Moody’s downgrades Israel’s credit rating

Global rating agency Moody's on Friday affirmed its sovereign credit rating at ‘A1 but downgraded the outlook on the Israeli government's credit ratings to ‘stable’, from ‘positive’.

In a statement, Moody's explained that the affirmation of the ‘A1’ rating reflects Israel's strong economic growth and improving fiscal strength which Moody's expects to continue in its baseline scenario. The economy has proven resilient to many economic and geopolitical shocks over the past decades and has grown at a rapid clip, helped by Israel's globally competitive high-tech industries.

Moody's concerns

Regarding the decision to downgrade the outlook, Moody's wrote that the change of outlook to stable from positive reflects a deterioration of Israel's governance, as illustrated by the recent events around the government's proposal for overhauling the country's judiciary... The manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability. As a result, the risks on Israel's rating are now balanced, leading to a stable outlook.

"All in all, the recent events offset the positive developments that had led Moody's to assign a positive outlook in April 2022, which related to strong economic and fiscal performance and the implementation of structural reforms by the previous government," the statement continued.

The agency had upgraded Israel's outlook to 'positive' in April 2022, explaining then that the key drivers for the change in outlook included the government's reform agenda that aimed to address longer-term challenges and the agency's expectation of a further reduction in the government's debt ratio.

Netanyahu and Herzog spoke with Moody's

Prime Minister Benjamin Netanyahu and President Isaac Herzog spoke to officials at Moody’s on Friday before the publication of the rating, in order to sway them not to downgrade the rating.

Israel's current rating ‘A1’ is an upper-medium score. This indicates that Israel is capable of repaying short-term loans.

Moody had previously warned the government of economic impacts on its proposed legislative policies and many economists echoed these concerns.

In March, Moody said the reform, if implemented in full, could materially weaken the strength of the judiciary and be credit negative. The planned changes could also pose longer-term risks for Israel’s economic prospects, particularly capital inflows into the important high-tech sector.

Fitch, another credit assessor, previously chose to maintain Israel’s A+ credit rating in March, but with a caveat of its own, “Fitch believes the reform could hurt Israel’s credit profile by weakening governance indicators or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment.”

OPEC Plus gaining control of oil market

According to M.K. Bhadrakumar, a former Indian diplomat, the recent shocking oil production cuts from May outlined by the OPEC Plus essentially means that eight key OPEC countries decided to join hands with Russia to reduce oil production, signaling that OPEC and OPEC Plus are now back in control of the oil market.

No single oil producing country is acting as the Pied Piper here. The great beauty about it is that Saudi Arabia and seven other major OPEC countries have unexpectedly decided to support Russia’s efforts and unilaterally reduce production.

While the eight OPEC countries are talking about a reduction of one million barrels per day (bpd) from May to the end of 2023, Russia will extend for the same period its voluntary adjustment that already started in March, by 500,000 barrels.

Now, add to this the production adjustments already decided by the OPEC Plus previously, and the total additional voluntary production adjustments touch a whopping 1.6 million bpd.

Fundamentally, many analysts had forewarned, the Western sanctions against Russian oil creating distortions and anomalies in the oil market and upsetting the delicate ecosystem of supply and demand, which were compounded by the incredibly risky decision by the G7, at the behest of the US Treasury, to impose a price cap on Russia’s oil sales abroad.

On top of it, the Biden administration’s provocative moves to release oil regularly from the US Strategic Petroleum Reserve in attempts to micromanage the oil prices and keep them abnormally low in the interests of the American consumer as well as to keep the inflationary pressures under check turned out to be an affront to the oil-producing countries whose economies critically depend on income from oil exports.

The OPEC Plus calls the production cuts a precautionary measure aimed at supporting the stability of the oil market. In the downstream of the OPEC Plus decision, analysts expect the oil prices to rise in the short term and pressure on Western central banks to increase due to the possible spike in inflation.

What stands out in the OPEC Plus decision is that Russia’s decision to reduce oil production by the end of the year has been unanimously supported by the main Arab producers.

Independent but time-coordinated statements were made by Saudi Arabia, the UAE, Kuwait, Iraq, Algeria, Oman and Kazakhstan, while Russia confirmed its intention to extend until the end of the year its own production reduction by 500,000 barrels per day, which began in March.

Significantly, these statements have been made precisely by those largest oil producers in OPEC, who have a record of fully utilizing their existing quota. Put differently, the reduction in production is going to be real, not just on paper.

Partly at least, the banking crisis in the US and Europe prompted the OPEC Plus to intervene. Although Washington will downplay it, in March, Brent oil prices fell to US$70 per barrel for the first time since 2021 amid the bankruptcy of several banks in the US and the near-death experience of Credit Suisse, one of the largest banks in Switzerland. The events sparked concern about the stability of the Western banking system and fear of a recession that would affect oil demand.

There is every likelihood that tensions may increase between the US and Saudi Arabia as higher oil prices will push inflation and make it even more difficult for the US Federal Reserve to find a balance between raising the key rate and maintaining financial and economic stability.

Equally, the Biden administration must be furious that practical cooperation is still continuing between Russia and the OPEC countries, especially Saudi Arabia, notwithstanding the West’s price cap on Russian oil and Moscow’s decision to unilaterally cut production in March.

However, the Biden administration has only a limited range of options to respond to the OPEC Plus surprise move, one, go for another release of oil from the Strategic Petroleum Reserve; two, pressure US producers to increase domestic oil output; three, back legislation that would allow the United States to take the dramatic step of suing OPEC nations; and, four, curb the US export of gasoline and diesel.

To be sure, the OPEC Plus production cut goes against the Western demand to increase oil output even as sanctions were imposed against Russian oil and gas exports. On the other hand, the disruption in oil supplies from Russia contributed to the rising inflation in the EU countries.

The US wanted the Gulf Arab states to step in and step-up oil production. But the latter did not oblige because they felt that there wasn’t enough economic activity in the West and there were clear signs of recession contrary to expectation.

Thus, as a result of the sanctions against Russia, Europe is facing the complex situation of inflation and near-recession known as stagflation.  In reality, the adaptive and agile OPEC Plus read the situation correctly and has shown that it is willing to act ahead of the curve.

At a time when the world economy is struggling to grow at a healthy rate, the demand for oil would be relatively less, and it makes sense to cut oil production to maintain the price balance.

All that the Western leaders can complain about is that the OPEC Plus cut in oil output has come at an inappropriate time. But the woes of Western economies cannot be laid at the door of OPEC Plus as there are inherent problems which are now coming to the surface.

For instance, the large-scale protests in France against pension reform or the widespread strikes in Britain for higher wages show that there are deep structural problems in these economies, and the governments seem helpless in tackling them.

In geopolitical terms, the OPEC Plus move came after a meeting between Russian Deputy Prime Minister Alexander Novak and Saudi Energy Minister Prince Abdulaziz bin Salman in Riyadh on March 16 that focused on oil market cooperation. Therefore, it is widely seen as the tightening of the bond between Russia and Saudi Arabia.

In fact, in May, as the largest members of OPEC join Russia in its unilateral reduction, the balance of quotas and the ratio of market shares between and amongst the participants in the OPEC Plus deal will return to the level set when it was concluded in April 2020.

The rise in crude oil prices particularly benefits Russia. Simply put, the production cuts will tighten up the oil market and thus help Russia to secure better prices for the crude oil it sells. Second, the new cuts also confirm that Russia is still an integral and important part of the group of oil producing countries, despite the Western attempts to isolate it. Third, the consequences of the decision are all the greater because, unlike the previous cuts by the OPEC+ group at the height of the pandemic or last October, today, the momentum for global oil demand is up, not down—what with a strong recovery by China expected.

That is to say, the surprise OPEC Plus reduction further consolidates the Saudi-Russian energy alliance, by aligning their production levels, thus placing them on equal footing. It is a slap in the face for Washington.

Make no mistake, this is another signal regarding a new era where the Saudis are not afraid of the US anymore, as the OPEC leverage is on Riyadh’s side.

The Saudis are only doing what they need to do, and the White House has no say in the matter. Clearly, a recasting of the regional and global dynamics that has been set in motion lately is gathering momentum. The future of the petrodollar seems increasingly uncertain.

 

Iraq key destination of Chinese investment

In recent years, Iraq has become one of the leading destinations for Chinese investments in the Middle East and a crucial link in Beijing's Belt and Road Initiative (BRI).

To capitalize on its geostrategic location and central position within the Chinese BRI, Iraq is seeking to develop a sprawling new 54-square-kilometer port project in the far southern town of al-Faw, known as al-Faw Grand Port, which will reduce the country’s reliance on Arab Gulf ports and overland transit from Iran and Turkey for its imports.

The project also underscores Iraq’s growing economic rivalry with neighboring Iran, as both countries seek to carve out a similar niche in handling regional transit traffic.

A number of hurdles have hampered Iraq’s efforts to diversify its economy, including extreme underinvestment and widespread corruption. There are some signs that change may be on the horizon.

Earlier this month, Baghdad reached an agreement with France’s TotalEnergies to move forward with a massive, long-delayed US$27 billion energy project, highlighting the potential for foreign investment and partnerships to contribute to Iraq’s economic growth and development.

This follows an earlier deal, announced in July 2021, between the Iraqi Ministry of Oil and China National Chemical Engineering Co. (CNCEC), whereby CNCEC will develop an integrated petrochemicals and refining complex at al-Faw capable of producing 300,000 barrels per day (bpd) of oil as well as, in a later second phase, 3 million tons per annum (mtpa) of petrochemicals.

International companies are increasingly showing interest in investing in Iraq's energy and infrastructure sectors in particular. This could help to improve the country’s economic prospects and reduce its reliance on oil exports, which accounted for 95% of its federal budget revenue in 2022.

The success of projects like these will depend on a range of factors, including security conditions, political stability, and the government’s ability to create a favorable investment climate.

The al-Faw project includes the construction of a new port, dry dock, oil terminal, dry canal, and associated transportation infrastructure, and once completed, it is expected to become one of the main pillars of Iraq's economy. According to recent reports, phase one is set to be finished in 2025 and will have the capacity to handle 20-45 mtpa of cargo.

The dry canal will provide land connectivity to the Turkish border via road and rail, linking up with port and rail infrastructure in Turkey, especially in Mersin and Istanbul. If successfully completed, al-Faw could leverage its location and connectivity with Turkey and Syria to become a leading container terminal and one of the largest ports in the world.

In December 2022, Basra hosted the second al-Faw International Conference, the focus of which was to highlight the al-Faw port and dry canal. Iraq’s central goal is to link this project with China's broader BRI and bill it as part of an alternative route to the Suez Canal and the North-South Corridor. China’s overall investment in the Middle East, North Africa, and Turkey between 2005 and 2022 totaled US$273 billion.

Iraq has become an increasingly important partner for China in recent years, with a particular focus on the energy sector. Beijing inked deals with Baghdad worth US$10.5 billion in 2021 alone.

Chinese companies have secured contracts to develop and operate several major oil and gas assets, including the Rumaila and Halfaya oil fields. Chinese firms have also been involved in building and operating power plants and other infrastructure projects in Iraq, in addition to investing in telecommunications and agriculture. China's investments have contributed significantly to Iraq’s economic development and have strengthened economic ties between the two countries.

The focus on al-Faw and China’s investments in Iraq has also underscored neighboring Iran’s limited role in international transit and trade, an area in which Tehran punches far below its weight. Given its central location and status as a land bridge between South and Central Asia and the Middle East, Iran should play a major role in both the East-West and North-South corridors — the former connects the Caucasus, Central Asia, and China to the Middle East and Europe via Iran, while the latter links Russia and Central Asia to the Persian Gulf and India through Iran — but Tehran has not capitalized on either opportunity.

Despite its natural advantages, Iran has failed to become an important strategic hub for the transportation of goods due to a combination of factors, including economic sanctions, political instability, and outdated transportation infrastructure, especially for railways and ports.

The development of al-Faw Port in Iraq could represent a further challenge to Iran’s aspirations in this area. Ali Hosseini, the head of the Transport and Logistics Commission of the Iran Chamber of Commerce, believes that, in the future, al-Faw will become a major competitor for Iran.

With help from Turkey and the UAE, Iraq is trying to link al-Faw to Iraq’s national railway and connect that railway to Turkey in the north, creating an alternative transportation corridor that will likely have a negative impact on Iran's transit traffic to Turkey.

At present, an estimated 90% of transit traffic through Iran moves by road. While there is an existing railway between Iran and Turkey, it is limited and often disrupted by political tensions between the two countries.

The volume of trade between Iran and Turkey is significant, reaching US$6.42 billion in 2022, up from US$5.59 billion the year before, but the lack of reliable transportation infrastructure has hindered its growth.

Officials in Tehran have accused the United States of interference and suggested that Baghdad is under pressure from Washington to impede Iran’s development of a viable north-west transit corridor.

They also claim that Turkey is exerting influence on Iraq to back its railway link to Asia, in line with Ankara’s ambition of becoming a regional hub for energy and communication.

As a result, it is highly likely that Iran will use Iraq’s actions in this space as leverage in their bilateral negotiations over energy and agricultural trade, and this could potentially strain the relationship between the two countries in the future.

 

Iran raises concerns over US biological labs in Ukraine

Iranian Foreign Ministry spokesman Nasser Kanaani has reacted to reports that the United States has established military biological labs in Ukraine, saying the labs are deeply worrying.

“Reports about the US military biological labs in Ukraine and some other countries are deeply worrying,” Kanaani said on Twitter. 

He added, “These activities are in breach of the US's commitments, especially the Biological Weapons Convention, and pose a threat to humanity, hence they need an impartial international investigation.”

A Russian state Duma committee has recently released a report saying that Washington is building biological weapons all over the world, according to IRNA. 

American-made biological weapons are able to destroy not only human beings, but also animals and even agricultural products to cause irreparable economic damage to the enemy. 

The Russian investigation committee called the possibility of covert use of biological weapons as completely peaceful industrial products alarming.

The Russian Duma assessed the American biological weapons program as the greatest threat to the biological security of the world. “In recent years, the US biological weapons program has not only not been limited, but has become more aggressive,” it said. 

The presence of American biological laboratories in Africa, Asia, the Caucasus, Kazakhstan and Ukraine has provided the basis for collecting information on the biological infrastructure of the host countries, according to the Russian state Duma. 

 

Saudi Arabia welcomes resumption of diplomatic ties between Bahrain and Qatar

Saudi Arabia has welcomed the resumption of diplomatic relations between Bahrain and Qatar, which was announced following the second Qatari-Bahrain follow-up committee meeting in Riyadh.

The Ministry of Foreign Affairs applauded this constructive step, which affirms the robustness of relations among members of the Gulf Cooperation Council (GCC) and advances joint Gulf action that achieves the aspirations of the region's states and peoples.

The United States congratulated Bahrain and Qatar on their decision to resume diplomatic ties, State Department Principal Deputy Spokesperson Vedant Patel said Thursday.

"This breakthrough represents a crucial step in our collective efforts to forge a more integrated, stable, peaceful, and prosperous region," Patel noted in a press release one day after the two GCC states reached a deal in this regard.

"The United States has sought to promote regional integration and de-escalation, including among these two important partners and Gulf Cooperation Council member states.

"The United States will continue to actively work with regional partners to advance this shared aim of a more integrated, stable and prosperous Middle East region," he added.

GCC Secretary-General Jassem Albudaiwi applauded the step, which stems from the directives of the leaders of the GCC countries that were issued at the "Sultan Qaboos and Sheikh Sabah Summit", which was held in AlUla in 2021.

He added that those instructions embody the GCC leaders' keenness to secure the future and protect the cohesion of the Council in line with key attributes of the links connecting the Council member states, including the bonds of kinship, friendship, brotherhood, history and common destiny, and unity which are the pillars of the GCC blessed march.

In a statement, the Cairo-based Arab Parliament hailed the Bahraini-Qatari agreement as a positive step toward enhancing joint Arab action and regional security and stability.

 

Zelensky accused for embezzlement of millions of dollars

Ukrainian President Volodymyr Zelensky embezzled hundreds of millions of dollars that the United States allocated for the purchase of fuel, according to Pulitzer Prize-winning journalist Seymour Hersh.

In his blog, Hersh writes – The Ukraine government, headed by Volodymyr Zelensky, has been using American taxpayers’ funds to pay dearly for the vitally needed diesel fuel that is keeping the Ukrainian army on the move in its war with Russia.

It is unknown how much the Zalensky government is paying per gallon for the fuel, but the Pentagon was paying as much as US$400 per gallon to transport gasoline from a port in Pakistan, via truck or parachute, into Afghanistan during the decades-long American war there.

The issue of corruption was directly raised with Zelensky in a meeting last January in Kyiv with CIA Director William Burns. His message to the Ukrainian president, I was told by an intelligence official with direct knowledge of the meeting, was out of a 1950s mob movie.

The senior generals and government officials in Kyiv were angry at what they saw as Zelensky’s greed, so Burns told the Ukrainian president, “He was taking a larger share of the skim money than was going to the generals.” 

Burns also presented Zelensky with a list of thirty-five generals and senior officials whose corruption was known to the CIA and others in the American government. Zelensky responded to the American pressure ten days later by publicly dismissing ten of the most ostentatious officials on the list and doing little else.

“The ten he got rid of were brazenly bragging about the money they had—driving around Kyiv in their new Mercedes,” the intelligence official told me.

Meanwhile, Hersh, citing an intelligence official, said that the sabotage of the Nord Stream pipelines and lack of strategic planning with regard to Ukraine had caused a growing rift between the White House and the US intelligence community.

“There is a total breakdown between the White House leadership and the intelligence community,” the intelligence official was quoted by Hersh as saying.

The alleged rift dates back to the covert operation last fall to blow up Russia’s Nord Stream pipelines, a move that was purportedly ordered by President Joe Biden.

“Destroying the Nord Stream pipelines was never discussed, or even known in advance, by the community,” the official said.

Another issue dividing the Biden administration and the intelligence community is the lack of planning on Ukraine. The official highlighted Biden’s decision to deploy two brigades a few miles from the Ukrainian border in response to Russia’s special military operation.

The actual manpower of the 101st and 82nd airborne divisions could total more than 20,000, but there is still “no evidence that any senior official in the White House really knows what’s going on in” the brigades, the intelligence officials told Hersh.

“Are they there as part of a NATO exercise or to serve with NATO combat units if the West decides to engage Russian units inside Ukraine? Are they there to train or to be a trigger? The rules of engagement say they can’t attack Russians unless our boys are getting attacked,” the official said.

The official said that while the White House lacks clarity on its policy in Ukraine, the Pentagon is somewhat optimistically preparing for an end to the conflict. Two months ago, the US Joint Chiefs tasked members of the staff with drafting an end-of-war treaty to present to the Russians “after their defeat on the Ukraine battlefield,” Hersh said, citing a source.

But it remains unclear what will happen if the Pentagon’s scenario goes wrong and Ukrainian forces fail on the battlefield. Will the two American brigades deployed close to the war zone join forces with NATO troops and face off with the Russian army inside Ukraine? Hersh asks.

 

Afghanistan should not be used for geopolitical rivalry

On Thursday, the foreign ministers of Iran, China, Russia and Pakistan held a quadrilateral informal meeting on Afghanistan in Samarkand, Uzbekistan to discuss the situation in the war-torn country.

Among the four countries meeting in Samarkand, Iran, Pakistan and China share border with Afghanistan, which fell to the Taliban in August 2021.

The chief diplomats released a joint statement in which they called on Taliban authorities to form an inclusive government with the participation of all ethnic groups and political institutions.

Meanwhile, the statement also asked the de facto authorities to lift all restriction measures against women and ethnic minorities in the country.

The statement also emphasized that a peaceful Afghanistan is in the international community’s interest and that the country should be a place for international cooperation rather than geopolitical rivalry.

The statement also blamed the United States and its allies for the current state of affairs in the country and asked for the immediate lifting of unilateral sanctions against Afghanistan and releasing its assets to benefit the people. 

The four foreign ministers also stressed the importance of respecting Afghanistan’s sovereignty, independence and territorial integrity.

They also expressed their support for the principle of “Afghan ownership and Afghan leadership” to determine the political and development path of the country, according to Press TV.

The four countries also expressed concern about the security situation and the growing terrorism in Afghanistan. They reiterated that terrorist groups based in Afghanistan severely threaten regional and global peace. 

Meanwhile, the four countries asked the de facto government in Kabul to “take tangible action in fighting against terrorism and eliminating terrorist groups in the country.”

All terrorist groups based in the country, including Daesh, East Turkestan Islamic Movement (ETIM), Tehreek-e-Taliban Pakistan (TTP), Balochistan Liberation Army (BLA) and Jaish ul-Adl pose a serious threat to regional and international security, the ministers warned.

The first quadrilateral meeting on Afghanistan was held on September 16, 2022 on the sidelines the Shanghai Cooperation Organization (SCO) summit in Dushanbe, the capital of Tajikistan.