China will ultimately set Gulf Arab ties above Iran

Significance There has been increased Western media speculation over a possible deepening of the Iran-China relationship -- and the implications for Gulf stability -- following the leaking in July of plans for a 25-year partnership agreement, including large-scale infrastructure investment and increased cooperation in energy and security affairs. Impacts When faced with significant economic costs, Beijing will likely adhere to US sanctions rather than supporting Tehran. China will prioritise efforts to prevent Iran from developing a nuclear weapon. If Donald Trump retains the US presidency, he will increase pressure on Gulf Arab countries to choose between Washington and Beijing. Riyadh could step up diplomatic efforts to convince Beijing that Tehran’s armed proxies destabilise the region.

Subject The revival of the Trans-Pacific Partnership. Significance US President Donald Trump in January announced Washington's withdrawal from the Trans-Pacific Partnership trade agreement (TPP), bringing its implementation to a standstill. Without US participation, the TPP looked dead, since the US economy is larger than the other eleven economies combined. Nevertheless, after months of uncertainty, the project was revived by the eleven members under the leadership of Japan. Impacts Failure or watering down of a TPP-11 would leave China a greater role in setting global standards and norms. Progress towards the TPP-11 could speed up the Regional Comprehensive Economic Partnership and EU-Japan economic partnership agreement. Other states will seek TPP membership in the future, with Taipei and Seoul likely candidates.


Significance Informal ties between Israel and some of the Gulf Arab monarchies in economic, intelligence, and security affairs are growing, encouraged by the prospect of a US-mediated rapprochement on the Israeli-Palestinian issue. Impacts Iranian and salafi-jihadi threats could boost Israel’s mutual intelligence-sharing with Saudi Arabia and the UAE. Any dramatic deterioration in relations with Iran could encourage Gulf Arab monarchies to reach out to Israel as a deterrent signal. Closer cooperation with Arab countries may reduce pressure on Israel to agree to an independent Palestinian state.


Significance Kuwait’s latest corruption scandal has led to the dissolution of the government and forced out top ministers. Its outcome highlights the extent to which the emir still manages political life, despite the fact that parliament is more powerful than in other Gulf Arab countries. Impacts Lack of leadership and a unified voice will limit the prospects for large-scale anti-corruption protests, despite popular concerns. Opposition MPs will call for electoral reform returning to four votes per person, seen as strengthening political blocs against tribes. Legislation to naturalise some of the 100,000-strong ‘bidoon’ (stateless) population is likely to remain blocked.


Subject Elections analysis versus prediction. Significance The nomination of Donald Trump as the Republican Party's candidate for the US presidency raises questions for how analysts ought to respond to unlikely scenarios and how 'analysis' differs in its construction from prediction. His victory raises the question whether the low probability assigned by many observers to his chance of winning was accurate, and he nevertheless won due to the inherent volatility of primary politics, or if it was the result of fundamentally flawed modelling from the outset. Impacts Past elections suggest Republicans will face hurdles in the Midwest and Northeast against Clinton, but Trump argues he has unique appeal. Gauging analytical quality on the basis of a single high-profile event may encourage misleading deference to previously correct analysts. Including uncertainty levels is a key, but often neglected, part of creating sound predictive models. Threshold events, such as a 'winner-take-all' primary or 'first-past-the-post' election, can see minor shifts lead to outsized outcomes.


Subject Mexican development banks. Significance Mexican foreign trade financing bank Banco de Comercio Exterior de Mexico (Bancomext) has signed several cooperation agreements this year in Asia and Europe, in an effort to diversify trade and investment relationships. The push comes amid great uncertainty in the global economy and increased tensions in the US-Mexico relationship since the election of US President Donald Trump. Impacts Bancomext's efforts to increase export opportunities will especially benefit smaller Mexican firms. Foreign financial institutions will welcome opportunities to strengthen access to Latin America’s second-largest economy. Strong loan growth by development banks will not threaten commercial banks as the two sectors work together.


Significance US President Donald Trump declined to certify on October 13 that continued sanctions relief for Iran under the Joint Comprehensive Plan of Action (JCPOA) is in the US national interest. Reintroducing nuclear-related sanctions targeting third-country companies doing business with Iran -- ‘secondary sanctions’ -- could have a significant impact on European investments in Iran. Impacts With financing a requirement for business engagement, banks’ hesitation to engage with Iran will curb European investments. Transatlantic sanctions policy coordination is likely to deteriorate further, with the private sector caught in the crossfire. High-value hydrocarbons and aircraft contracts may make investing in Iran worth the risk for large firms, but other sectors may not follow.


Subject Quantitative easing and GDP. Significance The US Federal Reserve (Fed), Bank of Japan (BoJ) and ECB have all conducted quantitative easing (QE) programmes since 2008, purchasing assets from commercial banks on a large scale and without predefined repurchase agreements. These purchases have swollen the balance sheets of the three largest central banks and provided commercial banks with large liquidity buffers. Impacts The pace of the Fed withdrawing liquidity may slow; if US-China conflict worsens or another shock occurs, the Fed may consider reversing. In the euro-area, there are no new liquidity provisions, at a time when German GDP is weakening and Brexit threatens EU growth. New liquidity-provision plans may be hard for the euro-area to agree; if this is off the table, so are liquidity-withdrawing measures. The BoJ may stop scaling back its bond and ETF holdings if markets suffer; the upcoming sales tax rise will also hit spending.


Subject The Paris Agreement and US withdrawal. Significance President Donald Trump announced his intention to withdraw from the Paris Agreement on climate change on June 1, prompting criticism from around the world. While current pledges are unlikely to change and the agreement will not see flight or withdrawal by other countries, US withdrawal imperils the ability of the agreement’s structure to accelerate climate action to a scale necessary to meet its objective of limiting global warming to below 2 degrees centigrade by 2100. Impacts The US private sector and sub-national polities will increase their climate action, though the loss of federal support will still be felt. A future US administration could re-enter the agreement, but substantial momentum will be lost diplomatically in the intervening years. Calls for greater adaptation -- rather than mitigation -- funds from climate-vulnerable states will grow more strident.


Subject The State Department. Significance The US State Department’s third-ranking official and most senior career diplomat, Tom Shannon, announced his departure on February 1. While the 60-year old Shannon said he was stepping down for personal reasons, he is only the latest in a stream of senior career diplomats who have left since Donald Trump became president a year ago and appointed Rex Tillerson as secretary of state with a mandate to downsize the department. Impacts Minimising the benefits of diplomacy in favour of military action could exacerbate foreign policy crises and conflicts. White House heel-dragging on filling posts both 'streamlines' State and avoids congressional confirmation scrutiny of political nominees. Concerned that State wields little influence with the White House, Congress will be more assertive in the foreign policy process. Other powers -- particularly US allies -- will seek and have increased direct influence on the White House, cutting out State.


Significance However, Republican President Donald Trump is alleging that vote tallies are fraudulent and inaccurate. He is seeking recounts and undertaking lawsuits over alleged vote-counting irregularities. Impacts Two run-off elections in Georgia will determine whether the US Senate stays Republican or is tied 50-50 with the Democrats. Given the type of complaints raised by Trump’s campaign, prospects for a Supreme Court intervention look remote. Controversy over the election result will linger, perhaps until the 2024 presidential election.


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