The Arkin Group

July 31, 2020

Egypt edged closer to entering the conflict in Libya when the Egyptian Parliament gave President Abdel Fattah Al-Sisi formal authority to use military force. Al-Sisi has threatened military action against the Turkish-backed western Libyan forces of the Government of National Accord (GNA) if they continue their advance on the coastal city of Sirte in Libya. Egypt, along with the United Arab Emirates (UAE) and Russia, supports the eastern Libyan forces commanded by Khalifa Haftar, and Al-Sisi has said Egypt would not allow for the defeat of Haftar by the GNA. Al-Sisi has threatened the use of force, but he has also called for a ceasefire in Libya. Deploying the Egyptian military would put Egypt in direct conflict with Turkey in a proxy war in Libya, which would have regional security implications. In an effort to gather international support for Egypt’s position, Al-Sisi has courted support from Saudi Arabia and the United States. Saudi Foreign Minister Prince Faisal bin Farhan has said Saudi Arabia supports Egypt’s position on Libya but also called for a political solution to the internal conflict. Al-Sisi has spoken with U.S. President Trump as well, and reportedly, Trump agreed on the need to maintain a ceasefire in Libya. However, the U.S. position on Libya is complicated, particularly as the United States has criticized and threatened to sanction Russian-linked military contractors who have taken control of two of Libya’s largest oil facilities.

India is sending another 35,000 troops to the Actual Line of Control, its contested border with China, as bilateral talks have faltered after a clash with Chinese troops on June 15 killed at least 20. India and China have been engaged for weeks in efforts to resolve the dispute, and Beijing, widely believed to have been the aggressor, had announced that its troops were disengaging in many of their locations in the area. Negotiations are expected to continue, but progress appears to have stalled for now. India’s military is no match for China’s on a normal day, and right now, India is facing twin Covid-19 crises – the world’s fastest-growing infection rate and an economy pummeled by a two-month-plus nationwide lockdown. Its military is already engaged at a section of disputed border with Pakistan, as well as in Jammu and Kashmir, where anti-Delhi resentment is running high following India’s revocation of the area’s semi-autonomous status, and in light of a spate of anti-Muslim policies. India initially seemed to be hitting back at China through punitive trade measures targeting its tech and telecom sectors, banning more than 100 Chinese apps and restricting tech giant Huawei’s involvement in buildout of its 5G network, and under the circumstances, this show of force in the Himalayas is likely to be just that – a show. India’s best option, and one it seems to be simultaneously pursuing, is to hew closely to a strengthening coalition of allies whose collective alarm at Chinese aggression throughout Asia is prompting them to push back in various ways, including high-profile military drills in the South China Sea and closing off their 5G networks to Chinese developers.

Russia plans to officially register the world’s first Covid-19 vaccine by mid-August, which would be a substantial victory for the Kremlin’s push to reestablish the country’s global standing as a scientific powerhouse. The Soviet Union (with Russia at the helm) was notable for its many scientific achievements, including the world’s first artificial satellite and the first human spaceflight. However, the speed at which Moscow aims to introduce this vaccine into the general population has triggered some well-founded skepticism about the development process and suspicions that the country cut corners in its race to be first (though it has reportedly been administering the vaccine to business and political elites since April). Adding to concerns about its safety and efficacy is that data on the vaccine, under development by Gamaleya, has not been released to the public. The U.S. and U.K. have both accused Moscow of attempting to steal Covid-19 vaccine research, and if that effort proved successful, it could help to explain how Russia leapfrogged over an array of well-funded research teams in the West and elsewhere, including in Japan and China. Ultimately, being first may establish a scientific marker, but will be a secondary consideration next to safety, efficacy, affordability, and reliability of production and distribution.

Jack Devine, former chief of CIA’s worldwide operations, and founding partner and President of The Arkin Group, discussed Russia’s increased aggression and the need for a U.S. response on Bloomberg Radio with hosts Paul Sweeney and Vonnie Quinn. Jack commented, “The aggressive behavior of Russia vis-à-vis the United States and how it uses cyber and its aggressive use of paramilitary forces whether it’s in Ukraine or Libya today, it’s amazingly aggressive … going in and trying to co-opt our science vis-à-vis the virus, disrupting elections, and stirring up and destabilizing democracies in the West, it’s really a very aggressive thing.”

Listen to the interview here:

Putin Cyber War Warrants Response

July 24, 2020

The U.S. and UK have accused Russia of test-firing a “projectile with the characteristics of a weapon” from one of its satellites, raising concerns that the Kremlin may be positioning itself to gain leverage over other countries’ assets in space. According to a U.S. Space Command statement, evidence points to the projectile being an “anti-satellite weapon”. Satellites are critical to a number of essential daily activities, including weather forecasting, inter-continental telephone calls, ship and aircraft navigation, and military monitoring and evidence-gathering. International attention has been focused on Russia’s terrestrial aggression of late, specifically its long-standing (and likely escalating) efforts to interfere in western countries’ elections. A UK Intelligence and Security Committee report released this week found that the country and its intelligence apparatus failed to respond to credible evidence that the Kremlin engaged in a sweeping influence campaign to manipulate the UK’s Brexit referendum in 2016. Western countries have lately determined that Kremlin-sponsored hackers have made attempts to steal Covid-19 vaccine research, and experts are also increasingly alarmed by Russia’s interference in internal conflicts in countries including Syria, Libya, and Afghanistan. These latest accusations round out an emerging picture of a country that is seeking to reestablish its Soviet-era sphere of influence and regain its former status as a political, scientific, and military heavyweight.

Beijing has closed the U.S. consulate in Chengdu as retaliation for the U.S.’s forced closure of the Chinese consulate in Houston with just 72 hours’ notice this week. Though Beijing has called for restraint, the tit-for-tat closures mark a notable escalation in an already fraught bilateral relationship. The U.S. State Department cited “massive illegal spying and influence operations” as justification for the move and identified the Houston consulate as an epicenter for Chinese theft of U.S. research. In a speech yesterday, Secretary of State Mike Pompeo accused China of seeking global hegemony based on a “bankrupt, totalitarian ideology” and said the last 50 years of U.S. engagement with the country have benefited Beijing at U.S. expense. U.S. policy toward China has pivoted in recent weeks from efforts to stay on solid diplomatic and trade footing while simultaneously pushing back on Chinese curtailment of human rights at home and abroad, along with large-scale operations to infiltrate U.S. institutions – government and private sector – and acquire valuable information in various fields, from aerospace to agriculture. The change in tone from the U.S., along with growing U.S. success in strengthening a coalition of like-minded allies alarmed by China’s increasing aggression (e.g. in Hong Kong, India, and the South China Sea), is lending credence to voices within China claiming that the U.S.’s only goal is contain the country and prevent its rise. Though we expect the U.S. and China will seek to preserve components of the relationship, including the phase 1 trade deal, the relationship is now at possibly its lowest point since the two countries established diplomatic ties in 1979. As hawkish voices come to the fore on both sides, the risk of a misstep rises.

Mexican President Andrés Manuel López Obrador (AMLO) is looking to score political points at home for extraditing former Pemex CEO Emilio Lozoya to face corruption charges. Lozoya, who was flown back to Mexico from Spain last week, served as the chief officer to the state-owned oil giant Pemex under former Mexican President Enrique Peña Nieto. He is charged with having orchestrated a bribery scheme to pass energy reforms through congress in 2013. The energy reforms were considered a hallmark of the Peña Nieto administration and were applauded by the business community, as they opened up Pemex and the energy sector to private investment. AMLO has said that those reforms to Pemex came at the public’s expense. Lozoya is also charged with the illegal transfer of funds from Odebrecht, the Brazilian construction company embroiled in corruption charges throughout Latin America. Pemex faces difficulties now due to a fall in oil prices, plummeting demand since the onset of the coronavirus and accompanying global shutdowns, and recent credit downgrades. Even before Covid-19, Pemex was troubled, having lost $36 billion in 2019. However, AMLO has consistently tied the troubles of Pemex to the corruption of past administrations, so the extradition of Lozoya fits into his anti-corruption campaign and is a political win for him with his base. It comes at a time when his popularity has fallen to around 50% due to his response to the coronavirus and the economic fallout. Mexico’s GDP is forecast to contract by as much as 10% in 2020, and so far, AMLO has not enacted fiscal stimulus measures to protect the economy.

The UK, U.S., and Canada have accused Russia’s intelligence services of hacking into research centers to steal information on Covid-19 vaccine development efforts. The UK’s official statement on the matter links the hacks to APT29, also known as Cozy Bear, the state-backed group behind the hack of the Democratic National Committee in the lead-up to the 2016 U.S. presidential election. News about these latest hacking attempts is unsurprising. Russian intelligence is suspected of trying to steal a wide variety of intellectual property across various sectors – diplomatic, commercial, military, etc. Furthermore, Russia has a vested interest in assuming a global leadership role in battling Covid-19. The country has deployed pandemic relief as a public relations strategy, with notable examples including a well-publicized shipment of medical and personal protective equipment to the U.S. in April. Russia is not alone in trying to bolster its international image by appearing to be a front-runner in initiatives to combat the pandemic. China shipped huge quantities of masks and testing kits to Spain, Turkey, and the Netherlands – many of which were found to be faulty – and has skillfully deployed social media to highlight donations and relief efforts in Africa. Nor is Russia unique in its efforts to steal government, commercial, and other secrets from western systems. The U.S. alleged that China attempted to hack vaccine research data back in May, and new reports have just emerged of Iran-linked hackers (Charming Kitten) penetrating the accounts of U.S. government officials and military servicemembers. Efforts to steal the vaccine may not be solely in the interest of PR. Once a vaccine is developed, rollout is expected to be a protracted process, and some countries may fear delayed or restricted access. There are multiple actors that will use any means necessary to press their advantage in navigating the pandemic, and until an effective vaccine or treatment is widely available, these attacks will continue.

Brazil is beginning to see some modest economic growth, even as President Jair Bolsonaro has tested positive for coronavirus and the country has surpassed the 2 million mark in confirmed Covid-19 cases. Brazil’s economy ticked upward in May after sharp declines in March and April, leading Brazil’s Central Bank President Roberto Campos Neto to announce this month that Brazil was beginning to see a “V-shaped” recovery with increasing growth, particularly in the manufacturing sector. However, this recovery may be short-lived. Neto’s expectations appear overly optimistic, with official unemployment numbers remaining high at 12%, and the economy expected to shrink by more than 6% in 2020. A return in some economic activity has come with a cost, too. Brazil has the second-highest number of coronavirus cases after the United States. On July 16, Brazil announced it surpassed 2 million confirmed cases with more than 75,000 deaths. Bolsonaro, who tested positive for coronavirus for a second time this week, has downplayed the disease since the beginning. His popularity has suffered from his handling of the virus and is currently at just 33%.

The U.S. and China are navigating a delicate balance, simultaneously attacking each other politically and trying to sustain the phase 1 trade deal. The two countries have been locked in a tit-for-tat exchange of sanctions, starting with the U.S. sanctioning four Chinese four human rights abuses against Uighurs in western China last week. China then sanctioned four U.S. government officials on Tuesday, and the U.S. announced plans to impose sanctions on officials, banks, and businesses involved in restricting Hong Kong’s autonomy on Wednesday, to which China responded with a “vow to retaliate”. Though the sanctions themselves (announced and imposed) have been largely symbolic on both sides, they continue a trend of escalating political confrontation. The U.S. is finding increasing success in convincing (and forcing) allies to curtail Chinese tech giant Huawei’s access to their 5G infrastructure and has also threatened to follow India’s lead in banning major Chinese apps for national security reasons, a threat it may make good on. China is not retaliating directly, but is continuing aggressive actions elsewhere (e.g. targeting South China Sea neighbors, revoking Hong Kong’s autonomy, blocking Canadian canola imports, warning Chinese tourists not to visit Australia), signaling that it has no intention of caving to U.S. pressure. Despite the cycle of escalation, both sides are still trying to de-link political tensions from implementation of the phase 1 trade deal, which has both economic and geopolitical implications. A breakdown of the deal wouldn’t trigger an immediate crisis or crash, but it is not only a means of facilitating economic recovery in both countries, it also acts as a check on more aggressive impulses from either side.

Demonstrators in Russia’s eastern city of Khabarovsk staged several consecutive days of protests against President Vladimir Putin following the arrest of a popular governor for the alleged murder of two businessmen and recent constitutional changes allowing Putin to serve as president until 2036. Khabarovsk saw what is being described as the city’s largest-ever demonstration last Saturday, when tens of thousands turned out to call for Putin to resign. The protests continued for several days and spread to Moscow on Wednesday, leading to the arrests of dozens of anti-Putin demonstrators, who were in defiance of Covid-19-related restrictions on large gatherings. Meanwhile, Putin has postponed implementation of a $360 billion national investment plan, citing the economic impact of the pandemic. The country’s finances suffered from a drastic fall in oil prices earlier this year, triggered by the pandemic but exacerbated by an oil price war that Russia itself instigated. The impact of the oil price crash has been compounded by economic hardship linked to Russia’s own Covid-19 outbreak. Russia ranks among the top five countries worldwide in absolute number of infections, and Putin has been harshly criticized for his ineffective pandemic response. Delays to the investment plan are expected to prolong what is already forecast to be a protracted climb out of recession, and economic hardship and political unrest can be a volatile combination. Near-term regime change is very unlikely, but Putin’s response, which could entail brutal suppression of demonstrations or external shows of Russian force to fan nationalist sentiment, could themselves be potentially destabilizing.

July 10, 2020

Mexican President Andrés Manuel López Obrador seized the moment to cozy up to the United States and President Trump in his first international trip as President. The July 8 White House meeting between Trump and AMLO, as he is popularly known in Mexico, was a celebration of the new United States Mexico Canada Agreement (USMCA), which went into effect on July 1. Canadian Prime Minister Justin Trudeau declined to attend the event, leaving AMLO and Trump to tout the achievements of the new North American trade deal in American and Mexican terms. The USMCA is a modernized version of NAFTA, providing changes to previous trade provisions (particularly for the auto and agriculture sectors), new guidelines for digital trade, and increased labor protections for Mexican workers. Trump believes the USMCA is a better deal than NAFTA and will bring more jobs to the United States. According to the U.S. International Trade Commission, it will result in a net increase of 28,000 full-time American jobs, with employment in the auto industry rising. However, the USMCA benefits may be farther out than originally expected due to the coronavirus pandemic and economic slowdown in the United States, Mexico, and Canada.

The U.S. has imposed new sanctions on four Chinese officials connected with human rights abuses against the Uighur minority in Xinjiang in western China. The sanctions cut off the designated individuals’ access to the U.S. financial system and prohibit Americans from doing business with them. A travel ban was already in place preventing them and their families from securing visas to travel to the U.S. The Treasury Department has also sanctioned Xinjiang’s police department. None of these prohibitions is likely to have much practical impact. However, one of the individuals subject to sanctions is Xinjiang Province’s party secretary, who is a member of China’s Politburo – the 25 highest-ranking members of the country’s Communist Party – making this a very significant political move. This latest action is one in a string of recent U.S. initiatives intended to put pressure on Beijing, including efforts to constrain Chinese tech giant Huawei’s ability to operate in the U.S. market and sending more aircraft carriers to the South China Sea. Additional sanctions targeting officials involved in enacting and implementing the new National Security Law in Hong Kong (see below) are a possible next step. U.S.-China relations are growing more heated, and with anti-China sentiment running high in the U.S. and presidential elections drawing near, that trend is likely to continue. That said, neither side is likely to pursue actions that risk escalating into direct conflict. With their economies working to recover from Covid-19-related shutdowns, both countries have a strong interest in keeping the trade deal intact.

Australia has suspended its extradition treaty with Hong Kong and urged residents to consider leaving, the latest in a series of actions designed to assist Hong Kong residents seeking to flee the island following passage of Beijing’s new National Security Law. The law imposes broad restrictions on what China deems to be terrorist, subversive, or separatist behavior – encompassing what many Western governments would consider protected speech – and allows for suspects charged with these crimes to be tried on the mainland, which does not provide the same democratic freedoms or commitment to due process that have differentiated Hong Kong’s system from the mainland’s. Both Australia and the U.K., which handed Hong Kong over to the mainland in 1997 under an agreement that was supposed to have enabled the island to maintain its autonomy until 2047, have created new avenues for Hong Kong residents – particularly those involved in the island’s massive pro-democracy movement – to evade prosecution by Chinese authorities. Beijing has thus far been impervious to Western government pressure to uphold Hong Kong’s rights under the long-observed “One Country, Two Systems” principle, leaving them little recourse other than to offer safe haven for the island’s residents. Australia’s measures in this regard include not only extensions of temporary visas and a path to permanent residency, but also incentives for Hong Kong businesses to relocate to Australia. While these measures are unlikely to have an immediate impact on Hong Kong’s status as a global financial center, over time, gradual attrition of international talent and companies (especially tech) may see it transition into a hub primarily for money flows into and out of China.

July 6, 2020

A Russian referendum on a wide variety of issues, including presidential term limits, has passed in Russia, setting the stage for Vladimir Putin to stay in power through 2036. The vote had all the hallmarks of a Soviet-era election, with strong turnout and an improbable level of support – more than 75%, according to preliminary results – for constitutional changes that could give Putin another 16 years in office. There is some speculation that Putin is not quite as popular as the outcome of this recent vote would suggest, but he maintains broad popular support, based in part on his strong appeals to Russian nationalism and reclaiming the country’s former position as a great global power. One facet of his focus on Russia’s status has been aggressive tactics abroad, including election interference in Europe and the U.S.,  invasion and attempted annexation of Crimea, military intervention in Syria and Libya, and recent reports of stepped-up deployment of submarines in the North Atlantic in response to “NATO aggression”. Putin’s foreign policy has caught the international community off-guard in recent years, particularly the degree to which he is willing to approach and even cross potential red lines. However, we can expect with a high degree of certainty that this behavior will not only continue, but escalate, for the duration of his term in office.

Mexican President Andrés Manuel López Obrador plans to travel to Washington, DC for a meeting with President Trump to mark the start of the new United States Mexico Canada Agreement (USMCA) which went into effect July 1. This will be López Obrador’s first international trip since he took office in December 2018. The Mexican president had made it a point not to travel abroad at the start of his presidency because he was focused on domestic issues. However, the successful negotiations, signing and implementation of the USMCA should be considered a win for López Obrador, given that Mexico’s economy would have faltered if NAFTA had not been renegotiated with the United States and Canada. Of course, now the Mexican economy is suffering due to the coronavirus pandemic and accompanying global shutdowns and needs the United States for everything from trade and foreign direct investment to tourism and remittances. López Obrador seems to understand how inextricably linked the North American economies have become, and so despite his inward-looking, populist bent, he is pragmatic in his approach to trade, the United States, and particularly, President Trump. However, the timing of the trip in the middle of a pandemic when neither the United States nor Mexico have controlled the virus has led to criticism, particularly because López Obrador has said he and his delegation will fly commercial with connecting flights to Washington.

Police have arrested ~370 of the thousands of Hong Kong demonstrators who have taken to the streets to protest China’s new National Security Law, which gives Beijing broad authority to restrict speech and democratic processes, particularly those critical of the mainland. The new law is a violation of the spirit, if not the letter, of a U.K.-China agreement from the 1997 handover under which Beijing committed to maintaining Hong Kong’s autonomy until 2047. In response, the U.K. is offering expanded residential/work rights for up to 3 million Hong Kong residents, and Australia is considering its own measures to provide a safe haven for Hong Kong residents fleeing the island. Taiwan is also looking at possible measures to take in refugees from Hong Kong, but this would put further strain on an already troubled relationship, as China considers Taiwan part of its sovereign territory. Both U.S. houses of Congress passed unanimous, bipartisan bills to impose sanctions on Chinese officials or entities involved in implementation of this new National Security Law or other measures that threaten Hong Kong’s autonomy, as well as the banks that do business with sanctioned entities. The U.S. has also taken steps to roll back Hong Kong’s special status, starting with halting defense exports and access to high-tech products with military applications. Though international opinion is coalescing around alarm and dismay at China’s aggressive actions in Hong Kong and elsewhere, Beijing is unlikely to reverse course, and we expect to see more assertive behavior from China at its borders, in the South China Sea, and elsewhere.

India has banned more than 50 Chinese apps, including TikTok, WeChat, and Weibo, ostensibly for national security reasons, but more likely in response to a border clash in the Himalayas that killed more than 20 Indian soldiers. India’s Ministry of Information Technology has cited complaints that the apps in question were stealing Indian user data and sharing it with the Chinese government. While there are reasonable grounds for those concerns, consensus is that India, outmatched by China both militarily and economically, is retaliating for Chinese aggression at the Indian border using the most potent means at its disposal – cutting off Chinese tech and telecom company access to its huge and growing market. Roughly half of India’s ~1.3 billion people are online. The loss of Indian subscribers is a huge blow to some of the apps in question. Indian users of TikTok number ~ 120 million and comprise around a third of its total subscribers. India is also weighing a ban on any involvement by Chinese tech giants Huawei and ZTE in its rollout of 5G. Anti-Chinese sentiment is strong and rising in India, and as China continues to press its advantage throughout Asia, there is a good chance tensions will rise further. Diplomatic efforts on both sides will hopefully succeed in staving off further violent conflict, but more punitive bilateral economic measures, as well as border standoffs, are likely.