Rival political factions and economic tensions are threatening domestic stability in many Mena countries, writes IHS Country Risk.
EGYPT
The fifth anniversary of the 2011 Egyptian revolution on January 25, 2016 passed without mass protests, demonstrating the extent to which the state has succeeded in weakening and fragmenting organised political opposition. In addition to mass arrests, recent legislation has also limited the activities of activists and protest leaders. A law widening the definition of ‘terrorism’ and ‘terrorist groups’ to include those ‘threatening state stability’ has already been approved by parliament. However, if such legislation has proved efficient in silencing opposition leaders, it has not deterred either workers’ protests or more spontaneous, occasional protests by ordinary people demanding better public services.
Unrest throughout 2015 appeared to be driven more by labour unrest than by other types of protests. Despite an April 28, 2015 ruling by the High Administrative Court criminalising labour strikes, the NGO Democracy Index reported that 1,117 labour strikes took place in 2015. Workers have demanded the disbursement of delayed or denied financial dues (including unpaid wages and bonuses, delayed due to company losses), better health insurance and other social benefits. However, the Egyptian government faces an unsustainable fiscal balance, high dependency on foreign aid and growing reliance on the continued goodwill of foreign creditors, particularly in the energy sector. The key implication is that the government has very limited room to manoeuvre when it comes to responding to worker demands, or even growing unemployment. The tourism sector is by far one of the key sources of employment and income in Egypt, and this sector has been contracting since the 2011 uprising. As a result, the government is unlikely to be in a position to meet worker demands, particularly while ongoing US dollar shortages continue to undermine its ability to finance much-needed food imports and meet ongoing power shortages.
Protests and strikes are likely to peak in June/July 2016, due to Ramadan festivities when food prices tend to spike, and when there will probably be an announcement of further subsidy cuts to coincide with the new budget (the current fiscal year ends June 30).
SAUDI ARABIA
A protracted slump in oil prices risks restricting the Kingdom’s capacity to overcome the range of developing internal and external threats to its stability in the three-year outlook. The concentration of decision-making authority in the hands of the deputy crown prince, Mohamed bin Salman, is also increasing the risk of a backlash against his father, King Salman. Canvassing the support of the clerical establishment is similarly pressuring the king to support a proactive role in regional conflicts, in opposition to Iran. This policy, alongside a growing jihadist threat, is driving growing state stability risk in Saudi Arabia.
Saudi Arabia is a hereditary monarchy, where succession previously passed between the sons of the Kingdom’s founder, King Abdulaziz. Upon King Abdullah’s death in January 2015, King Salman appointed his youngest brother Muqrin as crown prince; his nephew, interior minister Mohamed bin Nayef, as deputy crown prince; and his son, Mohamed bin Salman, as defence minister. In April 2015, Salman changed the succession line, removing Muqrin and replacing him with the interior minister, effectively ending Saudi Arabia’s fraternal succession system. Salman elevated his son to the post of deputy crown prince. Decision-making authority was also concentrated through two newly-established councils, headed by the crown prince and deputy crown prince respectively; the Council of Political and Security Affairs (CPSA) and the Council of Economic and Development Affairs (CEDA). This concentration of power is likely causing divisions within the ruling family. Anonymous dissident Saudi princes on international and social media are now repeatedly calling for the removal of King Salman, and the appointment of Salman’s younger brother, Ahmed bin Abdulaziz.
Ongoing rivalry with Iran is another factor driving growing state stability risks in the Kingdom. Saudi Arabia’s clerical establishment is one of the most important stabilising mechanisms in the Kingdom; Salafist Wahhabi ideology requires obedience to the confirmed ruler, but only as long as he enforces Islam. A major regional setback relative to Iran, including in Syria, Iraq, Lebanon, Bahrain and Yemen, risks seriously undermining the credibility of the king and both his successors, likely emboldening domestic Islamist opposition groups, including from within the presently pro-government clerical establishment. Nevertheless, without a loss of public confidence in the ruling family, the domestic Islamist opposition is unlikely to effectively mobilise against the Al Saud, either through the still largely pro-government clerical establishment or by engaging disenfranchised popular support bases.
IRAN
Having secured sanctions relief following the implementation of the Iran-P5+1 nuclear agreement on January 17, 2016, Iranian President Rouhani will now seek to deliver his promises of economic growth, which require substantial foreign direct investment (FDI) in Iran. Although nuclear-related sanctions relief improves Iran’s ability to attract FDI, a combination of concerns over a snap-back of nuclear-related sanctions, imposition of extra-territorial non-nuclear-related sanctions, and Iran’s complex operational environment due to residual terrorism-related sanctions are likely to deter a major inflow of FDI in the one-year outlook.
On the domestic front, Rouhani is under pressure to provide evidence of the economic benefits of the nuclear agreement, despite sustained low global oil prices. His main domestic challenge going forward is likely to centre on managing public expectations of fast improvements to Iranians’ standard of living. Positively for Rouhani, the results of the parliamentary and Assembly of Experts (tasked with selecting the Supreme Leader’s successor) elections indicate a shift to the centre. This will probably enhance Rouhani’s ability to implement modest economic reforms, and reduces the risks to his administration stemming from a hostile parliament. The reformists and moderate conservatives’ faction, which was supportive of the nuclear agreement, now comprises a minority similar in size to the rival hardline conservative faction which opposed the deal. Importantly, while the hardline conservatives retain a meaningful bloc in both bodies, the defeat of their key leadership figures, such as Gholam-Ali Haddad-Adel in the parliament and Mohammad-Taghi Mesbah-Yazdi in the Assembly of Experts will probably weaken this bloc by threatening its cohesion.
Despite consensus over election results among Iran’s key political stakeholders, including the Islamic Revolution Guards Corps (IRGC), the latter are nevertheless likely to remain a major obstacle undermining Rouhani’s efforts to attract much-needed foreign investment, including in upstream energy development. IRGC commander Mohammad-Ali Jafari reiterated on March 1 that the IRGC’s engineering conglomerate Khatam al-Anbia, which stepped in to fill the gap left by foreign firms due to sanctions, particularly in the development of phases 15 and 16 of the South Pars gas field, will continue its involvement in similar projects. The IRGC’s extensive role in the economy, within the context of residual EU and US terrorism-related sanctions on IRGC entities and front companies, poses high compliance-related operational risks to foreign investors.
The results of both parliamentary and Assembly of Experts elections therefore reduce stability risks stemming from political polarisation and rivalry between moderate and hardline conservative political factions. The key risk to state stability in Iran, going forward, stems from Iran’s key political factions prioritising defending their own economic interests and maximising their own gains from sanctions relief, and subsequently failing to meet public expectations of improving standards of living in the two-year outlook. This would risk parliament becoming hostile to the government, as was the norm during the presidencies of reformist Mohammad Khatami and hardline conservative Mahmoud Ahmadinejad, and would significantly weaken Rouhani’s administration through formal questioning of cabinet members, delaying passage of the budget and obstructing the passage of new legislation.
DAESH IN THE GCC
Daesh, through three of its ‘provinces’, claimed a series of attacks in the Gulf Co-operation Council (GCC) region during 2015. All except one (a June 26 attack on a Shia mosque in Kuwait) occurred in Saudi Arabia. Daesh’s ability to launch recurring attacks in the GCC increases the threat level for all member states, although the extent varies for individual countries. The GCC states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – are all threatened by growing Daesh activity as GCC nationals have freedom of movement between the member countries, with limited ID checks. The GCC is a multilateral security structure, where individuals and goods have significant freedom of movement. Social groups in the GCC – marked by shared ideas, norms and traditions – also typically involve familial ties, which often transcend national boundaries. These factors are likely assisting Daesh’s efforts to expand its support base and infrastructure, and they also increase the need for intelligence sharing and co-operation between GCC member states to effectively address this threat.
Saudi Arabia remains Daesh’s most important GCC target. The existence of a suppressed Salafi-jihadist insurgency in the Kingdom will assist the group in gradually expanding its presence there and in the Gulf more broadly over the coming year. In Bahrain, Daesh propaganda and activity indicates that Bahrain is more likely to be selected as a staging ground for attacks than a target, and that the group’s priority is to gradually radicalise the Sunni minority.
In the UAE, Daesh’s intent to stage attacks is unlikely to be matched by capability. To offset repression of all forms of dissent and Islamist mobilisation, the UAE has invested heavily in its security services, actively engaged the United States and other partners, and is also attempting to take a leading role in developing counter-narratives to that of Daesh.
In Oman, historic internal Ibadi-Sunni conflict is no longer a live issue, which Daesh might seek to exploit like it has the escalating Sunni-Shia regional conflict. This absence of sectarian/ethnic conflict – together with effective, albeit small, security services – restricts the opportunity for Salafi-jihadist groups to gain a foothold.
IRAQ
At a time when Daesh and Kurdish separatist aspirations threaten the integrity of Iraq, Iraqi Prime Minister Abadi’s position depends on a careful balancing act of domestic and external interests, which is proving difficult to maintain. Without a personal power base of his own, his position appears increasingly at the mercy of political interest groups that are probably seeking to move against him. The key threats to Abadi’s position stem from Iraq’s reliance on remobilised Shia militias in the al-Hashd al-Shaabi (Popular Mobilisation Units) – the most powerful of which are aligned with Iran – to shore up pro-government forces against Daesh, and their growing rivalry with US-backed Iraqi military forces leading operations against the Islamic State in the Sunni Anbar province. This is likely to contribute to the prime minister’s growing dependence on the US to remain in his post; continued support by the Shia establishment in Najaf (Marja’iyya) is also critical.
Abadi is perceived by Shia militia leaders as too close to the US, particularly after he attempted to roll back militia influence, banning them from participating in operations to recapture Ramadi and reportedly cutting back funding, most likely under pressure from the US as a price for its military assistance to the Iraqi government. Recent progress in Ramadi in the Anbar province somewhat boosts Abadi’s position relative to the pro-Iranian militias in al-Hashd al-Shaabi, however, the loss of Ramadi makes little difference militarily to Daesh. Supply lines from Syria to Mosul via al-Anbar are unaffected since they pass north of the city. Furthermore, Daesh’s losses among its fighters were likely to have been small, given that only a few hundred fighters had been placed in the city and most of these left as the city fell, some to Fallujah. Thus, the return of the city’s residents, which would be the clearest evidence of government progress in al-Anbar, is likely to take several months at best.
Abadi is meanwhile unable to convince his government, including Iran’s proxies in Iraq, to approve the National Guard Law and amendments to a de-Baathification bill, which aimed to reconcile the Sunni community – an issue that will become increasingly important as Daesh loses territory and the question of Sunni political representation becomes more prominent. More broadly, parochialism and bickering across the sectarian and ethnic divide prevents the implementation of key legislation, including the hydrocarbons and revenue-sharing laws, and any new law governing the relationship between the centre and periphery, a key political fault line.
Protesters in Iraq’s semi-autonomous Kurdistan region have demanded improvements in the provision of public services and the payment of four months’ arrears in state-sector salaries, which the KRG intends to reduce anyway, thereby compounding public anger. As such, protests attracting hundreds of people are likely to persist.
IHS Country Risk leverages the company’s detailed qualitative and quantitative analysis of 204 countries, covering political, economic, legal, tax and security risks. Intelligence cut-off date: March 1.
