Ambassador Talmiz AhmadAdviser, West Asia & North Africa, Ananta Centre Former Indian Ambassador to Saudi Arabia, Oman & UAE 1st May 2019 | VOL 04 ISSUE 05 | MONTHLY

H I G H L I G H T S

• Political Developments  • Oil-related Developments

I) Political Developments

1. Netanyahu wins Israel elections: The April 2019 election is a remarkable victory for Israeli Prime Minister Benjamin Netanyahu. Having won his fourth campaign in a row, this victory affirms the extent to which he has conflated his own persona with the position he has held uninterrupted for the last ten years. There were some signs of Netanyahu-fatigue during the campaign. Former armed forces chief Benny Gantz had got into the electoral fray just three months earlier and still ran neck-and-neck with Netanyahu throughout the campaign. And, of course, Netanyahu was carrying the burden of possible criminal indictments – for bribery, fraud and breach of trust -- by the attorney general. Netanyahu’s Likud party got over a million votes, an Israeli record for a single party, and obtained 36 seats in the 120-member Knesset, just one more than Gantz’s Blue and White party. But, where Netanyahu scores over his rival is in his ability to bring into his coalition almost all the right-wing groups – the ultra-right and the religious parties: five of them with just 4-8 seats between each of them will give the prime minister 29 seats altogether, providing him with an unassailable majority with 65 seats. Netanyahu has projected himself as a hard-line, no-compromise leader, generally opposing all avenues for the promotion of the peace process. Condemning his opponents as soft and feeble “lefties”, he stated proudly during the recent campaign that he was making Israel a “world force” not through compromises but by radiating “power, pride, commitment”. Netanyahu had in Donald Trump an effective campaign manager: after announcing the shift of the US embassy to Jerusalem last year, just two weeks before polls Trump recognised Israel’s annexation of the Golan Heights. Following this encouragement, on 7 April, two days before voting day, Netanyahu said that after his victory he would annex to Israel all Jewish settlements in the West Bank. What do four more years of Netanyahu bode for Israel and the region? First, there are doubts that he will actually have four years: in September, he will get a chance to respond to the criminal charges after which the attorney general will decide whether to go in for a criminal trial. This might require the prime minister to step down, though his supporters believe he will continue as prime minister and defence minister while court proceedings continue. But criminal proceedings could break his coalition, with rivals within the government pressing their claims. If the government collapses, we could even see elections within a year. However, observers have suggested that Netanyahu could attempt to appease his partners by going in for large-scale annexations of occupied territories in return for immunity from criminal proceedings. The next challenge before Netanyahu will be the announcement of the US “deal of the century” to address Palestinian aspirations. This detailed plan is expected to be released just after government-formation. It should largely serve Israel’s interests by providing for the annexation to Israel of large parts of the West Bank. However, there are indications that it could propose detachment of some suburbs of east Jerusalem to be the capital of the Palestinian state, which is likely to be anathema for Netanyahu and his right-wing colleagues. Finally, there are suggestions that Netanyahu may succeed in his “divide-and-rule” approach to the Palestinians by annexing much of the West Bank and looking at a deal with the Hamas in Gaza. In terms of this agreement, Hamas would give up confrontation and violence in return for removal of its “terrorist” branding and the ongoing blockade, backed by massive international investments to develop ports, airports, industrial zones, fisheries, etc. Netanyahu’s main challenges lie ahead of him. Israeli commentator Ben Caspit has described him as “the greatest of Israel’s political magicians of all time”. In coming months, this magician will need all his skill in this the campaign to retain the power he has gained at the polls. 2. Trump ends “waivers” on Iran oil imports: The end of the waivers on imports of Iranian oil was announced by Secretary of State Mike Pompeo on 22 April with the goal of depriving “the outlaw regime of the funds it has used to destabilise the Middle East”. He also set out US demands on Iran: “End your pursuit of nuclear weapons. Stop testing and proliferating ballistic missiles. Stop sponsoring and committing terrorism.” The end to the waivers immediately affects four countries – India, China, Japan and Turkey. With all of them the US has important political and economic ties: Turkey is a NATO partner, Japan is a cherished ally in Asia, India is emerging as a substantial defence and political partner, while China is the US’ main trade partner and crucial political interlocutor on global political and economic issues. The end of the waivers will disrupt the global energy economy and harm the interests of the importers of Iranian oil and that of the international community at large. Iran is a major global producer and has the world’s third largest oil reserves.  It will be difficult to make up for the withdrawal of its oil over the longer term, particularly when there is already uncertainty in oil markets due to US sanctions on Venezuela and ongoing conflicts in Libya and Yemen. Though Indian officials have sought to reassure the market by affirming that alternate supplies have been tied up, high oil prices caused by US actions will harm India’s interests: 11 percent of India’s oil imports come from Iran. India also benefits from lower Iranian official pricing of its oil, the sixty-day credit and attractive insurance terms. With the loss of these advantages and higher global prices, there will be greater burdens on the Indian exchequer and attendant inflation and lower growth. But, beyond immediate commercial considerations there are other implications: should a major world power impose its agenda on the international community and then blackmail it into compliance through threats of sanctions on allies and friends? This situation is particularly unacceptable when the international community is aware that US positions are being driven by domestic lobbies promoting confrontation and conflict. Large sections of the US rightwing establishment have not forgiven Iran for its Islamic revolution and specifically the occupation of the US embassy in November 1979. This group harbours visceral animosity for Iran and believes that by exerting “maximum pressure” on the country it can either change regime conduct or even replace the present rulers with more pliant substitutes. Specifically, Trump’s officials and the lobbyists now hope that, under pressure from sanctions and abusive rhetoric, the hardliners in Iran will triumph and pull their country out of the nuclear agreement. This will provide the opening for the US to declare that Iran has revived its weapons programme which it will then seek to reverse militarily. Several US commentators believe that Trump is being encouraged by his officials to initiate war on Iran. The officials are harping on Iran as a “rogue, outlaw, terrorist regime”, focusing on it as a nuclear and terrorist threat, exactly how the case for war on Iraq was prepared sixteen years ago. US Senators Richard Durbin and Tom Udall have noted: “We are again barrelling toward another unnecessary conflict in the Middle East based on faulty and misleading logic.” Iranian foreign minister Javad Zarif has warned of “accidents, plotted accidents” as creating the excuse for war. Unilateral sanctions to force compliance with the US agenda rest on the dollar clearing system that is used to effect financial transactions globally. The frequent use of such sanctions will blunt their efficacy as the world will seek to develop new vehicles for financial transactions and over time even attempt to replace the dollar as the principal unit of international exchange. Thus, unilateral US actions that enjoy little international support could promote initiatives that would ultimately harm US’ own interests. 3. Libya: Hafter attacks Tripoli – On April 4, self-styled Field Marshall Khalifa Hafter’s Libyan National Army (LNA) announced that it was going to finally take Tripoli by force — its stated ambition over the last five years. While the UN secretary-general was giving a press conference in Tripoli to support Libyans in making the long-awaited national conference happen, LNA leader Hafter chose to declare the beginning of “Operation Flood of Dignity”. According to commentator Jason Pack, Hafter appears to be trying to create a popular groundswell of support for him as “Libya’s saviour” and an alternative to the UN-backed political process. Haftar is backed militarily by the United Arab Emirates and Egypt, which want to build him up to help fight and neutralise Islamist militants in the region. His opponents see him as a budding autocrat in Gaddafi’s mould.  Khalifa Hifter visited Egypt on April 14 to meet with Egyptian President Abdel Fattah al-Sisi.  A statement issued by the Egyptian presidency following the visit said that Sisi “reiterates Egypt’s support for the efforts made to fight terrorism, extremist groups and militias in a bid to establish security across Libya, pave the way for a stable and sovereign civil state and kick off the reconstruction and restoration process in the country.” By the end of April, Hafter’s forces were on the outskirts of Tripoli. On 28 April, Al Jazeera reported that troops loyal to Libya's internationally recognised Government of National Accord (GNA) led by Prime Minister Fayez al Serraj, were preparing to launch a counteroffensive. Separately, Economy Minister Ali Abdulaziz Issawi told Reuters that the GNA was budgeting up to $1.43bn to cover the cost of the war. Serraj is backed by Italy, the former colonial power that has oil assets in Libya, as also Turkey and Qatar. On 28 April, Reuters reported that GNA forces were fighting house-to-house battles with troops loyal to commander Khalifa Haftar in southern parts of the capital and appeared to be gaining ground. On 29 April, the state oil company National Oil Corporation (NOC) said unknown gunmen fired a rocket propelled grenade at a control station of the El Sharara oilfield. Guards at the site eventually repelled the attackers. The battle for Tripoli has killed at least 345 people, including 22 civilians, a World Health Organization official said on 29 April. Hafter’s military initiative has revealed the positions of Russia and the US in the evolving scenario. On 6 April, Russia’s deputy foreign minister and Putin’s special envoy for the MENA region, Mikhail Bogdanov, received a phone call from Hafter, who briefed Moscow on the LNA's latest moves. Its actions, he argued, were intended to “boost the fight against terrorist and extremist groups that are present in different parts of the country, including in Tripoli, and that threaten the stability of Libyan society and hamper implementation of agreements on the inclusive and consensus-based intra-Libyan dialogue that seeks the establishment of united, effective institutions of governance.” Moscow reiterated its “principled position” in support of political methods on all Libya's issues and the efforts of UN special envoy on Libya Ghassan Salame. “A need to consolidate efforts to fight terrorism and extremist ideology was also stressed,” according to a read-out of the phone conversation between Bogdanov and Hafter. At this time, Russian Foreign Minister Sergey Lavrov made a more strongly worded statement. Speaking in Cairo at a joint press conference with his Egyptian counterpart Sameh Shoukry, the top Russian diplomat said Moscow was concerned with the use of airstrikes against the LNA forces and urged outside backers "who have influence over these groups [loyal to Serraj] to prevent such an escalation and call on the Libyans to cease all the military offensives and come to the negotiating table.”  The Russian foreign minister concluded by emphasizing that Moscow continues to stay in contact with all Libyan parties, arguing, “We’ve never staked on any one player in particular. I am convinced this is the only right way to act in this case.” According to Russian commentator Maxim Suchkov, Russia’s bottom line is that Moscow does not want to see Hafter defeated nor does it agree with the condemnation of his military gamble on Tripoli. Russia’s view on the current situation in Libya appears to be based upon the three assumptions. First, Hafter is powerful enough to take control of the whole country, especially since he enjoys a cohort of outside supporters with resources. Second, Libya is too much of a “patchwork state” for the groups that Hafter united under his leadership to be excluded from any reconciliation process, let alone power-sharing at a national level. Third, should Hifter fail in the current adventure or even ultimately lose his influence, existing contacts with the Serraj camp as well as with multiple other groups and tribes will keep Moscow a vital player able to stitch different interests into one functioning state. With the collapse of the US-backed UN process, the US seems to be more open to Hafter commanding a unified Libyan military as a means of stopping his offensive. On 26 April, it was reported that President Trump had indicated his support for the Libyan National Army’s (LNA) assault on Tripoli in a phone call with Khalifa Haftar, reversing official US policy of supporting the internationally-recognized government in Tripoli. Trump was apparently convinced to back Haftar after speaking with Egyptian President Abdel Fattah El-Sisi and Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan, both of whom stressed Haftar’s importance in securing Libya’s oil fields. 4. Unrest in Algeria: Algeria had not experienced any of the public demonstrations that had swept most the Arab world in 2011 which are referred to as the “Arab Spring”. This changed on 1 March this year when public agitations hit the streets of Algiers following 82-year-old ailing president Abdelaziz Bouteflika's announcement that he would seek a fifth term of office. After promising a limited term should his bid be successful, Bouteflika amended his offer in the wake of continued unrest, seeking instead to eke out his fourth term while the country's constitution underwent root and branch reform. Ultimately, conciliatory noises from the president's immediate circle counted for little and, after the loss of much of his power base among the army, business leaders and much of the National Liberation Front (FLN), Bouteflika resigned April 2. However, the exit of the president did little to stem the tide of popular protest. After weeks of government climbdowns and policy reversals, the scale and pace of Algeria’s popular protest movement continues unchecked. Across Algeria, Fridays have become synonymous with protest, with cities grinding to a halt as the cars and shoppers that typically occupy the public thoroughfares make way for brightly coloured banners, chants and security forces. In their hundreds of thousands, the young have powered Algeria’s popular movement. They continue to demand that the clans, nepotism and ingrained power structures that have smothered their country for decades make way for a new generation of leaders, untarnished by the sclerotic corruption that has come to characterize the old. Economic malaise: That it is the young who have served as the engine of protest will surprise few. Caught up within the bulging birth rates that have subsumed the region, 54% of Algeria’s current population is under 30 years of age. Significantly, unemployment stands at 26.4% within that same group.  Beyond the country's already declining hydrocarbons industry, little opportunity exists for those seeking work outside the energy sector. Last year, non-energy related exports made up just 6% of the country's output. The situation is aggravated by declining oil prices and the approximate 1.7 million students within the country's higher education system and some form of confrontation begins to look almost inevitable. As the protests push on — the students packing the streets on Tuesdays, before the full extent of public anger is given voice on Fridays — the government’s reactions have rudely exposed an elite with no answers. However, as the protesters draw closer to the centre of the ingrained power structures that have ruled the country for decades, growing signs of desperation and frustration are coming to characterize the official response. Security measures:  Within the top tiers of Algeria’s state and state-dependent business sectors, there has been a dramatic purge, overseen by the army Chief of Staff General Gaid Salah, himself the target of the protesters’ ire. On April 24, Abdelmoumen Ould Kaddour, the chief of Algeria’s sprawling state-owned energy company Sonatrach, was dismissed from his position, with analysts attributing his departure primarily to his proximity to ousted President Abdelaziz Bouteflika rather than any particular failing in his role. Over the weekend, five of the country’s leading tycoons, including Algeria’s richest man, Issad Rebrab — all said to enjoy extensive links to the ousted president — were arrested. On 29 April, it was reported that the Algerian finance minister and the former police chief have appeared in court as part of investigations launched in the wake of the mass protests that forced the resignation of President Abdelaziz Bouteflika. Mohamed Loukal was previously governor of the central bank and only became finance minister last month. State television said his court appearance was connected to an inquiry into the suspected misuse of public funds. The former police chief, Abdelghani Hamel, was reported to have been summoned to court as part of an investigation into influence peddling and abuse of office.   ............................................................................................................

II) Oil-related Developments  The immediate impact of the announcement ending waivers on the import of Iranian oil was to push oil prices to their highest levels over the last six months: WTI crossed $ 66/ barrel, while Brent crossed $ 75/ barrel. These prices moderated to some extent following announcements by Saudi Arabia and the UAE that they would make up for lost supplies; they however clarified that this would be only if market conditions so demanded and only after consultations with OPEC + members who have agreed to reduce their production by 1.2 mbd to maintain price levels. On 27 April, Russian President Vladimir Putin said that he has not heard any signals from members of OPEC about possibly leaving the deal on curbing oil output, adding this was unlikely. Putin told a press briefing that the deal is effective until the end of June and that he hoped Saudi Arabia will not have to raise its oil production to offset possible exports curbs from Iran due to the US sanctions. On 30 April, West Texas Intermediate for June contracts delivery gained 0.22 per cent to USD 63.64, while Brent crude rose 0.32 per cent to USD 72.27 per barrel.