greater stability of the Lebanese pound in the weeks ahead.
Context
On 11 October, Israeli and Lebanese officials announced that both parties accepted the most recent draft of the US-mediated maritime border demarcation agreement between the two countries’ exclusive economic zones (see Sibylline Daily analytical Update – 12 October 2022). The deal, brokered by US Special Envoy Amos Hochstein, marks what has been described as a ‘historic’ moment amid a long-standing dispute over a gas-rich portion of the Mediterranean Sea. A deal will finally establish the first delineated border between Israel and Lebanon, with the maritime boundary set to follow Line 23 per Lebanon’s request and the ‘current buoy line’ and the area up to the shore formally recognised as the ‘status quo’, until a land boundary is demarcated.
The urgency to reach a negotiated settlement had been highlighted by growing Hizballah rhetoric reiterating that the beginning of production at the Karish gas field by Israel was a ‘red line’ and that missiles were ‘locked on’ the offshore gas rig. The volatility of the security environment was further highlighted last week by the Israel Defence Forces (IDF) mobilisation in northern Israel, ordered by Defence Minister Benny Gantz after talks stalled following a refusal of the proposed Lebanese amendments (see Sibylline Daily Analytical Update – 7 October 2022). This further exacerbated concerns over the possibility of a renewed armed conflict between Israel and Lebanon reigniting regional tensions.
Agreement will mitigate an armed conflict flare-up in the short term; long-term tensions will persist
On 12 October, caretaker Israeli Prime Minister Yair Lapid, in a joint press conference with Defence Minister Benny Gantz and Energy Minister Karine Elahar, stated that the deal was a ‘significant achievement’ for Israel’s security and economic outlook. The Karish rig has been particularly vulnerable to attacks due to its production and storage on a floating vessel above the underwater field. For instance, on 2 July, the Israeli military intercepted three drones from Lebanon, with Hizballah claiming the drones were gathering intelligence (see Sibylline Global Weekly Review – 6 July 2022). This followed repeated aerial incursions into northern Israel over the past year, which have highlighted greater Hizballah capabilities in challenging the IDF’s operational capabilities. As such, the mitigation of cross-border aerial incursions, as well as the reduced possibility of maritime attacks, will significantly diminish operational continuity risks of the Karish rig, with the same layout likely to be used for the future Karish North.
Nasrallah has also given tacit approval, previously stating that an agreement was ‘a very important step’, highlighting ‘new and promising horizons’ for Lebanon on 1 October. More recent statements have further underscored how the resolution was considered a show of Lebanon’s strength, and Hizballah is likely to utilise the deal as a political win, bolstering its domestic political standing. However, the group is unlikely to dampen its anti-Israeli rhetoric in the longer term, which maintains its strong support base, and will likely continue to claim the Shebaa farms on the border between Syria and Israel, to maintain its military presence. Similarly, Nasrallah also stated on 11 October that ‘our sea extends to Gaza, and when Palestine is liberated, we will not disagree with our Palestinian brothers’, highlighting that recognition of the demarcation by the Lebanese state does not imply a political one by Hizballah. As such, the agreement and its implementation are likely to continue to drive cross-border tensions in the longer term.
Israeli energy sector will benefit from enhanced business opportunities; Lebanese outlook dependent on exploration results
The deal will boost energy sector business prospects for Israel by simplifying efforts to develop the Karish gas field. In particular, this will enhance opportunities with European governments, in light of growing bilateral ties exemplified by the EU-Israel Association Council meeting in September and a Memorandum of Understanding (MoU) earlier in June for gas exports between the EU, Israel and Egypt. Notably, the MoU represented the first time that the EU has received a large and consistent supply of Israeli gas, highlighting major progress in the diversification of Israel’s energy exports beyond the Middle East and North Africa region. The Karish natural gas field is smaller than the Leviathan and Tamar fields, which drive the bulk of Israeli energy production. Therefore, Karish, and Karish North which are due to come online in the second half of 2023, are likely to create a surplus of gas production directed mainly towards exports.
According to the draft text, Lebanon will benefit from the area north of Line 23 which includes the totality of the Qana hydrocarbon field. Investment capacity and internal stability will be the main driving factors determining the prospects of hydrocarbon exploration, which will likely take years. However, TotalEnergies will likely re-launch the exploration of Block 9 following the ratification of the deal, which is set to encourage international energy firms to advance bids for Blocks 8 and 10. In the short term, increased energy sector opportunities are unlikely to translate into a marked improvement in Lebanon’s socioeconomic health outlook. However, greater investor confidence is likely to increase the stability of the Lebanese pound in the weeks ahead, with a realistic possibility of mitigating the negative effects of the new exchange rate in place starting 1 November.
Forecast
In the immediate term, the high-level political approval by Israeli and Lebanese counterparts of the latest draft will defuse cross-border tensions and mitigate the inflammatory rhetoric of recent months. This will markedly improve the operational outlook for businesses based in northern Israel and Haifa, with the Karish gas field about 80 km (50 miles) west. The port city has been repeatedly considered a primary target for Iran and Hizballah over the years, due to its economic significance and proximity to the Lebanese border.
Overall, Lebanon’s prospects of becoming an energy exporting country will remain the strongest deterrent to a renewed armed conflict, mitigating the worsening security outlook for businesses and fostering mutual economic opportunities in a pivotal maritime area. However, sanctions will remain a latent risk in the longer term, with the current draft agreement only explicitly including sanction relief for extraction and distribution operations, with no specifics over the allocation of revenues. As such, direct or indirect involvement of Hizballah, will likely trigger sanction exposure for individuals, businesses and institutions.
Beyond the domestic legal and political factors likely to affect the agreement’s ratification in the weeks ahead, the deal itself is likely to exacerbate political divisions and partisan rhetoric in Israel and Lebanon. Ahead of the 1 November elections in Israel, opposition leader, Benjamin Netanyahu will leverage the opportunity to motivate his base by framing the agreement as an Israeli defeat in the face of Hizballah’s threats. This could lead to an uptick in protests and demonstrations ahead of polls in cities like Tel Aviv and Jerusalem. While the likelihood of violence remains lower in Tel Aviv, the current bouts of unrest in Jerusalem and the tensions across the West Bank could see further violent confrontations between Palestinians and Israeli forces, as well as Israeli settlers.
Similarly, in Lebanon, a bloc of independent members of parliament and the Christian Kataeb party have already demanded the text go through parliament. Disagreements are likely to further exacerbate political fissures amid the voting of Aoun’s successor before the end of the presidential term on 31 October. This will sustain heightened governance risks associated with the realistic possibility of a presidential vacuum in the months ahead. (Source: Sibylline)
14 Oct 22. North Korea-South Korea: Elevated show of force will sustain elevated regional tensions and limited disruption to businesses. On 14 October, North Korea fired a short-range ballistic missile (SRBM) and approximately 170 artillery rounds off both its coasts – its largest show of force in 2022 yet (see Sibylline Alert – 11 October 2022) – after flying approximately 10 military aircraft close to the South Korean border on 13 October, prompting South Korean aircraft to intervene. Pyongyang justified its actions as “strong military countermeasures” against recent US Forces Korea artillery exercises. Seoul condemned the actions, labelling them as a violation of the 2018 bilateral Comprehensive Military Agreement (CMA) and United Nations resolutions, consequently applying sanctions on 31 North Korean individuals and institutions for the first time since 2017. The sanctions will disrupt inter-Korean trade by elevating regulatory framework risks. Such tit-for-tat escalatory actions will sustain and worsen regional tensions and pose minor disruptions and safety risks to the air and maritime transport sectors. Regional tensions will remain elevated amid growing fears of a North Korean nuclear test in the short term (see Sibylline Daily Analytical Update – 28 September 2022). While the risks of military accidents will increase, the risk of war will remain low. (Source: Sibylline)
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