In Other News: Russia’s Referendum, Mexican President Meeting w Trump, Hong Kong & More – July 6, 2020

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.

In Other News: China’s “Disease Diplomacy” in Latin America, China-India Truce, Turkey Flexing & More – June 26, 2020

June 26, 2020

China sees an opening in Latin America with “disease diplomacy.” China has taken the coronavirus pandemic as an opportunity to increase its presence and influence in Latin America, sending personal protective equipment (PPE) and ventilators to a number of countries and looking to partner with Brazil for Covid-19 vaccine trials. Even before the pandemic, China had been increasing its level of diplomatic engagement and financial investment in the region, largely through development and infrastructure projects in line with their “Belt and Road Initiative.” China has been a financial benefactor of the left-wing Maduro government in Venezuela for a number of years, but Chinese government-owned entities have been looking for partnerships with other Latin American countries, including Colombia, which is considered the most stalwart of American allies in the region. While undermining U.S. influence in Latin America is not the primary objective of Chinese outreach in the region, it may have that impact. While the U.S. continues to have considerable influence in Latin America, the U.S. government is seen as focused primarily on stemming the flow of drugs and immigrants from the region and gathering international support for regime change in Venezuela. Recent announcements from the Trump administration do not dispel this view. This week, U.S. Secretary of State Mike Pompeo announced sanctions on five Iranian ship captains who delivered fuel to Venezuela at the end of May. He also announced the administration’s intent to provide $252 million in additional foreign assistance to El Salvador, Guatemala, and Honduras for the purpose of helping these countries decrease illegal immigration to the United States.

China and India have negotiated a truce after a recent clash at their disputed border in the Himalayas left more than 20 dead, but credible reports that the skirmish was instigated by China have prompted Indian initiatives – both grassroots and government – to hit back at China’s tech sector. Anger at what many Indians view as a unilateral Chinese provocation has prompted a groundswell of social media activity encouraging users to delete popular Chinese apps, such as TikTok, which is owned by Chinese tech giant ByteDance. At the official level, the incident at the border has strengthened momentum behind efforts to find alternatives to China’s Huawei and ZTE – or potentially ban their involvement – in India’s rollout of 5G. If China was in fact the instigator in this latest incident at the India-China border, that would be consistent with a larger pattern of Chinese antagonism of neighboring countries and territories, including de facto violation of its prior commitment to Hong Kong autonomy and harassment of other countries’ ships in the South China Sea. These actions have already begun to provoke some pushback, and to prompt India and other vulnerable countries to court new commercial, military, and diplomatic alliances with the U.S., Australia, and other states whose backing could be an effective deterrent to Chinese aggression.

Turkish military actions in the Middle East, North Africa, and the Mediterranean are raising concerns about unchecked escalation in the region that could grow into a larger conflict. After a spate of attacks in Turkey by Kurdish separatists earlier in June, Turkey has launched a multi-pronged counter-offensive seeking to root out Kurdish rebels domestically and abroad. Last week, Turkey carried out air strikes on what it claims are hundreds of Kurdish rebel targets in Iraqi Kurdistan, with credible reports of artillery support from Iran. While Iraq has criticized Turkey for violating its sovereignty, Iraq is contending with a fiscal crisis owing to a steep drop in oil prices, the aftermath of months of large-scale protests in Baghdad, and a growing outbreak of Covid-19, and is in no position to intervene or retaliate. Furthermore, Turkey’s offensive in Iraqi Kurdistan is diverting the focus of Iraqi Kurdistan forces from battling ISIS, which has been regrouping at Iraqi Kurdistan’s southern border. Coincident with its efforts to roust out Kurdish rebels, Turkey has provided military intervention in Libya on behalf of the U.N.-recognized Government of National Accord, France has reported that one of its naval vessels was harassed by Turkish warships in the Mediterranean, and Greece-Turkey tensions have flared over Greece’s accusation that Turkey goaded migrants into illegally crossing the EU border from Turkey into Greece. There is talk of Turkey’s end game being the reestablishment of an Ottoman Empire, but the odds of that seem very slim, and the upside for the U.S. is that Turkey is effectively countering Russian interventions in Libya and Syria/Iraq. That said, Turkey’s foreign and military policy are on an unpredictable trajectory that present a credible risk of miscalculation and collateral damage.

Chilean President Sebastián Piñera is facing increased criticism and a further erosion of confidence, with the economy suffering and COVID-19 deaths on the rise. In Chile, as elsewhere around the globe, the pandemic has exacerbated social injustice, income inequality, and political uncertainty. The Chilean central bank recently announced that the economy would contract between 5.5%- 7.5% in 2020. Piñera’s government recently announced a $12 billion stimulus package to help poor communities and create jobs, given the impacts of the pandemic and resulting economic contraction. But it might not be enough for a growing number of Chileans who are critical of Piñera’s handling of the pandemic. Chile has been under a “State of Exception” or curfew since March, and many Chileans believe Piñera’s strategy for containing the virus has not taken into account the economic challenges the lockdowns have created for poor families. Chileans critical of Piñera believe the government-mandated curfew continues in place to prevent further political protests and not just to curb the spread of the virus. They are also skeptical of the figures the government releases regarding confirmed Covid-19 cases. Officially, there are more than 4,000 deaths in Chile with a population of less than 19 million.

“Practical Advice for Crisis Preparedness in Latin America – COVID-19 Update,” S&C Critical Insights Podcast with Jack Devine

TAG President Jack Devine and Sullivan & Cromwell Partner Sergio Galvis collaborate on another S&C Critical Insights podcast discussing crisis planning and protocols in Latin America in view of the COVID-19 pandemic. Jack and Sergio discuss how businesses operating in Latin America might prioritize revisions to their crisis protocols to account for pandemics and other unknown global risks. The conversation draws on Jack’s longtime experience at the CIA and The Arkin Group, an international risk consulting and strategic intelligence firm that specializes in crisis management, investigative research, and business problem solving.

Listen to the Podcast

In Other News: China-India Border Clash, North Korea-South Korea Tensions & More – June 19, 2020

June 19, 2020

A border clash between Chinese and Indian soldiers this week killed at least 20 and raises the specter of escalating conflict over a long-unresolved dispute. The Actual Line of Control, established to end a 1962 border war between the two countries, has been the site of frequent small-scale brawls, but this marks the first fatality since 1975. All 20 confirmed dead were Indian, and China has since released 10 captured Indian soldiers. While Indian media has claimed that more than 40 Chinese soldiers were also killed in the fighting, China has yet to confirm any losses.  Official statements from both countries accuse the other of instigating the incident – about which very little is known – and anti-China protests have broken out in India along with calls to boycott Chinese goods (a difficult feat to pull off, as China is India’s second-largest trading partner). The two sides are moving to defuse tensions through negotiation and will likely head off any severe escalation in the near-term, but the incident ratchets up bilateral tensions and elevates the risk of future confrontation. China has shown a clear pattern of aggressive behavior of late targeting a number of the territories and countries in its vicinity, including harassment of ships in the South China Sea and brazen violation of its commitment to “One Country, Two Systems” with regard to Hong Kong. There is ample cause for concern that China may continue to seek to advance its position at the Indian border. If that happens, the situation could grow much more volatile.

North Korea blew up the liaison office near the North-South border that had been used to hold talks between the two sides, effectively scuttling South Korean President Moon Jae-in’s dogged efforts at improving ties. The explosion follows a statement by North Korea the previous week that it was cutting off all communication with the South. Ostensibly an act of retaliation for distribution of anti-regime leaflets in the North by defectors to the South, consensus is that these showy displays are meant to distract from domestic challenges, including the impact of sanctions and Covid-19. However, continued provocations are likely. North Korea has already hinted that it plans to send its army into the Demilitarized Zone. Any provocation will be intended to fall short of crossing any red lines that might provoke a military response, but also raises the risk of miscalculation and escalation.

U.S. Secretary of State Mike Pompeo met with China’s seniormost diplomatic official Yang Jiechi in Hawaii this week amid steadily rising tensions across all facets of the relationship – commercial, diplomatic, and military. The latest slight comes from the U.S. with the passage of a law sanctioning Chinese officials over the mass detention of Uighurs – a predominantly Muslim ethnicity in the western part of the country. This follows a period of sustained, harsh U.S. criticism of China over a variety of issues since the outbreak of Covid-19 went global, including covering up the origin and trajectory of the virus, its legal maneuvering to limit Hong Kong’s autonomy, and its harassment of neighboring countries’ ships in disputed areas of the South China Sea. China, for its part, has been equally harsh in its verbal attacks on the U.S., and has capitalized on widespread U.S. protests against racism and police abuses to accuse the U.S. of hypocrisy in its criticism of China’s human rights record. Little information has been provided about the substance or outcome of the meeting. Although a face-to-face, diplomatic meeting between senior leaders is a sign that the two sides are continuing to communicate, the nature and tenor of their various disputes leaves little room for a real easing of underlying tensions in the near term.

In Other News: Demonstrations in Europe and Around the World, Brazil’s Democracy Under Threat, New Start Negotiations with Russia & More – June 12, 2020

June 12, 2020

Demonstrators have taken to the streets in Europe and around the world, inspired by the Black Lives Matter protests in the United States. Protests against the police killing of American citizen George Floyd in the United States have had global reverberations. Demonstrations have been seen in major cities of Europe, including Paris, Berlin, and Amsterdam, and in other countries like New Zealand, Syria, and Kenya. Most of the global demonstrations have been peaceful, as protesters have expressed solidarity with a movement in the United States to address issues of racial justice. In Europe, protesters have also sought to address their history of colonialism and racism. For example, in Bristol, England, protesters pulled down a statue of 17th century slave trader Edward Colston. Social upheaval in this moment should not come as a surprise, however, as the global coronavirus pandemic has caused economic and social dislocations while also bringing attention to existing social and racial inequities around the globe.

Brazil’s democracy is under threat as President Jair Bolsonaro seemingly embraces the possibility of a military takeover. President Bolsonaro has faced intense criticism in the past two months for his handling of the public health crisis and the economic fallout of Covid-19. The death toll from the virus has increased past 38,000 in official numbers. At the same time, Bolsonaro is under scrutiny for abuse of power and intervening in an investigation into corruption allegations related to his sons. Military leaders like Bolsonaro’s national security advisor Augusto Heleno have warned of “unpredictable consequences” to growing instability in the country, and Bolsonaro seems to be embracing the possibility of a military takeover as a way to maintain his grip on power. Bolsonaro was elected in 2018 with support from the military and has many Army generals in his cabinet, so it is not surprising that he is leaning on the military now in a time of political, economic, and social crisis. However, the specter of the military taking control over Brazil’s democratic institutions in an “autogolpe” or self-styled coup d’etat harkens back to the 1980s when the Brazilian military ran the country. This does not bode well for Brazil’s democracy. Brazil has the second-highest number of Covid-19 cases in the world, and the Pan American Health Organization (PAHO) has warned that the virus continues to spread “aggressively” in Brazil, Peru, and Chile.

The U.S. and Russia will return to talks later this month on extending the New Start nuclear disarmament treaty beyond its scheduled expiration in February, but suggestions that China might also participate have been rebuffed. The treaty stipulates that the U.S. and Russia must reduce their inventories of strategic nuclear missile launchers by half, and the Trump administration appears to back its extension. However, the U.S. has also floated the idea of replacing it with a more far-reaching arms-control treaty that includes China, which has a much smaller nuclear arsenal than either the U.S. or Russia, but whose military capabilities are growing. The U.S. proposal prompted a warning from Moscow that China’s inclusion would scuttle prospects for an extension, and China has said it will not participate in nuclear talks. Whether or not the two sides pursue a modified arrangement that includes China, an extension would mark progress towards multiple goals – a long-desired U.S.-Russia reset (provided both sides are acting in good faith), avoiding a new arms race (which would add yet more financial hardship to the economic impact of the pandemic), and showing global leadership on disarmament.

North Korea has cut off all lines of communication with South Korea and pledged to treat it as an “enemy” over allegations that defectors in South Korea have been distributing anti-North Korean regime leaflets in the North. Though South Korea has said it would take legal action against organizations engaged in propaganda distribution north of the border in a bid to ease tensions, North Korean dictator Kim Jong-Un has seized on the U.S. response to the incident – a public statement from the State Department expressing its disappointment in the development – and threatened to interfere in the upcoming U.S. presidential election in November. These threats are unlikely to rise above the level of what have become standard provocations, possibly intended to push the U.S. closer to some sort of deal exchanging North Korean nuclear non-proliferation commitment for sanctions relief or even economic assistance from the U.S. But there is limited scope for progress on a deal between now and November, and if history is any guide, this will turn out to be nothing more than a short-lived spectacle.

In Other News: UK Pushes Back Against China, Russia’s Nord Stream II & More – June 5, 2020

June 5, 2020

The UK has begun to push back against China’s move to bring Hong Kong further under its control, pledging to open up the possibility for 2.9 million Hong Kong citizens who are eligible for British National Overseas passports to reside and work in the UK. Currently 300,000 Hong Kong residents hold BNO passports and another 2.6 million residents are eligible. China considers these Hong Kong residents Chinese nationals, and it is unclear whether Beijing would allow those seeking to take advantage of the offer to travel to the UK. China’s tactics in Hong Kong violate the spirit, if not the letter, of the Sino-British Joint Declaration signed when the UK handed Hong Kong over to the mainland in 1997. This has triggered anti-China sentiment in the UK, which in addition to offering a lifeline to Hong Kong residents, is also courting rivals to Chinese tech giant Huawei as equipment providers for its national 5G network. The UK agreed in January that Huawei would supply parts for the UK’s 5G network in January over the strong objections of the US but is now considering a plan to phase out Huawei’s involvement in its network by 2023. China has stepped up aggressive activities around the globe, including declaration of new administrative zones in the South China Sea, border altercations with India, and blocking some imports from Australia as retaliation for the Australia-backed WHO investigation of the origins of Covid-19. Pushback against these activities is picking up steam. The UK’s actions on Hong Kong residents and Huawei mark a major policy shift that will signal to China that some of its aspirations may start to run into more resistance, possibly at the expense of its commercial interests.

China’s aggressive international activities mid-pandemic include phishing attempts on campaign staffers for Joe Biden, the presumptive Democratic nominee for the 2020 US presidential elections, according to Google. The tech behemoth also reports that Iran has attempted to access the gmail accounts of staffers on President Trump’s 2020 campaign. The detected attempts were not successful in either case, but we doubt that either country’s attempts were limited to those targeting campaign staffer gmail accounts. It is likely that both China and Iran are conducting a range of simultaneous attacks, including some that are much more sophisticated than phishing schemes. TAG sources report that Chinese nationalists are supportive of a second Trump term, as his harder line on China lends legitimacy to their anti-US stance at home, whereas most of China’s policy community (especially the pragmatists) would prefer Biden, the candidate they think would bring some stability back to U.S. foreign policy toward China.

A bipartisan group of senators have introduced a bill to expand sanctions targeting Russia’s Nord Stream II undersea natural gas pipeline from Russia to Germany. The new sanctions would be imposed on service providers to seagoing vessels, such as pipe-laying ships, that are involved in the project. Firms affected would include insurance providers or anyone providing port facilities for those vessels. Nord Stream II is a centerpiece of Russian efforts to maintain its market share in Europe and cut the Ukrainian “middleman” out of its natural gas deliveries to the continent, a shift that would deprive Ukraine of much needed-transit fees. US sanctions thus far have delayed the Nord Stream II project and driven up its costs, but Russia has insisted that sanctions will not keep it from completion. Should this legislation pass and new sanctions be imposed, Russian retaliation is highly likely in some form or other. Given Russia’s long-standing program to infiltrate our electoral systems, the US should be on guard as the 2020 presidential election draws near.

In Other News: China Undermines Hong Kong, Brazil’s President Under Fire, Mexico & More – May 29, 2020

May 29, 2020

China’s approval of a new Hong Kong national security law severely undermining the island’s autonomy will test U.S. willingness to take punitive action against one of its largest trading partners, and has the potential to scuttle the trade deal signed by the two countries in January of this year. President Trump will hold a press conference today to address the issue, but has thus far left the public guessing as to how the U.S. will respond. One potential U.S. response is limited sanctions that signal disapproval without imposing any real pain. At the more aggressive end of the spectrum, the U.S. could constrain or even revoke Hong Kong’s special trading status with the U.S., which rests on the premise of Hong Kong’s autonomy from mainland China. The first approach would likely anger domestic proponents of a harder U.S. line on China and signal internationally that the U.S. is loath to take decisive action against China. The second would underscore U.S. resolve, but would also threaten Hong Kong’s status as a global financial center. The impact of the more aggressive response would be felt not only by Beijing, but also by Hong Kong locals who have turned out en masse for months to demonstrate against the mainland, and by other regional trade partners impacted by a major shift in Hong Kong’s status. A major upset to global trade could hardly come at a worse time, with economies reeling from shutdowns imposed to slow the spread of Covid-19. With an election nearing, it is hard to say which political message the administration will consider more pressing – prioritizing a return to economic growth or standing up to our most powerful rival for global preeminence.

If Brazilian President Jair Bolsonaro wasn’t taking the coronavirus seriously before, he should be now, as the pandemic is serving up a toxic mix of social, economic, and political uncertainty in Brazil and the U.S. government has added Brazil to the travel ban list. This week, the Trump administration imposed restrictions on entry into the United States from Brazil due to the increasing numbers of Covid-19 cases there. Brazil now has the second-largest number of confirmed coronavirus cases after the United States, with approximately 400,000 cases and 25,000 deaths. Health experts believe Brazil could see 80,000 deaths by August. President Bolsonaro has been critical of social distancing and shutdown measures implemented by state governors in the absence of federal government mandates. He has called the lockdowns “poison” to the Brazilian economy, making him the latest politician criticizing the cure for being worse than the disease. But Brazilians are fed up with Bolsonaro and his lack of planning or coordinated response to the pandemic. Recent polling by Datafolha indicates that 60% of Brazilians are in favor of more restrictive lockdown policies and a stronger response on the part of the Brazilian government to administer relief. Meanwhile, Bolsonaro has seen a rotating cast of advisors and ministers in the past two months – Health Minister Nelson Teich resigned after less than four weeks in the position – and calls for Bolsonaro’s impeachment over corruption allegations continue to gain voice. The IMF expects the Brazilian economy to contract by 5%, and the Brazilian real has lost 30% of its value since the start of the year. Brazil’s high debt levels and skepticism about its ability to service that debt could negatively impact global financial markets. Brazil is the world’s eighth-largest economy and makes up more than half of the total economic activity in South America. Bolsonaro may be able to hang on with support from the military, but his management of this public health crisis and the economic fallout will leave him vulnerable when Brazilians go to the polls in the 2022 presidential election.

Mexico is sending mixed messages, with President López Obrador back out on the road touring the country even as the death toll from the pandemic continues to rise. The Mexican President has claimed that the virus has been “tamed” and started the process of reopening the country. President López Obrador is eager to bring the Mexican economy back online given that economists predict GDP to contract as much as 7% this year. In his push to restart the economy, López Obrador has touted the new NAFTA deal, known as the United States Mexico Canada Agreement (USMCA), as a catalyst for renewed growth when the deal goes into effect on July 1. He has also said that China’s slowdown will benefit Mexico, as investments and jobs may now go to Mexico instead. López Obrador has criticized past Mexican administrations for outward-looking economic policies he believes have left Mexico poor, unequal, and corrupt, but the reality is that economic integration with North America will be crucial as the country digs out from the coronavirus crash. Furthermore, statistics about Mexico’s outbreak are at odds with his claim that the virus is under control. Coronavirus cases are rising and so is the death toll. Mexico has confirmed approximately 81,400 cases and 9,000 deaths, but health care experts believe the real numbers are much higher. Hospitals are at capacity and doctors and nurses are vulnerable. Press reports indicate that approximately 11,000 Mexican health workers have been infected, making it one of the highest rates in the world. On Tuesday, the World Health Organization (WHO) said the Americas are the new epicenter of the pandemic.

The U.S. is ratcheting up pressure on Iran by ending sanctions waivers that allow Russian, Chinese, and European companies to work on Iranian nuclear sites, provide enriched uranium for use in Iran’s nuclear sector, and move spent reactor fuel out of Iran. The waivers were originally intended to make it more difficult for Iran to use its facilities to manufacture nuclear weapons, both by giving international partners access to operations at the sites, and by reducing Iranian incentives to enrich its own uranium. U.S. Secretary of State Mike Pompeo said that move was in response to continued Iranian nuclear escalation, though there appears to be some debate within the administration about how effective it will prove to be in persuading Iran to dial back its nuclear ambitions. Iran’s Atomic Energy Organization has responded by saying that this will not impact its nuclear program, though there is real potential for a more provocative reaction on Iran’s part, possibly carried out against U.S. interests by regional proxies.

In Other News: Social Unrest Returns to Chile, Venezuela Awaiting Fuel from Iran & More – May 22, 2020

Beijing has announced plans to implement new national security legislation in Hong Kong that would expand its powers to break up large gatherings – like protests – a significant move in China’s push to bring Hong Kong fully under mainland authority. U.S. Secretary of State Mike Pompeo called it a “death knell” for the partial autonomy Beijing promised to uphold for Hong Kong in the 1997 handover of the island from the U.K. to China. Previous attempts by China to pass laws tightening Beijing’s authority over Hong Kong have sparked massive protests, most recently in 2019, in response to a bill that would have allowed for extradition of Hong Kong citizens to the mainland (and elsewhere). Recent protests were virtually brought to a halt by the Covid-19 outbreak, but a fresh wave of unrest is likely in response to this latest development, and U.S. officials and congress are already calling for punitive measures in response, such as sanctions on Chinese officials for suppression of democracy. One other option that will be proposed – but will likely just be noise at this point – is U.S. removal of Hong Kong’s special status under trade and other laws, which would mean that trade restrictions that apply to mainland China, such as export controls, would also apply to Hong Kong. This issue is one of many irritants in the U.S.-China relationship, including U.S. moves to prevent tech giant Huawei from playing a significant international role in 5G networks, its support for Taiwan, and territorial disputes between China and its neighbors in the South China Sea. As with other flash points in the bilateral relationship, this incident is unlikely to erupt in direct conflict, but every new provocation-and-response heightens the risk of a miscalculation by either side.

Social unrest returns to Chile as protesters criticize the government’s handling of the coronavirus pandemic and economic fallout. A surge in COVID-19 cases led to a strict lockdown of capital city Santiago last week and protests this week. While the government of Chilean President Sebastian Piñera has sought to slow the pace of community spread, dozens of people took to the streets in the El Bosque neighborhood on May 19 to protest job losses and food shortages resulting from the shutdowns. Demonstrators clashed with police who used tear gas and water cannons to disrupt the crowds. The word “hambre” (meaning hunger) was illuminated on a building in Santiago. President Piñera has announced plans to distribute food to low and middle-class households as part of a larger stimulus package aimed at shoring up the Chilean economy which is contracting quickly amid the global slowdown. Chile also expects the International Monetary Fund (IMF) to approve a two-year loan for $23.8 billion, due in part to the sound fiscal policies of the Piñera government. However, these measures may not be enough to stave off social unrest in Chile which was only recently quelled after mass protests rocked the country in 2019. Unfortunately, postponement of a national referendum on amending the constitution, originally scheduled for April 25 but moved to October 26, is likely to lead to further frustration. Without the ability to voice their discontent through the ballot box, ordinary Chileans could return to the streets in protest, leaving open the possibility of another period of social unrest in the country.

Venezuela has filed a lawsuit against the Bank of England for the release of $1 billion worth of gold while also awaiting five fuel tankers from Iran, both signs of deepening financial strain on the Maduro regime. President Nicolás Maduro claims that Venezuela will use funds from the sale of its gold reserves to respond to the coronavirus pandemic and has proposed that the funds be transferred to the United Nations Development Programme (UNDP). In a lawsuit filed this week, Venezuela argued that the Bank of England should release the funds, despite U.S. sanctions, to address the humanitarian crisis. At the same time, Venezuela is awaiting Iranian oil tankers set to deliver 1.5 million barrels of fuel to Venezuela in the coming days. The ships passed through the Suez Canal earlier this month. Reportedly, the Venezuela military will escort the ships to port and has warned the United States from interfering with the transfer of needed goods. Venezuela’s oil production has dropped significantly due to mismanagement by the government and U.S. sanctions on the sector, and the country has been suffering from an acute gasoline shortage in recent weeks. Venezuelan opposition leader Juan Guaidó, who has been recognized as the legitimate interim leader of Venezuela by the United States, has warned the Bank of England from releasing the funds to Maduro and has pointed to the Iranian fuel transfer as further evidence of Maduro’s mismanagement and corrupt dealings. Gauidó continues to state that negotiations are the only way out of the crisis. He also rejects any part in the failed “Operation Gideon” on May 3 when a number of armed Venezuelan expats and two Americans clashed with Venezuelan security forces off the coast of Venezuela. Maduro proclaimed the assault an attempted coup, while Guaidó condemned Maduro for staging a “massacre” for propaganda purposes. These latest developments signal the deepening strain on Maduro, facing U.S. sanctions, a significant oil crisis, and the coronavirus economic fallout.

Oil prices have staged a comeback, with the U.S. benchmark trading above $30/barrel after falling into negative territory earlier this month, on the back of OPEC+ production cuts and tentative reopenings around the world. Oil demand in China, the world’s second-biggest consumer, is almost back to pre-pandemic levels, thanks in part to commuters choosing driving over public transportation, but demand for aviation fuel is still lagging. Saudi national oil giant Aramco’s share price has recovered to levels not seen since before Saudi Arabia and Russia set off an oil price war, amid the demand shock of the pandemic, that helped drive oil prices to negative levels in the U.S. This development is welcome news, especially for economic recovery prospects in oil-producing countries like the U.S. However, recent reports of new partial lockdowns in parts of South Korea, China, and other locations where the virus had been thought to be under control highlight the risk of more demand shocks to come.

In Other News – May 15, 2020

President Trump has amped up anti-Chinese rhetoric over the past week, floating several potential measures to punish China for the coronavirus pandemic, including demands for reparations, scuttling the trade deal, and forcibly delisting Chinese companies from U.S. stock indices. Any of these steps would represent the extreme end of the foreign policy spectrum, and none is likely to be carried out. But several other headline-making U.S. initiatives point to an increasingly confrontational approach to China across a range of issues. The U.S. Commerce Department has taken aim at the rollout of China’s 5G global network business by effectively blocking Chinese tech giant Huawei from obtaining most foreign microchips. The U.S. has accused China of targeting organizations studying Covid-19 to steal research on treatments, vaccines, and testing. The U.S. federal government retirement fund has postponed a decision to transfer of roughly 11% of its $40 billion in international holdings to Chinese stocks, and the delay may be indefinite. The U.S. Navy upped its presence in an area of the South China sea where a Malaysian drillship had been engaged in a standoff with Chinese vessels. Though warning signals are flashing, escalation to the level of direct conflict or a renewal of a damaging trade war is in neither side’s interest, especially as both countries contend with the coronavirus and its severe impact on their respective economies.

Political stability in Latin America could be threatened as coronavirus cases continue to rise in the region and its economies suffer from the impacts of the pandemic. The IMF predicts an economic contraction of 4.2% for Latin America, deeper than the so-called “Lost Decade” of the 1980s or the decline following the 2008-09 financial crisis. The region’s largest economies Brazil and Mexico, which were both slow to respond to the virus and are now seeing spikes in Covid-19 cases, are likely to take the biggest hit with Brazil’s GDP to contract by 4.7% and Mexico by as much as 7%. Argentina, Chile, Peru, Ecuador, and Colombia – to speak nothing of Venezuela – will suffer economic declines as well given their commodity-dependent, export-driven economies. This is complicated further by their lack of financial flexibility to provide bailouts for their populations and a recent history of social unrest. Chile, Ecuador, and Bolivia all faced anti-government protests in 2019. As Latin America comes out of the public health and economic crisis in 2021, the region is likely to face another period of social unrest and political instability. This could also pave the way for a resurgence of the political left in the region, with a return of left-wing populists like Brazil’s former President Lula da Silva promising increased spending on the public health system and social safety net.

Indian Prime Minister Narendra Modi has announced plans for a relief package totaling more than $260bn to help the country climb out of a deep economic slump as it emerges from a nationwide lockdown to combat the coronavirus. Modi provided little detail on how the funds, equivalent to ~10% of India’s GDP, will be allocated and disbursed. India’s central government-mandated lockdown, stricter than most and implemented early in the detection of infections in the country, has been credited with helping keep infections at a manageable level despite India’s 1.3 billion people and high population density. But it had an outsized impact on the country’s poor, many of whom live hand-to-mouth and lack the resources to carry themselves and their families through a six-week period without work. A slight easing of restrictions has seen throngs of people return to the streets, many flouting social distancing and public health guidelines, with worrying implications for the virus’s trajectory. The massive stimulus plans are welcome news for India, which was already struggling with rising unemployment and slowing growth pre-pandemic. Unfortunately, if relaxing the lockdown leads to a spike in infections as expected, India will need to develop a more sustainable means of limiting the virus’s spread to make the most effective use of its relief package.

This year is shaping up to be the worst in oil industry history. That’s according to Faith Birol, head of multilateral energy advisory body the International Energy Agency (IEA). The IEA has forecast that oil prices will remain below pre-coronavirus levels for at least a year, and possibly multiple years. Oil prices have rebounded somewhat after declining sharply in April and even turning negative in the U.S. Major oil producers around the world committed to a coordinated production cut of ~10 million barrels per day to support prices, and those cuts have already begun to have an effect, but with economic activity still limited by various degrees of lockdown across the globe to slow the spread of Covid-19, recovery is still a ways off. A sustained period of low prices will be a blow to economies whose oil export revenues form the foundation of their state budgets, like Saudi Arabia and Russia. It will even be a drag on a return to robust growth in the U.S., where drilling has fallen off sharply and producers have slashed budgets and laid off workers. However, looking beyond the economic impact, a loss of funding for government activities and services further raises the risk of political instability – possibly even regime change – in already-struggling petro-states such as Venezuela, Iran, and Iraq.

In Other News – May 8, 2020

The European Commission forecasts a 7.4% drop in economic growth this year, which would mark the worst contraction for the continent since World War II, dwarfing the 4.5% contraction of the 2009 recession. And the EC has warned that its forecast may underestimate this year’s actual drop in GDP. Italy, Spain, and Greece are expected to be hardest hit, but unemployment will rise throughout the bloc, averaging 9%, according to the EC’s projections. If history is any guide, we have cause for concern that harsh economic conditions and the feelings of insecurity that accompany them can give rise to struggles over limited resources and the rise of troubling political movements. That risk is not confined to Europe. As we move into this period of prolonged uncertainty, the soundness of our allies’ institutions will be critical to keeping them on track for a return to stability. And from a trade standpoint, coordination – not conflict – will be key to spurring a faster rebound on both sides of the Atlantic.

Indian security forces killed Riyaz Ahmad Naikoo, a senior leader of militant Kashmiri separatist group Hizbul Mujahideen, setting off violent protests that injured more than a dozen people. The status of Kashmir has long been a hot-button issue between India and Pakistan – and between Kashmiri separatists and Delhi. Violent attacks in the region were almost commonplace, but ebbed in late 2019 and early 2020 after India revoked Jammu and Kashmir’s decades-old special constitutional status and imposed a months-long security crackdown and communications blackout that appears to have deterred separatist activity. However, the harsh measures employed by India’s central government have also drawn international condemnation of Delhi’s tactics and further fueled separatist sentiment in Kashmir. While India sees Naikoo’s death as a victory, it is also likely to spark at least a temporary escalation of militant attacks as the country grapples with a sharp rise in Covid-19 cases.

U.S. and Chinese officials have confirmed their commitment to the bilateral trade deal following President Trump’s threat to terminate it if Beijing wasn’t upholding its end, though the president cast further doubt on its future in an interview this morning. The two sides negotiated the first phase of the deal in January after a two-year trade war that inflicted damage on both sides. China’s obligations require it to buy an additional $200 billion of American goods over 2019-2020, a target that was seen as potentially out of reach even before the Covid-19 pandemic triggered months-long halts to economic activity in major growth centers in both countries. Since the deal was signed, Chinese imports of U.S. goods have actually fallen. Though the pandemic has undoubtedly played an outsized role in the U.S.-China trade trajectory, the optics of China failing to meet purchasing targets are poor, especially with tensions on the rise between the two countries in other areas, including China’s role as the origin of the virus. Conditions on the ground may not allow for strict adherence to the terms of the deal, but scuttling it would inflict yet more economic pain on both countries as they endeavor to get growth back on track.

Russian billionaires are backstopping the government’s lackluster Covid-19 response after two decades of lying low to avoid attracting the eye of the state. The election of Vladimir Putin as president in 1999 ushered in a period of consolidating wealth and clout from powerful oligarchs that emerged from the wreckage of the dissolution of the Soviet Union. Since then, with a few high-profile exceptions, the country’s oligarchs have toed the Kremlin line and steered clear of wading into matters of state. But Putin has taken little action to stem the spread of the virus in Russia, which has now infected ~177,000 and killed ~1,600 (though actual counts are likely much higher), and the country’s health care system is underfunded and ill-equipped to handle the outbreak. So these modern-day boyars are deploying funds, as well as corporate logistics and purchasing capacity, to help fill the gap. Putin’s approval rating has hit its lowest since 1999 in a recent poll, at 59%. There is little risk of regime change in Russia, and support is still strong for constitutional changes that would allow Putin to remain in power past the end of his current term. But as the Covid-19 pandemic upends the world as we know it, there may be scope for the beginnings of a rebalancing of interests in a flailing Russia.