Exclusive Analysis, recently acquired by IHS, highlights some of the political risks in key countries across the Mena region for the year ahead.
Hadi is unlikely to regain full territorial control through the National Dialogue.
In the year ahead, President Hadi’s government is unlikely to regain effective control over Yemeni territory and will need to rely on patronage to exercise authority over independent armed tribes. The al-Ahmar family, which leads the Hashid tribal federation, and Major General Ali Mohsen al-Ahmar, who commands the First Armoured Division (FAD), turned against former president Saleh during the popular uprising in 2011, despite their critical role in keeping him in power for 30 years. Both are likely to maintain their influence under president Hadi. The Republican Guard (RG) is headed by Saleh’s son Ahmed and provides Saleh with the military backing for his existing power base in San’a.
The National Dialogue is unlikely to succeed in consolidating central government control over all of Yemen. The Houthies appear to be participating, but unless a settlement involving autonomy and a federal revenue-sharing system can be reached, which is unlikely, hostilities with San’a will probably resume.
Secessionist factions in the south are currently denouncing the National Dialogue. They are probably not capable of establishing an independent southern state, but are likely to disrupt government control in southern Yemen, specifically in Aden, Ta’izz, Lahij and al-Bayda’.
Furthermore, in the likely event that the conference does not produce an agreement, armed conflict between the Republican Guard and the First Armoured Division is expected. This would reduce the effectiveness of military operations against AQAP strongholds in Abyan and Shabwa, and Hadi’s newly-formed presidential guard, which combines elements of the RG and FAD, would probably fragment. Nevertheless, we assess that Hadi will be able to form an independent military base in 2013, as a result of US military aid and the inclusion of southern units in the presidential guard.
The Alawi-dominated state is likely to be replaced by a Sunni-dominated one; the risk of contract frustration and non-payment is high.
The government of President Bashar al-Assad has lost control over most of its territory. It is likely to lose the city of Aleppo in the three-month outlook, which would allow for the establishment of an alternative government. However, such a government would at best exercise nominal control, with real power in the hands of insurgent militia leaders.
Reconciliation between the government and the opposition is very unlikely in 2013, as both sides are dependent on foreign actors for their survival. Saudi Arabia and Qatar are backing the opposition, while Iran is supporting al-Assad. These foreign actors have mutually exclusive interests in Syria and are likely to disrupt any attempt by their proxies to reach an agreement. Even if al-Assad is killed or captured, the civil war in Syria would probably not end, as militia groups would continue to settle scores with one another and compete for territorial control.
Banks in Syria are likely to suffer from a severe shortage of foreign exchange reserves in 2013, leading to a currency collapse and severe non-payment risks for exporters to Syria. Iranian and Russian aid is likely to be forthcoming, but would probably be used to finance the acquisition of basic foodstuffs and fuel only. It would not mitigate non-payment risks for other sectors. We assess that a future Syrian government will come to power with Turkish, Saudi Arabian and US support, while Iran, China and Russia will probably be perceived as having been supportive of the Alawi elite. Such a government is not likely to have effective control of the country before late 2014 at the earliest.
The Alawi political elite is likely to be replaced by a Sunni-dominated one, which would abandon its alliance with Iran, ally itself with Saudi Arabia and Turkey, and become heavily dependent on Gulf Co-operation Council (GCC) investment and US military assistance. As a result, contracts for oil exploration and development, infrastructure and weapons purchases signed with firms from Iran, Russia and China are unlikely to be honoured. Moreover, debts amassed by the former Syrian government to these countries and their firms are not likely to be recognised, especially those related to weapons purchases. Any agreements signed since the beginning of unrest in 2011 are at severe risk.
Autonomy of the eastern branch of the National Oil Company is likely, but would probably not increase contract risks to exploration and production sharing agreements (EPSAs) in 2013.
In the July 2012 elections for the 200-seat General National Congress (GNC), the National Forces Alliance (NFA) won 39 out of the 80 seats allocated to political parties. The remaining 120 seats were allocated to independent regional and tribal candidates, which engage in shifting alliances with whichever political party best serves their local constituency. As such, the government has to be based on a broad coalition that is forced to reconcile competing regional agendas and ideologies to survive and to make policy, causing delays to new legislation, contract approvals and economic decision-making. Prime minister Ali Zidan is unlikely to be able to exercise control over the various regions, and will probably not be able to control regional militias until at least mid 2013 or until a new constitution is agreed.
Regions are likely to be allowed to spend a large portion of oil revenues derived from production on their territory, paving the way for de facto federalism. This will probably create a large number of regional institutions, which are likely to be used by local politicians to maintain networks of patronage, therefore increasing the risk of contract frustration and corruption for companies looking to invest in Libya. We also assess that an autonomous National Oil Company (NOC) in the east is likely to be established in the one-year outlook. This would probably not increase contract risks to exploration and production sharing agreements (EPSAs) signed with the NOC in Tripoli, but it would force firms seeking future contracts to negotiate concessions in the east and in the west separately.
In the unlikely event of the Constituent Assembly not reaching an agreement with the regions over the allocation of oil revenues, eastern Libya, which accounts for 66% of oil production and 25% of the population, would probably attempt secession. Secession would probably be preceded by the withdrawal of eastern and southern representatives from the GNC, significantly raising the risk of civil war. However, even in the event of secession, existing EPSAs would be very unlikely to be affected by renegotiations or revisions. On the other hand, the establishment of an autonomous branch of the NOC in the east would reduce the risk of eastern secession.
Rising unrest increases the risk of army intervention to force through the establishment of a technocrat cabinet.
On February 5, 2013, the Egyptian army’s leadership met with president Mohammad Morsi, after which a military spokesperson told the media that the army would not replace the interior ministry’s security forces in confronting anti-Muslim Brotherhood (MB) protesters. Interior ministry forces have been unable to contain unrest in Cairo, Alexandria, the Suez Canal cities, Mahalla, and other provinces. In the coming week or two, they are likely to either open fire at protesters, causing mass casualties and risking sparking further unrest, or withdraw.
The army’s statement is the clearest indicator thus far that it will not risk its fragmentation and alienation by stepping into the breach to maintain the MB government. Instead, it is more likely that the army will intervene to force a compromise between the MB and its rivals. Such an intervention would probably involve the review of the constitution and the appointment of a new technocrat cabinet to govern until parliamentary elections are held. The key question is how long the army assesses state structures, including governorates, police stations and key infrastructure, can withstand the current wave of violent unrest. If interior ministry forces withdraw from the streets, which they have threatened to do, and did in 2011, the army would have to intervene.
Separate to the current politically motivated unrest, there is an increasing risk that unrest triggered by the underlying economic crisis will force the army to step in. On February 4, 2013, the Central Bank of Egypt (CBE) said it would reduce the number of its currency auctions. This indicates that the black market rate for the Egyptian pound is likely to fall further from the official rate, leading to price increases for basic food items. Most of Egypt’s food supply is imported. Additionally, a cabinet minister said that the country’s stockpile of diesel had fallen from five days to three days’ supply, while the CBE said that its reserves had fallen to less than three months’ worth of imports. We therefore assess that civil unrest motivated by rising food prices and fuel shortages will increase. The US$4.8bn IMF loan, which has US$14.5bn in contingent finances attached to it, is very unlikely to come through before the April 2013 parliamentary elections. Further delay would risk uncontrolled currency collapse. Saudi Arabia, the UAE and Kuwait could relieve Egypt’s difficulties but are unlikely to do so while the MB is still in power.
Failure to agree a new cabinet will increase unrest and trigger army imposition of a technocrat government and fresh elections.
On February 7, 2013, Ennahda, the Islamist dominant party in the ruling coalition, said, contrary to prime minister Jebali’s stated intention, that it refused to form a technocratic government to govern until elections, set for June 2013, and that instead it would continue to try to form a new, broader coalition cabinet. Such a cabinet is very unlikely to materialise, since none of Ennahda’s rivals will want to be seen as close to it in the run-up to elections. Earlier, opposition secular parties withdrew from the Constituent Assembly, in protest at the assassination of Shukri Belid, a member of the National Democrats party, and there were street protests organised by lawyers, members of the main UGTT union and judges in most Tunisian provinces. This combination of protesters led to the fall of president Ben Ali in 2011.
In the likely event of inability to agree on a new cabinet, civil unrest will increase. Risks would reduce somewhat if the justice, interior and foreign ministers were replaced, however, there is no indication that Ennahda will agree to this. On the other hand, the withdrawal of either of Ennahda’s coalition partners, Ettakatol and CPR, would indicate much higher civil unrest and political instability risks.
In the likely event that there is no agreement, even on replacing the justice and interior ministers, civil unrest will increase, reaching a level that cannot be contained by the police, particularly if they open fire at protesters, or if Salafis and other Islamists attempt to break up secular protests. In this event, the army would probably reluctantly step in and back a technocrat government, as well as fresh elections for a new constituent assembly.
Over the coming year, substantial downward pressure on the Tunisian currency is likely, but foreign support will prevent a deeper currency or banking crisis. Tunisia has received a total of US$1.7bn in soft loans from Qatar, Turkey and Saudi Arabia, and is very likely to receive IMF support if it were required. We assess that the new governor of the central bank will allow a higher level of inflation, and will devalue the currency, to boost exports and tourism. Since Tunisia has a 43% public debt to GDP ratio, we assess that it has room to borrow more without significant deterioration in sovereign creditworthiness.
The intelligence cut-off date for this report was February 8, 2013.
The scores in Foresight range from 0.1 to 10 and are split into five risk level bands. They capture both frequency and severity of risk over the forward one-year timeframe. A high score may indicate a high frequency of low impact events, or a low frequency of very high impact events. ‘Impact’ may refer to asset damage, business disruption, or interference with personnel.