The Arkin Group

TAG President Jack Devine’s Fall 2018 Intelligence Report includes his current assessment of the U.S. midterms, Saudi Arabia, China & NAFTA, Russia, Mexico, and Venezuela.

Marching toward the Midterms

Much has happened in this past quarter which will have long term domestic and international implications – a strong economy at home, a Trade War with China, the end of the Iran nuclear deal, an on again off again diplomatic dance with North Korea, a revamped NAFTA, and the further debilitation of ISIS. We now face one of the more fraught congressional midterms in recent memory. What perhaps has most gripped and energized the American electorate as we head to the polls on November 6 is the traumatic congressional hearings relating to the appointment of Supreme Court Justice Kavanaugh, which will cut two ways in the voting booth. Although the prevailing view is that Republicans will hold the Senate and Democrats will take the House, the winds of change likely will alter again in the days ahead. The Khashoggi fiasco, the immigration caravan’s march toward the Rio Grande and this week’s spate of mail bombs are just some of the issues which will unfold in the next eleven days. The outcome will depend on the unpredictable turnout on Election Day. No matter what happens on the 6th, expect the next two years to resemble the drama of the past two years of the Trump era.

Saudi Arabia: The Strategic Impact of the Khashoggi Affair

The most significant development abroad has been the fallout from the disappearance and killing of Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul. Crown Prince Mohammed bin Salman (MBS) has taken a hard line in both his “corruption crackdown” that consolidated power domestically, and his stance abroad in Yemen, Qatar and even with Canada. With the full backing of his father King Salman, MBS has not yet been held accountable for his excesses and missteps. However, the Khashoggi affair could be a game-changer. As a result of the steady drip of Turkish President Erdogan’s intelligence disclosures, the Saudis have had to admit that their intelligence operatives killed Khashoggi in an apparent premeditated murder. To stem the growing criticism, MBS may well have to step aside, or at the very least soften his unflinching domestic and international posture, despite his inclinations to the contrary. But, all bets are off since only the King can make this happen, and so far he has not shown an inclination to do so.

The Trump Administration and Congress have their own diplomatic challenge as they try to address congressional, media and public concern without undermining foreign policy priorities in the Middle East or causing oil prices to skyrocket. Erdogan’s deft handling of the situation has strengthened his position domestically and regionally where he is in stiff competition with MBS. Iran might be the biggest short-term beneficiary if the strong ties are frayed between the U.S. and Saudi Arabia. In the short-term, this situation may allow Europe leeway to continue to prop up the Iran nuclear agreement. Expect the Administration’s attention to shift toward Tehran again soon. Read Jack Devine’s article in The Hill, The Saudis’ Dangerous Game of Truth or Dare.

China and NAFTA: Economic Games

China continues to maintain a resolute face in the trade war with the Trump Administration. However, cracks are emerging and it’s unclear how long the Chinese government can withstand the standoff. Hopefully, both sides will find an off-ramp that allows a win for both Trump and Chinese President Xi Jinping. Should that happen, it will be another example of Trump bending the international order to his will on economic issues, which he seems to have accomplished with NATO countries, Japan, Mexico and Canada.

Financial markets, the business community, and proponents of free trade can breathe a sigh of relief with the recent completion of NAFTA 2.0. The revised trilateral deal, rebranded as the “U.S. Mexico Canada Agreement” or USMCA, includes updates related to the digital economy, automobiles, agriculture, and labor unions. While the negotiations at times were acrimonious, the successful outcome is a win for all parties.

Russia: Midterm Meddling and the INF Treaty

Clearly unchastened by 2016 election meddling blowback, Russia appears to be at it again in the midterms, albeit on a seemingly scaled back level. Criminal charges have been filed against Elena A. Khusyaynova, the alleged accountant for “Project Latka,” for once again using thousands of phony social media accounts to plant divisive messages and sow political and social discord ahead of the November mid-terms. This time it is on Trump’s watch. Look for this issue to become more pointed when Trump and Putin meet in Paris next month.

They also will no doubt address the imperiled INF treaty, long a target of NSC Director and Chief Negotiator John Bolton who has grievances about Russian compliance. Trump has taken a very strong stance in threatening to abandon the treaty, possibly a bargaining strategy. It is in both sides’ interest to have a viable INF treaty and is likely to be renegotiated eventually, but not without a lot of push and pull.

Mexico and Venezuela

President-elect Andrés Manuel López Obrador, popularly known as AMLO will take office December 1, five months after being elected with 53% of the vote. With NAFTA negotiations out of the way, AMLO can focus on two of his biggest domestic challenges, security and the economy. Homicide figures set records at above 22,000 in the first eight months of 2018. Improving that number is a heavy lift which requires a broad attack on multiple fronts, but the success of his early presidency will depend on quick progress. Internationally his biggest challenge will be to establish a good relationship with the Trump Administration. He understands the importance of this and will likely move smartly in that direction. That said, no one should underestimate the drag of his leftist coalition.

The Venezuela crisis continues to deepen as average Venezuelans have given up their marches in favor of daily survival. Venezuelan oil production is half what it was just two years ago, and hyperinflation is pushing more and more Venezuelans to the borders seeking refuge in Brazil and Colombia. An estimated 2.6 million Venezuelans have left already. Grocery stores are empty, medicines are scarce, and lines are long for basic supplies. Still, Venezuelan President Nicolás Maduro continues to deny the humanitarian crisis. Despite his reported fears about a possible U.S. military intervention, this outcome is highly unlikely, nor should we expect Maduro to crack under international pressure and step aside any time soon. More likely, Venezuela will continue to crater, while Maduro cozies up to Russia and China for aid and protection.

Fall 2018 Intelligence Report

The Trump administration should insist on the truth in the Khashoggi murder, argues TAG President Jack Devine in an opinion piece published in The Hill on October 24, 2018. According to Jack, “The current flap with Saudi Arabia is one of the most complicated diplomatic crises in many years. The murder of Saudi journalist Jamal Khashoggi within the Saudi consulate in Istanbul has hit a nerve in the international zeitgeist that neither Riyadh nor Washington can afford to ignore.” Commenting on the US-Saudi relationship, Jack writes, “No matter how one slices it, the way forward starts with the truth.”

The Saudis’ Dangerous Game of Truth or Dare

Jack Devine, former chief of CIA’s worldwide operations, and founding partner and President of The Arkin Group, discusses the escalating crisis in Saudi Arabia.

Saudis Will Need To Find Someone To Take A Fall

CIA veteran and TAG President Jack Devine is quoted in Christopher Woody’s article published in Business Insider on the CIA’s successful effort to drive the Soviets out of Afghanistan in the 1980s. Jack said, “The Stinger changed the course of the war.” Within two years of that first successful Stinger strike, Russian forces began to pull out of Afghanistan, completing their withdrawal in February 1989, almost 10 years after invading.

‘A fighting war with the main enemy’: How the CIA helped land a mortal blow to the Soviets in Afghanistan 32 years ago

In an opinion piece for CNN, TAG Senior Director Amanda Mattingly comments on the preliminary trade deal reached between the United States and Mexico as an important step in the trilateral NAFTA negotiations. According to Amanda, “That the American and Mexican negotiators could agree to progress past the sticking point involving the automobile industry and rules of origin is a sign of not only the potential for negotiating ‘NAFTA 2.0′ but also for a more productive US-Mexico relationship.”

US-Mexico trade deal marks beginning of new friendship

CIA veteran and TAG President Jack Devine was quoted in Sean Rossman’s article on Russian spy Maria Butina published in the USA Today in August. Rossman writes, “Part of what differentiates Butina, Devine said, is how she blended covert political action, like cozying up to the NRA, and espionage, or gathering intelligence to send to Russia.” For Jack, the Butina case – and the Russian election meddling – is evidence the Russians have grown bolder in their spy efforts.

Sex and schmoozing are common Russian spy tactics. Publicity makes Maria Butina different

TAG President Jack Devine’s Summer 2018 Intelligence Report includes his current assessment on the U.S. mid-term elections, North Korea, Iran, Mexico & NAFTA negotiations, and Europe.

Mid-term Elections
While President Trump continues to confound critics and allies alike with his seemingly spontaneous policy comments and initiatives, the trajectory of his Administration is becoming clearer and more deeply rooted at home and abroad.

On the home front over the next few months, the overwhelming amount of political and media attention will be devoted to the very important mid-term elections which will impact greatly on what the Trump Administration will be able to accomplish in the years ahead. Virtually all political behavior should be viewed through the optic of the mid-term. While history, this week’s mid-term primary turnout, polling data, and pundits would suggest that the Democrats will make gains in November, it is still too early to forecast whether the Democrats’ current political activism will be enough to give them control of the Senate and/or the House. The short-term impact of the Trump tax cut, the general health of the economy as well as potential progress on the North Korea problem, may mitigate Republican losses. However, there is no reason to expect a more collegial and productive environment on the Hill whatever the outcome.

North Korea
North Korea’s apparent interest in engaging in a dialogue with the Administration may bring at least a temporary freeze to its nuclear program. It is increasingly clear that Kim Jong-un is feeling serious economic pressures at home and has staked his domestic reputation on improvements that can only come from sanctions relief. This development has provided the first glimmer of hope that a deal may be possible. While Kim Jong-un may make concessions on the nuclear program, it is hard to imagine under what circumstances he would be willing to “denuclearize” his entire program as Trump insists. There is a long shot possibility that he might agree to park his nukes in China or Pakistan, something he might be able to sell at home and to the Chinese leadership. But, don’t bet on it.

With the appointments of Secretary of State Mike Pompeo and NSC Director John Bolton, both hardliners on North Korea, Kim should anticipate rigorous negotiations. This time around it will be very difficult for Kim to construct a formula for protracted negotiations. Trump’s recent willingness to walk away from the table will make this maneuver unproductive. From the outset there will be real concessions on the table from both sides, and it will be quickly apparent whether a breakthrough can be accomplished or whether a collapse is in the making. Success will require masterful brinksmanship on both sides.

Iran Nuclear Deal
After Trump’s withdrawal, the Iranian nuclear deal is on life support. What’s more, the European’s ability to keep the deal alive without major friction with the U.S. is remote at best. It is hard to write a credible scenario where this turns out well for the U.S. Even if somehow the Europeans magically hold it together, re-imposed sanctions by the U.S. will only hurt Iran around the edges. Moreover, we will be the odd man out with Russia and China gaining influence in Iran and the Europeans benefiting economically from our absence. Perhaps most damaging of all is that our action has put a deep strain on the Western alliance which both Russia and China are moving aggressively to exploit. This will have far-reaching deleterious implications for our national security interests.

Additionally, if the Europeans can’t hold the deal together without us or develop sanctions workarounds for Iran, all of which appears unlikely, then the economic benefits will cease to accrue to Iran, and we should anticipate Iran will become even more aggressive internationally and press ahead with developing a nuclear weapons program. Despite the hopes of the Trump Administration, the Israelis and Saudis, new sanctions on Iran will not be nearly enough to promote a regime change any time soon. Historically, Washington policymakers and the Intelligence Community have overestimated support for change in Iran and the willingness for dissidents to put their lives on the line to bring about that change. In this context, it is hard to fathom exactly how the U.S prevents or contains the Iranians without military force, something that would be extremely hard to sell to the American people in the wake of the wars in Iraq and Afghanistan.

Mexico & NAFTA Negotiations
Andrés Manuel López Obrador appears poised to be elected the next president of Mexico this July 1. A win for AMLO (as he is popularly called) would likely spook financial markets in the short term, resulting in a period of capital flight from Mexico, a cooling of foreign investment, and a slump in economic growth in Mexico, which has been averaging approximately 2.4% a year. If elected, we can expect AMLO to take a more interventionist role in the economy, which could mean the return of state-owned entities, government subsidies, and a roll back of market-friendly reforms, namely in the energy sector.

At the same time, AMLO has been a fierce critic of President Trump, and we can expect the US-Mexican relationship to get even worse. His leftist, Latin American brand of populism will no doubt clash with Trump’s, making issues related to immigration, border security, and trade all the more difficult.

Regarding NAFTA, Mexico has much more to lose than the United States or Canada if negotiations fail; after all, 80 percent of its exports go to the United States. But if AMLO is elected to stand up to Trump, he could be the one to pull out of a deal deemed locally as unfair to Mexico. With other free trade agreements in Latin America, Asia, and Europe, he could shift trade elsewhere. At this point, this is the less likely outcome, but still a possibility. With luck, the current negotiators will make progress on key sticking points, including rules of origin in the auto industry and the five-year sunset clause, and announce a preliminary deal before Mexico’s election.

Europe
National/populist parties continue to make gains across Europe, including most recently in Hungary, Slovenia and Italy, while French President Macron and German Chancellor Merkel struggle to hold the EU together. Nowhere does the struggle between progressive democracy and reactionary populism seem more acute than in Italy, a key state in centrist Europe. If there is a silver lining in the victory of the anti-establishment Five Star Movement and the far-right, anti-immigrant, League, it is that for the moment they appear to have pulled back from demands to abandon the Euro. Nevertheless, the political novice, Prime Minister Conte, reiterated the coalition’s hard line on immigration as well as a rejection of economic austerity and a call to lift EU sanctions on Russia. In Hungary, returning pro-Russian Prime Minister Viktor Orban has long protested Russian sanctions, yet thus far has toed the line in voting to uphold EU sanctions. Austria’s far-right Vice Chancellor also called for an end to Russia sanctions ahead of Putin’s recent state visit. However, Chancellor Kurz demurred, saying that progress on eastern Ukraine was needed first.

Meanwhile, Macron and Prime Minister Shinzo Abe were among the attendees at Putin’s annual St. Petersburg economic forum which had been sparsely attended by Western leaders since Crimea. Make no mistake, Putin is gaining friends in Western Europe. As a result of the U.S. steel and aluminum tariffs, along with the withdrawal from the Iran deal, the TPP, and the Paris Climate Accord, the Western alliance is strained to an unprecedented degree.

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

Summer 2018 Intelligence Report

TAG President Jack Devine gave his assessment of Iran, Russia, and Trump’s relationship with the intelligence community in an interview with Bloomberg Radio. Jack argued that President Trump came out of the Helsinki summit weakened and needing to push back on Russia’s Vladimir Putin to regain strength.

Iran Is The Thing That Keeps Me Up At Night