Israel, Saudi Arabia: Train to catch.
Also: Iran, the Gulf, Pakistan, Afghanistan, Niger, France, China and Japan.
ISRAEL. SAUDI ARABIA. Train to catch.
Political distraction risks missing the moment.
Protests raged across Israel on the weekend after the Knesset passed the first of several divisive judicial reform laws. US National Security Advisor Jake Sullivan visited Saudi Arabia on Thursday to discuss the Kingdom’s ties with Israel.
INTELLIGENCE. Sullivan’s meeting is part of ongoing efforts by the White House to normalise ties between Tel Aviv and Riyadh. Biden is keen to emulate his predecessor’s success with Israel-UAE relations, but the clock is ticking. Israel is distracted by controversial judicial reforms and West Bank violence. Saudi Arabia is torn between prospects for stronger ties with Israel and retaining its moral suasion over the Islamic world, for which Palestine is totemic.
FOR BUSINESS. The economic benefits of normalising Israeli-Saudi relations are clear but politically challenging without a resolution to the status of Palestine. Netanyahu is looking to win the argument with Riyadh. On Sunday, he indicated Israel would build a 100-billion-shekel ($27 billion) rail expansion to connect regional Israel to Tel Aviv and eventually the Arabian Peninsula – a project dreamt about since TE Lawrence blew up the Ottoman-era Hejaz Railway.
IRAN. THE GULF. Oil and water.
A disputed field remains a test for improved relations.
Iran’s oil minister said on Sunday Tehran would “pursue its rights” over the vast offshore Arash field in the Persian Gulf, should negotiations with Saudi Arabia and Kuwait fail. Riyadh announced its own development plans earlier this month.
INTELLIGENCE. The dispute over the oil field traces back to the 1960s, when Iran and Kuwait awarded overlapping concessions to the same part of the field – one to an Anglo-Iranian Oil Company (later BP) and one to Royal Dutch Shell. Recoverable reserves are estimated at 220 billion cubic metres. Despite the Chinese-brokered détente between Riyadh and Tehran in March, commercial disputes remain. This is the first genuine test of improved diplomatic ties.
FOR BUSINESS. All three countries want to start the exploitation of the reserve. Kuwait’s oil minister stated last week it would begin “drilling and production” without waiting for a demarcation deal with Iran. Kuwait and Saudi Arabia last year signed an agreement to jointly develop the field despite objections from Iran. It goes to show that diplomatic rapprochement is only the first step. The countries will now need to negotiate a workable commercial resolution.
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PAKISTAN. AFGHANISTAN. Stan off.
Relations between Islamabad and Kabul remain fraught.
A suicide bombing at a political rally in northwest Pakistan killed at least 45 people on Sunday. Police initially blamed Islamic State, which operates from neighbouring Afghanistan. No group has yet claimed responsibility for the blast.
INTELLIGENCE. The huge blast targeted the conservative Jamiat Ulema-e-Islam-F (JUI-F) party in Khar, close to the Afghan border. Since the return of Taliban rule to Afghanistan in 2021, Pakistan has seen a rise in attacks on its soil. Islamabad has accused attacks of being planned on Afghan territory, a charge the Taliban denies. Given Islamabad supported the Taliban for years, and the JUI-F shares much of its philosophy, there is a deep irony to the accusations.
FOR BUSINESS. Pakistan was beset by a huge number of bombings until around 2014 when a major military operation largely delivered an uneasy peace. As Pakistan continues to roil in internal economic woes, including an inability to pay for essential imports, it can ill-afford another series of costly security issues on its most vulnerable border. Pakistan’s goal of friendly Afghan rulers to counter unfriendly Indians on the eastern border looks strained.
NIGER. Unsanctioned activities.
African nations worry about who’s next.
The Economic Community of West African States on Sunday demanded the reinstatement of Nigerien President Mohamed Bazoum, who was removed by a military coup last week. The bloc said measures “may include use of force”.
INTELLIGENCE.In response to the threats, thousands waved Russian flags and chanted support for the junta in Niger’s capital on Sunday. They then set fire to the entrance of the embassy of France, which also denounced the coup. It’s not just regional leaders – worried about an influx of refugees and their own internal threats – who are alarmed. Niger was seen as one of the West’s last remaining allies in the battle against jihadists in the Sahel region.
FOR BUSINESS. The latest West African country to fall to a coup, Niger has upset its neighbours. ECOWAS said sanctions would be placed on members of the junta, commercial flights and financial transactions. The US, which has a large military presence in Niger, said assistance would be halted unless Bazoum was released. But rich in resources, including uranium, others will step in. Moscow and Beijing have eyed Nigerien projects in recent months.
With the brevity of a media digest, but the depth of an intelligence assessment, Daily Assessment goes beyond the news to outline the implications.
FRANCE. CHINA. Conscious coupling.
France wants greater trade but must battle its own protectionism.
France’s finance minister said decoupling from China was “an illusion” during a visit to Beijing on Sunday. Paris is pushing for Chinese investment in the French electric vehicles industry and greater access to Chinese markets.
INTELLIGENCE. The meeting with Beijing’s principal on economic issues, He Lifeng, follows Washington’s efforts to restore economic relations with Beijing. France and China agreed to cooperate on climate change, nuclear power, and development financing. But not all in Europe are as rosy-eyed. Italy’s defence minister said on Sunday that joining China’s Belt and Road Initiative was an “atrocious” decision. Italy will decide by December whether to stay or go.
FOR BUSINESS. As France’s trade deficit with China continues to deepen, Paris is pressing Beijing to open its markets, including for cosmetics, a major French export. However, lobbying for investment in France’s EV car industry conceals dirigiste concern about competition from more efficient Chinese manufacturers. New French laws, due by year-end, would likely see Chinese carmakers fail to qualify for green subsidies worth up to €7,000 per vehicle.
JAPAN. Land of the rising rates.
Japan’s central bank indicates newfound flexibility.
While keeping benchmark interest rates at minus 0.1%, Japan’s central bank on Friday tweaked its bond policies to allow yields to rise more flexibly. Japan remains the only country in the world with negative interest rates.
INTELLIGENCE. While the rest of the world’s central banks are trying to stem inflation, the Bank of Japan remains an outlier, with rates still in a distinct stimulatory mode. The move by the BOJ makes its bond yield control policy more flexible and widens the band within which 10-year government bond yields are allowed to trade. Importantly, it signals a shift away from decades of Japanese monetary stimulus and perhaps a greater willingness to follow US policy.
FOR BUSINESS. The practical effect of the move is that it should encourage a greater repatriation to Japan of money abroad and a change in global investment flows. While the move is a characteristically cautious one, some analysts are predicting this as the start of Japan moving more into line with other major central banks. The BOJ said the move was simply a pre-emptive one against inflation, which continues to sit above its 2% target, but many think otherwise.
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