Sunday 16 December 2018

Piecing together the Iran sanctions jigsaw

By Michael Glackin
The Daily Star
Friday, November 9 2018

“The Iranian regime has a choice,” U.S. Secretary of State Mike Pompeo thundered this week. “It can either do a 180-degree turn from its outlaw course of action and act like a normal country, or it can see its economy crumble.”
Pompeo was unveiling the latest tranche of U.S. sanctions against the Islamic Republic, instigated after President Donald Trump tore up the landmark 2015 Iranian nuclear deal.
The sanctions focused on the country’s oil and gas, banking and shipping industries. Earlier sanctions, revealed in August, prohibited Iran from using U.S. currency, and prevented trading in aircraft and cars and with metals and minerals. Western companies that ignore Trump’s sanctions will be denied access to the U.S. market.
These sanctions are the big one. Oil and gas account for around 80 percent of Iran’s revenues.
Pompeo insisted the sanctions would “starve the Iranian regime of the revenue it uses to fund violent and destabilizing activities throughout the Middle East and indeed around the world.” For good measure he added the U.S. would be “relentless in exerting pressure” on Tehran to “abandon its destructive activities.” Well, up to a point. As Pompeo was preaching fire and brimstone, he also confirmed that eight of Iran’s biggest customers had been granted waivers to the sanctions. Those with free passes include South Korea and Japan, both of whom have already reduced oil imports from Iran to zero, and China, India, Turkey and Iraq. China, with whom Trump has been waging a trade war, is Iran’s biggest oil customer.
How long these waivers would last is a moot point, which means the ultimate goal, to reduce Iranian oil exports to nothing in the coming months, is still in doubt. From a peak of 2.8 million barrels per day in April, Iran’s oil sales have tumbled to around 1.8 million since Trump pulled out of the nuclear accord.
But oil economists estimate Iran could still be selling more than a million barrels per day in January courtesy of the waivers. Japan and South Korea for example look set to resume imports because of the waiver.
Meanwhile, China, India and Turkey are unlikely to feel obliged to adhere to the waiver’s nominal six month time limit.
It is also worth pointing out that during the last batch of sanctions, between 2012 and 2015, Iranian exports exceeded 1 million barrels per day, despite an oversupplied market and European Union cooperation in enforcing the boycott.
Trump’s waiver did not extend to the European Union, with whom he is also engaged in a trade war. The EU remains committed to the 2015 deal and is seeking ways to keep trade with Tehran open, but European companies, aware that violating the sanctions will see them cut off from the much larger U.S. market, are taking their own decisions.
French oil giant Total SA has pulled out of a $5 billion contract to develop Iran’s giant South Pars gas field. German group Siemens is understood to have abandoned a $1.5 billion deal to provide train carriages to Iran, while British Airways and Air France KLM Group terminated services to Tehran earlier this year.
Countless other European companies that do business in the U.S. have also quietly pulled out of Iran.
Few believe the sanctions will topple the regime. However, the sanctions come at a bad time for President Hassan Rouhani and Supreme Leader Ayatollah Ali Khamenei, and will cause severe damage to an Iranian economy already on the brink of collapse.
While growing civilian unrest and sporadic demonstrations over the last year have not posed a serious threat to the regime, the protests could become more widespread as sanctions bite.
The Iranian rial has lost more than two-thirds of its value over the last year, resulting in rampant inflation, currently running at a four-year high of 31 percent.
While bread and cooking oil remain under government price controls, the cost of other basic staples, such as milk and rice, as well as clothing, has soared.
Unemployment is more than 12 percent, while the jobless rate among Iran’s youth is more than 28 percent.
Sanctions will make those numbers a lot worse.
The International Monetary Fund forecasts the Iranian economy will decline 1.5 percent this year and 3.6 percent in 2019.
Other economists predict it will contract by as much as 5 percent.
On the plus side, the EU insists it is determined to maintain the 2015 agreement, despite recent accusations by France and Denmark that Tehran tried to murder Iranian dissidents on their soil.
However, in reality the EU expects to retain less than a third of existing commercial trade deals with Iran.
The EU’s much talked about special purpose vehicle (SPV), an attempt to establish a centralized barter exchange system between the EU and Iran which would avoid the need to deal in U.S. dollars (and thus sidestep U.S. sanctions), has so far come to nothing.
The SPV would mean Iran could sell its wares into Europe and accumulate credits that could be then used in exchange for products from European firms.
The failure to establish the SPV stems from the harsh reality that no one EU member state was keen to host it for fear of falling foul of Washington. Germany and France are now understood to be prepared to provide it with a home, but Iranian Deputy Foreign Minister Kazem Sajjadpour speaking in London this week criticized the lack of progress being made.
One country that will not be home to the SPV is the U.K., which post Brexit has more to fear than most in annoying Trump by undermining his sanctions.
Indeed, there are increasing concerns among European leaders about the United Kingdom’s commitment to the 2015 accord against the backdrop of Brexit and Prime Minister Theresa May’s desperation to secure even the hint of a free trade deal with Washington.
The final part of the jigsaw is the impact on oil prices.
The sanctions could remove around 1 million barrels a day from the global oil market by the end of the year.
Saudi Energy Minister Khalid al-Falih has reiterated the kingdom’s promise to turn on the pumps to make up any shortfall so Americans don’t feel the impact of Trump’s sanctions when they fill up their cars. On a political level the situation has become complicated, to say the least, by the fallout over the murder of Jamal Khashoggi. But so far, the oil price is going in the opposite direction. Not even Iran’s perennial threat in times of trouble to block the Strait of Hormuz has spooked oil markets so far.
However, Saudi Arabia still remains critical to Trump’s sanctions, because any one of myriad events – a colder than expected winter, further supply problems in Venezuela where output is already in decline, or an upsurge in disruption to production in Libya – could push prices higher. Thus, the potential for a tighter oil market in the coming months will keep Saudi Arabia firmly in Washington’s credit ledger.
There’s little doubt Pompeo’s threat to make Iran’s economy crumble is credible.
But will it stop the regime funding its “violent activities?”
It’s worth remembering that almost four decades of Western sanctions after the 1979 revolution failed to stop Iran increasing its influence in the Middle East, or prevent it getting close to joining the nuclear club.
For what it’s worth, I believe Trump’s primary motivation is less about containing Iran’s regional involvement in Syria, Iraq and Yemen, but simply in forcing Tehran to negotiate a new nuclear deal, one he can sell to U.S. voters as better than the one brokered by his predecessor.
Don’t forget, Trump’s supporters firmly believe his face-to-face meeting with North Korean leader Kim Jong Un has curbed the latter’s nuclear program, despite the fact that North Korea still has all its nuclear weapons, and continues to produce more on a daily basis.
Trump lacks class, but style matters to him more than substance.
Michael Glackin, a former managing editor of THE DAILY STAR, is a writer in the United Kingdom. A version of this article appeared on page 7 of THE DAILY STAR on November 9, 2018.

Tuesday 17 July 2018

It’s a man’s world with Trump in charge

By Michael Glackin
The Daily Star
Tuesday, July 17 2018

It’s never a good week for women when Donald Trump is around. I’m not talking about Stormy Daniels, or the U.S. president’s infamous Access Hollywood “Grab them by the pussy” tape recording.
No, I’m talking about U.K. Prime Minister Theresa May and German leader Angela Merkel, both of whom were humiliated last week by Trump’s habit of engaging his mouth before his brain is fully in gear. Indeed, just ask Queen Elizabeth. During Trump’s “working visit” to the U.K. last week, the president broke protocol and cut in front of the 92-yearold monarch during a guard of honor inspection at Windsor Castle.
I was raised by staunch Republicans but always taught it’s ladies first, whether it’s the cleaning lady or the queen.
Trump fares better with men. Particularly if they happen to be autocrats.
Indeed, by the time you read this article, we will know whether Trump has opted to pander to Russian dictator Vladimir Putin as he pandered to North Korean dictator Kim Jong Un last month. I suspect the supposed leader of the free world will be a good deal more conciliatory toward the Russian president for life than he was to any of the democratically elected female leaders he met last week.
But, here in the U.K., so long as there is the slimmest prospect of a post-Brexit trade deal with the U.S., the government will continue to genuflect at the altar of Trump.
Consequently, when Trump denigrated his NATO allies in Brussels last week, and launched a blistering, irrational and unfounded tirade against Merkel, hardly a word of dissent was raised in London.
Indeed May went out of her way to flatter Trump’s giant but fragile ego during his two-day visit to the birthplace of his mother. Yet within hours of his arrival in the U.K., May had been both humiliated and perhaps mortally wounded in political terms by Trump.
It started during a black-tie dinner hosted by the prime minister at Blenheim Palace, the ancestral home of Winston Churchill, whose bust Trump famously reinstalled at the White House after President Barack Obama removed it. The messy stuff hit the fan before dessert had been served, as the first extracts of the president’s explosive interview in the following day’s Sun newspaper began to filter through on diners’ mobile phones.
In the interview, Trump launched a scathing attack on May. He lambasted the Brexit deal she had painstakingly brokered with her divided government earlier this month, and criticized her failure to follow his advice on how to negotiate with the European Union.
Two of May’s senior ministers have already resigned in protest over her “soft” Brexit plan, including Foreign Secretary Boris Johnson, who desperately wants to unseat her and became prime minister.
May’s so-called Chequers deal, would effectively keep the U.K. in parts of the EU single market despite leaving the trading bloc. Johnson claimed in his resignation letter that the Chequers deal meant the U.K. was “headed for the status of a colony” of the EU. Most explosively, Trump insisted the Chequers deal meant the U.K.’s chances of a trade agreement with the U.S. were dead and heaped praise on the departed Johnson.
Bizarrely, the following morning a contrite Trump apologized to May for his comments and during a news conference with the prime minister insisted the article was “fake news.” Needless to say, The Sun published a tape recording of the interview, which proved Trump had been quoted accurately.
Despite this, May happily went along with Trump heaping the blame on journalists. Unfortunately, Trump went off-piste again and told the gathering “Boris Johnson would make a great prime minister” before hastily adding “this wonderful lady here is doing a fantastic job.”
He also dismissed the large protests in London against his visit, insisting many of the protesters were actually there to support him.
So far, so Trump. But the damage of his Sun interview could prove irreparable for May.
It’s worth pointing out that the Chequers deal may well be rejected by the EU.
However, the principal problem for May is that it has exacerbated rather than mended the splits in her government, and Trump’s newspaper interview has emboldened those opposed to the deal.
Even if it proves acceptable to the EU, the Chequers deal is now unlikely to be ratified by the U.K. Parliament.
The hard Brexiters within May’s government would rather have no deal at all and believe Trump’s comments prove it will be better to simply crash out of the EU next year. Meanwhile the government’s soft Brexiters and Remainers (those who wish to stay in the EU) believe the deal will leave the U.K. only partially in the EU single market and customs union, but forced to abide by most of its regulations. Following Trump’s intervention, they are now openly calling for a second referendum on EU membership.
Will they get one? I suspect not. But either way, May’s authority looks dangerously close to collapsing following Trump’s intervention. What will the U.S. president do next? Following last week’s fractious NATO summit, alliance officials privately expressed fears that Trump may unilaterally offer to scrap NATO war games during Monday’s summit with Putin, including the massive flagship Trident Juncture exercise in Norway in October.
During the summit with North Korea’s Kim, Trump abruptly canceled similar military exercises with South Korea, where 28,500 U.S. troops are stationed. Kim offered nothing in return.
Who knows? By the time you read this, Trump may even have suggested Russia join NATO, as the Soviet Union cheekily offered to in 1954. Trump has already demanded Russia should be readmitted to the G-7. Indeed, as things currently stand, Putin’s Russia looks more likely to clinch a trade deal with the U.S. than the U.K.
I guess it’s a man’s world.
Michael Glackin is former managing editor of Beirut newspaper THE DAILY STAR. A version of this article appeared in The Daily Star print edition on July 17 2018 on page 7.

Monday 12 March 2018

MBS and May: Partnerships, policy and progress

By Michael Glackin
The Daily Star
Monday, March 12 2018

I wonder what Crown Prince Mohammad bin Salman will consider the highlight of his high-profile visit to the U.K. last week. The “outline deal” with the U.K. government to buy more Eurofighter Typhoon jets? Maybe it was state-owned Saudi Aramco’s “preliminary deal” to pursue “international gas opportunities” (read shale gas) with Royal Dutch Shell?
For me it was the crown prince’s meeting with Queen Elizabeth.
Amid the splendor of the Buckingham Palace room in which the monarchs met, it was ironic, to say the least, that the queen had plugged in a cheap two-bar electric fire to provide heat for the man whose country sits on top of the world’s largest oil reserves. Was the queen subtly making a point about her fears for an impoverished post-Brexit U.K.?
Certainly the $35 heater struck an incongruous note in a room that includes a $7 million Gainsborough portrait and a $2.7 million Canaletto.
The queen’s thriftiness was in stark contrast to the extravagant PR blitz that accompanied the crown prince, the de facto ruler of Saudi Arabia who likes to be known as MBS. Saudi lobbyists spent millions of dollars on advertisements in U.K. newspapers and on large roadside billboards in London bearing MBS’ face and extolling both his virtues and those of “the united kingdoms.”
Ironically, the billboards reminded me of the type that the Syrian regime used to hang over parts of Beirut of Hafez and Bashar Assad before 2005.
The PR charm offensive was aimed at combating anticipated protests over Saudi Arabia’s human rights record and its conduct in Yemen. The 3-year-old war has claimed the lives tens of thousands of civilians – most of which can be attributed to Saudi Arabia’s bombing campaign – and looks increasingly unwinnable for either side. It is of course MBS’ war. He created and presides over the coalition opposing the Iranian-backed Houthi rebels. But much of Saudi Arabia’s firepower is provided by U.K. defense firms, who have done around $6.5 billion of business with the kingdom since it began its bombardment of Yemen in 2015.
The U.K. Labour Party leader Jeremy Corbyn denounced Saudi Arabia’s role in Yemen in Parliament and demanded the government halt all arms sales to the kingdom. It is worth noting that the new German government already has a weapons embargo on Saudi Arabia written into its coalition agreement.
Mindful of the potential backlash, Saudi Arabia has increased its aid to Yemen by $2 billion and is currently propping up the beleaguered Yemeni central bank.
As it turned out, the protests were far fewer than anticipated, amounting to a few hundred people outside Downing Street during MBS’ meeting with Prime Minister Theresa May.
For this May’s Brexit-bound government was extremely grateful. The prime minister cannot afford to upset prospective trade partners as she seeks to plug economic holes left by exiting the world’s largest trading bloc.
Along with the trade deals, the London Stock Exchange is vying to handle the impending flotation of Saudi Aramco, the national oil behemoth, which could be the world’s biggest listing. It is worth noting that MBS’ delegation in London included Saudi Arabia’s Oil Minister Khalid al-Falih and Aramco’s Chief Executive Amin Nasser.
Saudi Arabia’s desire to list around 5 percent of Aramco’s shares on an international exchange – worth an estimated $100 billion and valuing the company at $2 trillion – has led to a beauty parade of stock markets. London is widely seen as the favorite for the listing – even though it will require a tweak of the U.K. exchange’s rules – but it could still go to New York or perhaps even Hong Kong.
China is an increasingly important customer for Saudi crude although Russia remains its main supplier.
London is favorite partly because of fears the U.S. Justice Against Sponsors of Terrorism Act, passed in 2016, could expose the kingdom to lawsuits over the role of its citizens in the terror attacks on the World Trade Center in New York in 2011. Saudi Arabia vigorously denies any allegations of course, but the potential legal risk cannot be ignored.
In an interview during the visit, Falih said: “I would say litigation and liability are a big concern in the U.S. Quite frankly Saudi Aramco is too big and too important for the kingdom to be subjected to that kind of risk.”
That said, the potential for a lessfriendly government in the U.K. led by Corbyn, who is perceived to be close to Iran and Hezbollah, are risks that Saudi Arabia may also deem too great to take with the kingdom’s prized jewel.
The final decision of course, lies with MBS. Hence the U.K.’s eagerness to impress, which meant MBS didn’t just get lunch with the queen, but also dinner with Prince Charles. Indeed, even the archbishop of Canterbury was on hand to press the flesh. The pair had “cordial and honest” discussion about Yemen and the ban on non-Muslim faiths practicing openly in Saudi Arabia.
The last meeting is significant, and a reminder that there is more to the U.K.’s current engagement with Saudi Arabia than just trade.
Since taking the reins of power in Saudi Arabia, MBS has taken on the ultraconservative religious establishment, most notably by removing the power of the kingdom’s religious police to arrest people, ending the ban on women driving and lifting the four-decade-long restrictions on cinemas and pop concerts in the kingdom.
MBS’ reform program is tied up with transforming the kingdom’s economy to ensure it can create jobs, beyond civil service sinecures funded by oil revenues, for young and ambitious Saudis.
At 32 years old, MBS is, as he likes to point out, older than two-thirds of his father’s subjects.
His high-profile crackdown on corruption, which last year turned Riyadh’s fivestar Ritz-Carlton hotel into the world’s most upmarket jail, also appears to have garnered tens of billions of dollars back into the kingdom’s coffers.
The reality, at long last, is that Saudi Arabia is moving in the right direction.
It is worth remembering that democracies do not spring up overnight. Progress is always measured in small, tentative steps before reaching the final destination.
May understands what MBS is attempting to achieve, welcomes it and wants to encourage him to go continue. Critics should ask themselves what the alternative to supporting MBS’ attempts to drag Saudi Arabia into the 21st century are – a resurgence of the ultraconservative forces within the House of Saud?
Of course the U.K. has a vested interest in all this, but post-Brexit economic fears are only part of it. If the U.K. has any hope of maintaining a global political role in the coming years, “punching above its weight,” helping the most important power in the Middle East to navigate its internal and foreign policy challenges may prove the best means to achieve it. The U.K. government was at pains to stress the close cooperation between the two governments on security matters.
Meanwhile, MBS will next head to the U.S., in his first official visit to the kingdom’s most important ally since the effective palace coup that deposed his older cousin, Prince Mohammad bin Nayef.
You can be sure President Donald Trump will have more than a two-bar electric fire to warm MBS up for his plans.
Michael Glackin is a former managing editor of THE DAILY STAR. A version of this article appeared in The Daily Star print edition on March 12 2018 on page 7.