1 August 2018

Daily Memo: Iran's Political Instability, Eritrea's Rehabilitation, the Price of Supporting Ukraine

Indicators of Iran’s political stability continue to flash negative. Its currency is falling in value –AP reported that on the black-market exchange, the Iranian rial dropped to 112,000 to the dollar on Sunday from 98,000 the day before, while the steady decline of the official rate continues. A reformist newspaper headline led with a story about a potential “economy coup,” while the newspaper for a minority party in the Iranian parliament said Iran is moving toward a crisis that can be solved only by shaking up senior levels of government. A leading hard-line paper, while blaming economic issues on Iran’s enemies, also called for “revolutionary decisions” to resolve the country’s woes. Al-Monitor reported that the latest factional dispute in the Iranian government has pitted Iran’s chief of staff against a vice president. The country’s top security body released two prominent opposition leaders from prison. The Majlis Research Center, the research arm of the Iranian parliament, published a report on the controversial issue of mandatory hijab wearing and discovered that 55 percent of Iranian women are against such a policy. And this is in just the past 48 hours – and as small protests over water scarcity and other economic issues continue.

The rehabilitation of Eritrea continues. In the latest feel-good story in a part of the world where such stories are uncommon, Somalia and Eritrea signed a “declaration of brotherly Friendship and General Cooperation” on Monday. The pact was signed at the conclusion of the Somali president’s visit to Eritrea, the first such visit by a Somali president since 1991. The two sides reportedly discussed exchanging ambassadors and boosting economic and security cooperation, while Somalia’s president said the continued development of the Horn of Africa required the lifting of sanctions on Eritrea. First Eritrea and Ethiopia made nice, and now it’s Eritrea and Somalia. Our previous analysis pointed to Ethiopia’s emergence as a potential regional power, and at first blush this fits the general model, but additional scrutiny is warranted. The question now is what Ethiopia and the region at large do with a more cordial diplomatic environment.

Tens of thousands throughout Russia joined (Kremlin-approved) demonstrations against pension reforms over the weekend, but the precarious state of Ukraine’s Pension Fund is arguably the more important story of the day. According to RBC-Ukraine, Ukrainian retirees are facing delays in pension payments not because of technical difficulties but because the Pension Fund faces a shortfall of over $400 million. RBC-Ukraine also reported that the Pension Fund has been borrowing money from the Ukrainian State Treasury since March to cover cash shortfalls. Now, none of these issues – delayed payments, cash shortfalls, borrowing from the treasury – are unprecedented for Ukraine. But the cause for concern is the size of the shortfalls and of the loans being taken out – and in the context of a worsening debt situation for the government and other pressures (like Ukrainian soldiers demanding raises, as they did on Monday). The EU and the U.S. may soon have to decide just how much their support of Ukraine is worth.

Russian officials have been exceedingly busy with the Middle East. A high-level Russian delegation traveled to Lebanon on July 26 to discuss developments in Syria. From there, the delegation went to Turkey on July 27 to hold talks on the same subject. Back in Moscow, Russia hosted Palestinian intelligence officials on July 27 and discussed “growing tensions” in the West Bank and Gaza Strip – at least according to Russia’s Ministry of Foreign Affairs website. On Monday, Russia is hosting Iranian and Turkish officials in Sochi for so-called Astana-3 talks. If prior gatherings are any indication, they will agree to next steps with great fanfare and then ignore those agreements on the ground. In any event, Russia is highly active right now in the Middle East and may be accelerating a push for some kind of diplomatic solution to its Syria quagmire.

Turkish-U.S. relations, meanwhile, continue to founder. While U.S. Secretary of Defense James Mattis attempted to pour cold water on potential U.S. sanctions against Turkey by citing continued military cooperation between the two sides, Turkish President Recep Tayyip Erdogan turned the heat back up, accusing the U.S. of psychological warfare and insisting that if the U.S. did not change its tune, it would “lose a sincere and strong partner.” The two most pressing issues right now are a dispute over the imprisonment of an American pastor in Turkey (and Turkey’s long-running demand for the extradition of Fethullah Gulen, whom Ankara accuses of plotting an attempted coup in 2016) and the threat of sanctions from the U.S. if Turkey continues buying natural gas from Iran – which Erdogan says Turkey has no intention of stopping. These are superficial issues, but they highlight a widening divergence between U.S. and Turkish strategic views of the Middle East – a far more important development than U.S. wishful thinking on the emergence of an Arab NATO to combat Iran.

Honorable Mentions 
During his visit to Tibet at the end of last week, Chinese Premier Li Keqiang mentioned that economic development in the region lags considerably and that Tibetans must help China defend “national ethnic unity.” 

The morale of Polish police, who are being asked to contain protests over the country’s judicial reforms, may be deteriorating. 

North and South Korea will hold general-level military talks on Tuesday. 

Saudi Arabia is sending fuel to Iraq to ease the electricity crisis a few weeks after Iran cut electricity to Iraq because of unpaid bills. 

Yet another Chinese drug company may come under fire as it announces a recall on a blood pressure medication after discovering carcinogens in the drug. 

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