Spotlight on… Middle East
Saudi bonds sales draw strong response from investors
As part of long term efforts to diversify its economy, Saudi Arabia issued global bonds for the first time, a landmark event in the country’s history. $17.5 billion has currently been sold to investors, making it the largest-ever debt sale by a developing country.
This is the first in a number of important steps Saudi Arabia is undertaking in an ambitious strategy to distance itself from a dependency on oil revenues. There is hope that the reforms will create new jobs, particularly for its fast-growing young population, and increase the size of the Kingdom’s private sector.
The issuing of bonds comes as a direct result of the global fall in oil prices, which has considerably widened the budget gap in Saudi Arabia, expected to hit $87 billion by the end of 2016. The fiscal deficit also reached approximately 16% of nominal gross domestic product in 2015. The Kingdom posted a record deficit of $98 billion last year. It is also embroiled in costly conflicts in both Yemen and Syria.
This is the beginning of reforms within the Kingdom which is likely to be attractive for investors and businesses, who see potentially new areas opportunities emerging there in the future. The strong demand for bonds enabled Saudi Arabia to sell at yields below initial marketing plans. The offering attracted an estimated $67 billion in orders. Five-year bonds paid a yield of about 2.58%, compared with initial guidance of 2.83%.
Lebanese Presidential Crisis: Hezbollah ally receives key backing
The political deadlock around the election of a new Lebanese president may be about to end after former Prime Minister Saad Hariri has formally endorsed rival politician Michel Aoun, a former military chief and ally of Hezbollah. The endorsement by Hariri, Lebanon’s leading Sunni Muslim politician (a long time opponent of Aoun’s Shi’ite partner Hezbollah), could end the period of prolonged deadlock amongst Lebanon’s political elite. This could allow the 81-year old Maronite Christian leader to become Lebanon’s new president, a role which has remained vacant for almost two and a half years.
Hariri claimed to have reversed his stance after all other options had been exhausted. He emphasised that the move will safeguard Lebanon, its political system, as well as the Lebanese people. There is also a need to reboot the economy, and distance the country from the war in Syria. Over a million Syrian refugees have fled to Lebanon, putting severe pressures on Lebanon’s already stretched resources and infrastructure. This has exposed and intensified divisions in Lebanon, with Hezbollah and its allies backing Assad’s regime, and Hariri and his partners supporting the revolution.
Lebanon’s 128-member parliament is now expected to vote on the President this week. This will be the the 46th vote since former President Sleiman’s term ended in May 2014. Nonetheless, the 46th vote may not be last, with opposition to the nomination remaining within Hariri’s Saudi and Western-backed Sunni-majority party – at least two leading members are set to vote against the proposal. Parliamentary speaker Nabih Berri, leader of the Shi’ite Amal movement, another ally of Hezbollah, is also an opponent of the move.
While this seems to be the most promising move in terms of breaking political deadlock, the cyclical movement from political crisis to the next in Lebanon appears unlikely to cease. The political uncertainty, coupled with the struggle to cope with the pressures of the refugee crisis, are likely to remain key issues in detracting potential investors into Lebanon.
Battle for Mosul commences: the impact for Iraq and surrounding states
Iraqi security forces, along with Kurdish Peshmerga fighters and some local militias, began an operation to recapture the city of Mosul from ISIS. It is believed to be the largest and most complex battle in the two-year war to drive ISIS out of Iraq.
Although troops remain at some distance from the city, aid agencies have warned that the offensive could result in a massive humanitarian crisis. While the army attempts to regain control the city, Iraqi civilians are believed to be living in dire conditions after escaping from Mosul. Dealing with the displaced people will be one of the sternest tests facing Baghdad. 8,000 refugees are already believed to have fled over the border into war-torn Syria, according to officials running the northeaster Kurdish-held enclave across the border. The UN refugee agency estimates that a further 100,000 people may cross the border into Syria or Turkey. This will add more pressure to a state already hosting over 2 million Syrians.
The driving out of ISIS from Iraq could, in the long term, provide a new period of stability in Iraq, a country recently swamped with sectarian conflict. Nevertheless, the inevitable humanitarian crisis is likely to be damaging for the Iraqi economy, with Iraq expected to require assistance in conjunction with international aid. Similarly, any additional numbers of refugees will put added economic and social pressures on both Iraq, and its neighbour Turkey, with the potential risk of even impacting the European migrant crisis. ISIS fighters have started carrying out terrorist attacks in other Iraqi cities to draw the government’s manpower away from Mosul. This is likely to bring an increase in terrorism to Iraq in the short term, making the security situation for businesses with assets there even more ominous than usual
Turkish intervention against Kurdish fighters in Syria
On the 19th of October, Turkish warplanes targeted Kurdish fighters in northern Syria, the largest attack conducted by Turkish forces against the US-allied YPG since the Turkish military began its military intervention in Syria two months ago.
The military action was taken against Kurdish combatants fighting ISIS militants near Afrin, a city about 25 miles northwest of Aleppo. There were reports by the Turkish military of a cross-border exchange of fire soon after the bombings – several mortars from Afrin landed in the Turkish province of Hatay.
Turkey intervened in Syria in August to assist Syrian rebel groups in the fight against ISIS. Turkish President Recep Tayyip Erdogan also stated that a secondary aim of the intervention is to also to limit the strength of YPG, the military wing of the Syrian Kurdish opposition Party for Democratic Unity, or PYD. The YPG has links with the PKK in Turkey.
The new period of conflict with the Kurds has a real risk of spilling over the border back into Turkey, where a ceasefire between the Turkish government and the PKK ended in the latter months of 2015. Any resumption in violence could detract international investment and severely affect key parts of Turkey’s economy such as tourism – already weakened by the recent wave of terror attacks in the country.
About Lawrence Toye
I am a second year BSc Government and Economics student at the LSE. I’m also currently the Vice President of PRIS. My main area of interest within political risk is the Middle East and North Africa, in particular the Levant. This interest began after several months of studying and travelling within the region.
