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Cybercrime-as-a-Service opens up a realm of worrying new possibilities for opportunistic individuals and ideologically motivated groups, as well as a new front for law enforcement and security services to secure.

As early as 2013, cybersecurity experts noted that Cybercrime-as-a-Service (CaaS) was a burgeoning business. It is an industry as straightforward as it sounds – professional cybercriminals maintain and sell the means of committing cyberattacks to anyone with the motivation and money to do so.

In 2013, hiring a Distributed Denial of Service (DDoS) attack (a cyberattack that uses a network of subverted computers around the world to flood targets, such as websites and other infrastructure, with requests to impair or crash them) cost $535 for a month’s use. Today, a month’s rent for a DDoS can cost as little as $28.99. Falling prices are driven by competition in the CaaS market, enabled by the accessibility of the technologies.

Last week Europol and associates struck a blow against professional cybercriminals by taking down WebStresser – a website offering rental DDoS attacks, masquerading as a “stress tester.” The criminals behind the service were also arrested. Whilst it indicates the threat is being taken seriously and combated, it is little more than a proverbial drop in the ocean.

DDoS attacks are not the only service offered by professional cybercriminals. Ransomware is another, arguably more dangerous threat that is available. Ransomware is a type of software that stealthily makes its way onto PCs before encrypting the user’s files, or even the boot files for the machine itself, so when the computer is switched off, it refuses to start up again. In both cases, users are presented with a message demanding a ransom in order to de-crypt the files and restore ordinary usage.

These services are currently overwhelmingly used by opportunists seeking profits, and businesses seeking to disadvantage their competitors. However, with the increasing prominence and accessibility of these services, they will soon come to the attention of those with more nefarious intentions.

Prominent precedents

Britons in particular may be familiar with ransomware after it crippled the UK National Health Service in May 2017. The malware spread across NHS computers with outdated operating systems, locking out staff and directly leading to the cancellation of 6912 appointments, including operations. The attack has been attributed to the North Korean government, or state-sponsored groups in the country by senior figures across government and the tech industry.

Ransomware has also caused significant trouble across the Atlantic in the US city of Atlanta, where various IT systems used by the city administration were infected with ransomware in March 2018, costing the city millions of dollars in disruption.

However, the most prominent example of professional cybercrime must be the concerted Russian campaign against the United States in the build up to the 2016 Presidential election. The hacking of Clinton campaign emails, and the manipulation of individuals by professional cybercriminals via social media were just two of the prominent tactics employed by state-sponsored Russian groups.

The Russian attacks during the 2016 Presidential election are part of a wider Russian strategy of subverting US democracy. It is an ideologically motivated, targeted campaign against a predetermined enemy. At the other end of the spectrum, the more recent attacks against Atlanta city appear to be an opportunistic money-spinner by a group of professional cyber criminals.

The WannaCry attack highlights an interesting hybridization of ideological motivations and outright opportunism. Like the Russian campaign, the power of a nation-state is reflected in the virulence of the attack. However, it lacked the sophistication of previous state-sponsored attacks, as well as any sort of relevance to a longer-term plan. It was a cyberspace smash and grab, and it is in this niche, where ideology and opportunism intersect, that CaaS will come to find a great deal of traction in years to come.

Outsourcing IT

CaaS provides ideologically motivated groups with a means of carrying out ambitious cyberattacks like WannaCry even if they lack the manpower or technical means of doing so. Undoubtedly, these groups will begin to see the opportunities offered by professional cybercrime services.

The global jihadist movement is one such movement that could take steps towards purchasing CaaS programs to launch attacks on their enemies. The movement already possesses a number of organisations operating in cyberspace, such as the Caliphate Cyber Army and Islamic Cyber Army, demonstrating they are conscious of the potential of cyber-terrorism. However, experts have ridiculed their capabilities, with the groups incapable of making simple chat apps for themselves, let alone develop expansive campaigns of cyber-terrorism.

The jihadist movement and other terrorist groups will develop cyber capabilities, but for the time being, they will turn to existing services as they have done with sites like Twitter and Facebook, and apps like Telegram and WhatsApp. This is where CaaS vendors stand to benefit from increasing awareness of their services and the havoc they can wreak.

It will be a mutually beneficial partnership that will overcome any aversion that the parties may have to working together. In many cases, professional cyber criminals hold the West in similar contempt to the jihadist movement, overcoming any moral dilemmas they may feel about working with terrorists. On the other side, jihadists curse the West and much of modernity, yet have no issue with adopting technology when it serves their needs, which CaaS undoubtedly will.

International Terrorism and Information Technology

This presents a daunting picture of a future whereby terrorist groups extort funding from governments, businesses and civil society via ransomware, DDoS attacks and other capabilities that they have rented from professional cyber criminals. The precedent is clear in examples such as the WannaCry attack – disruption in cyberspace is increasingly felt in the offline world too, with severe financial and practical consequences. The good news is that with foresight and planning, Western nations can build up their deference before the threat reaches a critical mass.

 

This article was first posted on Global Risk Insights, and was written by Phin Roberts.

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In recent times, diplomatic relations between Israel and India have been stronger than ever. Israeli Druze diplomat Mendi Safadi, who is a strong advocate for Hindu human rights, is set to meet in the coming days with India’s Deputy President and other senior level Indian politicians. Given this, it is the hope of Bangladeshi Hindu human rights activist Shipan Kumer Basu that Safadi will use Israel’s influence with India in order to get them to stop supporting the present Bangladeshi government.

“We have a lot of documents in our hands that Bangladesh is now not safe for Hindus,” he proclaimed. “Just recently, a Hindu woman in Bangladesh was raped just because she is Hindu and for no other reason. This woman merely wanted to receive counseling to help her daughter’s marriage and she ended up being raped in addition to having her body parts bitten, her clothes torn and various organs burned with a gas lighter. However, her story has not made headlines around the world merely because she was born into the wrong faith.”

“Unfortunately, we Hindus from Bangladesh are invisible to many in the international community,” Basu declared. “The abduction and rape of our women, the slaughter of our men, the desecration of our temples and the forceful seizure of our homes happens on a daily basis. However, the world does not care about us for we are brown skinned, are not from one of the three monotheistic faiths and do not come from an oil producing country. However, we are hoping that India will be different from the rest of the world since we share the same faith and have the same skin color. We hope and believe that India will take the necessary action and will stop supporting this government in Bangladesh especially if advised to do so by a strategic ally.”

“The Safadi Center, headed by Mendi Safadi, has always stood in the best interests of my people in our struggle against the terror implemented by the Bangladeshi government,” Basu added. “During Safadi’s meeting with Indian politicians, I would like to ask the Indian government to rethink their policy on Bangladesh as the current government is double faced. On the one hand, they say nice things in English and then they treat the Hindus horribly behind the backs of the international community.”

“Presently, the Bangladeshi government is misguiding the Indian government as they continue to brutally repress the minorities in the country,” Basu proclaimed. “As Hindus are being silently ethnically cleansed from the country with the seizure of minority properties under the Vested Property Law, India must recognize the true face of the Bangladeshi government and to stop supporting them.” Basu noted that it is still possible for India to reach out in friendship to the Bangladeshi people without supporting this present government which abuses the human rights of India’s Hindu brothers.

Bangladeshi dissident Aslam Chowdhury is a known advocate of Hindu human rights. He is presently being held by the Bangladeshi government due to the false charge that he is working with the Israeli Mossad in order to topple the Bangladeshi government. According to Basu, “this charge is false, baseless, and imaginary and such claims prove the incompetence of the accusers; Aslam Chowdhury is a real hero and is also highly educated, honest and has many merits as a leader.” Basu believes that if India intervened and supported him, it could be a sign of support for the Bangladeshi people against an oppressive regime and it could potentially help a wonderful dissident who worked on behalf of minority rights to obtain his freedom.

Basu emphasized that Chowdhury is innocent of the charges that the Bangladeshi government made against him: “They completely failed to prove his crime. So regarding the sedition case, he got bail. However, he was not released from prison due to various pretexts because the current so-called government has realized very well that since Aslam Chowdhury is with the people, the stability of the present ruling Awami League government could evaporate. Therefore, they decided to brutally repress him. For this reason, I call on India and other countries in the international community to intervene so that he can be free. “

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The end of the Second World War in Europe defined Soviet citizens and the Russian people in the 20th Century as those that saved the world from fascism. Despite the negative press during the Cold War in the West on Russia’s contribution to the end of Nazism, it is likely the case that every Russian family lost at least one close family member to save Russia, Eastern Europe and the world. Even today, the pride that Russians feel about their fight against Germany colours much of the dialogue on Russian foreign relations today. This goes beyond official state policy and reflects the sentiments of the people themselves.

Since the Sochi games and evidently into the World Cup taking place next month in Russia, negative press on Russia has pushed Russian public opinion towards a leader that claims its main goal is the defense of its people, but also spurns on popularity by claiming it is the sole entity that will give Russians due pride in themselves. While there are several reasons to target the Putin Administration, the actions taken against Russia often appear to focus not just on their government, but effects the people themselves. While the Vancouver Olympics were seen as successful, there was the death of one athlete during the 2010 games in Canada. Sochi was consistently shown in a negative light, despite it being an overall well done event. The expansionist policies of their government began soon after Sochi, with added support from a narrative coming from Western countries of a Russian failure.

Very recently, Russian claims that it was going to supply Syria with the S-300 anti-air system were altered, stopping the installation of the S-300 after a meeting between the Israeli PM and President Putin, notably during the days of the May Day/Victory Day Parade. While Russia had spent gold, weapons and blood fighting ISIS in support of Assad’s government in Syria, extended support after a US, UK, French and Israeli strike in Syria may not follow a simple foreign policy plan in the region. With Russia living rent free in the narrative of many media organisations from the US and the West, that negative press can be buoyed in a populist light in Russia by its government. Another victory over fascist elements in the Middle East brings added context to VE Day many years ago. Moves to counter terrorist attacks in Russia itself, regain pride from the war in Afghanistan and challenging negative media from abroad will extend Putin’s time in power as long as Russians themselves are also targeted in a negative light. Traditional pride defining the Russian people mixed with evident skepticism in Western media on Russians themselves pushes many to the side of the current government in Russia. Meeting Putin while respecting Russian history and its people now seems to be how the future of the Middle East will be determined. Respecting the Russian people while challenging its current government will also be how the future of Russian relations will develop as well.

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Donald Trump meets with Indonesian partners, 2015 (South China Morning Post).

President Donald J. Trump’s overseas business dealings have once again come under scrutiny with reports that the Chinese government will provide financing to the tune of $500 million for construction of a theme park in Indonesia featuring a Trump-branded golf course and resort-hotel. This news comes on the heels of Trump’s surprise announcement that he will offer concessions to Chinese telecommunications company ZTE, recently hit with a U.S. components ban after violating sanctions against Iran and North Korea.

Trump’s concessions to ZTE prompted “bipartisan rebuke,” accusations of “putting China first and letting sanction-breakers off the hook,” and suspicions that the concessions might be linked to China’s financing of the Trump-branded Indonesian deal worth millions of dollars to Trump. The White House refused to answer questions from media on whether the deal might violate the U.S. Constitution’s foreign emoluments clause and Trump’s own pledge not to pursue new foreign business deals while serving as president.

As Agence France-Presse via the South China Morning Post and the National Review report, the billion-dollar theme park project featuring the Trump brand is part of MNC Lido City, an “integrated lifestyle resort” outside the Indonesian capital city of Jakarta. The project developer, MNC Land, features its “partnership with The Trump Hotel Collection” on its company website (archive), boasting that the “Trump International Resort” in Lido City is “the first Trump Collection Resort in Asia bearing the prestigious Trump brand name, known for unparalleled luxury and quality” (archive).

MNC Land CEO Hary Tanoesoedibjo (aka Hary Tanoe) and his wife Liliana, pictured above, visited Trump in New York in 2015 to finalize the deal for Trump resorts in Lido City and Bali. Tanoesoedibjo has boasted about his access to Trump and attended Trump’s presidential inauguration in January 2017. While in Washington for the inauguration, Tanoesoedibjo and his family stayed at the Trump International Hotel, a noted magnet for foreign emoluments concerns. Tanoesoedibjo has also suggested a possible run for president of Indonesia in 2019.

Hary and Liliana Tanoesoedibjo attend Trump inauguration (DetikNews).

Never far from their father’s conflicts of interest and foreign emoluments concerns, Donald Trump’s daughter and “senior adviser” Ivanka, and sons Eric and Donald Jr., also appear to be involved in the Indonesia project. “Each of them has different roles” says Tanoesoedibjo, “Don Jr. has responsibility for the overall project, Eric the design and golf, and Ivanka more of detail – the fit-out of the hotel.” Tanoesoedibjo posted photographs of a meeting with the Trump sons in New York on Twitter two days before their father’s inauguration.

Hary and Liliana Tanoesoedibjo meet with Trump sons (Twitter, archive).

In April 2017, The Intercept reported Tanoesoedibjo’s alleged involvement with an ISIS-backed militia in an effort to oust current Indonesian President Joko Widodo. Linked to this effort also was Indonesian politician Fadli Zon, “Trump’s main political booster in the country,” who made an unexpected appearance at a U.S. Trump campaign event in 2015. Then-speaker of the Indonesian parliament Setya Novanto, who appeared with Fadli Zon at the event and is also noted as “a Trump admirer,” has since been imprisoned for graft. The two politicians’ appearance at the event was reportedly arranged by Tanoesoedibjo and linked to Trump’s business interests in Indonesia.

China’s financing for half the cost of the project comes from Central Research Institute of Building and Construction Co., Ltd. (中冶建筑研究总院有限公司), a subsidiary of state-owned China Metallurgical Group Corporation (中国冶金科工集团有限公司 or 中国中冶集团), also known as Metallurgical Corporation of China (中国冶金科工股份有限公司, MCC) and managed by senior members of the Chinese Communist Party. According to the National Review, China’s involvement in the deal is “part of Beijing’s global influence-expanding ‘Belt and Road’ infrastructure initiative,” seen by many observers as part of a broader effort by China to “supplant the United States” as a leader in world affairs.

It is not certain that Trump’s “odd” and “stunning reversal” on ZTE was prompted by China’s agreement to provide financing for the Trump-Indonesia project. Trump is certain to profit from from the deal, however, and announced his concessions to ZTE a mere 72 hours after China agreed to finance the project. Former White House ethics counsels from both the George W. Bush and Barack Obama administrations commented that the move by Trump was suspicious at the very least and constituted a possible violation of the foreign emoluments clause.

In addition to its sanctions violations, ZTE is seen as a potential national security threat to the United States given its close ties to the Chinese government and the possibility that its smartphones and other devices might be used for surveillance or espionage. In 2016, Chinese-authored spyware was found on Chinese-made smartphones including phones manufactured by ZTE.

This is not the first time that the Trump family’s business dealings with China and Indonesia have come under scrutiny. Donald and Ivanka Trump have both been awarded valuable trademarks for their businesses by the Chinese government since the Trump inauguration, prompting constitutional concerns regarding foreign emoluments. Many of the products sold by Ivanka Trump’s fashion company are produced at factories in China and in Indonesia where horrifying sweatshop conditions have been reported.

The family of Trump son-in-law and “senior adviser” Jared Kushner has also come under fire for touting its presidential connections to lure Chinese investors for its New York-area real estate projects through the controversial EB-5 “visa-for-sale” scheme for wealthy foreign investors. China’s “courtship” of Jared Kusher and Ivanka Trump as conduits of influence on the Trump administration has been noted with alarm.

Concerns that the President of the United States and his “senior advisers” might be making foreign policy decisions on the basis of their business interests rather than U.S. national interests have become an everyday fact of life for Americans in the Trump era. Trump’s Indonesian resort deal, and the latest news of China’s financing for the deal, have only made the mountain of Trump-Kushner conflict-of-interest concerns a little bit higher.

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Secretary of State John Kerry meets with Iranian Foreign Minister Javad Zarif in Geneva on January 14 for a bilateral meeting to provide guidance to their negotiating teams before their next round of discussions, which begin on January 15.
U.S. Mission/Eric Bridiers

Withdrawing from the Iran deal puts the United States in a weaker position in every way.

Following the 2016 election, some wondered if President Trump was some sort of strategic savant, playing a game of three-dimensional chess behind a façade of emotionally volatile ignorance. Trump quickly put this theory to bed, though, and his decision to withdraw from the Joint Comprehensive Plan of Action (JCPoA) demonstrates that far from anticipating eight moves ahead, the White House is not even planning one move ahead.

The JCPoA required Iran to submit to constant monitoring of its nuclear sites and strict limits on its uranium enrichment (both in terms of quantity and degree of enrichment), and—despite the lie that President Trump keeps repeating—the agreement bars them from ever developing a nuclear weapon. If Iran had violated the agreement, international sanctions would have snapped back into place, crippling the Iranian economy and returning it to global pariah status.

By instead violating the agreement himself, President Trump has left Iran with two options, both of which are pretty great for Iran and terrible for the United States. The first is that the other signatories and Iranians decide they can continue the deal without the United States (a possibility already in the works). If the agreement does, in fact, hold, Iran’s economy will not suffer greatly because unilateral sanctions, even from the United States, are nearly useless. Ultimately, the United States will have given up its leadership position in the world, and its standing to accuse Iran of misbehavior if they actually do violate the agreement in the future. Meanwhile, Iran’s ally, Russia, will have yet again achieved its chief goal: a widening gulf between the United States and Europe.

But Tehran could instead opt for a path of confrontation. They could reasonably declare that American withdrawal from the agreement frees them from their own obligations under it. This would allow them to resume their nuclear program, giving the United States two options: allow them to enrich uranium and achieve a short breakout time or a nuclear device, or go to war.

Some have claimed that Iran’s nuclear program could be destroyed with air strikes alone, but the facts do not support this. Even if the nuclear program could be destroyed by strikes, it will still be up to Iran whether the United States is then forced to commit ground troops. After all, Iran could retaliate by attacking the American 5th Fleet, Israel, or American civilians around the world, which would, in turn, necessitate an American response; air strikes in such a situation would be insufficient.

A critical element of effective strategy is expanding the set of possible actions while reducing the choices available to the enemy. Instead, President Trump has done the exact opposite, giving President Rouhani all of the choices. The other week, if Rouhani had restarted the Iranian nuclear program, he would have faced strong sanctions and international scorn; if he restarts it tomorrow, he will face relatively little of either.

Hardliners in the United States and Iran have always opposed the agreement, arguing that the other side cannot be trusted. The White House yesterday caved to the American hardliners, proving the Iranian hardliners right. Rouhani will face increased pressure from those hardliners to abandon the agreement himself and to resume the nuclear program. In the face of that pressure, let us hope that President Rouhani demonstrates more intelligence, integrity, and courage than President Trump.

Nathan M. Kohlenberg is a Security Fellow with Truman National Security Project and a graduate of the Johns Hopkins School of Advanced International Studies. He was born and raised in Providence. Views expressed are his own.

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On 12 May, Iraqis head to the polls to choose their representatives for Parliament. In an environment influenced by the four-year conflict with the Islamic State (ISIS) and the fragmentation of politics, these elections are a critical test.

The context

• Although most of the territories lost to ISIS have been recaptured, the factors that led to the rise of ISIS’s ‘caliphate’ project still exist today. Government structures are weak and suffer corruption at every level. The economy is inefficient and over-dependent on the oil windfall as well as the state sector.
• Meanwhile, the war against ISIS has deepened the divisions between the various Shia, Sunni and Kurdish militias involved in the fighting.
• In addition, in September 2017, the Kurdistan Regional Government (KRG) held an independence referendum in which Iraqi Kurds overwhelmingly voted in favor of a split from Iraq, leading to the deployment of military troops in the territory around Kirkuk.
• Baghdad also has plenty on its plate on the regional geopolitical scene. Iraq is sandwiched between Syria, where Bashar al-Assad’s Alawite regime is on the verge of winning a pyrrhic victory, and Iran, whose strategic ambition lies in the creation of a Shia Crescent in Iraq, Syria, Lebanon and the Persian Gulf region.
• Nonetheless, the victory over ISIS provides a unique opportunity to achieve lasting stability through effective state-building and better governance.

Introduction: A turning point?

The upcoming parliamentary elections may represent an important turning point in Iraqi politics, as the rivalry between current prime minister Haider al-Abadi and his predecessor Nouri al-Maliki has caused a schism within the ruling Dawa party, which has been in power since 2005. Although political splits among the Shia community do not constitute a new trend, the antagonism between Abadi and Maliki, as well as populist cleric Muqtada al-Sadr’s scope of influence, are expected to have a significant impact on government formation.

United in their fight against Saddam Hussein’s oppression for decades, the Shia groups are now deeply divided over the appropriate approach in the task of rebuilding the state. The fight against ISIS also saw the emergence of the Popular Mobilization Forces (PMF), a Shia organization of 60 militias with 66,000 fighters, which will run under the umbrella of the Fatah Alliance (Conquest Alliance). Hence, for the first time since the fall of Saddam Hussein’s regime, non-sectarian nationalism will play an important role in the balance of votes.

Shia coalitions

Five Shia coalitions will be running in the 2018 elections: the Nasr Coalition (Victory and Reform Bloc), led by current prime minister Haider al-Abadi; the State of Law Coalition, led by former prime minister Nouri al-Maliki; the Fatah Alliance (Conquest Alliance), led by Hadi al-Amiri, the former Iraqi minister of transportation and the head of the Badr Organization, a powerful Shia militia backed by Iran; Al-Hikmah (Nation Wisdom Movement), led by Ammar al-Hakim, the former leader of the Islamic Supreme Council of Iraq (ISCI); and the Marching Toward Reform Coalition, an alliance of secular groups under the leadership of Muqtada al-Sadr.

The Nasr Coalition

Prime minister Abadi’s Nasr Coalition is supported by Dawa Party members and Sunni forces, including the Independent Bloc as well as former defense minister Khalid al-Obeidi. Originally, the Nasr Coalition, also known as the Victory and Reform Bloc, was supposed to include Hadi al-Amiri’s Fatah and Akim’s Al-Hikam movement, but both alliances collapsed over political strife. The Nasr Coalition has campaigned on the theme of transcending sectarian lines, as well as establishing greater authority over the various mix of militia forces involved in the fight against ISIS, including the PMF. Before assuming the role of prime minister, Abadi had already voiced his concern over the proliferation of non-state militias across Iraq, and recentlyissued a decree formalizing the inclusion of the PMF in the country’s security forces.

With regard to Iraq’s external relations, the Nasr Coalition intends to curb Iran’s influence on the country’s military and political spheres, while remaining apart from the US-Iran conflict. Although the Abadi administration worked in close concert with the United States in the fight against ISIS and is determined to foster ties with Washington, it might also need economic support from Tehran for the reconstruction effort. Baghdad’s tough balancing act was reflected in Abadi’s comments in the margins of the World Economic Forum in Davos, when he declared that “any change in relation between the US and Iran” would be harmful for Iraq.

Abadi’s coalition is in favor of the consolidation of the state in line with the teaching of the late Mohammad Baqir al-Sadr (a distant cousin and father-in-law of Muqtada), an Iraqi Shia cleric executed by the Saddam Hussein regime, who called for a strong state based on the concept of wilayat al-umma (governance of the people) rather than on the Khomeinist’ wilayat al-faqih (guardianship of the clerics). Since coming to power in September 2014, Abadi has been squeezed by the rivalry between Maliki and Sadr, which reached its climax in 2012, when al-Sadr joined the Iraqi National Movement (al-Iraqiya) and the Kurdistan Democratic Party (KDP) in an attempt to pass a vote of no-confidence against Maliki, who held the position of prime minister at the time. Although the vote failed, this episode lifted the veil on the intra-Shia rivalry.

Maliki and Sadr have both tried to interfere with the Abadi administration’s action, as highlighted by the 2016 cabinet reshuffle, when the two rivals used their influence in parliament to impose their picks for key positions, including the sovereign ministries of defense, oil and finance. Initially, Abadi had expressed his willingness to appoint technocrats in place of ministers chosen on the basis of party affiliation, or ethnic and sectarian identity. However, the prime minister’s bid failed on three occasions to secure parliamentary approval and was even declared unconstitutional by Iraq’s Federal Court. Abadi was only able to get the nominations of five technocratic ministers, including the oil ministers, but had to make concessions with Maliki and Sadr for the other appointments. Abadi’s failure to end the system of ethnic and sectarian quotas among the government was a blow to his political capital and could cost the Nasr Coalition the votes from a segment of the electorate receptive to non-sectarian nationalism rhetoric.

Abadi’s popularity has been bolstered by the victory against ISIS. According to figures from the National Democratic Institute (NDI), 59 percent of Iraqis approved the prime minister’s action in April 2017, compared with just 33 percent in January 2017. Abadi’s fierce response to the threat of Kurdish independence, as well as his anti-corruption policies might have also boosted his approval rating. However, despite his military victory, many perceive the prime minister as a prisoner of the Dawa Party and criticize him for having failed to strike new political alliances during the campaign. Moreover, a recent spate of lethal attacks by remaining ISIS terrorists against security personnel in parts of Kirkuk governorate has brought to the surface insecurity feelings. The resurgence of jihadist elements poses a threat to Abadi’s credibility, as the prime minister has established himself as the country’s commander-in-chief who defeated ISIS. Nonetheless, giving the lack of a clear consensual alternative, Abadi’s relative charisma and his cross-sectarian appeal, the Nasr Coalition still stands a good chance of winning a plurality.

The State of Law Coalition

The State of Law Coalition is under the aegis of former prime minister Nouri al-Maliki, who aspires to return to power, four years after being forced out of office under domestic and international pressures. The alliance enjoys the support of several Shia militias, such as the Asaib Ahl al-Haq paramilitary, which consider Abadi as a weak leader. It includes traditional Shia parties such as the Middle Current, led by former national security advisor Muwafaq al-Rubae’, and Preachers of Islam Party, led by former vice president Khudhair al-Khuza’e, as well as other smaller Shia parties.  Blamed for the widespread corruption and sectarian policies that precipitated the fall of Mosul in 2014, Maliki lost the premiership to Haider al-Abadi and was sidelined as one of three largely ceremonial vice-presidents. During the campaign, Maliki has been presenting himself as Iraq’s Shia champion and as the strongman that the country needs. His camp claims that ISIS’ seizure of a third of Iraq in 2014 was not the result of Maliki’s sectarian policy, but the fruit of a conspiracy involving senior Sunni leaders, including the former governor of Mosul and other Kurdish figures within the KDP.

Like Abadi’s alliance, the State of Law Coalition rejects the sectarian quota system (Muhassasa), under which government appointments are made on the basis of sectarian affiliation. However, unlike the Nasr Coalition, Maliki does not believe in a political system relying on inclusive institutions and would likely try to strengthen its grip on the state if he was to return to power. Maliki’s Coalition envisioned the PMF as a means to reinforce state institutions and is favorable to a legitimization of the militias. The Maliki-aligned group believes that armed militias are essential to Iraq’s national security and should therefore not be enshrined by institutions flawed by the muhassasa quota system. The former prime minister and his allies also call for a strong relationship with Iran, which would represent another pillar of Iraq’s security and stability. Maliki believes that Tehran’s military and tactical support was the sole reason why the country did not completely collapse in the immediate aftermaths of the fall of Mosul. He would certainly try to reap the benefits from an enhanced relationship with the Islamic Republic to consolidate his power. In sum, the State of Law Coalition hopes to attract the vote of Iraqis favorable to the return of a heavily centralized state under the leadership of a strong man.

As prime minister, Maliki placed several independent bodies, including the central bank and the electoral agency, under the government’s control. Notably, he moved under his stewardship the office of the commander-in-chief, an extra-constitutional body which gave Maliki effective control over several military units, and staffed it with political allies. He also alienated the Sunni and Kurd minorities, by shutting them out of key security positions and undermining power-sharing. As most Iraqis still hold Maliki accountable for the rise of ISIS, especially in the western and Kurds provinces, the former prime minister’s coalition’s chances of performing well remain weak. However, this election promises to be among the least predictable since the establishment of the democratic system in 2005. If Maliki was successful in his bid to reclaim his crown, it would certainly have a negative impact on efforts to regain the trust of Sunnis in the government. It would also revive tensions over the Kurdish separatist movement, as president of the Kurdistan Region Masoud Barzani recently statedthat he will declare independence if Maliki returns to power.

The Fatah Alliance (Conquest Alliance)

The Fatah Alliance is a result of a schism within the ISCI, which has been one of Dawa’s major rivals for decades but has not been able to recover from the split with its military arm, the Badr Organization, which left ISCI during the 2014 parliamentary elections campaign to join Dawa’s State of Law coalition. The Fatah Alliance was formed by PMF and includes ISCI’s traditionalists and members of the Badr Organization, which has become the strongest individual group among the PMF. It is led by Hadi al-Amiri, the former Iraqi minister of transportation and the head of the Badr Organization. Fatah’s campaign echoed a religious rhetoric and a firm willingness of restoring the rule of law across the country. With regard to external relations, this alliance holds negative views of the US involvement in Syria and is in favor of maintaining close ties with Iran, as its core member, the Badr Organization, is backed by Tehran.

This coalition is expected to do well in the elections, as its militiamen enjoy a considerable degree of popularity for liberating the country from ISIS’ yoke. Fatah is especially popular in the southern governorates of Dhi-Qar, Basra, Misan, Diwaniya, Najaf, Karbala, and other Shiite pockets in Baghdad, Diyala, and Wasit. It could also perform well in several Sunni areas, including Mosul, Salahaddin, Kirkuk and Diyala governorates.

Al-Hikmah (Nation Wisdom Movement)

Al-Hikmah is another product of the divisions within the ISCI. The coalition was formed by Ammar al-Hakim, who broke with the Islamic Supreme Council of Iraq in July 2017, amid tensions with ISCI’s old guard. Hakim wants to appear as a moderate cleric, acceptable within the Sunni world and free from Iran’s influence. He seeks to appeal to a younger and more progressive generation of Iraqis. Although Al-Hikmah’s non-sectarian rhetoric has been positively received by different segments of the electorate, the movement is perceived as the weakest Shia coalition.

The Marching Toward Reform Coalition

The Marching Toward Reform Coalition includes a wide range of elements, including the Iraqi Communist Party, the Sadrist movement (Istiqama) as well as other leftists and secular groups. It is led by Although an alliance between a religious movement and a secular party appears paradoxical, this coalition has been leading a dynamic anti-corruption campaign and is expected to gain seats. Several small Sunni and secular groups have joined the Sadr-led alliance, which has focused its discourse on the widespread corruption among governmental structures on the need to move away from the muhassasa system. Notably, Muqtada al-Sadr has established himself as fierce of critic of Iran’s interventions in Iraq and is generally opposed to any meddling by external countries, including the United States.

Sunni coalitions

The Sunni political landscape suffers from long-standing divisions between parties and still has not completely recovered from the large displacements of population caused by the war against ISIS. Last January, Sunni lawmakers called for the elections to be postponed to December 1, but they were met with fierce opposition from Shia and Kurdish parties. Moreover, large segments of the Sunni electorate have grown disillusioned with Sunni politicians, following claims that corrupt Sunni officials have been forcing displaced families to pay bribes in order to receive internally displaced persons’ relief. In this context, Sunni leaders have gathered around two primary lists: the al-Qarar Al-Iraqi coalition, and the al-Wataniya Alliance.

The al-Qarar Al-Iraqi Coalition

The al-Qarar Al-Iraqi Coalition is led by Osama al-Nujaifi, one of of Iraq’s three vice presidents, along with his brother Atheel al-Nujaifi, the former governor of the Niveneh Province. This group includes members of the Mutahidoon (United) Alliance and the Arab Project led by Sunni businessman Khamis Khanjar. Although their coalition will contest elections in Mosul and other Sunni-dominated provinces (such as Nineveh, Saladin and Anbar), it does not have a national reach. It is also under public scrutiny, as Atheel al-Nujaifi is still facing an arrestwarrant for allegedly allowing Turkish troops during his governorship.

The al-Wataniya Alliance

The al-Wataniya Alliance is an anti-sectarian, nationalist, secular coalition under the aegis of former prime minister Ayad Allawi. It has joined a coalition with Salim al-Jabouri, the speaker of the Iraqi Parliament, and former deputy prime minister Saleh Al-Mutlaq, who now heads the Iraqi Front for National Dialogue. During the campaign, Allawi’s coalition has been advocating for national reconciliation and opposing outside interferences. Although the al-Wataniya Alliance’s campaign has been successful in transcending ethnic and sectarian lines, it is undermined by prime minister Abadi’s popularity among the Sunni community. This should not prevent Allawi from gaining significant shares of votes among nationalists, secular Shia and Sunni in major cities such as Baghdad and Ramadi.

Kurdish parties

The Kurdistan Alliance (al-tahaluf al-Kurdistani) comprising the KDP and the Patriotic Union of Kurdistan (PUK) that ran in previous elections no longer exist. Although the Kurds played the role of kingmaker in the selection of the prime minister in 2010 and 2014, fragmentation within the Kurdish political spectrum has significantly weakened their prospects for the 2018 elections. Notably, in August 2017, PUK leader Barham Salih left the party to form the Coalition for Democracy and Justice (CDJ). In October 2017, Shaswar Abdulwahid, a Kurdish businessman and media mogul, founded the New Generation Movement. As a consequence, in a shift compared the united front during the previous ballots, the 2018 elections include five Kurdish lists: Goran (Movement for Change); the PUK; the KDP; the New Generation Movement; the CDJ.

The referendum independence held in September 2017, which resulted in a 93 percent vote in favor of a split with Iraq, pushed the Iraqi military to seize control of disputed territories, including the oil-rich Kirkuk. The referendum has exacerbated existing tensions between the different parties, amid accusations that the PUK ceded Kirkuk to the federal government, which significantly affected the Kurds’ bargaining power with Baghdad. Moreover, the loss of disputed territories will certainly cost all Kurdish parties seats in the assembly, which will ultimately constrain the KRG in its ability to influence Iraqi political dynamics.

The recent waves of protests in the province – in December 2017 in Sulaimaniya and March 2018 across the Kurdistan region – testified of a widespread feeling of resentment among the Kurdish population against the ruling elites. In the light of the KRG’s growing fiscal deficit, which has resulted in three years of unpaid salaries and rising public debt to local creditors, it is unlikely that the region’s economic outlook will improve on the short-term. Under these circumstances, it will prove difficult for the KDP and the PUK to dominate Kurdish representation in Baghdad.

Goran (Movement for Change)

Led by Omar Said Ali, a former senior PUK official, the Goran movement was formed in 2009 in a split off from the PUK and constitutes the most prominent of Kurdistan’s smaller parties. The Movement for Change has campaigned on the theme of Kurdistan’s national unity, although it has voiced its opposition to the region’s independence, citing the poor state of the economy as well as the dependence on the oil manna.

The Patriotic Union of Kurdistan (PUK)

Under fire for its tacit approval of the seizure of Kirkuk by the federal government, the PUK also lost its leader Barham Salih, who left the party in August 2017 to form to CDJ. The party has received many hard blows since the 2009, particularly in its traditional strongholds of Sulaimaniya and Kirkuk, and will be participating in the 2018 elections as an independent electoral list, outside of any coalition. The PUK is currently headed by Kosrat Rasul Ali, a veteran military leader from the Peshmerga, a Kurdish armed militia. The upcoming ballot is likely to see the PUK being increasingly challenged by the Goran movement, which is quickly moving to dominate the PUK’s voter base.

The Kurdistan Democratic Party (KDP)

Under the leadership of KRG prime minister Nechirvan Barzani, the KDP has campaigned on familiar themes, including the fight for Kurdistan’s constitutional rights and the region’s independence movement. The party has been blamed alongside the PUK for the loss of disputed areas following September’s referendum, and will likely lose further seats to Goran, the CDJ and New Generation. Moreover, the KDP must also cope with growing criticism over its long-standing patronage network and for the way it handled the March 2018 protests in Erbil, when KDP-affiliated security forces attacked demonstrators and journalists.

The New Generation Movement

The New Generation movement was founded following the independence referendum. Based in Sulaimaniya. It voiced its opposition to the referendum, describing it as “an excuse by Kurdish leaders to remain in power.’ Its leader, Shaswar Abdulwahid, a businessman who owns the NRT media group, was arrested by Kurdish authorities in December 2017 for his alleged role in violent protests in Sulaimaniya and Halabja. He was released on bail and the arrest seems to have bolstered his popularity. New Generation’s campaign focused its criticism on Kurdistan’s tribal power structure and family networks. Although it led a dynamic campaign, it remains the least popular party of the Kurdish political scene.

Coalition for Democracy and Justice (CDJ)

Former in August 2017 by former PUK leader Barham Salih, the CDJ includes former members of the KDP and the PUK. It has established an alliance with Goran and the Kurdistan Islamic Group (KIG), also known as Komal and which is led by Ali Bapir. On April 23, the three parties signed an agreement to form a coalition after the elections. The CDJ has centered its campaign rhetoric over the high level of corruption within the KRG, and has called for the implementation of ambitious economic plans to curb youth unemployment. As Kurdish politics is more than divided than at any time since the mid-1990s, this tri-partite coalition could further split the Kurdish vote.

Outlook

 In the light of Iraq’s political scene fragmentation, no single alliance is expected to win a majority of parliamentary seats. Internal divisions within the traditional confessional coalitions are likely to lead to the formation of a grand-coalition government, which is most likely to be led by one of the following four coalitions:

• Prime minister Haider al-Abadi’s Nasr Coalition (Victory and Reform Bloc);
• Former prime minister Ayad Allawi’s al-Wataniya Alliance;
• The State of Law Coalition, led by former prime minister Nouri al-Maliki;
• The Fatah Alliance (Conquest Alliance), under the umbrella of the Popular Mobilization Forces and led by Hadi al-Amiri.

Although the outcome of the elections remains unpredictable, al-Abadi’s Nasr Coalition stands the best change of marginally winning most seats. It can be expected that Abadi will stay on as prime minister, given the lack of a clear consensual alternative and his increased popularity in the aftermaths of the victory against ISIS. The prime minister can take credit for the successful restructuration of the Counter-Terrorism Services and the federal police, and for nipping in the bud the Kurdish independence movement. His strong stance on corruption echoes with Iraqis’ frustration over widespread bribery practices within the governmental structures. Although sometimes described as ‘weak’ by his political opponents, it seems that Abadi’s conciliatory style is paying off.

Ayad Allawi’s al-Wataniya Alliance’s strategy of building cross-sectarian alliances might prove a risky gamble. A secular Shia himself, Allawi’s partnership with Sunni parties, such as speaker of parliament Salim al-Jabouri (Civil Congregation for Reform) and former deputy prime minister Saleh Al-Mutlaq (Iraqi Front for National Dialogue) may turn out to pay off with Iraq’s Sunni electorate. But there are two downside risks to Allawi’s tactic. On the one hand, given voters’ general disarray toward the Sunni political class, they might show little enthusiasm for two figures such as al-Jabouri and Al-Mutlaq, who both come from the Sunni political establishment. On the other hand, some segments of the electorate fear that Baathists might be using Allawi as a means to return to power, as the former prime minister used to be a member of the Baath party before breaking with Hussein’s regime in 1975. Finally, during his short-lived premiership, Allawi’s was often denounced by many Iraqis as an American puppet, a feeling reinforced after he stepped down from power in May 2005.

As explained above, Maliki’s State of Law Coalition will be disadvantaged by the former prime minister’s failure to prevent the rise of ISIS and the fall of Mosul. Moreover, despite undeniable organizational strengths, this coalition is perceived as heavily corrupted, divided and poorly governed, largely because of its affiliation with the Dawa party. Although Maliki can count on the support of a significant number of traditional Shia parties, it is expected to win fewer seats than Abadi’s coalition.

The Fatah Alliance might be able to capitalize on its crucial role in the victory against ISIS and the presence within its coalition of 18 predominately Shia political entities. Notably, besides Amiri’s Badr Organization, Fatah includes Salim al-Bahadeli’s Hezbollah-Iraq, al-Sadiqoun / Asab Ahil al-Haq (League of the Righteous People) led by Qais al-Khazali, and the Supreme Council of the Islamic Revolution, which all enjoy solid political capital vis-à-vis Shia electorate. In this way, Fatah will most likely perform well in the Shia-dominated governorates. The rise of this PMF-led coalition poses a significant challenge to the formation of the future administration, especially if Abadi, who has been trying to place Shia militias under his office’s command since 2015, was to maintain his position as prime minister. As some of the armed groups within the PMF still receive financing and strategic support from Iran, they will continue to have the capacity to act outside Baghdad’s control.

Beyond the elections: the challenges of the post-ISIS era

The ballot will play a key role in determining the direction the country will take in the future, in the sense that Iraq’s parliamentary elections are “as much about choosing a prime minister as they are to elect member of parliament,” as former Iraqi ambassador to Washington Rend-Al-Rahim notes. Although ISIS factions have been defeated, Iraq’s broader problems in politics, governance, security and economics persist. Although the list is not exhaustive, three immediate challenges must be tackled on the short term: the blight of corruption, the renewed risk of sectarian and ethnic violence, and dealing with the country’s indolent youth population.

Corruption

The first challenge that the new administration will have to tackle is corruption, which is perceived by a large part of Iraqis as the single deepest reason they distrust the government. According to Amnesty International’s 2017 Corruption Perceptions Index, Iraq is the 12th most corrupt nation in the world, ahead of countries such as Democratic Republic of Congo, Zimbabwe, or Central African Republic. In August 2015, Abadi introduced a range of anti-corruption reforms, including rescinding all exclusivity allocated to high government positions, a ban on the application of a quota system on high positions in ministries, and revisiting old corruption cases under the supervision of a High Commission to fight corruption. But it seems that the prime minister’s policies have failed to provide a sufficiently strong integrity framework.

Corruption in Iraq is exacerbated by Saddam Hussein’s legacy, and pervasive corruption across all levels of government and sectors did not disappear after the fall of the dictatorship. According to the Commission of Integrity (COI), an independent Iraqi governmental body established in 2004 to fight corruption, in 2012 alone, 12 ministers, 97 heads of department or higher, 7 parliamentary candidates, and 11 governorate council candidates were charged on corruption grounds. It has also been advanced that corruption significantly contributed to the advance of ISIS in the country. Corrupt practices allowed inexperienced generals to be given prominent roles and resulted in the multiplication of “ghost soldiers,” an expression referring to soldiers on the military’s payroll but who do not exist.

Such a high level of corruption represents a major disincentive for foreign firms seeking to invest in the country. The 2011 World Bank’s Business Enterprise survey for Iraq (the latest version available for the country) indicates that during the course of 2011, a third (34%) of public transactions with private firms involved a gift or an informal payment. Four years of fighting against ISIS certainly did not make things any better. Iraq currently has three main bodies responsible for fighting corruption: the COI, the Inspector General’s Offices (IGO), and the Federal Board of the Supreme Audit. But none of these can effectively tackle corruption. The penal code is still confusing, with forms of corruption such as bribery, embezzlement and fraud still defined as “dishonorable offences,” and therefore still treated as petty crimes. Although Iraq adopted in 2004 an Anti-Money Laundering Act, it falls short of international standards, and whistleblowers still face substantial political pressure.  Hence, the implementation of a legal framework providing judicial institutions with effective tools to fight and deter corrupt practices should be made an absolute priority.

Renewed risk of ethnic and sectarian violence

 Another challenge will be to prevent a new surge of sectarian and factional violence. Although most of the territory lost to ISIS has been recaptured, Iraqi forces remain considerably fragmented between non-state militias and troops under the aegis of the federal government. There is a still of a high risk of clashes between Sunni and Shia communities, especially if Shia militias seek revenge on Sunni civilians for the crimes of ISIS. Moreover, divisions within the PMF could also result in violence. Although sometime perceived as unified umbrella of militias, three competing camps can be identified within the PMF: one camp is affiliated with Iran’s Supreme Leader Ayatollah Ali Khamenei; another camp is loyal to Grand Ayatollah Ali al-Sistani, a very influential cleric among the Shia community; finally, a third camp is aligned with cleric Muqtada al-Sadr, such as the Peace Brigades (Sarayat al-Salam). If the competition between the various affiliated-militias was to lead to a schism within the PMF, the situation could degenerate into a bloodshed.

 Dealing with an indolent youth population

The next government will also have to cope with Iraq’s youth population. According to a 2016 estimate by United States Census Bureau, the Iraqi population is distributed as follows:

• 0-14 years: 39.88% (male 7,666,832/female 7,445,633)
• 15-24 years: 19.07% (male 3,703,302/female 3,572,702)
• 25-54 years: 33.7% (male 6,499,345/female 6,354,506)
• 55-64 years: 3.96% (male 720,976/female 790,301)
• 65 years and over: 3.39% (male 574,521/female 717,907).

In the post-ISIS era, Iraq’s youth population will need job opportunities, which can only be achieved by reducing the country’s economy dependence on the oil windfall. According to public data from the Central Intelligence Agency (CIA), in 2016, the oil sector provided more than 90% of government revenue and 80% of foreign exchange earnings. The CIA also notes that “rampant corruption, outdated infrastructure, insufficient essential services, skilled labor shortages, and antiquated commercial laws stifle investment and continue to constrain growth of a private, nonoil sector.”

As highlighted by the figures above, Iraq’s youth population requires the introduction of dynamic private sector, especially if Baghdad is to eradicate the scourge of radicalization. According to a report published by the World Bank in 2017, youth unemployment and underemployment, as well as the lack of economic opportunities were among the main factors in the indoctrination of young Iraqis by ISIS.

 

This article was first published on Global Risk Insights, and was written by Leo Kabouche.

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According to Shipan Kumer Basu, the President of the World Hindu Struggle Committee, in recent times, the Bangladeshi government has been utilizing the Vested Property Law in order to seize Hindu property and to claim it as their own, thus turning Bangladeshi Hindus into homeless underprivileged paupers. He noted that while on paper under the Vested Properties Law, some Hindu properties that were lost supposedly can be reclaimed, in reality, the law works in order to push Hindus off of their ancestral lands.

For example, in Khalkula village of Islampur, a Hindu family’s land has been forcefully seized by the local Awami League and a building has been constructed in the area. According to local reports, the victim Khalakula Mouza, a Hindu, was able to reclaim his land under the Vested Property law. However, after he reclaimed his land, the Awami League turned around and had a building constructed on his land. A police complaint was issued but it remains to be seen if justice will be done.

Ed Abu Hanif, a learned lawyer on the Vested Properties Law in Bangladesh, was asked if Hindus are getting any of their property back and he answered that those who left Bangladesh (then Pakistan) in 1965 and now want their properties back have to present a proper certificate showing that they are the heir or else the Bangladeshi government will remain the owner of the land. According to Basu, the issue is that most of those Hindus lack proper certificates.

Abu Hanif noted that there are some properties that the Hindus sold at nominal price before leaving for India as refugees and in those cases, the buyers become the owners of those properties by showing the purchase deeds to the courts: “Recently, the government published in national dailies that the cases will be resolved quickly and the properties would be allotted to government officials. The Hindus are abused and are not getting the required certificate as heir. Is this not a ploy by the government to make the country Hindu free? Only if the Vested Properties Act is repealed will the Hindus reclaim their property.”

For Basu, allowing the Awami League to hold onto these properties merely because the Hindu refugees were compelled to sell their land in haste would be like denying compensation to a Jewish person who sold their home in haste at a nominal price because they had to flee Europe due to the rise of Nazism. In both cases, political circumstances forced both the Hindu in Bangladesh and the Jewish person to sell their home at a nominal price because the place where they were living no longer guaranteed their right to live in safety, dignity and freedom.

According to Abu Hanif, “Where once the number of Hindus in Bengal was 30% of the total population, it is less than 7% today and in the future, it will be less as the government is giving that property to its gangsters and announcing the allotment of the remaining properties. The Vested Property Law is illegal under international law and the property should be returned to its rightful owners.”

Khalifat Movement leader Kazi Azizul Huq added: “We expressed our disapproval of the Vested Property Act and openly declared that we are seeking advice to formulate a strategy to solve the problem avoiding as much as possible new conflict and chaos in the country. Most of these properties are in the possession of rich and powerful people who were or are public representatives belonging to Awami League or BNP or JP. We want to create an environment in Bangladesh which will effectively: End silent migration of Hindus from Bangladesh to India; Ensure opportunity and scope for those who return to Bangladesh who were obliged to illegally migrate to India. We are against any direct or indirect oppression of minorities in Bangladesh and are determined to stand beside affected persons or families. We are trying to motivate others in this regard.”

“We are all Bengali brothers, Hindus, Muslims, Buddhists and Christians,” he noted. “The majority of the population of Bangladesh irrespective of religious identity is poor, oppressed and discriminated against by the mainstream rulers and the elite irrespective of their political affiliation. Since Bangladeshi Independence, national secularists have been ruling this territory. Many of these secularists, who are generally irreligious, did not miss any opportunity to misuse religion for political or other gains. Irreligious secular rulers are largely responsible for whatever deprivation, discrimination and oppression religious minorities have suffered in Bangladesh from the beginning till today.”

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On October 27, 2017, new auction rounds for the eight pre-salt blocks in Brazil were launched. As the Brazilian government approved a new regulatory framework for the bidding process to allow more investors, 14 foreign companies and two Brazilian entities were qualified to participate in the auction.

As a result of the auction, The National Agency for Petroleum, Biofuels and Natural Gas (ANP) awarded six offshore blocks to Shell, Brazilian state-run Petroleo Brasileiro (Petrobras), and Statoil. This generated BRL 6.15 billion (about USD 1.9 billion) in signature bonus and BRL 760 million (about USD 234.8 million) in investments. The ANP also announced that two more auction rounds for pre-salt layer fields are planned in 2018 and in 2019. ExxonMobil (USA) took eight blocks of pre-salt reserves in the recent auction in April 2018, whereas Petrobras took six blocks.

Moreover, the new regulatory and economic changes in the Brazilian oil and gas sector have brought more transparency on future investments in the pre-salt reserves, incentivizing foreign investors such as ExxonMobil (USA) and Statoil (Norway) to invest again in Brazilian energy projects. The improved regulatory framework ended the mandatory participation of Petrobras as “the sole operator in pre-salt”, creating new opportunities for other investors.

A bright future, but risks abound

The future of the Brazilian oil and gas sector, and subsequently the Brazilian economy, is positive. In 2017, the oil and natural gas sector accounted for 11 percent of Brazil’s GDP, and keeps on growing. With a recovered economy, the Brazilian government claimed that Brazil has become the largest oil producer in Latin America, and that the pre-salt reserves has been regarded as “one of the most promising oil reserves in the world.” The Brazilian government thus expects the auction to yield investments of about USD 36 billion for the next 10 years, and would create about 500,000 direct and indirect jobs. This development in the oil and gas sector provides an optimistic outlook for many Brazilian states’ economy that depend on oil production, as “the exploration of [the pre-salt] areas should generate BRL 400 billion in royalties and taxes over the next 30 years.” This development could invite more economic and social development in Brazilian states that have suffered from the recent dire economy.

As corruption, fraud, and bribing remain pervasive and ongoing problems in Brazil, the investors will look to Brazilian President Michel Temer’s administration to reinforce new regulatory and economic laws to mitigate these risks in the oil and gas industry and in Brazil as a whole. Indeed, Reuters indicated on April 17, 2018 that President Temer launched a series of policy changes to “tempt investors to return to Latin America’s No.1 economy.” The President aimed to cut restrictions on oil and gas production by eliminating the exclusive rights of Petrobras in operating pre-salt oil fields.

However, despite the positive developments in the oil and gas sector, there are persistent political risks that investors must be wary about. These risks include judicial insecurity, high-level corruption, reputational damage, expropriation and nationalization with the involvement of Petrobras, and contract uncertainty. For instance, an October 27, 2017Financial Times article reported that a federal judge issued an injunction to block the October 2017 auction, a political move sought by the leftist Workers’ Party. While the auction was briefly suspended, the injunction was overturned. However, this recent play provides a cautionary tale for investors, as judicial and political insecurity can undermine the progress of the auctions and pre-salt reserves investments. Along with these issues, the upcoming presidential elections could reverse Temer’s policies and new regulatory framework.

Petrobras and ongoing security crises in Brazil

In addition, according to the Brazilian government, Petrobras “now has the freedom to choose which [pre-salt auction] blocks it will participate in.” The new regulatory framework of the pre-salt reserves has thus allowed Petrobras to gain more autonomy for its strategic management and investment in the oil and gas industry. Increasing the state-owned oil and gas company’s influence and power over one of Brazil’s essential sectors for economic growth may be too early for Petrobras. As the company remains entangled in the biggest corruption probe in Brazil’s history, investors remain cautious of political and judicial development around the company.

This scandal has had a disastrous impact on Brazil’s economy, as investors strayed away from the country for a few months and stock prices dipped quickly in 2014. Overall, this issue was a staggering setback for Brazil’s political, social, and economic growth and worsened the already-existing grievances in country. It took several years for Petrobras to recover from the scandal, as it became the world’s most indebted oil company and reported revenue growth only by 2017. The ongoing investigation and its impact on the public and private sector in Brazil remain a rampant issue that investors, policy makers, and international organizations should continue to monitor.

In addition to the aforementioned political and operational risks, investors must also take into account worsening security risks. In the past five years, Brazil’s security status quo has deteriorated, as over 55,000 people were killed in 2015 due to a surge in police strikes, street crime, violent protests, and armed conflicts between the Brazilian security forces and organized criminal organizations. A vacuum of instability and violence in various cities across the country has persisted since 2015, and along with civilian unrest and excessive responses from Brazilian security forces, drug trade, arms trafficking, robbery, extortion, and kidnapping activities have soared. The rampant corruptions in the government and security forces, and endemic economic and social instability have undermined the Brazilian government’s ability to effectively tackle security crises.

 

This article first appeared on Global Risk Insights, and was written by Alicia Chavy.

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Emmanuel Macron’s ambitious plans to reform eurozone institutions received a further setback when German chancellor Angela Merkel toed her party’s line and rejected some of his bolder proposals when the two met in Berlin last week. Merkel’s stance makes it unlikely that any meaningful structural reform of eurozone institutions will be agreed upon at the EU summit in June. This piece analyses the eurozone economic risk outlook, given the low probability of reform in the short-to medium term.

Disagreements over future of eurozone

The latest meeting between Angela Merkel and Emmanuel Macron last week reinforced the fundamental disagreements between the two leaders on the future of the eurozone. While Macron emphasized the importance of greater convergence between the eurozone economies, Merkel was keen to stress the need for compromise. She was clearly unwilling to expend any political capital and instead toed her party’s hardline stance on structural reform. There are three central planks to Macron’s proposals: the creation of a eurozone bank deposit guarantee scheme, the transformation of the European Stability Mechanism to a more permanent European Monetary Fund to weather economic shocks, and the creation of a fiscal union with a central eurozone budget.

There is simply no appetite in Germany for any reform that could entail transfers from German taxpayers to weaker eurozone countries. The CDU/CSU is wary of the challenge from the far-right Alternative for Germany, while the centrist Free Liberals are skeptical of closer European integration. Merkel, while broadly supportive of Macron’s aims, has exhausted much of her political capital during the arduous negotiations over government formation and has not committed to supporting any of the substantive proposals. She has resisted the idea of creating a fiscal union, which would entail creating a central eurozone budget and has also rejected the creation of a bank deposit guarantee scheme for failing banks. The only area of agreement has been on creating a more permanent European Monetary Fund that would be better able to protect the eurozone in the face of macroeconomic shocks. However, the CDU/CSU has insisted that this process should be undertaken only after a treaty change which would necessitate the approval of national Parliaments. Therefore, there is unlikely to be much immediate progress on this front either.

These fundamental disagreements over the future institutional structure of the eurozone are unlikely to be resolved by the next EU summit in June. The summit is seen as the last opportunity to agree on some reform before the European elections next year. Therefore, the probability of structural reform in the medium turn is extremely low.

Updated economic risk outlook given low probability of reform

The low probability of structural reform of the eurozone increases economic risk over the medium term, as it leaves the eurozone vulnerable to economic shocks. A common bank deposit guarantee scheme is essential to lower the probability of banks runs, while a permanent monetary fund will help to recapitalize the banks in an event of crisis and avoid a debt loop between banks and sovereign governments. A fiscal union with some form of debt mutualisation and central budget is equally essential if the monetary union is to survive. Without these institutional reforms, the eurozone economies are always left vulnerable to global economic shocks. Therefore, the recent lack of progress on creating these structures does increase economic risk over the medium term.

While there is no immediate sense of crisis, the risk trajectory is likely to increase gradually because of several economic headwinds both within the eurozone and globally. First, there has been an unexpected decline in the eurozone’s economic activity. Various economic indicators have surprisingly under performed this year. Most notably, German industrial production has taken a significant hit while business confidence indicators in Germany have declined too.

Second, the prospect of Brexit and the threat of a trade war with the USA constitute two significant global outliers that could hurt future growth in the eurozone. While the UK is likely to bear the brunt of the costs of Brexit, there is likely to be some disruption to eurozone economic activity too, depending on the nature of the final withdrawal agreement. Trade relations with the USA are uncertain as well because it is unclear how long tariff exemptionsare going to last. These two global outliers inject considerable economic uncertainty and are likely to dent business and consumer confidence in the eurozone.

Ultimately, the lack of progress on structural reform coupled with looming economic headwinds means that an economic downturn is likely in the short to medium term.

 

This article was first published on Global Risk Insights, and was written by Aman Navani.

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Some cities are now betting on the proliferation of sustainable and local sources of energy. The idea was born in the forgotten network (inaccessible cities, suburbs, rural villages) and then is organized as such, that it questions today’s centralized national production of the world’s leading power source.

Cities are not only going through an energy transition but are shifting to an urbanization of energy. On the one hand, there is the growing integration of energy in urban policies, and on the other hand, there’s the growing importance of discourses, actions, and conflicts around energy that are expressed in cities which influence energy changes. Rather than empowering actors or even urban energy interests, we are witnessing the growing consideration of these interests in energy governance at the national level. This consideration has significant implications: it positions cities, especially larger ones, as possible interlocutors in a multilevel set of actors, it values ​​their role of incubation or training of energy changes. The urban energy interests are allowing for the demands, disputes and resistance voiced by urban consumers into the energy system debate. The current evolution therefore translate less into a desire for substitution than  the establishment of a long-term coexistence between various socio-technical systems. This coexistence presents considerable challenges. In addition, by combining heterogeneous systems, whose dynamics of development/decline may vary according to places and times, it makes possible a voluntary and often fortuitous diversification of energy devices along local scales, including the urban environment. This diversification is not an end in itself.

First stage: Bangalore, the tropical capital of Karnataka in southern India. This ancient garden city of flowers has become a major hub of advanced technology. The Bollywoodian Silicon Valley is the daughter of Western delocalized policies and the liberalization of the economy. It hosts the three giants of the country’s IT, but also Texas Instruments, Microsoft, Google, Yahoo, Amazon, Dell, IBM and seven hundred other research and development centers. Start-ups come running: no VAT and low-cost, highly-skilled English-speaking labor. In ten years, the population of Bangalore has grown from three to ten million. A large majority have worked on the construction sites of Electronic City and survive in the surrounding shantytowns.

Power outages are common, especially in Mumbai and Calcutta. India, which is heavily  engaged in its energy transition, already owns the largest solar power plant in Asia with plans to reach a capacity of 100 GW by 2022, the equivalent of 120 nuclear reactors. But its payout policy is growing social inequalities that are already impressive. One-third of India’s population lives below the poverty line. One-third of all Indians do not yet have access to the national electricity grid. The excluded represent 328 million inhabitants -equal to the population of the United States. Half of them are not yet 25 years old. These neglected from the network live either in the megalopolis (on fragile, flooded and contaminated lands), or in small cities or unconnected mountain villages.

Perhaps we are witnessing a real paradigm shift: from a vertical distribution of energy to a horizontal and decentralized distribution. Instead of huge production sites (coal-fired power plants, nuclear power stations), which are inevitably associated with complex networks designed to carry electricity to consumers who sometimes live several hundred kilometers away, short circuits are gradually being favored — less expensive, and more autonomous.

In this context, the issues of individual production – self-production – as well as those of self-consumption are numerous. It can be seen as a form of democratization, since part of the production are directly controlled by the citizens. It also participates in the decentralization of networks, with a view to increasing local resilience and improving the autonomy of each individuals.

In the dry dust of Rajasthan, in Tilonia, is where the Solar Mamas work. They are beautiful and proud in their yellow and pink saris. They bring the light to the heart of their homes and share the knowledge they have acquired here at Barefoot College, created by Sanjit Bunker Roy on the principles ofGandhi’s spirit of service and beliefs on sustainability, which are still alive and respected. This center of popular education teaches how to become autonomous in all domains: health, habitat, and energy. Everything works with solar: lighting, computers, water pumps, ventilators, dental offices and even a small hospital. Solar Mamas are learning to build a solar power plant in sixmonths. They communicate by gesture and simple schemas where each piece is identified by a different color. The students of Barefoot College graduate and are recognized in their society. They then, go on to  train other women, in the logic of pollination. They have already brought electricity to five hundred thousand people in 72 countries. The university has opened five centers in Africa – Burkina Faso, Liberia, Senegal, South Sudan and Tanzania. The benefits are direct:

– a reduction in the family budget devoted to the purchase of kerosene for lamps which could now can be invested in education;

– a source of lighting in the evening to improve income and to allow children to do their homework;

– a way of cooking cleaner (solar ovens) which reduces the requirement for hard labor by young girls;

– a revaluation of women in the community, as they become engineers and provide energy;

– the opening of evening schools (500 Barefoot Colleges in India which have already trained more than 3000 teachers).

Many villages in India, Bangladesh and Myanmar are now opting for off-grid renewable energy solutions. Thousands of homes are thus equipped with solar by combining microcredits, public aid and NGOs. Harish Hande, founder of the social enterprise Selco, has already facilitated the installation of solar power stations in one slum of Bangalore with micro-credit. In poor villages, SELCO negotiates with rural banks and farmers’ cooperatives. SELCO’s innovation touches every point in the clean energy supply chain, including human-centered and locally-driven product design, financing, and servicing.

Back in New York and the beautiful silhouette of Manhattan, Brooklyn enhances its landscape of rooftop terraces. It is easy to fall in love with solar gardens, a booming practice based on crowdsourcing energy. The idea is no longer to distribute energy from a large national network, but to build local production poles by combining several renewable sources. Welcome to the collective economy: each pole distributes its surplus production to neighboring territories.

In 2008, the U.S. Department of Energy published a report (not widely communicated) on this growing practice. It concludes that thousands of these poles can each make their territory self-sufficient in electricity and heating, forcing the national network to rethink their strategy. The latter would then become, if necessary a secondary source of supply. The system is presented as the only way to achieve a clean energy transition in the United States. Is the country ready for this third industrial revolution announced by Rifkin at the beginning of the third millennium? It is the time to imagine hundreds of millions of people producing their own green energy in their homes, offices, and factories, and sharing it with each other in an ‘energy internet’ just like we now create and share information online. For some, this may sound like pure science fiction.

In New York, the micro grids of Brooklyn represents a new landscape shared by producers, consumers, and sellers. The roofs are vegetable gardens and fragments of American archetypal meadows. Today’s ultra-connected hipsters have evolved under the caret shape of photovoltaic shadows. Do they know that they are the sons of the Solar Mamas?

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Delegates clap their hands as China’s President Xi Jinping (1st row) arrives for the opening session of the Chinese People’s Political Consultative Conference (CPPCC) at the Great Hall of the People in Beijing, March 3, 2017. (Photo courtesy of Reuters)

Domestic and Foreign Policy Impacts

According to Sourabh Gupta at The Institute for China-America Studies (ICAS), the domestic policy implications of the two-term limit abolishment decision are strong and profound. “This decision is reflective of President Xi’s other programs which are for his own personal power consolidation, such as his anti-corruption drive. Xi will be pushing ahead with a  longer-term plan to fully put economic reforms in place and this decision is part of that plan.”, Gupta says.

However, the decision also continues to play into a larger narrative characterized by suspicion over China’s rise, particularly from Western countries, with respect to China’s ultimate intentions in the future. The suspicion follows previous skepticism regarding China’s “new model of great power relations” proposal and will linger regardless of who ultimately is the Chinese president.

The overall effect of Xi extending his tenure will most likely be increasing suspicion from these very same quarters. However, this is also balanced by previous statements from Xi that he’s interested in China working harmoniously within the global system as a “responsible stakeholder”, not as a revisionist power as outlined in the latest U.S. National Security Strategy.

Unfortunately, according to some Western critics, the move to eliminate the term limit has only confirmed that China as a whole is on an even more authoritarian trajectory for the future. This has occurred despite continuous U.S. economic engagement which was initially hoped to eventually have a liberalizing effect on China’s political system.

Compounding this misperception is the constant Western refrain regarding China’s economy, namely that it is “slowing down”. Unfortunately, this perspective fails to understand that this is precisely the goal of China’s leadership in that it realizes that a possibly slower-growth economy based on internal consumption is much more sustainable for the future, thereby enhancing the government (and the Communist Party’s) own legitimacy.

Jun Isomura of The Hudson Institute concurs with Gupta that economics was a primary driver behind the decision to lift presidential term limits. In today’s post-ideological era, continuous sustainable economic growth forms the basis for the Party’s continued legitimacy. Tellingly, Isomura speculates that the Party itself is concerned with a possible collapse of its legitimacy around 2030 if sustainable economic growth is not maintained, citing a previous Hudson Institute report on the subject. As an example, a primary objective of China’s Belt and Road Initiative (BRI) is to increase economic opportunities for people moving in from China’s inner provinces to its more affluent coastal cities, thereby increasing both economic and political stability for China itself.

Additionally, “President Xi is trying to survive this problem, not only through his anti-corruption campaign, but also through increasing his grip on the military. This was done through his role as Chairman of the Central Military Commission with the recent reorganization of the previous seven, more autonomous, regional military commands into only five currently. This was also meant to combat issues such as smuggling within the military.” Isomura states.

Advantages, Disadvantages, and Impact on  “Two Sessions”

Because this is a critical time with respect to reform in China, the primary advantage of the presidential two-term limit abolishment is that it will enable these various reforms to be enthusiastically pursued for the longer-term. Theoretically,  this can also increase basic stability within China’s political system.

Inversely, the abolishment can be a disadvantage as well. This is because from an increased political stability perspective, Xi might gradually come to be surrounded by more “yes men”. Advisors of this sort may not be prone to giving honest feedback to the president lest they be accused of inciting instability within the system. Overall, this may lead to false impressions and bad advice given to whomever the Chinese president is, and so will be detrimental to the country as a whole in the long-term.

According to Gupta, one of the biggest dangers is China’s middle-income society, currently hovering at around $10,000 per capita. “From this standpoint, China is currently where civic demands started to really grow in South Korea and Taiwan in the 1970s. Most likely, China itself has about 10 years before this same kind of demand starts to grow within China proper.”, Gupta states, mirroring Isomura’s prediction. However, President Xi and the Communist Party of China in general have no political liberalization goals, just a continuation of clamping down on corruption.

From a Party-wide perspective, factional rivalries might occur if a weaker leader assumes power post-Xi. This weakness would come into play despite the abolishment of the two-term presidential limit and might come primarily from two sources. First, the fact that the Communist Party has no plans at all for political liberalization in the face of the Chinese people’s overall rising economic fortunes might place its legitimacy in the eyes of the people into question.

Additionally, Gupta goes on to further state that, “More fundamentally, this weaker leader would be even further removed from China’s original paramount leaders of Mao and Deng than even Xi himself is, and so therefore might have less of a “Mandate from Heaven” from the people’s perspective. Compounding this scenario would be the fact that one-party systems typically do not collapse due to external factors, but due to internal rivalries and fractures. Popular perception of these fractures might, in turn, make an already weakened Party even more vulnerable from a legitimacy perspective.”

For this reason, according to Gupta, the new eradication of the two-term limit for presidents was easily codified into constitutional amendments recently at the Two Sessions. Again, the move is expected to give Xi a longer time horizon to fully transition the Chinese economy from one of production and investment, typified by the opening up period during the late 1970s and 1980s, to one of increasing consumption currently.

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Presented by Intelligence Squared U.S. in partnership with Georgetown University live at the first Georgetown University Women’s Forum

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The new General Data Protection Regulations, or GDPR that has recently come into effect inside the European Union may have as much of an influence inside the EU as it will internationally. Any companies that do not adhere to the new data privacy protection rules may find themselves in violation of the GDPR if they are seen to breach the new rules and have that breach linked to a citizen of the EU. The penalties are designed to not only deter local European based companies from violating the new regulations, but also gives the EU the power to levy massive fines on international corporations who do not adhere to the new data privacy standards. The EU has applied strict enforcement to many of their regulations, and are not timid in the application of billions of Euros in fines on large multinational corporations in the past when found abusing competition regulations in the EU. The effect of these settlements that would calculate the fine to be a punishing double digit percentage of the international value of the company in violation is meant to deter future illegal activities by significantly crippling large companies who conduct themselves in an improper manner, hitting them precisely where it hurts the most.

From a company perspective, new rules and regulations with penalties that could theoretically destroy a company may be difficult to adhere to with the new regulations not yet being tested in court nor experts completely agreeing to what constitutes full compliance. Companies are scrambling to find the best experts and set up entire data privacy compliance departments in an effort to throw as much as possible against the wall and hope that they meet the standards of compliance with the new regulation. In effect, no one wants to become the test case for the new regulations, as past cases on competition breaches lead to now famously large fines against companies in the past. Non-EU companies will have to also consider how the new regulations affect their data privacy policies, as companies outside the EU may be just as vulnerable as those based in Paris or Munich. After breaches in the finance industry by HSBC and other large companies, bank and finance companies worldwide set up Compliance Departments in order to not violate US and EU banking regulations, even if they were not located or even operated in the US or EU. Like many competition regulations, the economic weight of the European Union may as well be considered as a development in international policy, but with new rules abroad, the difficulty in ensuring compliance when most of the experts are based in the EU adds an additional layer or chaos and confusion in applying GDPR worldwide.

From a consumer perspective, many of the regulations applied on European and international companies are meant to lower the actual cost of services, allow for more options, and protect an individual’s privacy, savings and even the security of EU citizens. The question of what an official might call a discrepancy in accounting practices or policy could reach into the range of billions of dollars, and it is appropriate and significant that a formal and effective deterrent is applied so that the loss of large amounts of money do not pass as simple disagreements in accounting standards. The disappearance of so much money from consumers or the public severely costs communities, makes so that infrastructure, housing and hospitals so not get built, and even leaves the sick without beds essential in receive humane treatment. Actions that seek to prevent public authorities from accessing information that can have such a great effect on citizens are particularly horrendous. The practice of midnight raids used by EU authorities, entering companies at night in order to find valid evidence of breaches in policy has become part of their tool kit for this reason. This became the rationale the competition authority of the European Union used to set the standard in punishing companies like Microsoft and Google when they tried to push out their competition, effectively taking any financial benefits away from their illegal actions. With GDPR in effect in the EU, it would be logical for other countries to adopt many of the same measures as the EU, not simply to avoid any fines coming from the new regulations, but to give their citizens a better standard of protection on their personal data. No one should expect less from their public authorities and breaches should be applied diligently. The EU has likely set the global standard on data protection, and until the new policy matures and finds its place through legal jurisprudence, members of government and the business community should work in good faith to set a global standard that protects individuals. Appropriate punishments need to be effective but not enter the realm of abusing those who attempt to work within their understanding of regulatory obligations. If the regulation becomes a political tool, it will degrade its effectiveness and betray public trust on its application by local EU and authorities abroad.

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The Jewish community of Bangladesh is virtually non-existent thanks to the persecution of minorities in the country.

In the wake of the increased persecution experienced by Buddhists, Christians and Hindus in Bangladesh, one must ponder, what happened to another persecuted minority group that used to reside in the Bengal region of the Indian subcontinent? According to Asian Jewish Life, in 1947, there were 4,000 Jews who lived in West Bengal primarily in Calcutta and about 135 Jews who were residing in East Bengal, which became Bangladesh.

According to local reports, most of Bangladesh’s Jews resided in Dhaka, the Bangladeshi capital city. These Jews were involved in various occupations including being in business and being traders. Other Jews ran hotels and restaurants in the country including the Baneda Restaurant. Jews have also played a prominent role in Bangladeshi history. In 1971, it was Retired Lieutenant General JPR Jacob, an Indian Jew that today resides in New Delhi, who liberated East Pakistan during this war. In addition, Bangladesh’s National Assembly Building was designed by Jewish American architect Louis Khan and it is ranked as the world’s largest legislative complex.

But despite this history, today, the Jewish population of Bangladesh is virtually non-existent. According to local sources, there are only 4 Jews living in Dhaka and they keep their identity private. Furthermore, there is no active synagogue within the country. However, Bangladeshi dissident Salah Uddin Shoib Chowdhury differs, claiming that there are 3,500 Jews of Bangladeshi origin but that due to religious persecution, most of Bangladesh’s Jews who remain in the country claim that they are Jehovah’s Witnesses.

Regardless, according to various reports, most of Bangladesh’s Jews have immigrated to either America or Israel. “Jews in this country are in the most vulnerable situation,” Choudhury, editor of The Weekly Blitz, told the Baltimore Post Examiner. “The government, the political parties, the religious institutions and even most Bangladeshis want to see the elimination of Jewish existence in this country.”

However, there are remnants of what used to be a Jewish community in Bangladesh. According to Shipan Kumer Basu, the President of the World Hindu Struggle Committee, there is a mysterious building in Purana Paltan that used to be a Jewish club/synagogue: “Abdul Fida Chowdhury, an elderly resident of Purana Paltan, said that 50 years ago, there were a number of Jews in the community who gathered in that building which is titled ‘Freemasons Hall 1910’ but after the War of Independence in 1971, they were no longer seen. Presently, the building was confiscated by the land owners and it now belongs to the Bangladeshi government.”

According to reporter Larry Luxner, there is nothing that identifies that building as a synagogue today. He is a bit skeptical of the claims put forward by Chowdhury who nevertheless insists, “The government would like to hide any trace that it was a synagogue, but I can assure you this building was used as a synagogue from 1910 to 1948.” However, according to the Jewish Chronicle, there are some Jewish expatriates in Bangladesh who do meet for both Yom Kippur and Rosh Hashanah every year to date. Yet according to one of their sources, “The only Jews you will find in Bangladesh are those merchants with extensive business reasons to stay in Bangladesh.”

This is because of the negative treatment the Jewish minority in Bangladesh has encountered. The Bangladeshi government considers Jews to be enemies. They have so much animosity for Jews that they refused to have diplomatic relations with Israel even though Israel was among the first countries to recognize Bangladeshi independence. Similarly, the Hindus of Bangladesh are treated with suspicion and often have their loyalty questioned as well. Based on the lie that the Hindus are not loyal citizens, their women are being raped, their homes are being confiscated, their holy places are being desecrated and they are slowly being ethnically cleansed from the country. Indeed, the plight of minorities in Bangladesh including the Jewish and Hindu ones is horrific. After the Jews have all pretty much left Bangladesh, Hindus, Buddhists and Christians are also leaving Bangladesh in droves in recent times. If this trend will continue, Bangladesh will soon be an exclusively Muslim country.

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Amidst political chaos and uncertainty, Brazil’s economy continues on its path to recovery receiving a vote of confidence by ratings agency Moody’s. There is hope Brazil will be able to continue the necessary economic reforms once a new President takes office next year.

On 9 April, two days after former President Lula’s arrest, ratings agency Moody’s improved the outlook for Brazil’s sovereign credit rating from negative to stable, which was reaffirmed at Ba2. Moody’s move is contrary to those of other ratings agencies—Standard & Poor’s and Fitch—which downgraded Brazil’s credit rating this year.

S&P downgraded Brazil’s rating in January, and Fitch in February, due to the country’s difficulty in approving necessary reforms which affect long term economic recovery and an increase in public debt. It has been two years since Brazil had investment grade status—the higher the grade the safer it is for investment.

Moody’s made the decision because they believe the next government will be able to approve the required fiscal reforms to stabilize debt growth and comply with a spending cap—as improved economic forecasts in the short and medium term played a role. Moody’s also noted that the negative risks and uncertainties related to the reforms from last year have decreased as presidential candidates have acknowledged the importance of a pension reform.

Fiscal reforms and projected growth

In the detailed report, Moody’s believes the next government will work effectively with Congress to approve a pension reform that is comprehensive enough to contain the growth of compulsory expenditures and ensure compliance with the spending cap. GRI’s viewdovetails with this perspective, as all presidential candidates who are polling well at this stage, have expressed the importance of the reform for the fiscal balance and continued growth. The constant delays to the vote only make it more urgent in 2019.

The second factor leading to Moody’s decision lies in the projected average GDP growth of 2.8% in 2018 and 2019, falling interest rates, increased demand for credit and better prospects in the labor market. A continuation of the economic recovery will likely be felt in Brazilians’ wallets and increase purchasing power, especially with low inflation, which in turn makes public opinion more positive when it comes to passing reforms.

Moody’s praised the structural reforms approved by Temer’s government, since 2016, as a driver of projected growth in the medium term.

Ministry of Finance

The finance team has been working to restore fiscal balance—where they have been successful in approving a spending cap, labor reform, state fiscal recovery program, revamping the Brazilian Development Bank (BNDES) credit policies and long-term tax (TLP). In addition, the finance team is committed to fiscal consolidation and recovery of economic activity and job creation.

Finance Minister Henrique Meirelles, who has been in office since the beginning of the Temer administration, stepped down on 6 April, as he considers running in the upcoming presidential election. Eduardo Guardia, the former Executive Secretary, was named to replace Meirelles.

Guardia previously held positions in the private sector at BM&FBovespa, GP Investments, Pragma Wealth Management, as well as in the public sector at the Treasury and Sao Paulo’s Finance Department.

Guardia’s appointment signals continuity in the Meirelles finance administration, even as there are 9 months left under Temer’s government, Guardia’s position will focus on management, budget execution and the privatization of Eletrobras, instead of taking on new initiatives.

Petrobras credit rating

Simultaneously, Moody’s raised Petrobras’ credit rating from Ba3 to Ba2—seen as a stable outlook. According to Moody’s, this decision reflects the continued improvements in the State Owned Enterprise liquidity and reduction of its leverage.

Additionally, Petrobras has shown discipline in competing for profitability in the local fuel market and in improving its financial policies.

The agency expressed that Petrobras has been able to refinance its debt, which reduced the burden of its financial commitments in the short term as well as contracted U$ 4.35billion in credit to further its liquidity.

Outlook

The improvement in the outlook for Brazil’s sovereign credit rating generates positive signals to the market and may favor the attraction of investments to the country. This is particularly important as the government pushes for the privatization of Eletrobras in the coming months as well as the June pre-salt auctions – both deemed extremely important to recover fiscal balance.

Additionally, the decision by Moody’s puts a certain amount of pressure on the next government to be elected in October. At this point almost all presidential candidates have expressed how necessary economic reforms are, and that it will be a priority to their government. As the public continues to see the increase in their purchasing power they are likely to start supporting these measures, pressuring the government even more to continue a steady pace of recovery. With domestic and international pressure it is highly likely that economic reforms will pass during the first couple of years of the next president’s term.

Even though S&P and Fitch have yet to revise their ratings, overall, Brazil’s risk remains at low levels due to high international reserves (approximately U$ 383 billion) and good export performance. With international reserves that exceed its external debt, Brazil’s fiscal deterioration will likely not cause a total loss of confidence by investors – especially in debt securities. Credit ratings aside, it’s important to note that low inflation, strong oil and soy exports, and high international reserves make Brazil look like a safe place to invest.

This article was first published on Global Risk Insights, and was written by Lorena Valente.

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Last year Panama became the second Central American country to establish diplomatic ties with China. This is the latest example of how Chinese investment in the Latin American and Caribbean (LAC) region has afforded Beijing closer political ties. As the US reduces its influence south of the border, China’s economic ventures will pay dividends at the expense of its rival.

China’s Central American strategy

China’s advancement in Central America dates back to 2007, when Costa Rica became the first Central American country to establish diplomatic relations with Beijing. Since then, economic relations between both countries have developed, helping to promote China’s regional brand. Economically, China has presented itself as an attractive partner. In 2008, China purchased Costa Rican bonds in excess of $300m, offered the country aid worth $130m, and funded the $105m construction of the Estadio Nacional. Meanwhile, on March 2 Chinese state media claimed that China will finance the expansion of a highway connecting Costa Rica and the Caribbean.

Chinese activity in Costa Rica is not limited to finance. In terms of culture, students at the University of Costa Rica can study Chinese and enrol in Chinese cultural programmes. The Chinese government has also promoted the development of Chinatown in San José, Costa Rica’s capital.

Costa Rica has set an example to follow

Through the relationship with Costa Rica, China’s influence across the region has strengthened, encouraging other countries to pursue closer relations with the Asian giant. In recent years, Chinese investment in Panama has grown substantially. China is the second biggest user of the Panama Canal, which is crucial to its trade routes.

Significantly, China’s economic potency in Panama has generated close political relations between both countries. Last June, Panama formally established diplomatic relations with Beijing. Last November, Chinese President Xi Jinping and Panamanian President Juan Carlos Varela discussed the prospect of a free-trade agreement between China and Panama. After that meeting, Zhao Bentang, head of China’s foreign ministry Latin America division, declared Beijing would ‘assist Panama’s economic and social development to the best of our capacity.’ China’s inroads in Central America are not limited to Costa Rica and Panama.  In other ventures, China is financing a 170 mile Nicaraguan canal which will connect the Caribbean Sea with the Pacific Ocean. Meanwhile, in Honduras Chinese firms have shown interest in investing in hydroelectric projects.

China, Taiwan, and Central America

Given that Central America does not constitute a large market, economic interests alone do not explain China’s regional engagement. Rather, the geopolitical significance and geographic location of Central America underpin China’s financial overtures to countries in the region.

One cannot examine China’s interests in Central America without taking cognizance of its conflict with Taiwan. China sees Taiwan as a breakaway province. It does not recognise Taiwan’s sovereignty and believes that one day Taiwan will be reunited with the mainland.

Significantly, Central America represents the most concentrated global region of support for Taiwan. Out of Taiwan’s twenty diplomatic allies, ten are located in Central America and the Caribbean. Taiwan’s presence in Central America has become more conspicuous amid China’s growing interest in the region. Last year, Taiwan President Tsai Ing-wen toured Central America to reinvigorate political ties.

Beijing’s ‘One China’ policy is central to China’s strategy in Central America. The maintenance of diplomatic relations with Taiwan by these ten countries effectively precludes them from establishing political ties with China. For Costa Rica and Panama, cutting political ties with Taiwan was, thus, an essential prerequisite for establishing diplomatic relations with Beijing.

China believes it can persuade Central American countries to abandon support for Taiwan through economic incentives. This policy, to erode Taiwan’s international legitimacy and place it in further isolation, is central to China’s political and economic strategy here.

The wider region

China’s Central American interests coincide with its growing influence across Latin America. Resulting from its ‘Go Out Policy’ developed in the late 1990s, China has become a pivotal economic partner for Latin American countries through access to natural resources, foreign markets, and the diversification of Chinese firms.

China’s interest in Latin America, like Central America, is both economic and political. From 2000 to 2012, China-Latin America trade rose from $10bn to $270bn. For Brazil, Chile, and Peru, China has replaced the US as their most important trading partner. Chinese banks have been a significant source of regional finance. In exchange for oil, China has loaned in excess of $65bn and $21bn to Venezuela and Brazil respectively. China is the region’s biggest creditor and has eroded Washington’s financial power in times of economic hardship in the region.

Latin America forms part of China’s global Belt and Road Initiative (BRI). On January 22, Santiago hosted the second meeting between China and LAC countries in a bid to strengthen economic and political ties. Speaking to representatives of 33 countries, Chinese Foreign Minister Wang Yi confirmed that the region is ideal for China’s BRI plans.

Washington’s loss is Beijing’s gain

China’s economic and political gains across the LAC region contrast with North America’s reduced influence. Although the US remains the biggest economic player in Latin America, the 2008 global recession negatively affected its regional commitments. Between 2000 and 2010, the US’ share of Latin American trade fell 14%. More recently, President Donald Trump’s decision to pull out of the Trans-Pacific Partnership (TPP) and introduce import tariffs on steel and aluminium has further damaged trade relations with the South. In contrast, embracing free trade, multilateralism and globalisation, China has pledged to increase trade and investment with Latin America.

China’s ventures south of the Rio Grande and its increasing global influence appear to have escalated tensions with the US. Speaking ahead of his visit to Latin America in February, former Secretary of State Rex Tillerson warned against far-away powers ‘that do not reflect the fundamental values shared in this region’. Moreover, Washington views Beijing’s economic policies in Latin America as China’s attempt  to ‘challenge American power’. From Beijing’s perspective, Washington’s decision last June to sell arms to Taiwan indicate hostility to one of China’s core global principles.

Overall, through establishing successful economic and diplomatic relations with countries in Latin America, Beijing seeks to portray China as a beneficial and reliable partner and persuade other countries to strengthen diplomatic ties. Considering China’s economic commitment to the region over the next decade, other Central American countries will likely abandon ties with Taiwan in return for Chinese aid and investment. Furthermore, China’s growing regional influence coincides with growing tension between Washington and Beijing. As the world’s two leading powers face a potential trade war, the LAC could become a battleground as China continues to enhance its global economic and political image.

 

This article first ran on Global Risk Insights, and was written by Niall Walsh.

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Colombian presidential elections will be held on 27 May. Among its candidates, a new-born star is rising with the right-wing candidate Iván Duque, a strong opponent to the peace agreement.

Iván Duque: future President of Colombia?

According to the latest poll from Polimétrica, run by Cifras & Conceptos earlier this month, right-wing candidate Iván Duque appears most likely to win the presidential election. Per the poll, 35.4% of the interviewees claimed they would vote for him while 24.6% would vote for the leftist candidate, Gustavo Petro, the second runner up in this election and former guerrilla member.

Furthermore, not only is he the candidate with the most favourable image (49%) for Colombian electors – a percentage up from 19% in January, but he has also seen the most steady increase of the intention of votes, from 8% in January to 22% in March – equalling the intentions to vote for Gustavo Petro at that time – to now lead the polls by far (see below graphic).

Political momentum: the peace agreement in trouble

The apparent success of the front runner for the presidential election could be partly explained by two factors: (i) opinion polls against the guerrillas’ agreement and ceasefire, and (ii) the recent arrest of a major FARC figure for drug crimes.

First, according to the poll mentioned above, most of interviewees disagree with the Havana peace deal that was signed by incumbent President Juan Manuel Santos and FARC members in 2012 (51%), as well as the pending negotiations with the other major rebel group of the country, the National Liberation Army (ELN) (56%). This is likely to play in favour for Iván Duque who also stands against the bilateral ceasefire that was agreed between the latest and the government.

Second, the surprising arrest on 9 April, by the US of one of the most important members of FARC, Seuxis Paucis Hernández Santrich, for drug crimes has put a strain on the peace deal. Santrich has been a major player in the negotiations of the Havana peace deal and was about to take a seat in Colombia’s congress – as contemplated by the accord.

Santrich was arrested after evidence found that he was going to sell 10 metric tons of cocaine, therefore he faces the threat of extradition to the US – a policy that has been strictly prohibited by the peace agreement, even though it only applies for crimes committed before its signature. This dilemma could spread fear among demobilized fighters who may think twice about trusting the government and the deal’s benefits.

Who is Iván Duque Márquez ?

Senator Iván Duque, 41, is the leader of the right-wing political party Centro Democrático. Previously, Duque worked as an adviser for the Treasury Department, from 1998-2002, and as a counsellor for the Inter-American Development Bank in the US for 8 years.

During the presidential campaign, Duque promised to enhance economic and social reforms. Most importantly, he has been a fervent opponent to the peace deal and advocates to modernize the Colombian armed forces to fight drug trafficking and criminal groups, such as the ELN and dissident FARC members.

Duque gained support among traditional right-wing sectors, as well as previous sympathisers of former president Alvaro Uribe (2002-2010) – who led the “No” campaign on the peace referendum.

Among other points, Duque disagrees with the special justice put in place for guerrilla fighters as contemplated by the Havana agreement, in which he describes as a mockery and a symbol of impunity. Duque proposes a constitutional reform to ensure that drug trafficking is not eligible for impunity.

Outlook: significant changes for the peace deal likely if Duque wins

If and when, Iván Duque wins the upcoming presidential elections in May, according to the data he is on the right road to replace Santos. His win could likely weaken the Havana peace agreement that has partially managed to put an end to more than half a century of armed conflict.

In an interview with El País, Duque mentioned that if he wins, he does not intent to destroy or rip up the accords but to make significant changes to the elements that affect the rule of law. This could potentially lead former FARC members to join growing dissident groups, which would result in the renewal of attacks between militants and the government.

In the meantime, Duque’s leadership has been well received by investors who see in the right-wing candidate as a more business friendly advocate than leftist candidate Gustavo Petro for instance.

 

This article was first published on Global Risk Insights, and was written by Mathilde Tisserand.

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Regional power struggles and maritime security are at the heart of new security agreements between France and India. India is especially worried about being geopolitically isolated by China, and is seeking to expand its presence in the Indian Ocean.

Between 10 and 14 March, India and France signed a series of agreements to strengthen their strategic and commercial relations. The deals aim at deepening cooperation on a wide range of issues, especially defense, space technology, climate change, nuclear energy, urbanization and counterterrorism.  The underlying concerns, however, are ensuring maritime security in the Indian Ocean and containing China’s sphere of influence in the region.

Maritime security and India’s Indian Ocean influence

Last November, India joined discussions on the revival of a quadrilateral defence cooperation with Japan, Australia and the United States, during which the four members confirmed their commitments to establish a free and open Indo-Pacific region, promote cooperation in line with a rules-based order, respect international law, and ensure freedom of navigation, overflight, maritime security and connectivity. The agreements with France are India’s latest effort to create a multilateral network with the common aim to maintain stability and security in the Indian Ocean and the broader Asia-Pacific.

The deals have important practical implications for the regional security landscape. Specifically, India is seeking to strengthen its military presence in the Indian Ocean and to gain access to ports and naval bases in the region, which is precisely what the latest agreements with France allow. Considering France’s military presence in the Ocean through the island of La Reunion, Mayotte and the French Antarctic Lands, as well as Djibouti and Abu Dhabi, the partnership could greatly facilitate India’s desire for influence in the Western Indian Ocean.

Modi has already signed similar agreements with other partners such as Seychelles, Singapore and Oman, granting India’s access to these countries’ ports and naval facilities. Also noteworthy is the partnership with the United States, with which Modi signed a logistics agreement in 2017 to facilitate the use of US naval and air force bases in the Indian Ocean and Persian Gulf.

Presidents Modi and Macron meeting in France. Source: elysee.fr.

Countering China’s ambitions

China’s growing presence in the region is one of the main factors behind India’s recent efforts to boost its strategic cooperation with third parties. The stakes are particularly high for India because China has repeatedly shown its growing willingness to expand its influence in South Asia and in the Indian Ocean region, threatening India’s status of provider of security and stability.  Beijing showed strategic ambitions in Djibouti, where it established its first and for the moment only military base, as well as in Pakistan, Sri Lanka and the Maldives, especially through increased investment and free trade agreements.

From India’s perspective, Chinese efforts to strengthen economic ties in South Asia might culminate in the establishment of its naval bases in these key countries. The Maldives’ recent tilt towards China is especially worrisome for Modi, as he fears the possibility that Beijing will increase its economic and military presence in the island nation, thereby disrupting the current regional equilibrium.

A stronger response by India as a result of growing Sino-Indian competition would increase the risk of collision between the two regional powers over the Indian Ocean. Most importantly, the risk of military and strategic confrontation between China and India over South Asia and the Indian Ocean will increase, as India attempts to enhance its influence and power. The likely outcome is a struggle to secure bases in smaller and micro-states in the region, bringing significant political risks. Recent instances of instability in the Maldives and the consequent competition for influence between the two powers illustrate this trend, and smaller states will increasingly find themselves in a position to choose between Chinese economic incentives and maintaining their tradition of supporting India’s strategic interests.

Shared concerns, mutual benefits

Currently, Modi faces two main challenges in containing China’s influence in the Indian Ocean. These are the inability to compete with the economic benefits and foreign investment opportunities that Beijing is able to offer to less developed nations in the region, and a limited defense budget and capabilities.

As a response, India sees increased security cooperation with strategic partners such as France and the Quad as a means to establish a rules-based regional security architecture, in an attempt to attract smaller states in the region and prevent them from gravitating towards China’s sphere of influence. Moreover, France is an important partner in developing Indian military capabilities, and the purchase of French-produced Scorpene submarines and Rafale fighter jets is among the most significant contributions to India’s limited defence and naval capacity. As France is willing to cooperate with Modi and his security ambitions, similar deals will likely follow soon.

For France, India’s growing economic role on the global stage can provide important support, as Macron also seeks to build stronger bilateral relationships as a response to China and Russia’s increased assertiveness and internal changes in the European Union and in the US. In Macron’s view, India is an important partner in providing greater stability and balance in Asia, and will boost the role of France and the European Union in world affairs.

Chinese expansionism is not the only shared concern for the two leaders. Stronger maritime surveillance and space cooperation were also key component in the agreements, which included areas such high resolution earth observation, spaces situational awareness and satellite navigation. Maritime traffic security is an especially important issue for the two parties, who expressed concerns over freedom of navigation and overflight, organized crime, trafficking of weapons, smuggling and illegal fishing in the Indian Ocean and the Horn of Africa. As both India and France seek to play a stronger role in the region’s changing security landscape, cooperation between the two countries over the Indian Ocean will surely grow in the near future.

This article was first published on Global Risk Insights, and was written by Benedetta Di Matteo.

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In August 2017, two Chinese warships carrying an unidentified number of military personnel berthed on the coast of the East African nation of Djibouti, signaling the first Chinese military base outside of the South China Sea. This commitment enhances the country’s military presence in Africa, as over 3,000 troops have been stationed in Mali, Liberia and South Sudan for peacekeeping missions in the last few years.

According to Beijing, the purpose of the site is to provide medical and humanitarian assistance to China’s new-found allies within the region, as well as a logistics facility. These assertions are somewhat legitimate, considering the Chinese navy have undertaken surveillance missions in the region since 2008, along with the aforementioned humanitarian presence in other parts of Africa. Additionally, over one million Chinese nationals are based in Africa, therefore one could argue their presence has some justification.

Could any underlying motivations exist behind China’s recent military expansion in the region? Djibouti is a country with little natural resources, unlike their Gulf neighbours. The largely benevolent motives in China’s surely cannot be the only reason for its interest.

Primarily, it could be its geographic location – Djibouti meets the Gulf of Aden, which leads to the Suez Canal where about eight percent of global sea-borne trade passes through at any given moment.

China’s presence in Djibouti is not unique. Its joined other countries in the region – it used to be a colony of France and a group of French personnel remain today. Its also not surprising to have a military presence from China, considering they have contributed to peacekeeping missions in the African region.

They are joined by contingents from Japan, Italy, Germany, Saudi Arabia and, not surprisingly, the US, who took charge of a large outpost formerly held by France, in response to the September 11 attacks. With a number of significant tenants in this territory, this could be seen as another factor in its decision making. Perhaps they’re consolidating power in a region where others exist?

Beijing can also be perceived to be protecting their investments in the region. Chinese military presence, and the $20 million per year over 10 years Djibouti will receive from the move, isn’t the only benefit they receive. Firms from the country have invested heavily in the east African nation include a multimillion-dollar free trade zone, a water pipeline from Ethiopia, a railway to Ethiopian capital Addis Ababa, and a new international airport.

Djibouti’s neighbour, Ethiopia, have also benefitted from China’s presence. Between 2012 and 2017, 279 companies were operating in the country, with projects worth over $570 million. The necessity for security in the region is therefore perhaps a legitimate claim, as China has had to evacuate hundreds of nationals from Libya, Yemen and Sudan in the last few years.

Concern has been raised over the influence this gives to Beijing, none more so than from the US. Marine General Thomas Waldhauser, the top US military commander overseeing troops in Africa claimed, “If the Chinese took over that port, then the consequences could be significant.” He added, “there are some indications of (China) looking for additional facilities specifically on the eastern coast … So Djibouti happens to be the first – there will be more.” Sure, the unease from the US can be considered somewhat warranted.

One could argue Washington is in a position to comment on such actions, as they hold a considerable amount of experience on handling diplomatic issues in varied regions. It begs the question however – do they really have the right to have such sensitive geopolitical affairs?

US overseas military expansionism has been taking place since the Spanish-American war in the late nineteenth century, and along with it came the damage to communities around the world. If the US have anything negative or concerning to claim about Beijing’s military ambitions, perhaps it should take a look in the figurative mirror before passing judgement.

One country that could possess a more legitimate concern for the recent actions of China in Djibouti is India, with their concern stemming form the One Belt One Road initiative. The enterprising infrastructure project draws its inspiration from the Silk Road trading route, and intends to connect China with the rest of Asia, Europe and Africa, with 40% of GDP in the process.

The concern from Delhi has been one of sovereignty – Indian Foreign Secretary S. Jaishankar stated in 2017, “China is very sensitive about its sovereignty. The economic corridor passes through an illegal territory, an area that we call Pak-occupied Kashmir. You can imagine India’s reaction at the fact that such a project has been initiated without consulting us.” Prime Minister Narendra Modi reinforced this point, asserting that “connectivity in itself cannot override or undermine the sovereignty of other nations.” India’s seems to have a stronger case for worry, as they have a history of conflict with the East Asian giants.

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Donald Trump and Kim Jong-in plan to meet somewhere, maybe in June.

As you have probably heard. President Donald J. Trump has accepted an invitation to visit North Korean leader Kim Jong-un.* People who were genuinely worried that Trump was going to start a needless war with North Korea now seem to be nearly as worried that he is going to talk to them and inadvertently trigger a calamity. In normal circumstances, of course, as Winston Churchill reportedly said in 1954, “To jaw-jaw is always better than to war-war.” (It rhymes when Churchill says it.) Still, there is room for concern.

An Incentive to Break Coalitions

Although Trump apparently regarded the invitation itself as a major breakthrough, North Korean leaders have actually been trying to negotiate with Americans for generations. It’s the Americans who refused. Once upon a time, the North Koreans refused to talk to South Korea’s leaders at all, insisting that they must deal directly with the “puppet masters,” not the “puppets.” Over the years, they have adapted to changing circumstances and developed new ways to try to split the U.S.-South Korean alliance. Countries facing a hostile coalition will always have an incentive to try to break it up.

Thus, in giving this year’s New Year’s Day speech—in the face of a new administration in Seoul that was eager to improve relations and an administration in Washington that was intensely hostile—Kim Jong-un gave different messages geared to the primary interests of the different audiences. To Seoul he offered to begin a dialogue, ease military tensions, and create a peaceful environment; to Washington he highlighted that “the mainland of the United States is within range of our nuclear strike” and promised to accelerate the production of nuclear warheads and intercontinental ballistic missiles. This, to say the least, appears to be a combination designed to elicit a differentiated response. Given this background, it seems reasonable to expect that when Kim offered to negotiate denuclearization with the United States—an offer he made to a South Korean delegation—he may well have assumed Trump would reject the offer, further aggravating relations between Washington and Seoul. Trump’s quick and unexpected acceptance might then explain the fact that it took three weeks, a side trip to Beijing, and a secret visit by the CIA director for Kim to acknowledge that he had actually made the offer. But acknowledge it he eventually did.

Given the nature of the story so far, the summit itself may not prove very productive and could even be quite counterproductive if excessive hopes are dashed. Cause for concern can be found in the likely clash between the two sides’ expectations. What, for instance, do Trump and Kim expect to get out of the summit? And what strengths do they believe they have going into it?

Goals

In terms of goals, of course, we do not know what either man, Trump or Kim, is thinking at the moment, but we do know what each side’s expressed fundamental goals have been up to now. Those goals suggest trouble if neither side changes. North Korea’s immediate goal is to solicit acknowledgment of its status as a nuclear power and the sort of treatment that is accorded to that status, certainly to include an end to all sanctions. Kim has reportedly agreed to discuss the “denuclearization of the Korean Peninsula,” but that oft-repeated refrain is normally conditioned on guarantees of North Korean security (e.g., the withdrawal of U.S. troops from South Korea and perhaps Japan, the renunciation of the U.S.-South Korean alliance, the end of U.S. extended deterrence—the so-called nuclear umbrella—with regard to South Korea) that amount to guarantees of South Korean insecurity. No doubt, Kim has taken notice of Trump’s stated willingness to bring U.S. troops home from South Korea.

The United States’ immediate goal is the complete, verifiable, and irreversible dismantlement of North Korea’s nuclear weapons and production facilities. This has become such a standard demand that it has its own abbreviation, CVID. As generally understood, it does not include the sort of security guarantees that Pyongyang finds necessary.

Clearly the U.S. goal clashes with the North Korean goal. It will be even harder to achieve now that North Korea actually has nuclear weapons and the missiles to carry them (even if some technical finishing touches may still be required). Even in far more mundane matters than potential nuclear annihilation, psychologists tell us that people will willingly pay a higher price to avoid losing something that they already have than they will pay to acquire something new that is objectively comparable in value. To be sure, the stakes in the current situation are not mundane, and the North Koreans will not trust the Americans simply to keep their word. To Pyongyang’s way of thinking—as surprising as it will be to many Americans—the history of U.S.-North Korean negotiations has been one of unfulfilled U.S. promises, and North Koreans are quick to point out that both Saddam Hussein and Mu’ammar Qadhafi gave up their nuclear programs (in return for express guarantees from the United States in the latter case) only to be hunted down and killed by their enemies afterward, whereas the North Koreans have kept theirs and are still around to tell about it.

Leverage

If the two sides’ goals clash, what expectations do they bring to the table in terms of their relative bargaining strength? Listen to virtually any pundit on U.S. television and the impression you will get is that North Korea is coming to this summit because the United States compelled it to, be it a consequence of economic sanctions, bellicose threats, or the force of Donald Trump’s personality. This seems to be the general American perception, and it is likely one that the president shares (especially the part about the effect of Donald Trump’s personality). Having forced North Korea to the table, President Trump may well believe that he has the leverage to force Kim to accept the terms that he offers with little or no bargaining. If Trump’s view of the Iran deal is indicative, he may believe that bargaining itself is inappropriate in any case.

Kim Jong-un, however, may see it differently. Even if sanctions have played a major role in his recent actions, and it is hard to believe that they haven’t, other factors may be pushing in the same general direction and influencing his thinking. For example, China may be pressing him simply to lay off the provocations until the threat of war blows over. Or he may believe that North Korea’s success in developing nuclear weapons and intercontinental ballistic missiles has increased his own leverage and forced the United States to negotiate. After all, the United States, not North Korea, changed its position on direct negotiations. If this is the case, it makes it all the less likely that Kim will respond positively to a demand for complete, verifiable, and irreversible dismantlement.

Regarding the tactics of bargaining, Trump, referring to his experience as a deal-maker in business, has suggested that the secret to winning a negotiation is for him to threaten to take his money and walk away from the table. That may be a feasible tactic when the objective is to arrange some mutually profitable business deal, when many business entities are eager or at least willing to make that deal, and when any of them would be a viable partner. When the objective is to avoid war on the Korean Peninsula, however, there are a limited number of potential partners who can affect the outcome, and North Korea must certainly be counted among them. One cannot simply walk away and declare victory.

Finally, Trump has also suggested that his ability to withhold the recently renegotiated U.S.-South Korean trade agreement strengthens his position vis-à-vis North Korea. This assertion has confused many trade experts since it implies leverage over South Korea rather than North Korea. If the president thinks he can coerce South Korea into bringing North Korea into a deal, he has yet to explain why he thinks South Korea has such leverage but has not used it itself. Some have suggested that he just confused the two Koreas.

China: The Weak and Vital Link in the Sanctions Chain

Sitting as we do at the center of the world, Americans tend to assume that other countries are focused primarily, if not entirely, on us. With regard to North Korea’s current, troubled situation, the Americans will present demands and wait for North Korea to satisfy those demands in order to ease its circumstances. Even if sanctions are what forced North Korea to negotiate, however, the United States is not the central player; China is. The United States, to be sure, was central to crafting the sanctions regime, but it never had any trade with North Korea to curtail. Fifteen years ago, China, South Korea, and Japan each accounted for about 20 percent of North Korea’s trade, but as other countries began imposing sanctions, trade shifted to China until that country accounted for 90 percent by itself. China’s decision last year to begin enforcing sanctions seriously is what has changed the situation. Thus, China is the country that North Korea must satisfy. China is the key to breaking the sanctions coalition.

At the same time, we do not really know what demands Chinese leaders have made behind the scenes, or perhaps more importantly, what Kim believes it will take to satisfy them. In addition to being the vital link in the chain that is the sanctions regime, China is also the weak link. It was always reluctant to impose sanctions on North Korea, and a collapse of the North Korean regime is the last thing that Chinese leaders want to see, which puts natural limits on how far they are willing to press sanctions. China’s resolve may be weakened further if its leaders see Trump’s demands as unreasonable. Thus, Kim may well believe that all he has to do is convince the Chinese that he tried to negotiate with Trump but that accommodation with him proved impossible (and perhaps promise to lay off the provocations for a while). If Trump tries to take his assets and walk away from the table, deal-maker style, the result could well be to convince China that he is not serious and thus hand a diplomatic victory to Kim.

Breakthrough, Fizzle, or Calamity?

We cannot completely rule out the possibility that the Trump-Kim summit will produce a major breakthrough in U.S.-North Korean relations, or that Trump will simply accept any offer that strikes him as positive sounding at the moment, but it is not likely. Both leaders are inexperienced in such negotiations, and both seem prone to impetuous behavior (although, to be fair, Trump has never executed any of his relatives). The meeting will lack the months, sometimes years, of preliminary lower-level negotiations that usually precede a summit of this sort. The best that one could hope for might be a joint declaration of goals and perhaps an outline of how to work toward achieving them. To be honest, given the foregoing discussion, that does not seem likely either.

That leaves two possibilities. The meeting could be a fizzle, something that produces little but disappointment and perhaps a few tweets crowing about imaginary achievements, moral victories, or the deceitfulness of the other side. In that case, North Korea and China could be the most likely winners. Or, as some have feared, the meeting could result in calamity. One or both leaders could be so shocked and enraged by the other’s seemingly outlandish expectations that he, or they, resort to resolving the politics by other means. This is not a necessary outcome, but it cannot be excluded either.

*Technically, he is not President Kim Jong-un. That title is still held by his grandfather, Kim Il-sung, who died in 1994. (Evidently, president-for-life was just not good enough.) The current leader has several titles, including Chairman of the Commission on State Affairs (formerly the National Defense Commission), which is the actual leadership position in the state, and Chairman of the Korean Workers’ Party. (His late father, Kim Jong-il, is of course the Eternal General Secretary of the Workers’ Party.)

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