Geopolitics | Global MENA: Uncertainties Multiply An “Issues Which Keep Me Awake At Night” interim update Alastair Newton ...
Foreword <ul><li>This presentation updates our 21 March report  MENA: A Long Haul Ahead? , focusing on ongoing political e...
Key judgments <ul><ul><li>As contagion spreads in the MENA, we acknowledge that the region appears to be experiencing a “1...
Divergent paths, different outcomes <ul><li>“ Each country is different, while references to a wave of change are simplist...
Conceptual framework 1: The “1989 Moment” <ul><ul><li>We accept the now commonly held view that the MENA is probably under...
Monarchs trump presidents <ul><li>“ We can say a few things with confidence. Genuine monarchies in the region appear to be...
Conceptual framework 2: The legitimacy of kings <ul><ul><li>We have noted frequent reference among commentators to the “le...
Oil and troubled waters <ul><li>“ Because Saudi Arabia is the world’s number one [oil] producer and source of reserves, an...
Oil output at risk? <ul><ul><li>Libya  produces just two percent of global oil output and one percent of gas. Nevertheless...
“ No-fly” alone is no endgame <ul><li>“ There is a strong argument for a no-fly zone. …it is among the most palatable of a...
Libya: An uncertain outcome to intervention <ul><ul><li>Three weeks after the start of military intervention in Libya by t...
Libya Divided? Not ruled out <ul><li>“ Already there is confusion over aims. In recent days both US Secretary of State Hil...
Libya: Outcome “uncertain” <ul><ul><li>UNSCR1973 does not specifically call for “regime change” in Libya. However, public ...
Egypt: The next Turkey or the next Pakistan?  <ul><li>“ If Egypt is lucky, the country’s future may look most like Turkey ...
Egypt: Work in progress…  <ul><ul><li>Egypt’s transition took a significant step forward on 19 March when a new constituti...
… and more work for the next government <ul><ul><li>Despite these challenges, our view remains that the army will probably...
Goodbye Saleh? <ul><li>“… one by one, the pillars of President Saleh’s power are being knocked away.” </li></ul><ul><li>BB...
Yemen: The next “domino”? <ul><ul><li>Following the reported deaths of at least 45 protestors in Yemen on 18 March, popula...
Sectarian divide  <ul><li>“ [Bahraini] Shia protesters complain of economic hardship, lack of political freedom and discri...
Bahrain: Protests dampened for now <ul><ul><li>Three weeks after it seemed likely that Bahrain would draw back from violen...
Monarchies may not be immune <ul><li>“ Pressure will nonetheless still grow on these monarchies to become more constitutio...
Saudi Arabia: Sticking to the status quo? <ul><ul><li>In the past six weeks, the Saudi authorities have announced boosts t...
Jordan and Morocco: Monarchies under pressure <ul><ul><li>In neither Jordan nor Morocco does the monarchy currently appear...
Iran: The green shoots of revolution <ul><li>“ Not only is the green movement alive, it is also showing resilience and sta...
Iran: Wheels within wheels <ul><ul><li>The Iranian supreme leader, Ayatollah Ali Khamenei, appears to be continuing to try...
The road to Damascus <ul><li>“ The unrest has become the biggest threat to the rule of President Assad who succeeded his f...
Syria: Important beyond its own borders <ul><ul><li>Protests which began a fortnight or so ago in Dera’a have spread more ...
Lebanon faces its own challenges <ul><li>“ The absence of a powerful and repressive state is one reason for the relative s...
Lebanon: Regime change already <ul><ul><li>The Progressive Socialist Party’s recent decision to remove its support for the...
Israel: Possible early elections <ul><ul><li>Israel has notably refrained from public comment on the ongoing turmoil in ME...
A Berlin Wall moment <ul><li>“ The scale of change that is ripping through the Arab world is breathtaking.  It is no longe...
Wider reverberations…  <ul><ul><li>Algeria:  protests are continuing against the regime of President Bouteflika; in respon...
… and wider still  <ul><li>“ Unrest in MENA highlights the possibility of successful anti-regime protests occurring in app...
Looking north, east… <ul><ul><li>We judge that, just as the internet and mobile phone technology have been major factors i...
… south … <ul><ul><li>We also see a possible contagion risk from the MENA to Sub-Saharan Africa (SSA) with conflict-struck...
… west … <ul><ul><li>In assessing contagion risks, some commentators have pointed to  Venezuela  as a country which has co...
…  and farther east <ul><ul><li>Despite comparisons between recent events in Tahrir Square and in 1989 in Tiananmen Square...
Today’s Tiananmen is not Tahrir <ul><li>“ There are echoes of Egypt in China to be sure. But they are faint. To watch Tahr...
38 Disclosure Appendix A1 ANALYST CERTIFICATIONS I, Alastair Newton, hereby certify (1) that the views expressed in this r...
39 Investors should consider this report as only a single factor in making their investment decision and, as such, the rep...
Interactive Session on "MENA's '1989 Moment' and its global implications" with Alastair Newton
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Interactive Session on "MENA's '1989 Moment' and its global implications" with Alastair Newton

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Alastair Newton, Senior Political Analyst, Nomura International was at IDSA on April 6 between 1415 - 1545 hours for an interactive session on "MENA's '1989 Moment' and its global implications". Apart from his other charges, Alastair is also President of the British Society for Middle Eastern Studies (BRISMES). He has written a series of incisive political analyses predicting the upheavals and analysing their origins and impact and it will be highly stimulating to hear his analysis and exchange views with him on this important and current topic. He is also an expert on US-China relations and global financial issues. He has been travelling widely in that region and advises clients of the global financial house Nomura International on financial and political risk.

He has had a long association with India and in his previous incarnation at Lehman Brothers, where he occupied a similar position and helped to publish the prescient report – “India Everything to Play For” in which he predicted that India’s growth rate could remain above 10% in view of structural changes that had taken place in the economy in preceding years. That analysis has been picked up and popularized subsequently.

The session was chaired by Ambassador Niranjan Desai, a distinguished diplomat who is also President of OSIAN’S Connoisseurs of Art Pvt.Ltd. and is publishing the G-Files, which stands for probity and integrity in public affairs.

The session was held in Seminar Hall I, IDSA.

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  • April 7, 2011
  • April 7, 2011
  • Interactive Session on "MENA's '1989 Moment' and its global implications" with Alastair Newton

    1. 1. Geopolitics | Global MENA: Uncertainties Multiply An “Issues Which Keep Me Awake At Night” interim update Alastair Newton Senior Political Analyst +44 20 7102 3940 [email_address] 1 April 2011 Nomura International plc See Disclosure Appendix A1 for the Analyst Certification and Other Important Disclosures .
    2. 2. Foreword <ul><li>This presentation updates our 21 March report MENA: A Long Haul Ahead? , focusing on ongoing political events across the MENA region and their implications both for that region and more widely. </li></ul><ul><li>Regular readers may wish to note the addition of a new section on Syria (pages 25-26), as well as significant updates on oil (p7-8) and Libya (p9-12), as well as fine-tuning to reflect recent events more widely in the MENA and beyond. </li></ul>1
    3. 3. Key judgments <ul><ul><li>As contagion spreads in the MENA, we acknowledge that the region appears to be experiencing a “1989 moment”, while recalling that transition in the former Soviet empire has been protracted and multi-directional. </li></ul></ul><ul><ul><li>We judge Yemen increasingly likely to be subjected to early regime transition. </li></ul></ul><ul><ul><li>Libya aside, we currently see no direct threat to oil/gas output. </li></ul></ul><ul><ul><li>Nor do we see international military intervention in Libya necessarily as a precedent for similar action elsewhere in the region. </li></ul></ul><ul><ul><li>However, we acknowledge that potential disruption in output in countries already experiencing protests, and/or contagion to as yet untroubled major oil producers, cannot be ruled out. </li></ul></ul><ul><ul><li>Furthermore, we consider that regimes which have not yet been subjected to large-scale protests are still at risk from future popular unrest if they choose not to accelerate democratic transition. </li></ul></ul><ul><ul><li>We see no sign of contagion outside the MENA for now but do not rule out the possibility downstream. </li></ul></ul>2
    4. 4. Divergent paths, different outcomes <ul><li>“ Each country is different, while references to a wave of change are simplistic. A range of political outcomes are likely to be reached, taking divergent paths” </li></ul><ul><li>Richard Haass, Financial Times , 9 March 2011 </li></ul>3
    5. 5. Conceptual framework 1: The “1989 Moment” <ul><ul><li>We accept the now commonly held view that the MENA is probably undergoing shift as dramatic for this region potentially as the fall of the Berlin Wall was in November 1989 for central and eastern Europe. </li></ul></ul><ul><ul><li>However, we believe it important to recall that that event was the start of a long – and, as yet, incomplete – transition in the now former Soviet empire, ie: </li></ul></ul><ul><ul><ul><li>Even in 1989 the central Europeans had advantages relative to the MENA countries today (eg past experience of liberal democracy, a relatively well-educated work force); but it was still 15 years before the first “wave” was able to join the EU; </li></ul></ul></ul><ul><ul><ul><li>Furthermore, that goal was not reached without setbacks on the way; </li></ul></ul></ul><ul><ul><ul><li>As for the countries of the former Soviet Union (p33), a number today betray characteristics similar to those which have precipitated widespread unrest in the MENA. </li></ul></ul></ul><ul><ul><li>We judge that the MENA countries may face an equally long haul and that there is no guarantee that liberal democracy will emerge in all cases. </li></ul></ul>4
    6. 6. Monarchs trump presidents <ul><li>“ We can say a few things with confidence. Genuine monarchies in the region appear to be more acceptable to their citizens than dynastic autocracies, especially in those instances…were, or have been, ruling for decades.” </li></ul><ul><li>Richard Haass, Financial Times , 9 March 2011 </li></ul>5
    7. 7. Conceptual framework 2: The legitimacy of kings <ul><ul><li>We have noted frequent reference among commentators to the “legitimacy” (or otherwise) of regimes in the MENA – and see a tendency to read into this term the existence (or otherwise) of “free and fair” elections. </li></ul></ul><ul><ul><li>However, we doubt the usefulness of this concept in the MENA context, noting that many of the regimes which have seen little if any civil unrest today are monarchies. </li></ul></ul><ul><ul><li>We therefore believe it more useful to divide the region into two categories of countries, ie those where the head of state has lost the respect of a significant proportion of the people and those where he retains their respect. </li></ul></ul><ul><ul><li>The first category (which includes former regimes in Egypt and Tunisia ) hosts Algeria (p31), Iran (p23), Libya (p9), Syria (p25) and Yemen (p16). </li></ul></ul><ul><ul><li>The second hosts most of the GCC including Saudi Arabia (p20) but not, given its sectarian divide, Bahrain (p18). </li></ul></ul><ul><ul><li>Jordan and Morocco (p22) fall, in our view, between these two categories as protestors continue to demand change while supporting the head of state. </li></ul></ul>6
    8. 8. Oil and troubled waters <ul><li>“ Because Saudi Arabia is the world’s number one [oil] producer and source of reserves, any major changes in its political stability could have major consequences.” </li></ul><ul><li>Joseph S Nye Jnr, The Future of Power (2011) </li></ul>7
    9. 9. Oil output at risk? <ul><ul><li>Libya produces just two percent of global oil output and one percent of gas. Nevertheless, political turmoil there drove the price of oil (ie Brent) up from around $104pb to $112-$118pb where it has been range-bound for 5 weeks. </li></ul></ul><ul><ul><li>Against this backdrop, we judge that markets have priced in total loss of Libyan output (partly offset by the intention of Abu Dhabi, Kuwait, Nigeria and Saudi Arabia to add 1mbpd to their total output by early April). </li></ul></ul><ul><ul><li>Continuing volatility within that range implies, we believe, understandable concern about events and prospects across the wider region. </li></ul></ul><ul><ul><li>But we see minimal direct threat to oil/gas output elsewhere in the MENA, with the possible exception of the al Qa’ida terrorism threat (p17 and p21). </li></ul></ul><ul><ul><li>That said, the speed with which contagion has spread makes it unwise to rule out near-future major losses in output elsewhere in the region. </li></ul></ul><ul><ul><li>And wider events – eg this month’s Nigerian elections – together with the need to finance additional public expenditure by some oil producers in response to the turmoil suggest that upward pressure on the oil price is likely to persist. </li></ul></ul>8
    10. 10. “ No-fly” alone is no endgame <ul><li>“ There is a strong argument for a no-fly zone. …it is among the most palatable of a series of uncomfortable options. But…it would most likely mark the beginning rather than the end of military engagement. Before setting off on this particular road, we need an honest acknowledgement of just where it may lead.” </li></ul><ul><li>Philip Stephens, Financial Times , 15 March 2011 </li></ul>9
    11. 11. Libya: An uncertain outcome to intervention <ul><ul><li>Three weeks after the start of military intervention in Libya by the international community, the outcome remains uncertain. </li></ul></ul><ul><ul><li>On 31 March, US Defence Secretary Robert Gates and Chief of Staff Mike Mullen told Congress told Congress that allied airstrikes had reduced Colonel Muammar Qaddafi’s “forward forces” by 20-25 percent. </li></ul></ul><ul><ul><li>But they stressed that this did not mean that “he’s about to break from a military standpoint” and that “the possibility of this being a stalemate and…a drawn-out affair” could not be ruled out (p12). </li></ul></ul><ul><ul><li>At the same time, loyalist forces have succeeded in the past few days in pushing back the opposition advance towards Sirte. </li></ul></ul><ul><ul><li>On the other hand, both the US and the UK have publicly stated that the 31 March defection of Libyan foreign minister, Moussa Koussa, is evidence that the Qaddafi regime is “crumbling”. </li></ul></ul>10
    12. 12. Libya Divided? Not ruled out <ul><li>“ Already there is confusion over aims. In recent days both US Secretary of State Hillary Clinton and others have said they seek the removal of Gaddafi. David Cameron said there was ‘no future that includes Gaddafi’. Admiral Mike Mullen, Chairman of the US Joint Chiefs, took a different line: ‘this is not about going after Gaddafi himself’. That message was reinforced by other American military officials….Admiral Mullen summed it up when he said that the ‘end game’ was very uncertain.” </li></ul><ul><li>Gavin Hewitt, BBC News website, 21 March 2011 </li></ul>11
    13. 13. Libya: Outcome “uncertain” <ul><ul><li>UNSCR1973 does not specifically call for “regime change” in Libya. However, public statements by leading politicians suggest that that is the objective of at least some coalition members. </li></ul></ul><ul><ul><li>Nevertheless, short of coalition ground forces being deployed (which we judge unlikely), that objective may not be easily achieved. </li></ul></ul><ul><ul><li>We therefore see three main possible scenarios in the near-term, ie: </li></ul></ul><ul><ul><ul><li>Protracted conflict: neither opposition forces nor (less likely) forces loyal to Colonel Qaddafi is able to gain a decisive edge and conflict continues; </li></ul></ul></ul><ul><ul><ul><li>Stalemate: an uneasy ceasefire prevails with opposition forces in control of the east of the country and Colonel Qaddafi holding the west; </li></ul></ul></ul><ul><ul><ul><li>Opposition victory: Colonel Qaddafi is ousted in the near future and tribal groups currently loyal to him broadly accept the new reality. </li></ul></ul></ul><ul><ul><li>Only the third of these scenarios suggests resumption of full oil production (which, even then, would take time) although the second may allow oil exports to resume in fairly quick time from the eastern province of Cyrenaica. </li></ul></ul>12
    14. 14. Egypt: The next Turkey or the next Pakistan? <ul><li>“ If Egypt is lucky, the country’s future may look most like Turkey – a functioning democracy with a strong Islamist party and a booming economy. If things go badly, Egypt’s future might look more like Pakistan – and impoverished and dysfunctional democracy, torn between fundamentalists, secularists and a powerful military.” </li></ul><ul><li>Gideon Rachman, Financial Times , 15 February 2011 </li></ul>13
    15. 15. Egypt: Work in progress… <ul><ul><li>Egypt’s transition took a significant step forward on 19 March when a new constitution was approved by over 70 percent of voters in a turn-out of over 40 percent (which was high by historic standards). </li></ul></ul><ul><ul><li>Although the draft constitution has been criticised by pro-democracy activists, voters were urged to support it by the National Democrats (who dominated Egyptian politics under the old regime) and by the Muslim Brotherhood. </li></ul></ul><ul><ul><li>Egypt is now likely to move to legislature elections no later than September and presidential elections no later than December. </li></ul></ul><ul><ul><li>However, major transitional challenges will still remain, notably: </li></ul></ul><ul><ul><ul><li>How would the army respond to a possible plurality (if not a majority) for the Muslim Brotherhood in fresh legislature elections? </li></ul></ul></ul><ul><ul><ul><li>Will a presidential candidate emerge who can secure sufficient popular support to win an election and who is acceptable to the army? </li></ul></ul></ul><ul><ul><ul><li>Will the new regime be able to agree more far-reaching constitutional changes including a shift of powers from the presidency to the legislature? </li></ul></ul></ul>14
    16. 16. … and more work for the next government <ul><ul><li>Despite these challenges, our view remains that the army will probably manage to continue to engineer a relatively smooth transition. </li></ul></ul><ul><ul><li>However, whatever the make-up of the successor regime, we believe that – again in common with other countries in the region – it will face challenges which will be, if anything, even more daunting. </li></ul></ul><ul><ul><li>Our 11 February report outlines some of the economic challenges ahead.* </li></ul></ul><ul><ul><li>Satisfactorily addressing those challenges may be made all the harder by: </li></ul></ul><ul><ul><ul><li>An illiteracy/semi-illiteracy rate of over 30%; </li></ul></ul></ul><ul><ul><ul><li>Weak civil society institutions; and </li></ul></ul></ul><ul><ul><ul><li>The possibility of unrealistic expectations on the part of Egypt’s electorate. </li></ul></ul></ul><ul><ul><li>As with transition, the direction Egypt takes could be a major determinant for the MENA as a whole. </li></ul></ul><ul><ul><li>_______________________________________ </li></ul></ul><ul><ul><li>* “Egypt: Immovable, or moving on?” by Ann Wyman and Icaro Rebolledo, Nomura Fixed Income Research, 11 February 2011 </li></ul></ul>15
    17. 17. Goodbye Saleh? <ul><li>“… one by one, the pillars of President Saleh’s power are being knocked away.” </li></ul><ul><li>BBC News website, 21 March 2011 </li></ul>16
    18. 18. Yemen: The next “domino”? <ul><ul><li>Following the reported deaths of at least 45 protestors in Yemen on 18 March, popular pressure on President Ali Abdullah Saleh to step down from power after 32 years has continued to increase. </li></ul></ul><ul><ul><li>Potentially most importantly, on 21 March a key general and former close ally of the president, Ali Mohsen al-Ahmar, announced that he and other senior staff officers had given their “peaceful backing to the youth revolution” . </li></ul></ul><ul><ul><li>The announcement was followed by the deployment of tanks around the presidential palace and other key buildings in Sana’a. </li></ul></ul><ul><ul><li>The governor of the southern province of Aden has also reportedly resigned in protest over last month’s killings. </li></ul></ul><ul><ul><li>We believe that protests are now likely to continue to escalate until Mr Saleh resigns the presidency. </li></ul></ul><ul><ul><li>However, it is unclear whether that would guarantee greater stability in a country which suffers separatist tendencies and in which al Qa’ida has its main regional presence. </li></ul></ul>17
    19. 19. Sectarian divide <ul><li>“ [Bahraini] Shia protesters complain of economic hardship, lack of political freedom and discrimination in jobs in favour of Sunnis. Other demands include the release of political prisoners and talks on a new constitution.” </li></ul><ul><li>BBC News website , 21 March 2011 </li></ul>18
    20. 20. Bahrain: Protests dampened for now <ul><ul><li>Three weeks after it seemed likely that Bahrain would draw back from violence in favour of negotiations, clashes between (largely Shia) opposition activists and security forces and government loyalists escalated. </li></ul></ul><ul><ul><li>On 14 March, these clashes led to the deployment in Bahrain of troops from other GCC countries (led by Saudi Arabia) which was followed by a concerted drive to clear protestors from the streets. </li></ul></ul><ul><ul><li>Failure to move to negotiations could, we believe, radicalise the Shia majority (elements of which were already calling for regime change rather than just constitutional reform) and potentially play to the regional advantage of Iran . </li></ul></ul><ul><ul><li>Furthermore, there are already reports that the suppression of protests in Bahrain has led to unrest among the Shia community in eastern Saudi Arabia (p21). </li></ul></ul>19
    21. 21. Monarchies may not be immune <ul><li>“ Pressure will nonetheless still grow on these monarchies to become more constitutional, and less monarchical. In Saudi Arabia, King Abdullah’s personal popularity and reputation as a reformer…may matter as much over time as his ability to placate his population with increased subsidies and cash transfers. His potential successors would also be wise to keep this in mind.” </li></ul><ul><li>Richard Haass, Financial Times , 9 March 2011 </li></ul>20
    22. 22. Saudi Arabia: Sticking to the status quo? <ul><ul><li>In the past six weeks, the Saudi authorities have announced boosts to public expenditure amounting to well over $100bn to address economic and social problems especially housing and unemployment. </li></ul></ul><ul><ul><li>King Abdullah personally announced details of the package on 19 March; but he made no mention of a government reshuffle which some commentators had hoped for to bolster reform especially to education and the legal system. </li></ul></ul><ul><ul><li>However, we judge that the package is likely to be welcomed by poorer members of Saudi society; and we note that recent two attempts to hold a “day of rage” in Saudi Arabia have been unsuccessful. </li></ul></ul><ul><ul><li>That said, instances of civil unrest have been reported in eastern Saudi in recent days (including one report on 10 March which triggered an oil price hike of $2); and a small protest was reported in Riyadh itself on 20 March. </li></ul></ul><ul><ul><li>Nevertheless, we currently see no significant indigenous threat to oil output while not ruling out the possibility of an attack on oil installations by a l Qa’ida based in Yemen. </li></ul></ul>21
    23. 23. Jordan and Morocco: Monarchies under pressure <ul><ul><li>In neither Jordan nor Morocco does the monarchy currently appear under direct threat. However, in both cases it is coming under popular pressure. </li></ul></ul><ul><ul><li>In Jordan : </li></ul></ul><ul><ul><ul><li>Protests led by the opposition Islamic Action Front (IAF), i.e., the Jordanian Muslim Brotherhood, have continued for nearly three months now and are reportedly increasing in size; </li></ul></ul></ul><ul><ul><ul><li>But the IAF has consistently stated that it supports the monarchy; </li></ul></ul></ul><ul><ul><ul><li>We note too that Jordan could be adversely affected by possible turmoil in neighbouring Iraq as the US troop drawdown is completed this year. </li></ul></ul></ul><ul><ul><li>In Morocco : </li></ul></ul><ul><ul><ul><li>Protestors in Rabat on 20 February demanded the dismissal of the government, an independent judiciary and an end to corruption; </li></ul></ul></ul><ul><ul><ul><li>Although they were not seeking the ousting of King Mohammed VI they did call for him to hand some of his powers to a newly elected government. </li></ul></ul></ul>22
    24. 24. Iran: The green shoots of revolution <ul><li>“ Not only is the green movement alive, it is also showing resilience and stamina and making progress.” </li></ul><ul><li>Meir Javedanfar, The Guardian , 22 February 2011 </li></ul>23
    25. 25. Iran: Wheels within wheels <ul><ul><li>The Iranian supreme leader, Ayatollah Ali Khamenei, appears to be continuing to try to consolidate his power after the June 2009 presidential election and the subsequent suppression of the Green Movement. </li></ul></ul><ul><ul><li>His latest move has been to oust former president Ayatollah Akbar Hashemi Rafsanjani from the presidency of the powerful Assembly of Experts. </li></ul></ul><ul><ul><li>The ousting will, in our view, deepen tensions within Iran’s ruling elite, potentially increasing the vulnerability of the regime. </li></ul></ul><ul><ul><li>Opposition among Iran’s political class to President Mahmoud Ahmadinejad also appears to be growing. </li></ul></ul><ul><ul><li>At the same time, the Green Movement has been back on the streets periodically since the major rallies of 14 February, despite the firm response of the regime in deploying the loyalist Basij militia to break up protests. </li></ul></ul><ul><ul><li>We believe that the Iranian Republican Guard Corps, effectively in control of the country since 2009, may not itself be deploying against protestors because of question marks over the loyalty of junior officers to the regime. </li></ul></ul>24
    26. 26. The road to Damascus <ul><li>“ The unrest has become the biggest threat to the rule of President Assad who succeeded his father Hafez on his death in 2000.” </li></ul><ul><li>BBC News website , 31 March 2011 </li></ul>25
    27. 27. Syria: Important beyond its own borders <ul><ul><li>Protests which began a fortnight or so ago in Dera’a have spread more widely in Syria, although to date major demonstrations in the capital, Damascus, have been by supporters of the regime. </li></ul></ul><ul><ul><li>President Bashar al-Assad has taken a number of steps to try to defuse tensions but protests are continuing as rights groups claim that between 60 and 130 people have died in clashes with security forces. </li></ul></ul><ul><ul><li>We judge that events in Syria could have wider implications, notably: </li></ul></ul><ul><ul><ul><li>Intensifying turmoil could spill over into neighbouring Iraq (p31) and Jordan (p22), which are already grappling with their own challenges; </li></ul></ul></ul><ul><ul><ul><li>Regime change could undermine Syria’s support for Hizbollah , thereby risking destabilising an already fragile situation in Lebanon (p28); </li></ul></ul></ul><ul><ul><ul><li>It could also have a negative impact on Iran’s regional influence more generally (p24); </li></ul></ul></ul><ul><ul><ul><li>And there could be as yet unpredictable consequences for Syria’s relations with Israel (p29). </li></ul></ul></ul>26
    28. 28. Lebanon faces its own challenges <ul><li>“ The absence of a powerful and repressive state is one reason for the relative social stability in Lebanon; the already precarious nature of Lebanese political stability is another.” </li></ul><ul><li>Economist Intelligence Unit , 1 March 2011 </li></ul>27
    29. 29. Lebanon: Regime change already <ul><ul><li>The Progressive Socialist Party’s recent decision to remove its support for the government of Saad Hariri and join the Hizbollah -dominated March 8 Alliance has already led to de facto regime change in Lebanon. </li></ul></ul><ul><ul><li>Najib Mikati, a businessman and former prime minister who has close relations with Syria , has been nominated as prime minister by the parliament and is now trying to form a government. </li></ul></ul><ul><ul><li>The underlying cause of these events is the UN Special Tribunal on Lebanon which is investigating the assassination of former prime minister Rafic Hariri in 2005 and may seek indictments against members of Hizbollah . </li></ul></ul><ul><ul><li>Although forming a new government is not proving straightforward, the shift in power is, we believe, already advantageous to Hizbollah (and therefore to its main backers, Iran and Syria). </li></ul></ul><ul><ul><li>Together with the current political uncertainty in Egypt and Jordan, the shift in Lebanon is likely to prove unsettling for Israel . However, we see only a low probability near-term of further military clashes between Israel and Hizbollah . </li></ul></ul>28
    30. 30. Israel: Possible early elections <ul><ul><li>Israel has notably refrained from public comment on the ongoing turmoil in MENA in recent days. </li></ul></ul><ul><ul><li>Indeed, recent statements on regional events have focused on the passage (on 22 February) of Iranian warships through the Suez Canal for the first time since 1979 (which has triggered negative sentiment in oil and equity markets). </li></ul></ul><ul><ul><li>However, we judge that shifting sands around Israel are likely to be giving Israel’s leaders considerable pause for thought – especially with a general election now no more than two years away, and possible sooner. </li></ul></ul><ul><ul><li>One possible trigger for an early election could be protests over proposed tax changes which have led to calls for a general strike later this month. </li></ul></ul><ul><ul><li>Traditionally, rising security concerns tend to favour right-of-centre parties in Israeli elections which may encourage Prime Minister Binyamin Netanyahu to seek a new mandate – probably not good news for the moribund MEPP. </li></ul></ul><ul><ul><li>However, we see at least a slim possibility that the changes sweeping MENA could encourage either this, or the next, Israeli government to try to push forward with the MEPP </li></ul></ul>29
    31. 31. A Berlin Wall moment <ul><li>“ The scale of change that is ripping through the Arab world is breathtaking. It is no longer fanciful to speak of this as the Middle East’s 1989 moment.” </li></ul><ul><li>Financial Times , 26/27 February 2011 </li></ul>30
    32. 32. Wider reverberations… <ul><ul><li>Algeria: protests are continuing against the regime of President Bouteflika; in response the government has lifted the state of emergency in place since 1992 and claims to be addressing social and economic complaints.* </li></ul></ul><ul><ul><li>Iraq: limited protests in Iraq have been overshadowed by increasing concern over the country’s prospects after the last US ground troops are withdrawn at the end of this year, especially in the light of recent al Qa’ida activity. </li></ul></ul><ul><ul><li>Kuwait: on 31 March, the Kuwaiti cabinet resigned over a dispute with the parliament revolving around recent events in Bahrain (p18) which may have sparked tensions between Kuwait’s Sunni majority and Shia minority. </li></ul></ul><ul><ul><li>Oman: although the sultan, Qaboos bin Said al Said, remains popular, protests are likely to continue absent real progress on constitutional reform and addressing unemployment and corruption. </li></ul></ul><ul><ul><li>Tunisia: limited protests are continuing – largely to demand a new constitution – even though new elections have now been set for 24 July. </li></ul></ul><ul><ul><li>________________________________ </li></ul></ul><ul><ul><li>* See “Algeria: Understanding the risks to oil” by Ann Wyman and Icaro Rebolledo, Nomura Fixed Income Research, 3 March 2011. </li></ul></ul>31
    33. 33. … and wider still <ul><li>“ Unrest in MENA highlights the possibility of successful anti-regime protests occurring in apparently unlikely environments.” </li></ul><ul><li>Economist Intelligence Unit, 10 February 2011 </li></ul>32
    34. 34. Looking north, east… <ul><ul><li>We judge that, just as the internet and mobile phone technology have been major factors in organising protests, technology in the form of television has been a key driver of cross-border contagion. </li></ul></ul><ul><ul><li>In that respect, we believe that al Jazeera may have been particularly influential – suggesting greatest impact in the Arab-speaking world. </li></ul></ul><ul><ul><li>Nevertheless, we do not rule out the possibility of wider contagion. </li></ul></ul><ul><ul><li>Notably, a recent report by the Economist Intelligence Unit (EIU) cites six potentially vulnerable regimes in the FSU – viz. Azerbaijan , Belarus , Kazakhstan , Tajikistan , Turkmenistan and Uzbekistan . </li></ul></ul><ul><ul><li>Although the EIU notes similarities between these regimes and the MENA countries, it also notes important differences. </li></ul></ul><ul><ul><li>Nevertheless, the EIU argues that changes in the MENA could encourage political evolution in the FSU; and that the re-election of the “modernising president Dmitry Medvedev” to Russia ’s presidency in 2012 could be a driver. </li></ul></ul><ul><ul><li>That said, we see little likelihood of unrest around Kazakhstan’s 3 April presidential election. </li></ul></ul>33
    35. 35. … south … <ul><ul><li>We also see a possible contagion risk from the MENA to Sub-Saharan Africa (SSA) with conflict-struck Côte d’Ivoire as a potential key. </li></ul></ul><ul><ul><li>There the defeated presidential candidate, incumbent Laurent Gbagbo, refused to step down since December’s election despite the efforts of the international community in general and the African Union (AU) in particular. </li></ul></ul><ul><ul><li>However, if – as now seems likely – he is forced from office by forces loyal to the election winner, Alassane Ouattara, it will avoid sending a signal to other incumbents in the region that they can lose elections without foregoing power. </li></ul></ul><ul><ul><li>With up to 17 countries in Africa holding elections this year – and where socio-political tensions already stand to be heightened by food price inflation – avoiding such a signal could prove important to stability across the region. </li></ul></ul><ul><ul><li>Related, given ongoing events in the MENA we expect to see some related upward pressure on the oil price in around to Nigeria ’s April elections, despite the low probability that likely civil unrest would disrupt oil output. </li></ul></ul>34
    36. 36. … west … <ul><ul><li>In assessing contagion risks, some commentators have pointed to Venezuela as a country which has common characteristics with the MENA. </li></ul></ul><ul><ul><li>We broadly agree with that assessment but doubt that there is a significant threat to the regime of Hugo Chávez at this time. Notably: </li></ul></ul><ul><ul><ul><li>Mr Chávez continues to command majority popular support including, importantly with the urban poor, as has been underlined repeatedly in reasonably well-conducted elections; </li></ul></ul></ul><ul><ul><ul><li>He also appears to enjoy the continued backing of the country’s military; </li></ul></ul></ul><ul><ul><ul><li>Although the opposition now controls 40% of the seats in the legislature – which is likely to make domestic politics more volatile – it remains disunited and has yet to present a credible alternative to the present regime. </li></ul></ul></ul><ul><ul><li>Nevertheless, with the economy continuing to struggle, we do see a rising probability of civil unrest in the run-up to the presidential election towards the end of 2012. </li></ul></ul>35
    37. 37. … and farther east <ul><ul><li>Despite comparisons between recent events in Tahrir Square and in 1989 in Tiananmen Square, we see much more important differences between contemporary China and Egypt. </li></ul></ul><ul><ul><li>Indeed, we agree with a point made in the Financial Times recently that, although protests are common in China, they are more likely to be over environment and land rights than democracy.* </li></ul></ul><ul><ul><li>Furthermore, far from posing a threat, regime change in the MENA could offer opportunities to China as economies there look for new sources of investment. </li></ul></ul><ul><ul><li>For example, Egypt , which is likely to need significant economic assistance, offers a potentially attractive destination for Chinese investment given: </li></ul></ul><ul><ul><ul><li>The size of its domestic market and its regional importance; </li></ul></ul></ul><ul><ul><ul><li>Its proximity to Sudan where China has invested heavily in oil exploitation and is now looking to assist a peaceful partition of north from south. </li></ul></ul></ul><ul><ul><li>____________________________________ </li></ul></ul><ul><ul><li>* “Why the Chinese are not inspired by Egypt” by David Pilling (Financial Times, 17 February 2011). </li></ul></ul>36
    38. 38. Today’s Tiananmen is not Tahrir <ul><li>“ There are echoes of Egypt in China to be sure. But they are faint. To watch Tahrir Square from Tiananmen Square this week was to be conscious that the differences outweigh the similarities.” </li></ul><ul><li>David Pilling , Financial Times , 17 February 2011 </li></ul>37
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