Implications of Saudi-Iran deal for Pakistan

Implications of the apparent rapprochement between Saudi Arabia and Iran extend even further, with significant consequences for vital neighboring regions like South Asia and other populous Muslim countries, including, notably, Pakistan.

The recent announcement of a China-brokered peace deal between Saudi Arabia and Iran initially took the world by surprise. The debate persists concerning whether this deal will last, its potential implications for the United States, what it means for the Middle East region (including Israel), and what brokering this agreement indicates about China’s rising power.

Pakistan has for decades been an arena in the proxy war between Riyadh and Tehran that was sparked soon after the Iranian Revolution in 1979.

Saudi Arabia provided financial and ideological backing to many Sunni militant groups trained in Pakistan that the US Central Intelligence Agency (CIA) was arming to wage a jihad against the Soviets in Afghanistan. Some of these groups, such as Sipah-e-Sahaba, and its offshoot, Lashkar-e-Jhangvi, later turned their guns on the sizeable Shi’a minority in Pakistan.

Iran responded by offering support to Pakistani Shi’a militants to counter this Sunni militancy. Iran also began to cooperate with India in Afghanistan after the Soviets withdrew in 1989 and US attention shifted away from the region.

New Delhi and Tehran notably both supported the Northern Alliance — comprised of a mixture of ethnic minorities, including the Shi’a — in the latter’s resistance to the predominantly Sunni Pashtun Taliban, which enjoyed good relations with Riyadh and Islamabad.

The post-9/11 US-led intervention in Afghanistan caused a seismic shift in regional alliances. Motivated, in part, by its longstanding rivalry with the United States, Iran began cultivating ties with the Taliban as they waged war against the US and North Atlantic Treaty Organization (NATO).

Pakistan’s relations with Iran also improved during this time. Despite some friction along their shared border, Iran and Pakistan broached the possibility of regional energy cooperation, which ultimately led to the two countries signing a bilateral natural gas pipeline deal in 2013. Nonetheless, Pakistan continued dragging its feet on completing its portion of the pipeline, fearing both Saudi and American displeasure over cooperation with its heavily sanctioned western neighbor.

Pakistan’s relations with the US, meanwhile, have been tenuous at best, soured by their divergent strategic objectives in Afghanistan and America’s increasing reliance on India to counteract Chinese influence across South and Southeast Asia.

Pakistan has doubled down on its military and diplomatic ties with China, and the two have significantly boosted their economic ties by launching the US$62 billion China-Pakistan Economic Corridor (CPEC) in 2015, dubbed a flagship project of China’s ambitious Belt and Road Initiative (BRI).

China included many Middle Eastern countries in the BRI, and it inked a 25-year strategic trade and investment accord with Iran in 2021, estimated to be worth between US$200 billion and US$300 billion. China’s move to involve Iran in the BRI may partly have been prompted by its desire to undermine India’s investment in the Iranian Chabahar deep-sea port on the Indian Ocean, viewed as a rival to the Chinese-controlled Pakistani deep-sea port in Gwadar.

For its part, Iran is trying to balance its relations with India and China. India used the Chabahar seaport to send shipments to Afghanistan, bypassing the need to cross Pakistani territory. Despite facing constraints due to the international sanctions regime, India had secured US waivers to buy Iranian oil and to invest in Chabahar.

Whether India will be able to maintain those relations with the Islamic Republic as its ties with the US continue to grow remains to be seen, but the increasing acrimony between China and India certainly makes it unlikely that Chabahar and Gwadar can become ‘sister ports’ to help enhance broader regional trade and connectivity.

Beijing’s attempt to simultaneously loop Iran and many of its arch-rival Arab states into the BRI may have been a key factor that informed its decision to step in to mediate one of the thorniest rivalries between Muslim nations in the Middle East. Other Muslim countries in the Gulf region and beyond, such as the United Arab Emirates, Turkey, and Pakistan, have applauded this high-profile Chinese diplomatic maneuver.

For Pakistan, in particular, the tempering of the protracted Saudi-Iran rivalry could not only help lessen long-running domestic sectarian frictions but also alleviate pressure on Pakistani decision makers to involve Islamabad in contentious proxy tussles elsewhere in the Muslim world, as happened in Yemen.

Even if the still fragile Saudi-Iranian rapprochement holds, Pakistan’s ability to improve its ties with the Islamic Republic will still be kept in check by concerns over further antagonizing the United States.

Biden administration officials have cautiously welcomed Chinese efforts to try to de-escalate tensions in the troubled region while expressing reservations about Iran’s likelihood to stick to the deal.

For many Muslim-majority countries, including Pakistan, Beijing’s diplomatic endeavors are more immediately relevant and beneficial than those undertaken by Washington to bring the Gulf states and Israel together to deter Iran.

Courtesy: Middle East Institute

Iranian exports to Turkey up 23%

The value of Iran’s export to Turkey increased by 23 percent in the past Iranian calendar year 1401, an official with Iran’s Trade Promotion Organization (TPO) announced.

Farzad Piltan, Director General of TPO's Office of West Asian Countries, said based on the data released by the Islamic Republic of Iran Customs Administration (IRICA), Iran exported commodities worth US$7.45 billion to its neighbor in 1401, while the figure was US$6.079 in 1400.

Turkey was Iran’s third top export destination in the past year, the official named natural gas, aluminum, urea, polyethylene, copper cathode and cathode parts, copper wires, iron and steel ingots, and polyethylene as the major products Iran exported to Turkey in the previous year.

Iran’s import from Turkey also rose 15% to about US$6 billion in 1401, from US$5.2 billion in 1400.

Turkey was the third source of import for Iran in the previous year, the official named sunflower seed oil, road tractors, corn, bananas, generators, barley, soybeans, synthetic fibers, crude soybean oil, and solid acrylic polymers as the main items Iran imported from its neighbor in 1401.

The value of Iran’s exports to neighboring Turkey increased by 19% to US$3.35 billion in 2022.

Turkey had imported over US$2.82 billion worth of commodities from the Islamic Republic in 2021.

Iran's trade balance with Turkey has been $280 million positive in favor of Iran in the past year.

In last July, Iran and Turkey discussed ways of expanding economic relations along with political ties at the Turkish-Iranian High-Level Cooperation Council in Tehran.

During the meeting, which was co-chaired by Iranian President Ebrahim Raisi and Turkish President Recep Tayyip Erdogan, the two sides negotiated the extension of the gas export contract between the two sides for the next 25 years.

In the meeting, President Raisi noted that the Islamic Republic of Iran is determined to expand economic relations with neighboring countries.

The president also evaluated Tehran-Ankara ties as positive and progressive, saying that the two countries should pursue appropriate policies to move towards increasing their annual trade exchanges to US$30 billion.

On the sidelines of the mentioned meeting, Iranian Energy Minister Ali-Akbar Mehrabian also held talks with Turkish Minister of Energy and Natural Resources Fatih Dönmez in which the two sides exchanged views on cooperation in energy fields.

Later on, Head of Turkey’s Small and Medium Enterprises Development Organization (KOSGEB) Hasan Basri Kurt met with Head of Iran Small Industries and Industrial Parks Organization (ISIPO) Ali Rasoulian to discuss ways of expanding cooperation between the small and medium-sized enterprises (SMEs) of the two countries.

In this meeting Rasoulian referred to the signing of a memorandum of understanding (MOU) between the two countries on cooperation between SMEs, saying, “President Raisi has emphasized setting up joint industrial parks in the country’s special economic zones, considering the good infrastructure for setting up such parks in the free and special economic zones and the active presence of economic enterprises in these areas.”

 

First Republic Bank may be next to collapse

The San Francisco-based bank could be the next financial institution to collapse, signaling that last month's banking crisis isn't over yet. Its shares plummet 43% on Friday and 75% on the week as investors feared it would be shuttered by regulators.

Since Silicon Valley Bank’s (SVB) failure last month, First Republic’s stock is down roughly 97%.

Federal regulators are reportedly trying to figure out ways to prevent First Republic, which is headquartered in San Francisco, from failing — including asking other banks to step in and make bids.

The regional bank may ultimately be taken over by the Federal Deposit Insurance Corporation (FDIC), like SVB and New York's Signature Bank.

The selloff was triggered by a terrible earnings report revealing that First Republic lost more than US$100 billion in deposits following the SVB collapse. The outflow came even as a group of megabanks attempted to rescue First Republic by depositing US$30 billion. 

First Republic’s depositors were concerned that the bank would get hit with a similar bank run. The bank also had large unrealized losses on its balance sheet that raised the risk of a collapse.

The extended banking crisis has ramifications for the US economy.

Regional banks such as First Republic are key lenders for area businesses. Even banks that aren’t struggling are pulling back their lending to reduce risk, hurting employers’ ability to hire and grow.

 

What ails Argentina economy?

Argentina’s crucial agriculture sector—which accounts for over half of exports and around 9% of GDP—is being hammered by unprecedented dry weather. Soybean production is expected to be 40% below the 5-year average this year, and wheat production is forecast to fall by around a quarter in the 2022/23 marketing year from 2021/22.

But the country’s economic problems run far deeper than circumstantial bad weather. Government interference in the private sector is considerable, in the form of taxes and other restrictions on imports and exports, and multiple exchange rate practices—in March this year the government announced a specific ‘Malbec dollar’ rate for wine and other agriculture products for instance. 

This interference, coupled with the lack of an overarching, comprehensive structural reform blueprint—in 2020 the president said in an interview “Frankly, I don’t believe in economic plans”—has sapped investors’ confidence.

The combination of weak confidence in government policymaking and lower inflows of foreign currency due to drought have weighed on the peso in recent months; the official exchange rate is now over ARS 200 per US dollar, compared to just over ARS 100 per US dollar this time last year. The black-market peso is priced at a much higher ARS 460 per US dollar. As a result, inflation is in triple figures and rising. And the central bank has jacked interest rates up to 91% in response, heaping more misery on the economy.

The consensus forecast forewarns the GDP to contract 2% this year, and for inflation to end the year around 110%. These figures are already bad enough, but risks are still stacked to the downside. The drought could intensify. Social unrest may bubble over as economic conditions worsen. And as the October 2023 general election approaches, the government could enact populist measures in a bid to gain public support, putting the country’s IMF deal in jeopardy. Even if the opposition Together for Change coalition wins the elections as expected, recovery will be slow. Economic instability has been a feature of the Argentinian landscape for a century or more; it is likely to remain so for some time.

 

Sudan conflict threatens supply of key soft drink ingredient

Sudan's eruption into conflict has left international consumer goods makers racing to shore up supplies of gum arabic, one of the country's most sought-after products and a key ingredient in everything from fizzy drinks to candy and cosmetics.

About 70% of the world's supply of gum arabic, for which there are few substitutes, comes from the acacia trees in the Sahel region that runs through Africa's third-largest country, which is being torn apart by fighting between the army and a paramilitary force.

Wary of Sudan's persistent insecurity, companies dependent on the product, such as Coca Cola and Pepsico, have long stockpiled supplies, some keeping between three-to-six-months’ worth to avoid being caught short, exporters and industry sources told Reuters.

However, prior conflicts have tended to be focused in far-flung regions such as Darfur. This time, the capital Khartoum has been brought to a standstill in the fighting that broke out on April 15, 2023 paralyzing the economy and disrupting basic communications.

"Depending on how long the conflict continues there may well be ramifications for finished goods on the shelf - branded goods made by household names," said Richard Finnegan, a procurement manager at Kerry Group, a supplier of gum arabic to most major food and beverage firms.

Finnegan estimated that current stockpiles will run out in five-to-six months, a view echoed by Martijn Bergkamp, a partner at Dutch supplier FOGA Gum who estimated between three-to-six months.

Cloetta AB, a Swedish confectioner which makes Lakerol lozenges that use gum arabic, has ample stock of the ingredient, a spokesperson said in an email.

Global production of gum arabic is about 120,000 tons a year, worth US$1.1 billion, according to estimates cited by Kerry Group. Most is found in the gum belt that stretches 500 miles from the East to the West of Africa where the arable land meets the desert, including in Ethiopia, Chad, Somalia and Eritrea.

Twelve exporters, suppliers and distributors contacted by Reuters said trade in the gum, which helps bind together food and drink ingredients, has ground to a halt.

Right now it’s impossible to source additional gum arabic from rural parts of Sudan because of the turmoil and road blockages, said Mohamad Alnoor, who runs Gum Arabic USA, which sells the product to consumers as a health supplement.

Kerry Group and other suppliers, including Sweden's Gum Sudan, said communicating with contacts on the ground has been difficult and Port Sudan - from where product is shipped - has been prioritizing civilian evacuations.

“Our suppliers are struggling to secure necessities because of the conflict," Jinesh Doshi, managing director of Vijay Bros, an importer based in Mumbai, said. "Both buyers and sellers are clueless on when things will normalize.”

Alwaleed Ali, who owns AGP Innovations Co, a gum arabic exporting business, said his customers are looking for alternative countries to source gum arabic.

He said he sells the gum to Nexira SAS, based in Rouen, France, and Westchester, Illinois-based Ingredion Inc., two major ingredients suppliers to makers of products such as pet food, fizzy drinks and nutrition bars.

A spokesperson for Ingredion said in an email, "We have proactive measures in place across our business to ensure the continuity of supply for our customers."

PepsiCo declined to comment on supply chain and commodity issues, while Coca-Cola did not return a request for comment.

"For companies like Pepsi and Coke, they can't exist without having gum arabic in their formulations," Dani Haddad, marketing and development director of Agrigum, a global top-ten supplier, said.

In their manufacturing process, food and drink companies use a spray-dried version of the gum that is powder-like, industry sources said. While cosmetics and printing manufacturers may be able to use substitutes, there is no alternative to gum arabic in fizzy drinks, where it prevents ingredients from separating.

In a sign of its importance to the consumer goods industry, gum arabic has been exempt from U.S. sanctions against Sudan since the 1990s, both because it's a critical commodity and for fear of creating a black market.

Sudanese nomads tap the pebbly, amber-colored gum from acacia trees, which is then refined and packaged throughout the country. It accounts for the livelihoods of thousands of people and the more expensive variety can cost about US$3,000 a ton, according to Gum Sudan.

There is a poorer quality, cheaper gum from outside of Sudan, but the preferred ingredient is only found in acacia trees in Sudan, South Sudan and Chad, Alnoor said.

Fawaz Abbaro, the general manager of Savannah Life Company in Khartoum, said he had purchase orders and plans to export 60 to 70 tons of gum arabic but doubts he'll be able to due to the conflict.

"It's not stable even to get food or drink. It's not going to be stable for business," Abbaro said. "All trading will be jammed for the time being."

 

Palestinians condemn comments by head of European Commission

Palestinians have described remarks about Israel by the head of the European Commission as inappropriate, false and discriminatory.

It follows a congratulatory video message by Ursula von der Leyen on Israel's Independence Day. In it she praised Israel, among others, for having made the desert bloom.

It has sparked an unusual diplomatic spat between the Palestinian Authority (PA) and the European Union (EU), its main donor.

A spokesperson for the commission told the BBC, "The EU is unpleasantly surprised by the inappropriate statement of the Palestinian foreign ministry accusing the president of the European Commission of racism."

The PA singled out Ms von der Leyen's suggestion that Israel had cultivated barren land, calling it an anti-Palestinian racist trope.

The phrase making the desert bloom is commonly used by Israel and its backers to describe what they view as the country's success in developing the land since the founding of Israel in 1948.

However, Palestinians argue that it erases their history and suggests that the land was previously uninhabited or untended.

The PA is calling for an apology from the European Commission president.

"Seventy-five years ago, a dream was realized with Israel's Independence Day," Ms von der Leyen said in her message. "After the greatest tragedy in human history, the Jewish people could finally build a home in the promised land."

"Today, we celebrate 75 years of vibrant democracy in the heart of the Middle East, 75 years of dynamism, ingenuity and groundbreaking innovations. You have literally made the desert bloom, as I could see during my visit to the Negev last year."

The PA statement describes the message, addressed to Israel's President Isaac Herzog, as propagandist discourse and part of an ongoing dispossession of Palestinians.

The PA claims it "dehumanizes and erases the Palestinian people and falsifies their rich history and civilization".

In addition, it says that the European statement whitewashes Israel's occupation of lands Palestinians claim for their hoped-for future state and denies what they call the Nakba (Arabic for catastrophe) of 1948.

Some 700,000 Palestinians fled or were forced to leave their homes in the war that followed the Israel's creation.

Palestinians mark Nakba Day on May 15 according to the Gregorian calendar, while the timing of Israel's Independence Day follows the Hebrew calendar.

Some Palestinians on social media have also criticized or mocked the European leader for her comments about shared values with Israel.

The European Commission is part of the executive of the European Union.

The spokesman for the commission stressed the EU's diplomatic ties with the PA, pointing out that Ms von der Leyen met PA Prime Minister Mohammed Shtayyeh when she visited the region in June 2022.

They said a meeting to co-ordinate the delivery of international aid to the Palestinians was due to take place in Brussels next week.

"The EU is actively looking for solutions for the difficult situation of the Palestinian people," they added.

Iran seizes oil tanker in Gulf of Oman

Iran seized a Marshall Islands-flagged oil tanker in the Gulf of Oman in international waters on Thursday, the US Navy said, the latest in a series of seizures or attacks on commercial vessels in sensitive Gulf waters since 2019.

Iran's army said it had seized a Marshall Islands-flagged oil tanker in the Gulf of Oman after it collided with an Iranian boat, injuring several crewmen, Iranian state media reported.

"Two members of the boat's crew are missing and several were injured due to the collision of the ship with the boat," an army statement said.

The US Navy identified the vessel as the Advantage Sweet. According to Refinitiv ship tracking data, it is a Suezmax crude tanker that had been chartered by oil major Chevron and had last docked in Kuwait.

Chevron said it is aware of the situation involving the Advantage Sweet and is in contact with the vessel operator with the hope of resolving this situation as soon as possible, a spokesperson said.

The vessel's destination was listed as the US Gulf of Mexico port of Houston, ship tracking data showed.

The Marshall Islands Maritime Administrator said it was aware of the situation and was in communication with the vessel's owner/operator.

"Iran's continued harassment of vessels and interference with navigational rights in regional waters are a threat to maritime security and the global economy," the US Navy said, adding Iran has in the past two years unlawfully seized at least five commercial vessels in the Middle East.

The US Navy added that after sending a P-8 Poseidon maritime patrol aircraft to monitor the situation, "we have since been able to determine the IRIN (Iranian navy) conducted the seizure".

About a fifth of the world's crude oil and oil products passes through the Strait of Hormuz, a narrow choke point between Iran and Oman which the Advantage Sweet had passed through, according to data from analytics firm Vortexa.

Maritime security company, Ambrey said the vessel had been boarded via helicopter. "The vessel did not show any signs of conducting evasive maneuvers prior to the incident," it said.

Munro Anderson, with maritime security company Dryad, said separately that Iran usually detained vessels for "leverage or signalling".

"The working hypothesis at the moment is that it could either be an arbitrary detention of a vessel by Iran in response to the US sailing its first unmanned vessel through the region last week - as a show of force," he said. "Or, it could be in response to the sanctions on the 24th (of April) by the US against personnel in Iran connected to the IRGC (elite Revolutionary Guards)."

Since 2019 there have been a series of attacks on shipping in the strategic Gulf waters at times of tension between the United States and Iran.

Iran last November released two Greek-flagged tankers it seized in the Gulf in May in response to the confiscation of oil by the United States from an Iranian-flagged tanker off the Greek coast.

Indirect talks between Tehran and Washington to revive Iran's 2015 nuclear pact with world powers have stalled since September over a range of issues, including the Islamic Republic's violent crackdown on popular protests, Tehran's sale of drones to Russia and acceleration of its nuclear program.

The US Navy Fifth Fleet is based at the Gulf island state of Bahrain, called on Iran to immediately release the tanker.

The ship issued a distress call during the seizure, the U.S. Navy statement said.

According to the International Maritime Organization shipping database, the Advantage Sweet is owned by a China-registered company called SPDBFL No One Hundred & Eighty-Seven (Tianjin) Ship Leasing Co Ltd.