In Other News – April 3, 2020

President Trump issued a warning (via twitter) to Iranian-backed private militias in Iraq that they will “pay a very heavy price” for carrying out a planned “sneak attack” on U.S. interests in the country. He later indicated in a press briefing that the U.S. is open to a deal with Iran, but that it is Iran’s role to initiate negotiations. Iranian-backed militias have stepped up rocket attacks on U.S. and coalition troops in Iraq and U.S. intelligence officials say that reports pointing to “imminent” attacks have become more frequent and are now coming almost daily. U.S.-Iran tensions have escalated sharply since a rocket attack in December that killed an American contractor that engendered a series of retaliatory actions, including the U.S. killing of Iranian General Qassem Suleimani. Opportunities to ratchet back the conflict are limited at present. Prospects are slim for a near-term diplomatic solution as both countries contend with severe Covid-19 outbreaks and related economic fallout, and it is not clear that Iran is in complete control of its proxies in Iraq.

OPEC+ will meet on Monday to discuss a possible deal to cut 10 million barrels a day from global oil production in coordination with other global oil producers – including the U.S. – to support oil prices. Oil prices fell below $30 a barrel, hammered by the combined impact of the coronavirus-driven slowdown in economic activity and a price war between Saudi Arabia and Russia that has flooded the market with cheap oil, but have recovered somewhat on news that a coordinated cut may be in the works. Oil-producing countries face looming budget shortfalls and significant potential for instability if oil’s price collapse leaves them unable to maintain social spending. For the U.S., the energy sector has been an economic bright spot for the past decade for both domestic production/employment and foreign trade, and low prices have already led to thousands of layoffs, exacerbating a dramatic rise in unemployment caused by coronavirus-related shutdowns. Should prices remain deeply depressed through the spring and summer, the impact on the U.S. energy sector – where production costs per barrel are higher on average than in Russia or Saudi Arabia – is likely to be severe and long-lasting. U.S. coordination with OPEC would be a first, but necessity will require the world’s largest oil producers to give quarter to avoid making an already-dire economic outlook worse. Chinese purchases may also help – reports suggest that it is capitalizing on low prices by filling its available storage capacity.

Crime rates across a multitude of categories have fallen dramatically amid urban coronavirus lockdowns all over the world, but concerns have surfaced about the potential for crimes of opportunity. The pandemic has left stores, museums, office buildings and other locations that are home to targets of value empty, which could trigger see a spike in the types of crimes that are more easily committed when people are not out roaming the streets. Earlier this week, thieves stole a Van Gogh from the deserted Singer Laren museum near Amsterdam (on the artist’s birthday). Luxury retailers in major cities like New York and Paris have removed merchandise from stores and in some cases boarded up windows and doors but looting or even small-scale smash-and-grabs seem less likely under current conditions than crimes that happen far below the radar. Organized, sophisticated criminals will likely recognize this unique opportunity for discreet illegal activities from small-scale robberies to intellectual property theft and major cybercrimes.

European countries that purchased novel coronavirus testing kits from China are saying that many of the tests are faulty and that they do not detect the virus at an early stage. The Slovak government bought 1.2 million tests from China for $16 million that it says it cannot use. China claims that the problem in Slovakia is incorrect use of the tests, but reports have also surfaced of faulty Chinese tests supplied to Spain, Turkey, and the Czech Republic. China has been playing up its success combating the virus’s spread and is seeking to establish itself as a global leader in public health assistance. But U.S. intelligence agencies have told the White House that China under-reported both cases and deaths, consistent with long-term, persistent and thoroughly justified concerns about the veracity of Chinese official data across all sectors. These doubts about the actual situation in China, along with its early cover-up of the virus, add credence to reports of faulty test kits.

In a similar shrewd public relations vein, a Russian military flight delivered medical supplies to New York on Wednesday following a Trump-Putin phone call, even as Russia continues its efforts to interfere in our political process.

With all eyes on global efforts to confront the novel coronavirus pandemic, China continues to press its claims to waters within the nine-dash line in the South China Sea, using its fishing fleet – backed by the Chinese Coast Guard – to trawl in Indonesia’s internationally recognized exclusive economic zone. Local fishermen in the Natuna Islands say that the Indonesian government has dialed back confrontations with Chinese vessels over their incursions into Indonesian waters, and that Indonesia authorities are failing to acknowledge clear-cut cases of intrusion by the Chinese. China is Indonesia’s largest trading partner and the dominant power in Asia, and while former Maritime and Fisheries Minister Susi Pudjiastuti responded forcefully to Chinese incursions, she was replaced with a more China-friendly minister in October. No regional Asian power has the might to take on China in the South China Sea, and given China’s intransigence on the issue, it is possible that nothing short of a large-scale military conflagration with the U.S. will persuade it to relinquish its extraterritorial claims.

The Trump administration is turning up the heat on Venezuela with the deployment of the Navy to bolster counternarcotics operations in the Caribbean. According to Defense Secretary Mark Esper, the goal is to increase U.S. capacity in the Western Hemisphere to go after drug cartels and organized crime seeking to exploit the current coronavirus crisis. The increased pressure on Venezuela comes a week after U.S. federal prosecutors indicted Venezuelan President Nicolás Maduro on drug trafficking conspiracy charges and days after Secretary of State Mike Pompeo proposed the formation of a transition government in Venezuela in exchange for U.S. sanctions relief. Venezuelan opposition leader Juan Guaidó also proposed forming a “national emergency government” to deal with the double threat of coronavirus and falling oil prices. Maduro has discarded such proposals and scoffed at U.S. threats. However, Maduro is increasingly vulnerable as Venezuela is ill-prepared to fend off COVID-19 and still dependent on oil exports for revenue to the state – a situation made all the more difficult since Russia’s oil giant Rosneft sold its Venezuelan assets and the IMF rejected Maduro’s $5 billion loan request.

In Other News – March 27, 2020

The U.S. government indicted Venezuelan President Nicolás Maduro on narco-trafficking conspiracy charges this week. U.S. federal prosecutors charged Maduro with leading a violent drug cartel that has flooded the United States with cocaine for decades. U.S. Attorney General William Barr said that Maduro’s government is “plagued by criminality and corruption,” and the State Department announced a $15 million reward for information leading to Maduro’s arrest. The indictment of a head of state is an escalation of the Trump administration’s efforts to oust Maduro from power, following a year-long effort to squeeze the regime by imposing oil sanctions and recognizing opposition leader Juan Guaidó as the legitimate president.

The U.S. has cut $1 billion in aid to Afghanistan and threatened to cut another $1 billion next year, citing Afghan leaders’ inability to resolve a political dispute that would lay the groundwork for a peace deal with the Taliban that allows U.S. forces to withdraw from the country. The U.S. provides Afghanistan with around $4 billion in security aid and $500 million in civilian aid annually. Two competing politicians – Ashraf Ghani and Abdullah Abdullah – have both declared themselves president, threatening the future of a Taliban deal. Secretary of State Pompeo traveled to Kabul on Tuesday but was unable to facilitate a resolution. Afghan sources have suggested that Afghanistan’s political factions are already seeking to align themselves with Russia or Iran in advance of a U.S. withdrawal.

North Korea launched two projectiles, believed to be short-range ballistic missiles, toward the Sea of Japan on Saturday. The Japanese Coast Guard confirmed that a missile landed in water outside of its exclusive economic zone. The launch comes as the country’s two closest neighbors, South Korea and China, have both been focused on managing Covid-19 outbreaks among their populations. North Korea claims to have no cases, but quarantined 380 foreigners in the country for around 30 days ending in early March, and President Trump wrote to North Korean leader Kim Jong Un to offer assistance with the virus. Health experts say that proximity to China and South Korea would suggest that there are at least a few cases of the virus in North Korea.

Russian President Vladimir Putin has suspended an April 22 referendum on a constitutional change to presidential term limits that would allow him to remain in power until 2036, citing the need to focus on the pandemic. Meanwhile, security experts warn that Putin may be using the cover of Covid-19 to further Russia’s campaign to legitimize its incursion into Crimea. Ukraine agreed a few weeks ago to enter into direct negotiations to resolve the conflict – a dramatic change from its previous stance – and representatives of the two sides met via video conference this week to create an additional formal negotiating platform. But Ukraine effectively postponed further movement on the talks, claiming that signing a document would be “physically impossible by videoconference”.

Public health measures to reduce the spread of Covid-19 have given governments cover to impose restrictions on political activities essential to a functioning democracy and rule of law. Bolivia’s government has postponed planned elections; Hong Kong, India, and Russia have banned demonstrations; Israeli Prime Minister Benjamin Netanyahu has managed to postpone his arraignment on corruption charges and temporarily derailed the formation of a new Israeli government, which could have passed legislation preventing indicted individuals from becoming Prime Minister; and Hungarian Prime Minister Viktor Orban’s government has extended an emergency law that can be used to silence critical press coverage under the guise of “false information”.

The Department of Homeland Security has warned that terrorists may exploit global leaders’ focus on Covid-19, stepping up attacks around the globe. There have been at least three attacks so far this week, killing more than 150, and attacks may further accelerate. ISIS seized control of a Sikh religious facility in Kabul on Wednesday, killing at least 25 before Afghan forces were able to locate and neutralize the assailants. A Boko Haram raid in Chad, also Wednesday, killed 92 Chadian soldiers, and another Boko Haram ambush in Nigeria on Tuesday killed 50 Nigerian soldiers. In slightly more uplifting news, Germany convicted eight far-right extremists from a group called Revolution Chemnitz who had been plotting to overthrow the government. Germany’s right wing Alternative for Germany party has vowed to dissolve a far-right faction, known as “The Wing”, owing to monitoring from Germany’s intelligence services, but intelligence experts warn it could be a cosmetic change to avoid scrutiny. The FBI announced on Wednesday that it had killed a Kansas City man who had been the subject of a domestic terrorism investigation. The bureau attempted to serve a warrant on the man, whom they suspected of planning to bomb an area hospital using an improvised explosive device. The suspect was armed at the time.

Alternative theories about the origin of Covid-19 continue to bubble up from unlikely sources, hinting at the use of the virus to further ongoing misinformation campaigns. Theories about the real origins of Covid-19 have come from unlikely sources – a Chinese Ministry of Foreign Affairs spokesperson, anti-vaccination groups, Iran’s Ayatollah Ali Khamenei. Like the appearance of SARS in humans in 2002, the novel coronavirus is understood by public health experts to have jumped from a wild animal to humans, this time in a “wet market” in Wuhan, the epicenter of the first outbreak. But there is no shortage of other explanations – that it was engineered in a Russian laboratory, that it was brought to China by a U.S. military delegation, that it actually doesn’t exist at all. FEMA has created a “rumor control” page on its website seeking to address misinformation, like the rumor that the U.S. would be under “national lockdown” for two weeks, which the Department of Homeland Security has attributed to a foreign government, possibly Russia.

The Russian-Saudi oil price war and demand hit from the Covid-19-related drop-off of economic activity have already triggered two major energy sector developments: massive layoffs in the U.S. shale patch and coal’s surprise status as the world’s most expensive fossil fuel. The U.S. shale sector has laid off thousands of workers just as Covid-19 prevention measures shut down hubs of economic activity nationwide, which will further weaken energy demand. Places like Texas, Montana, and Pennsylvania will likely be hit particularly hard. Meanwhile, the massive drop in oil prices of the past few weeks made coal – at least temporarily – more expensive on an energy-equivalent basis than a barrel of oil. While cheap oil is negatively impacting America’s energy sector, if prices stay low, that will be one less headwind for economic recovery as we emerge from the Covid-19 crisis.

In Other News – Friday, 3/20/2019

With COVID-19 dominating headlines – from infection rates to border closures to economic fallout and bailout – important stories that would have once been front-page news have been pushed to the bottom half of A6. Here is a roundup of some significant global developments you may have missed this week:

Joe Biden has emerged as the presumptive Democratic nominee for president after winning the Florida, Arizona, and Illinois primaries this week. He now has 1,171 of 1,991 delegates required to secure the nomination, and Bernie Sanders, with just 877, will be hard-pressed to catch up. Whoever wins the 2020 presidential election will be contending with a dire economic situation as activity grinds to a halt across the country. On top of bad economic news, we face other growing problems, including a sharp escalation of tensions with China, state-sponsored disinformation campaigns, economic espionage, and an escalating conflict with Iran.

A foreign government carried out a cyber-attack on U.S. Department of Health and Human Services as the U.S. confronts the spreading coronavirus outbreak, say U.S. officials. The attack, which did not penetrate the HHS, attempted to overload the agency’s servers to slow the functioning of its computer systems. While the suspected foreign government involved has not been identified, the attempt has been described as part of a broader disinformation campaign related to the virus in the U.S., including a tweet disseminated on Sunday night warning that the president would order a two-week, nationwide mandatory quarantine. An internal EU document shared with media this week alleges that Russia and pro-Kremlin outfits have been linked to a coronavirus misinformation campaign seeking to generate anxiety and discord in western countries.

China has expelled most American journalists working for the Wall Street Journal, Washington Post, and New York Times in China, and demanded these outlets, Time magazine and Voice of America provide detailed information on staff, finances, real estate, and operations in the country. The expelled journalists will also be barred from reporting from Hong Kong and Macau. The U.S. and China have been locked in a series of tit-for-tat journalist expulsions that began after the U.S. classified five Chinese state-run media outlets as official government entities on February 18. China expelled three Wall Street Journal reporters the next day – the first expulsion of multiple journalists simultaneously since Mao was in power – and the U.S. followed up by expelling 60 of the 160 employees working at Chinese state-run media outlets in the U.S.

The U.S. and Iran trade fire in Iraq. On Thursday, March 12, U.S. forces bombed five facilities that were believed to be weapons depots for Kata’ib Hezbollah, an Iranian-backed militia operating in Iraq. The bombing was retaliation for a Kata’ib Hezbollah rocket attack the previous day that had killed two Americans and one British national. It was just this type of rocket attack that in December killed an American contractor and brought the U.S. and Iran to the brink of war. Experts expect retaliatory strikes between the U.S. and Iran and its proxies to continue unless the two sides reach some sort of agreement, which seems unlikely with Washington placing a new round of sanctions on Iran as it struggles to contain a severe coronavirus outbreak that has sickened more than 18,000 and killed more than 1,200.

Two American prisoners – one in Iran and the other in Lebanon – have been released. Michael R. White had been serving a 13-year sentence in an Iranian prison since July 2018 for insulting Iran’s supreme leader and posting private photographs on social media. White was freed for medical reasons but must remain in Iran, where he will undergo medical evaluation at the Swiss Embassy. Lebanese-born Amer Fakhoury, a former member of the South Lebanon Army, has been accused of running a prison where inmates were tortured during the Israeli occupation of southern Lebanon in the 1980’s and 1990’s. He is battling lymphoma and was freed after a Lebanese judge ordered him to be released.

Market analysts warn that oil prices could fall to $20.00/barrel or lower – as the Saudi-Russia oil price war rages on. Oil prices dipped below $30/barrel in the U.S. this week, and traders are renting storage space on crude oil tankers to hold supply until they can sell later at higher prices. But neither Saudi Arabia nor Russia appears ready to slow production to try to bring prices back up to sustainable levels, with Russia in particular showing strong determination to wait out this period of low prices to force less competitive firms, specifically those operating in U.S. shale, out of the market.

U.S. and Mexico agree to close border to non-essential traffic. Mexican President Andrés Manuel López Obrador’s response to COVID-19 has been criticized as too lax, as he continues to hold rallies, shake hands, and kiss babies. Meanwhile, the Credit Suisse forecast GDP contraction of 4% will not be helped by the partial closing of the U.S.-Mexico border. With $600 billion in annual cross-border trade at stake,even a partial closing is no small decision and will have economic impacts throughout North America. The U.S.-Canadian border has already closed to non-essential traffic this week, allowing for goods like food, medicine, and fuel to cross. Determining what is “essential” at both borders will no doubt cause additional confusion.

Novel Coronavirus Continues to Spread

Time to Update Disease Response Protocols

The novel coronavirus that originated in the Chinese city of Wuhan (2019-nCoV) at the end of 2019 has spread to at least 15 countries, with the vast majority of the nearly 8,000 reported cases occurring in China. The virus has resulted in 170 reported fatalities, all in China so far. We are still in the early days and there are as yet many unknowns. It is not clear how easily the virus is transmitted from person-to-person, the typical severity of the disease, its lethality or the ultimate extent of its spread. What experts do agree on is that the actual number of cases is likely much larger than the numbers reported.

At this point, 2019-nCoV has a far lower fatality rate than the MERS or SARS coronaviruses, but it is more lethal than typical seasonal influenza. Virus symptoms can resemble the flu or a bad cold in mild cases, but more severe cases can cause high fever, difficulty breathing, and lung lesions.

China has taken extraordinary measures to contain the virus such as severe travel restrictions in Wuhan and other major cities, effectively locking tens of millions of people in place, as well as other measures like suspending school in the capital. However, the risk of significant global spread remains high. India has its first confirmed case. If the virus breaks out in India in a major way, the global picture could change dramatically. India has nearly a fifth of the world’s population, but it does not have anywhere near China’s capacity for implementing containment measures.

Global corporations are taking protective measures. Companies like Google, Starbucks and McDonald’s are temporarily closing offices and stores in China, major airlines cutting back on flights to and from China, and firms like Facebook and Goldman Sachs are implementing the CDC’s recommendation to stop all non-essential travel to China.

However, even companies without a significant global work force would do well to revisit and augment their business continuity plans. The United States has thus far seen a handful of imported cases, but the CDC expects the number of cases here to increase, and person-to-person spread in the U.S. is a real possibility. Companies should have in place travel policies, social distancing guidelines, cleaning protocols and illness/return to work recommendations that unfold in step with key outbreak indicators.

If your company requires assistance in planning a response to this outbreak, the Arkin Group has assisted numerous companies including global law firms, financial firms and manufacturers, in putting comprehensive readiness plans and business response plans into place.

If you or your firm would like an individualized consultation or information, please contact The Arkin Group at 212-333-0280.

Dealing with the Challenges of Political Violence and Crime in Latin America

Want to know how to manage your business interests in Latin America amid rising levels of political violence, unrest, and crime in the region? TAG President Jack Devine and Amanda Mattingly discuss the nature of the threats in Mexico, Brazil, Venezuela, Nicaragua, and Chile and give guidance for clients operating in these environments in the recently released and updated 2020 edition of Latin Lawyer’s Guide to Corporate Crisis Management.

“Dealing with the Challenges of Political Violence and Crime in Latin America”

Jack Devine’s Winter 2020 Intelligence Report

TAG President Jack Devine’s Winter 2020 Intelligence Report includes his current assessment of Iran, the fault lines within the Middle East, the dilemma for Kim Jong-un in regards to testing nuclear weapons and a potential U.S. response, the current respite of the U.S.-China struggle, Putin’s maneuvering with a government reshuffle, and Latin America’s protests and unrest.

Iran – the Road Ahead

We noted in January 2017 in our first Intelligence Report of the Trump administration that Iran would become the trickiest foreign policy issue President Trump would have to confront. Iran certainly has lived up to that billing and is likely to continue to be the greatest foreign policy challenge in the decade to come.

Iran’s surrogates crossed an unspoken red line when they attacked the U.S. embassy in Baghdad. It was a serious miscalculation on their part in failing to understand Trump’s willingness to use force when American personnel are directly attacked. With the lethal attack on Iranian Quds Force commander, General Qassim Suleimani, that message was received loud and clear. The Iranian leadership was under immense internal political pressure to respond with visible force. Knowing a war with the U.S. would be unwinnable, they needed to find a response that would look tough, but at the same time ratchet down the crisis.

Ultimately, firing nearly a dozen ballistic missiles at two Iraqi bases housing U.S. personnel, after forewarning the Iraqi authorities, was smart and well-calibrated. It flexed Iranian muscles, while avoiding fatalities, and it enabled an almost immediate deescalation.

In his remarks after the counterattack, President Trump put down another critically important marker when he said Iran would not be allowed to have nuclear weapons during his Administration. Coming after the strike on Suleimani, the Iranians will take this statement seriously, and it may even get them back to the bargaining table.

At the same time, there are a number of factors that could derail this potential opening. Shia terrorist groups, like Hezbollah, receive significant financial and military support from Tehran, but are not totally under Iranian control and could strike out against American targets, despite Tehran’s wishes. Also, Iran’s Revolutionary Guards unwisely might attempt clandestine, cyber assaults and terrorist attacks on global U.S. and allied targets imagining they have deniability. Our intelligence agencies will have to perform at the top of their game, which they have been doing in recent years, to sort out the instigators of such attacks. Iranian leadership will try in the near term to keep a lid on the situation, but that is easier said than done.

One very important factor that works in favor of preventing another major crisis is the high importance given in the Middle East to the exercise of power. This is often what is understood best, and the Iranians will be careful not to misread Trump’s resolve a second time. However, Iranian leadership just cannot walk off into the night. The next move is theirs to make, and the risk of misjudgments on both sides is high. For now, we remain in a high risk and unpredictable environment.

Middle East Fault Lines

Even before the strike on General Suleimani, Iran was embattled on multiple sides. Protests against economic hardships and corrupt and ineffective leadership in Iraq and Lebanon are also animated by widespread anger toward Iran which is rightly viewed as a destabilizing force in both countries, including by the Iraqi Shiite community. The 2019 protests in Iran were brutally quashed, but force cannot extinguish the underlying problems. Following the unprecedented acknowledgement that the Revolutionary Guard inadvertently shot down the Ukrainian airliner last week, protesters were back out in the streets.

2019 was a clarifying year for Saudi Arabia; in September the country temporarily lost 50% of its crude production in just 17 minutes of sustained attack from Iranian drones and cruise missiles. Although he sent additional troops and imposed sanctions, President Trump decided against a retaliatory attack. In contrast, Trump’s recent response to the Iranian inspired attack on U.S. citizens at the embassy in Iraq could not have been clearer. The combination of the two has served to increase the risk level for U.S. allies in the region such as Saudi Arabia and Israel, while signaling that the United States’ most forceful response will come when our citizens are threatened. The Saudis have wisely taken steps to deescalate their confrontation with Iran, particularly in Yemen. It is likely that those efforts will continue in 2020.

Kim Jong-un’s Dilemma

Kim Jong-un’s takeaway from the killing of General Suleimani is likely to be a mixed one. He now has a vivid illustration that Trump will use force when vital U.S. interests are on the line, but in the North Korean context it may not be entirely clear to Kim where that line is. Kim recently announced at the Workers’ Party Central Committee meeting at the end of December that he was ending his moratorium on nuclear and ballistic missile testing and referenced a “new strategic weapon.” Post-Suleimani, however, Kim will take care in determining exactly how provocative he can be in pushing for sanctions relief. For example, Kim ignored his year-end deadline for U.S. movement on negotiations. It is likely that Kim will quietly continue to produce nuclear material and conduct missile tests, but for now will refrain from testing the type of long-range ballistic missile or nuclear device tests that could provoke a U.S. response and signal an end to negotiations. As Kim’s demands for sanctions relief continue to go unmet, however, the likelihood of a destabilizing movement on his end increases.

Momentary Respite in U.S.-China Struggle

The U.S.-China trade war is at an inflection point.The first-phase trade agreement signed by Trump this week, is a positive development which puts further escalation on hold but resolves, at least for now, few of the major issues of contention. Most critical to the U.S. in phase one is China’s pledge to increase the purchase of U.S. goods and services by $200 billion in the next two years over 2017 levels. The actual target may prove beyond China’s capacity, but progress is measurable and perfect for public messaging. In contrast, a second phase agreement will focus on trickier issues that are much harder for the public to grasp and for China to implement domestically, such as intellectual property protections and state support for industry. Progress will be slow.

U.S. concerns about the vulnerability of its networks, institutions, and companies to Chinese espionage and theft are justified – they are key components of China’s drive for economic and cultural dominance – but bilateral economic, political, and cultural activity create strong incentives to preserve stable relations. Longer-term, as the U.S. and China seek to carve out economic futures independent of the other, the shift away from competitive interdependence may impact both sides’ motivation to take a measured approach to long-standing conflicts in other areas, such as South China Sea navigation rights and arms sales to Taiwan. Looking out over the horizon, we anticipate an intensifying struggle between two major global powers.

Putin’s Maneuvering Continues

Russia’s recently announced government reshuffle is the first in a series of steps that will keep Vladimir Putin at the country’s helm long past the end of his presidential tenure. We can expect Putin to continue Russia’s campaign of meddling in the internal politics of foreign democracies. Russia’s interference in the 2016 U.S. presidential election will continue in 2020, although the extent of it remains to be seen. Meanwhile, as the U.S. has undertaken large policy pivots in the Middle East – removal of troops from Syria, the attack on Iranian General Qassim Suleimani, and the potential withdrawal of troops from Iraq – Russia is stepping in to take advantage of this and enjoying newfound leverage in an area of the world it has long wanted to dominate. Putin may attempt to broker a peace between the U.S. and Iran if there’s an opening. He also appears to be gaining an edge in Ukraine, having secured key concessions from President Volodymyr Zelensky in the two countries’ dispute over natural gas payments, and with Ukraine’s western allies having declined to put up lethal resistance to its invasion of Crimea. But the reality at home is that Russia is contending with a weak economy and a broad global shift away from fossil fuels, which form the core of its exports. The situation appears stable for now, but further deterioration could lead to internal unrest and ultimately hobble Russia’s global ambitions.

Latin American Protests & Unrest Likely to Continue

Latin America was rocked by violence and protests in 2019, and 2020 does not look much calmer. Already, Venezuela started the new year with a showdown at the National Assembly when opposition leader Juan Guaidó had to scale a fence to get in. The stand-off between Venezuelan President Nicolás Maduro and Guaidó has dragged on for a year now. Unfortunately, Guaidó’s support will continue to wane as the opposition splinters and Maduro takes the upper hand. Even with U.S. oil sanctions and calls for more street demonstrations, the Maduro regime is determined to stay in power. Unlike Bolivia’s President Evo Morales, Maduro will not be whisked off to Mexico anytime soon.

The protests that erupted in Chile in late 2019 were another example of unrest in Latin America and underscored a growing sense in the region that elected leaders are not addressing the social concerns of the people or meeting their expectations for economic opportunity and social mobility. Chilean President Sebastián Piñera proposed a set of social reforms in response to the violent protests, but it is unlikely we have heard the last from Chile where persistent inequality is far from resolved.

Mexico did not experience the same kind of political protests in 2019, but persistent security challenges made it the deadliest year on record with 37,000 murders. The leftist President Andrés Manuel López Obrador (“AMLO”) has maintained his popular support among the people, but his “hugs not bullets” approach to security has left much of Mexico in the hands of the violent drug cartels. At the same time, AMLO has alienated the business community and done little to boost economic growth or dismantle systemic corruption. Still, AMLO has deftly managed his relationship with the United States, and the USMCA trade agreement, which is ready for Trump’s signature, is an example. The “Remain in Mexico” program allowing Central American migrants to stay in Mexico as they await immigration proceedings in the United States was a good temporary solution to the caravan crisis, but thousands of jobless migrants in northern Mexico will only exacerbate the significant economic and security challenges that already exist. As Mexico is our top trading partner, more attention must be paid by Washington to these developments.

If you or your firm would like an individualized consultation or information, please contact The Arkin Group.

“Trump’s Iran Strike Was A Huge Win for the U.S,” Jack Devine on Bloomberg Radio, January 2020

Jack Devine, former chief of CIA’s worldwide operations, and founding partner and President of The Arkin Group, discusses the Iran situation. Hosted by Lisa Abramowicz and Paul Sweeney.

Trump’s Iran Strike Was A Huge Win for the U.S.

Jack Devine’s Summer 2019 Intelligence Report

TAG President Jack Devine’s Summer 2019 Intelligence Report includes his current assessment of domestic politics, Iran, North Korea’s missile tests, China, Putin’s use of power to stay in control in Russia, the rise in risk of terrorist attacks in India, the Brexit situation, the deteriorating relationship with Turkey, and Mexico.

Domestic Politics

When Congress returns from its summer recess and election season begins in earnest, President Trump will view virtually all political, economic, military and foreign policy issues almost exclusively through the lens of the 2020 Presidential Elections. While there is too much time between now and election day to predict the outcome with certitude, the Democrats are likely to put forth a candidate with a very pointed progressive agenda, and President Trump will respond with a rigorous attack against that agenda and its candidate. Starting in the new year, we can expect that Trump will use in an unprecedented fashion the full power of the presidency to try to shape the economy and foreign affairs in his favor. If the economy remains strong, the electoral college outcome will be close, with most states almost predestined to replicate their 2016 outcome. Currently, a recession is further off in the future than media commentary suggests. The three states most likely to make the difference in the electoral outcome are Michigan, Wisconsin and Pennsylvania. For those watching the early returns, how Pennsylvania goes at the polls, so will the Presidency! It is the bellwether state this time around, and no doubt will be hotly contested.

On the foreign policy front, China and the United States will continue to arm wrestle over trade, and relations with Russia will remain largely unchanged. There won’t be a major breakthrough on the North Korean nuclear front, and we won’t go to war with Iran, despite a lot of expected posturing and activity, including by proxies in the region. While the European Union could well see Britain leave in October, either way the outcome will be less stark than many observers suggest. There will be plenty of flak around all these issues, including the continued global trend of eroding support for democracy. However, in the end they are unlikely to have a significant impact on the US election.

Iran

The current US posture toward Iran is designed to exert the greatest amount of financial pressure and diplomatic isolation to undermine the country’s nuclear ambitions and, in all likelihood, to force regime change. The result is an ever more desperate Tehran, who is abandoning its wait-and-see policy with regard to the nuclear agreement and instead has deliberately breached agreed enrichment limits and escalated its saber-rattling in the Strait of Hormuz. With a quick series of alarming incidents from seized tankers to burning pipelines and downed drones, there is an ever-increasing risk of direct conflict with Iran and its proxies in the region. Neither Trump nor Khamenei seems predisposed to temper their policies and rhetoric, and we shouldn’t expect help from Israel, Saudi Arabia, or the UAE, whose interests seem aligned to marginalize Iran as much as possible, eclipsing other areas of discord. What’s more, it is doubtful the Europeans will be able to make meaningful progress in ameliorating the issue. Looking forward, this means that for the foreseeable future a military conflict with Iran, especially in the Persian Gulf remains a real, but unlikely, possibility.

North Korea

Kim Jong-un has brashly followed his brief meeting with President Trump in the demilitarized zone with a series of missile tests – the latest on 6 August 2019. The tests were a protest of joint US-South Korean military exercises, and they indicate that Kim will continue to push the envelope to advance his military capabilities as much as possible, short of provoking conflict with the US. What’s more troubling is that the security environment in the Korean Peninsula has degraded significantly because of a flare in a historical spat between Seoul and Tokyo over WWII reparations. The resulting trade war between the two countries and Seoul’s decision today to withdraw from a 2016 intelligence-sharing agreement with Japan, provides opportunities for China and Russia to exploit the perceived rift within a longstanding security pact between these countries and the US. Further, these tensions undermine any US leverage to move forward with a North Korean nuclear deal that must include security guarantees for both Seoul and Tokyo.

China

Peaceful protests in response to Hong Kong Chief Executive Carrie Lam’s extradition initiative have grown into a wider, and at times more defiant, movement for a return to the “one country, two systems” principle that formed the basis of Britain’s exit from Hong Kong. Beijing has ratcheted up the nationalist rhetoric, comparing the protesters to terrorists, and is staging troops near the border, clearly hoping this will intimidate protesters into vacating the streets. At the same time, Beijing is exerting economic pressure on vital Hong Kong businesses like Cathay Pacific to bring Hong Kong employees back into line. While Beijing wants to avoid direct intervention and the inevitable bloodshed and international black eye that would follow, China won’t let the situation fester indefinitely. Once the dust settles, it is highly likely that Hong Kong’s civil liberties will be more restrained going forward. But Beijing must tread carefully in its response. A harsh crackdown on Hong Kong could trigger severe capital flight, crippling the island’s capacity to serve as an international financial hub and source of offshore financing for Chinese companies, and derail any progress toward a trade deal with the US.

Russia

As Russia’s economy continues to falter and blatant corruption continues unabated, Putin appears more resolved than ever to stifle any sort of dissent and to quash any opposition. Protests denouncing the disqualification of scores of opposition candidates at the end of July were met with a very heavy hand, including the attack on opposition leader Alexei Navalny. Many Russia observers see this as part of an ongoing strategy to degrade the opposition in order to make it easier for Putin to stay in power when his fourth and supposedly last term is up in 2024. On the international stage, Russia appears uncowed by its domestic troubles. Following the United States withdrawal from the Intermediate-Range Nuclear Forces (INF) Treaty, Russia has said that any deployment of short and intermediate-range missile in Europe would trigger a deployment of Russian hypersonic nuclear missiles on ships or submarines near US territorial waters. Based on the mysterious incident on 8 August at a Russian missile testing facility, it appears that Russia is moving full speed ahead on its ambitions to develop a new and innovative arsenal. Without immediate efforts to construct a new international treaty, there are very few barriers to a new arms race.

Finally, if we are to take anything away from Special Counsel Mueller’s testimony, it is that Russia’s efforts to interfere in our political system continue unabated. Without a significant and resolved response from the US, Russia will persevere to our detriment.

India

In a surprise move, on 5 August Prime Minister Narendra Modi stripped Jammu and Kashmir of their seven-decade-old special constitutional status of autonomy. In so doing, Modi has fulfilled a long-standing Hindu nationalist goal and garnered widespread popular support for the move, but he has also further destabilized an already volatile region. To head off a likely uprising, Modi has placed the region on lock-down, cutting all communications, putting local politicians under house arrest and sending in thousands of security forces who have quelled protests with a heavy hand. Pakistan’s call for mediation has been rebuffed. In the short and medium term, the risk of terrorist attacks has increased throughout the whole of India, as has the possibility of armed conflict with Pakistan. In the longer term, Modi’s vision to “colonize” majority-Muslim Kashmir with ethnic Hindus raises the question of what Indian democracy will look like and suggests that volatility will remain for some time in Kashmir and possibly other areas of India, with minorities politically and socially marginalized.

Brexit

Anti-Brexit lawmakers will return from their holidays on 3 September, determined to stymie Downing Street’s autumn Brexit agenda. Labour leader Jeremy Corbyn plans to call a no-confidence vote against Prime Minister Boris Johnson who holds the slimmest of majorities, in order to form an interim government that will seek from the EU an extension of the 31 October deadline, and then call for elections and run on a platform of holding a new Brexit referendum. The minefields are many, starting with Corbyn’s own unpopularity with critical factions. For his part, Johnson plans to urgently lobby European leaders to renegotiate the withdrawal agreement, particularly the Irish backstop provision. He is unlikely to succeed. With Johnson holding fast to the 31 October deadline, a full break from the EU becomes more likely, although Johnson, like his predecessor, could well end up kicking the can down the road.

Turkey

What was once a difficult but stable relationship with Turkey has now badly deteriorated. Turkey’s recent acquisition of Russian surface-to-air missiles is alarming because in the past, pressure exerted by us and other NATO members would have caused Turkey to reconsider. However, President Erdogan-having fully consolidated power at home-seems less interested in pursuing democratically-minded agendas domestically and abroad and has his eye directed toward Russia and China. The country’s dwindling economy will ensure that Turkey doesn’t gain the regional prowess it craves. However, the US and other NATO members have hard decisions ahead on how to treat Turkey’s role in the alliance.

Mexico

Mexican President Andrés Manuel López Obrador continues to stoke fears in the Mexican business community, but he has maintained his high approval ratings among average Mexicans. López Obrador has also cleverly managed to appease President Trump with his decision to send Mexican troops to the southern border with Guatemala and with the “Remain in Mexico” plan to keep Central American migrants in Mexico as they await immigration proceedings in the United States. The United States and Mexico exchange approximately $671 million in goods and services every year. With the USMCA trade agreement not passing through the US Congress this year, López Obrador does not want to risk border closures, tariffs, or problems in Congress. The problem for López Obrador is that tensions with the Mexican people are likely to rise as the Central American asylum seekers waiting to get into the United States eventually start to compete for jobs and resources in a weakening Mexican economy.

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“They wanted to send a message” Jack Devine discusses Russia’s use of assassination as a tactic on Newt Gingrich’s podcast, April 2019

Jack Devine, 32-year veteran of the CIA, and Newt Gingrich discussed Russia’s history of assassination including the recent attempt on Sergei Skripal. Putting the attempted murder of Skripal in a larger context, Jack says that Russia has long seen murder as a legitimate way to deal with dissidents and other “enemies of the state.” Jack suggests that Putin’s KGB experience drives his decision making, and, despite some short-term operational success, his Cold War tactics have led to a poor overall strategy which has weakened Russian’s economy and isolated it on the international stage. Going forward, Jack says that resetting relations with Russia is futile while Putin continues to use “the old playbook.”

Newt’s World Ep 13: Russia – Death by Poison
Note: Jack’s segment begins at the 59-minute mark.

Jack Devine’s Spring 2019 Intelligence Report

TAG President Jack Devine’s Spring 2019 Intelligence Report includes his current assessment of the 2020 U.S. presidential campaign, North Korea, trade with China, the situation in Venezuela, the new government in Mexico, elections in Ukraine, and continuing troubles for Saudi Arabia.

Mueller Report and Democrats’ 2020 Hopes

Special Counsel Robert Mueller’s definitive conclusion that there was no “collusion” between the Trump Campaign and the Russian government in the 2016 presidential election has put wind back in President Trump’s political sails and rattled many of his opponents. However, Attorney General Bob Barr’s write-up of the Mueller report won’t end the assault on Trump’s past financial dealings. On the contrary, investigations will continue in the Democrat-controlled House and at the federal and state level-most importantly in New York, D.C., and Virginia. While these efforts are unlikely to produce tangible results during Trump’s term in office, these inquiries will play a key part in many candidates’ narratives during the 2020 Presidential campaign.

There is a growing concern in some Democratic quarters that the continuing investigation and the party’s seeming lurch to the left might backfire and extend Trump’s tenure in office. The 2020 election will likely be closer than most political observers realize, and much political and economic turmoil surely lies ahead. Moreover, if history is any gauge, a potentially destabilizing international crisis might well appear on the landscape. Venezuela, North Korea, Iran, and Ukraine would be good bets. How these crises are handled will greatly affect the ultimate outcome of the election as well.

One aspect of the Mueller investigation which is not getting sufficient attention is how aggressive Russian intelligence was during the 2016 campaign in a deliberate effort to undermine our democratic system. Additionally, Russia has become intent on trying to block our interests around the globe, for example in Ukraine, Venezuela, and Syria. There is no sign that this will change in the near to mid-term, making a return to Cold War dynamics increasingly likely, particularly given Putin’s old KGB mentality.

North Korea Negotiation in Trouble

After President Trump cut short his summit with Kim Jong-un in Vietnam, the North Koreans doubled down on both their aggressive rhetoric and their nuclear development program. Trump’s response has been somewhat unclear at least to the public eye. He reportedly towed a very hard line in Vietnam when he called for a full dismantlement of North Korea’s nuclear infrastructure, chemical and biological warfare program, and related dual-use capabilities as well as its ballistic missiles, launchers, and associated facilities. Trump then surprisingly attempted to cancel a new round of sanctions by the U.S. Treasury Department. It is quite possible his hard line in Vietnam inspired a behind the scenes move by the North Koreans to reopen negotiations. Time will tell if anything fruitful comes from it. Trump and South Korean President Moon Jae-in will meet at the White House next week to recalibrate.

China Trade and 5G Competition

Ahead of the next leg of trade negotiations this week, both China and the U.S. have sought to soften their starting positions signaling that both sides hope to reach some kind of trade deal, which would put a welcome end to the greatest tensions and damaging tariffs of this trade war (even if it would still not resolve some longstanding issues). However, the U.S.’s effort to block the Chinese dominance of 5G infrastructure in Western democracies on the basis of key national and regional security concerns has met with surprising resistance from traditional European allies. While some might see a disturbing European pivot toward China, especially with Italy’s embrace of China’s Belt and Road Initiative, recent statements from the European Union suggest that Europe still sees China as a strategic rival with its restrictions to market access, its human rights abuses, and its rule of law.

Venezuela Sinks Further

Venezuela continues to sink into further chaos and decline. President Nicolás Maduro hangs on to power with the backing of the country’s military high command as well as financial support from Russia and China. Simultaneously, opposition leader and head of the National Assembly, Juan Guaidó, continues to proclaim himself as the legitimate interim president of Venezuela. More than 50 countries including the United States now recognize Guaidó, even as he has thus far been unable to oust Maduro.

The Trump administration is looking to turn up the heat on Maduro, including issuing additional sanctions. Administration officials have also said “all options are on the table.” Judging by President Trump’s recent comparison of Venezuelan socialism to the policy positions of Democrats in the US Congress, he can be expected to keep the heat on Maduro which also will play well to a domestic audience.

Mexico under AMLO

Clouds seem to be forming over Mexico’s economy. There was the threat of a U.S.-Mexico border shutdown by President Trump and the recent cut in Mexico’s economic outlook for 2019. Since Mexican President Andrés Manuel López Obrador (aka AMLO) was elected in July 2018, Mexico’s economy has slowed. Oil production fell 6.9 percent last year, leading the rating agencies to downgrade PEMEX in January.

Many thought AMLO might be more pragmatic when he gave his blessing to the re-negotiated NAFTA 2.0 deal last fall. However, he is at heart a leftist and nationalist who is skeptical of corporate interests. He threw out the $13 billion airport project, and recently announced an end to oil joint ventures between private companies and the state-owned PEMEX-a hallmark of Mexico’s 2013 energy reforms.

At the border, AMLO will need to demonstrate that he’s doing more to address the migrant crisis. He should take President Trump’s threats seriously even as the US president has now backed off his original threat to close the border, saying instead that he would give Mexico a year to stem the flow of drugs and migrants. In this year, AMLO has a tough balancing act to perform: he will need to handle the issue with diplomatic finesse to avoid damaging the U.S.-Mexico relationship or further eroding Mexico’s overall economic forecast, while at the same time maintaining his image and base of support at home.

Comedian for Ukraine’s Masses

The first round of Ukraine’s presidential election provided much intrigue. The March 31 contest traditionally would’ve been between President Petro Poroshenko and former president Yulia Tymoshenko. Instead comedian, Volodymyr Zelenskiy, catapulted in the polls winning a large enough vote share to be considered the favorite in the April 21 second round. Like many around the world, Ukrainians appear to be so disillusioned by establishment politicians that they may put their hopes on Zelenskiy, a political novice whose TV character becomes Ukraine’s president by accident. Following the polls, Poroshenko appealed to young voters, touting his anti-Russian stance and promising to “listen” to their concerns. We should expect the Kremlin will attempt to influence the final election outcome in support of Zelenskiy. Putin may mount a disinformation campaign, tamper with the mechanics of the election, amplify military aggression as he did in the Sea of Azov last year, or recruit intelligence sources close to Zelenskiy.

Cloudy Skies Remain for Saudi Arabia

The international bond market’s warm reception to Saudi Arabia’s Aramco bond prospectus suggests that their $10 billion bond offering will be successful. We learned that the company is cash rich and hugely profitable with $111 billion of profit in 2018. For the Saudis, this is a welcome response given the extensive fallout from the murder of Jamal Khashoggi. Nonetheless, Saudi Arabia is not yet back in the good graces of the international community. The highly anticipated Aramco IPO has been indefinitely postponed, its Public Investment Fund embarrassingly saw the return of $400 million from Endeavour talent agency, and even the bond offering is far more modest than the $70 billion initially planned. On the political front, the situation for Riyadh remains suboptimal. Though the Trump Administration hasn’t leaned heavily on the Saudis, the US Congress is using its influence to sanction Saudi Crown Prince Mohammad Bin Salman (MBS). Furthermore, MBS’s strategic challenges remain, with less leverage and goodwill from the international community to resolve them, especially his ever unpopular war in Yemen.

Spring 2019 Intelligence Report