History of Israel-Arab Normalization

Israel currently has official diplomatic ties with five Arab countries namely Egypt, Jordan, UAE, Bahrain, and Morocco.

Egypt was the first Arab state to sign a peace treaty with Israel, in 1979, in return for an Israeli withdrawal from the Sinai Peninsula it occupied in 1967.

Jordan followed in 1994, a year after Israel and the PLO recognized each other via the Oslo Accords. Progress toward Israeli-Palestinian peace enabled Israel to establish ties with other Arab states, but these were cut after the outbreak of the second intifada in 2000.

In 2020, following a gradual process, the Abraham Accords were signed, leading the UAE and Bahrain to normalize ties with Israel, with Sudan indicating it would follow suit when domestic conditions allow.

Also in 2020, Morocco re-established the official ties it had with Israel in the 1990s.

In 2022, Israel, the UAE, Bahrain, Morocco, Egypt, and the United States established the Negev Forum to advance multilateral cooperation.

Israel for decades had unofficial and secret relations with most Arab states. Israel-Arab relations traditionally have a strong security dimension, but also increasingly include civilian, economic, and political cooperation.

In 2002, the Arab League adopted the API, which promised Israel normal relations with the entire Arab world in return for peace with the Palestinians.

The API did not generate progress toward Israeli-Palestinian peace.

Currently, Saudi Arabia is seeking to update the API and possibly have it become a key part of a package of incentives for peace.

Netanyahu has repeatedly rejected the need to move forward with the Palestinians as a condition for progress with Arab countries. While he seeks to advance ties with Arab states to bypass the Palestinian issue, others in Israel and the international community seek to leverage normalization to advance Israeli-Palestinian peace.

Electronic Warehouse Receipt Financing: Still in a nascent stage in Pakistan

The Government of Pakistan (GoP) came up with an alternative delivery system for the benefit of farmers in year 2013. It is aimed at achieving financial inclusion of farmers, improve their financial conditions and on top of all achieving food security. Irony of fate was that when the program was launched there was no supporting infrastructure in the country. The work has to be started from ground zero, all the stakeholders have to join their hands and the GoP has to take the lead.

If one looks at more than one decade history, the progress is not very encouraging. On top of all hardly a few modern grains storage facilities have been constructed. Some basic questions arise, if there are no accredited storage facilities, how can the electronic warehouse receipts (ESRs) be issued? If farmers have no EWRs how can they borrow from the financial institutions?

A further probe indicates that a collateral management company has been established, it has accredited around a dozen flat-bed warehouses. However, hardly any warehouse with silos has been accredited. In the last financial year EWRs worth one billion rupees were issued and lending worth PKR700 million was made. The numbers look dismal keeping in view the size of just three crops, namely wheat, maize and rice.

Whatever EWRs have been issued were for maize and paddy, but not a single EWR has been issued for wheat. The point worth noting is that the country produces around 25 million tons wheat every year. The real cause of concern is that in the absence of modern grain storage silos, around 20% quantity goes stale before reaching the market. This is huge loss for the farmers as well as for the country.

As stated earlier, the GoP as well as the financial institutions have failed in convincing the potential investors to establish grain storage silo facilities. The point worth mentioning is that for the current financial year (FY23) State Bank of Pakistan (SBP) has fixed an indicative target of lending to farmers at PKR1.8 trillion. Against this target lending of PKR700 million against EWRs looks disappointing.

The introduction of EWRs in Pakistan is aimed at offering three options to the farmers: 1) safekeeping of commodities to avoid distress selling and post-harvest losses, 2) using EWR as collateral for borrowing from financial institutions and 3) trading of EWRs at the PMEX platform to efficiently sell the produce at a fair price.

The recent media reports indicate that at present only two commercial banks, out of more than two dozen, are running awareness sessions about lending against EWRs. These may be the banks that have lent significant amounts against EWRs. A question comes to minds what the other financial institutions are doing? It is necessary to reiterate that if there are no warehouses, no EWRs will be issued: If no EWRs are issued how the financial institutions would lend against the EWRs.

The EWR mechanism aims at improving the performance of the agricultural sector by stimulating economic growth both in the agricultural sector and also in the construction sector by creating an incentive for the private sector in constructing new warehouses. This will increase the capacity of the country to store agricultural produce without wastage, alleviating poverty and reducing shortages of agricultural produce in Pakistan.

The readers may be keen in knowing why a reasonably high amount has been lent against maize? According to the sector analysts chicken feed manufacturers has been the biggest beneficiary. They have the silos, warehouse management system, a large number of farmers/ suppliers and above all history of borrowing from the financial institutions. The lenders were comfortable in extending credit to financially strong borrowers. 

Analysts are of the view that unless an ecosystem is introduced for the storage of wheat, the efforts will not yield the significant results. However, the problem is that there are no silos. Historically the government has been the major buyer of wheat, but just does not have finances to buy more than more than 10 million tons. Almost the entire bought quantity is stored in highly inefficient flat-bed warehouses or kept in open.

A common complaint is that farmers are not ready to sell their produce to the government. However, the growers have contrary narrative. They say the government does not offer good price, there are extra ordinary delays in releasing payment and at time farmers get jittery because of fast approaching monsoon. The unscrupulous elements take advantage of the situation and force the farmers to sell their produce below the price fixed by the government.

Another narrative is that agents of neighboring country not only do expeditious buying but also pay a price which is higher than the support price fixed by the government. Soon after the purchase wheat is transferred to the ‘hideouts’. That is the reason that the government has to import wheat to meet the shortfall.

Analysts are of the view that if wheat is stored in the designated warehouses, it will be easy to monitor its movement. The borders have to be also monitored closely to contain slippage into the neighboring countries. EWR system can play a major role in not only saving large quantities going stale but also smuggling t the neighboring countries.

Pakistan plunging deeper into economic malice

Pakistan’s GDP growth has been provisionally estimated at 0.29%YoY for FY23, as against the revised growth of 6.1%YoY for FY22.

Agricultural sector’s growth is estimated at 1.55% for FY23, as compared to 4.3% in the earlier year, with crop output posting a negative growth of 2.49%YoY, offset by Livestock (3.78%), Forestry (3.93%) and Fisheries (1.44%YoY) growth.

The drop in crop production was largely anticipated in the aftermath of the floods in August 2022 that ravaged close to a third of the country’s land mass. Cotton crop was severely damaged during the period, as a result of which cotton arrivals at ginners remained lackluster, down by 34%YoY in 9MFY23.

Industrial output has been estimated to post negative growth in FY22 as against 6.83%YoY in the earlier year.

Within the Industrial Activities, Mining & Quarrying has posted a drop of 4.4%YoY, whereas growth in Manufacturing, Electricity (-3.91%YoY), Water and Gas supply (-6.03%YoY), and Construction (-5.53%YoY) have been estimated

To note, oil and gas production, as per the PPIS data, has dropped by 5.3% and 3.6%YoY, respectively in 9MFY23.

Moreover, OMC offtakes have dropped by 24%YoY in 10MFY23.

Furthermore, owing to restrictions on opening L/Cs, production activities across the country have been hampered.

For instance, data from PAMA indicates that production of automobiles in the country (excluding two- and three-wheelers) has dropped by 49%YoY in 10MFY23.

With the aforementioned backdrop and the figures furnished, GDP growth is likely to come in lower than the estimated figure, with a real possibility of Pakistan posting negative GDP growth in FY23.

Continuation of the FX crisis and the related import restrictions, along with the possibility of continuing climate-related disasters, is likely to keep GDP growth in check next year.

Heightened inflation expected for 1HFY24 (expected to taper off in 2HFY24) is likely to keep services sector growth in check as well.

With the delays in the IMF program and mounting external financing requirements (US$28 billion), further depreciation of the PKR against the greenback is likely.

 

US narrative on the removal of Ali Shamkhani

After a decade surviving Iran’s fractious politics, Ali Shamkhani was removed as secretary of the Supreme National Security Council (SNSC), the highest body in charge of foreign policy and national security, on May 22, 2023.

The former rear admiral, a young hero during the eight-year Iran-Iraq war who rose to become minister of defense in the 1990s, had served three presidents from rival factions as head of the SNSC. He was pushed aside in favor of Rear Admiral Ali Akbar Ahmadian, a senior Revolutionary Guards officer.

The reshuffling, which followed the execution in January of a former Shamkhani aide charged with treason, could significantly impact deliberations at the SNSC, which has only 12 permanent members.

“Shamkhani is considered a balancing factor in the decision-making process in Tehran,” Danny Citrinowicz, a fellow at the Institute for National Security Studies in Tel Aviv, told The Iran Primer.

Shamkhani was widely regarded to be pragmatic on contested issues, such as negotiations with the United States over Iran’s nuclear program. He was a moderate voice who called for discussions and dialogue, Alicia Kearns, British House of Commons Foreign Affairs Committee chair, told the BBC in January 2023.

Shamkhani has long been the most senior ethnic Arab in Iran’s government, largely dominated by Persians and other groups. He earned the trust of officials ranging from Supreme Leader Ayatollah Ali Khamenei, a hardliner, to President Mohammad Khatami (1997-2005), a reformist, due to his years of distinguished service in both the IRGC and the conventional military.

Shamkhani’s nearly 10-year term as SNSC secretary, from 2013 to 2023, was second only to Hassan Rouhani, who served in the position from 1989 to 2005. Shamkhani has been a survivor in a regime that has increasingly purged reformists, centrists and even some conservatives.  

Shamkhani has political enemies. For years, critics have charged him and members of his family, including his sons and son-in-law, of corruption and amassed wealth through shipping and construction companies.

In November 2022, Shamkhani reportedly faced criticism from hardliners for failing to quash the nationwide protests that erupted in September 2022.

In January 2023, Iran executed Alireza Akbari, who served as Shamkhani’s deputy from 2000 to 2004. Akbari was convicted of spying for Britain and corruption on earth. The execution triggered media speculation about Shamkhani's fate. IRGC-linked media reported that he might step down, but a news agency linked to the SNSC denied the reports.

Shamkhani’s last major accomplishment was helping to broker Iran’s rapprochement with regional rival Saudi Arabia. In March 2023, he led a delegation to Beijing for talks with the Sunni kingdom. The two countries agreed to restore diplomatic ties seven years after severing relations.

Shamkhani appeared to foreshadow the end of his term with a cryptic tweet on May 21. He quoted a 16th-century poem that Iranian media took as a sign of his imminent removal.

On May 22, President Raisi appointed Ali Akbar Ahmadian, an IRGC commander, to replace Shamkhani. Supreme Leader Khamenei then selected Ahmadian as his representative on the SNSC, which indicated his approval.

“I would like to thank and appreciate Ali Shamkhani's responsible, persistent presence and his efforts as the leader’s representative during these years,” Khamenei wrote in a decree.

Khamenei named Shamkhani his political advisor. “In light of the closeness between the two and the degree of Khamenei's trust in Shamkhani, he will likely continue to play a significant role in the decision-making process in Tehran,” according to Citrinowicz, who headed the Iran branch of Israel Defense Intelligence’s Research and Analysis Division. “Shamkhani has a great deal of knowledge and experience, with an emphasis on the nuclear issue.”

Khamenei also appointed Shamkhani as member of the Expediency Council, a body that resolves constitutional disputes between the Parliament and the Guardian Council. The body, which includes some three dozen members, has often included officials who have fallen out of favor. So the role could be largely ceremonial.

 

Viterra in talks to merge with Bunge

Global grain trader Viterra is in talks to merge with US rival Bunge in a potential mega deal that would reshape the top tier of global grains merchants.

There is no certainty that Viterra, part-owned by Switzerland-based mining and trading giant Glencore, will be able to reach an agreement on the terms. The deal structure is being discussed by both parties.

Any deal would be closely scrutinized by regulators as trade in staples such as wheat, corn and soybeans is already concentrated among Bunge and three other large players, raising global concerns about food security.

Bunge last year was the largest corn and soy exporter from Brazil, the world's top source of the staple crops for making animal feed and biofuels, according to data from shipping agent Cargonave. Viterra was the third largest corn exporter and seventh soybean shipper.

A merger with Viterra would also lift Bunge, with 2022 revenues of US$67.2 billion, closer to its nearest publicly traded agribusiness rival Archer-Daniels-Midland Co, which registered sales of nearly US$102 billion last year.

Shares of Bunge closed at a three-week high of US$93.61 on Thursday, valuing the company at about US$14 billion. Glencore shares fell 0.7%.

Global commodities merchants have built up cash reserves after turning in hefty profits over the past year as Russia's invasion of Ukraine disrupted shipments and crop prices soaring.

The agribusinesses make money buying, selling, storing and processing crops, often capitalizing on supply disruptions caused by crises like drought or war.

A merger with Bunge would put Viterra among the top tier of global grains merchants, with access to export terminals in the United States, one of largest grain producers and suppliers.

Viterra bought US-based Gavilon from Japan's Marubeni last year for US$1.1 billion, giving it significantly more physical grain handling assets in the US and making it the third-largest exporter of soybeans in Brazil, where Bunge already has a strong presence.

Viterra, formerly known as Glencore Agriculture, made the headlines in 2017 for a failed takeover approach to Bunge, one of the giant names of global grain trading, then valued at US$11 billion.

In May 2017, Bunge rebuffed Glencore after the latter made an informal approach to discuss a possible consensual business combination.

Glencore had publicly said it was reviewing options for its interest in Viterra, looking to unlock more value.

 

 

Lloyd’s Register drops ships of top Indian carrier of Russian oil

Lloyd's Register has told India's Gatik Ship Management, a major carrier of Russian oil since the Ukraine war that it will withdraw certification of 21 of its vessels by June 03, 2023.

It is the latest setback for Gatik, which was also been forced to find new flags for 36 of its ships after they were deflagged by the St. Kitts & Nevis International Ship Registry.

"Lloyd's Register is committed to facilitating compliance with sanctions regulations on the trading of Russian oil," it said in an email to Reuters. "Where supported by evidence, we withdraw class and services from any vessels found by the relevant authorities to be breaching international sanctions."

Classification societies such as Lloyd's Register in London provide services including seaworthiness checks, certification that is vital for securing insurance and entry to ports.

Lloyd's Register said, 11 of the Gatik vessels it was declassifying were also certified by the Indian Register of Shipping (IRClass).

Gatik, which is based in the Indian city of Mumbai according to shipping databases, did not respond to emailed requests for comment.

A major US insurer, the American Club, also told Reuters it was no longer providing cover for Gatik ships, while Russian insurer Ingosstrakh said it would not work with Gatik in future.

Neither the insurers, Lloyd's Register nor the flag registry spelled out exactly why they have dropped business with Gatik.

 

De-dollarizing transactions among ACU members

Governor of the Central Bank of Iran (CBI) held talks with senior banking officials from various Asian countries on the sideline of the 51st Asian Clearing Union (ACU) summit in order to encourage getting new members and de-dollarize the economic transactions among ACU members.

As reported by the CBI portal, Mohammad-Reza Farzin met and held talks with Governor of the Central Bank of Russia Elvira Nabiullina, Governor of the State Bank of Pakistan Jameel Ahmed, Deputy Head of the Monetary Policy and Economic Analysis Directorate of the National Bank of the Republic of Belarus Sergey Kalechits on the sidelines of the summit held in Tehran on May 23-24.

In the meeting with Nabiullina, the two sides emphasized strengthening trade exchanges and using the national currencies of the two countries in bilateral trade.

During the talks with the Belarusian delegation, Farzin said strengthening relations through bilateral and multilateral monetary agreements is a model that can play an important role in the development of trade relations between two countries.

Referring to Belarus’ readiness to join the ACU, the CBI head said, “Belarus's membership with its good capacities in its economy can lead to the development of the activities of this union.”

In the meeting with Farzin, Ahmed, the governor of the State Bank of Pakistan, welcomed the development of the banking relations with Iran by creating a non-SWIFT platform for connecting the bank systems of the two countries and clearing trade under the framework of the Asian Clearing Union and said, “We are ready for the development of banking relations. By introducing representative banks and creating a joint working group, we will provide the grounds for deepening banking relations.”

According to Farzin, accepting new members with the aim of creating synergy and diversifying the currency basket of the union can encourage de-dollarization in trade exchanges among the ACU members. This is one of the major goals of this union in the future, he said.