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Middle East, Politics, Security

Lebanon’s Prime Minister-Delegate Faces Long Odds

This article has been republished with permission from our partner, Stratfor. The original version was first published in Stratfor’s WORLDVIEW and can be found here.
HIGHLIGHTS
  • Hassan Diab, who is set to become Lebanon’s new prime minister, will not overcome the country’s political, economic or security challenges.
  • Prolonged political paralysis will heighten Lebanon’s economic crisis, and potentially spark violence as major factions like Hezbollah struggle to hold onto power.
  • Heightened tensions between the United States and Iran could also lead to more sanctions on Lebanon, or even to open conflict there.

Lebanon’s new candidate for prime minister, Hassan Diab, stands little chance of breaking Lebanon’s political deadlock. And he will face even greater challenges than political paralysis, such as a worsening economic crisis and security crises as Hezbollah turns to stronger tactics to maintain its influence and as the chances grow of a U.S.-Iran regional conflict that could draw in Lebanon.

The Big Picture
Lebanon is engulfed in political paralysis and economic crisis, and its prime minister candidate, Hassan Diab, will not have many ways to overcome either. As the economy worsens, Lebanon’s security situation will become even more precarious. Meanwhile, rising tensions between Iran and the United States could spark a conflict that brings a regional war to Lebanon itself.
 
See Broken Contracts in the Middle East

Daunting Prospects for Domestic or Foreign Support

Diab, who is set to succeed longtime Prime Minister Saad al-Hariri as prime minister, will face substantial hurdles. These include winning the support of a protest movement that will not accept a prime minister with ties to the establishment, which they blame for Lebanon’s economic crisis and long-standing corruption. They also include simultaneously winning the support of either the country’s March 8 alliance, to which Hezbollah belongs, or the March 14 alliance, to which al-Hariri’s Future Movement belongs. To maintain the support of either of the alliances, Lebanese prime ministers must dole out state support to them and their adherents. But it is precisely that sort of insider activity that is motivating protesters to take to the streets. Protests have helped accelerate Lebanon’s economic crisis by disrupting the economy, driving away tourists and causing capital flight. By pleasing either protesters or politicians, a prime minister angers the other, making it much harder to govern. At the same time that securing domestic support will prove daunting, foreign support will be harder to find. Lebanese prime ministers have often been able to govern thanks to foreign largesse. That support, which in the past has taken the form of direct U.S. or French aid and favorable bond purchases from Gulf Arab states, has allowed the government to spend lavishly to keep its own supporters happy, often through providing government jobs or favorable contracts. But foreign benefactors have become unwilling to grant Lebanon new aid unless it enacts austerity measures, a requirement that would cut the funds the government needs to maintain patronage networks.
This will undermine the political consensus among Lebanon’s major parties (and their associated militias) that has kept them from challenging the sectarian political system, which since independence has guaranteed that a Christian will serve as president, a Sunni as prime minister and a Shiite as speaker of parliament. Moreover, the nonsectarian nature of the Lebanese protest movement undermines Lebanon’s sectarian political system, challenging traditional political players.

Few Good Options for Politicians

Lebanon’s government and political insiders have little recourse. They cannot rally protest movements against their political enemies, like the March 8 and March 14 alliances did in 2005 after Prime Minister Rafik Hariri’s slaying created a political crisis. Today, with the bulk of the protesters angry at all political parties, the alliances don’t have the same rallying power. Beirut can’t increase spending to alleviate the country’s economic woes either, given the drop in foreign aid, the government’s indebtedness and its dwindling foreign reserves. Diab is not immune to these challenges. Though a relatively apolitical Sunni, he faces strong resistance from the protest movement in large part because he’s seen as too close to Hezbollah — and therefore as too much of a political insider. He also lacks the kind of foreign allies to tap for aid that al-Hariri had, though even if Diab did ask, aid would probably not be forthcoming anyway. He is therefore likely to struggle to accomplish much once in office, and may not stay there long. But even obtaining and exercising power effectively would still not solve three other major problems bedeviling the country: the economy, Hezbollah and potential U.S.-Iranian conflict.

The Economy, Hezbollah and U.S.-Iranian Conflict

Lebanon’s deeply unstable economy is worsening. Some major Lebanese bonds are due as early as March, and foreign exchange reserves, a bulwark the country had built up in case of a crisis, are strained by a combination of U.S. banking sanctions aimed at Hezbollah and the deteriorating economy. The United States has broken with its previous policy by bringing sanctions against Lebanese banks and upsetting the country’s delicate internal balance. In 2020, it is likely to seek to further sanction Hezbollah — and by extension Lebanon’s economy, since Hezbollah is entangled with much of Lebanon’s business. These sanctions would worsen Lebanon’s economic situation and complicate any potential foreign bailouts. The longer the economic crisis goes on, the more likely Lebanon is to run short of basic goods and be unable to pay state worker salaries, issues that will impact all sects and political parties. That will weaken the insiders’ hold on their old loyalists and strengthen the protest movement. In a bid to salvage whatever legitimacy they can, Lebanon’s factions — especially Hezbollah — will pivot from financial incentives to physical intimidation, potentially sparking a civil crisis. Hezbollah and its allies would prefer to avoid civil conflict, but they do not want to lose their gains from the May 2018 election, when a Hezbollah ally became the country’s health minister, giving him significant patronage powers. They also do not want to see the emergence of a less sectarian Lebanon, since this could cause voters in Hezbollah turf to consider backing another party. To prevent this outcome, Hezbollah has already sought to cow Shiites into not participating in protests.
Hezbollah will not purposefully stoke a civil conflict lest things get out of hand, but its increased use of physical intimidation may spawn one anyway. 
But while Hezbollah will not purposefully stoke a civil conflict lest things get out of hand, its increased use of physical intimidation may spawn one anyway, by setting up potential clashes between Hezbollah and protesters, the Lebanese army or other armed political factions. Any ensuing confrontations could eventually spark civil conflict. If that happens, foreigners are likely to get involved. The Americans, the Israelis, the Iranians, the Gulf Arabs and even the Syrians, Russians, and Turks all have an interest in shaping the country’s security situation. Meanwhile, no Lebanese faction has the power to stop the U.S.-Iran conflict, the ramifications of which could hit Lebanon, whether via sanctions or outright military conflict. Should this come to pass, Lebanese political paralysis would get even worse, while the country would face an economic and security crisis unlike anything since its 2006 war with Israel. Moreover, Hezbollah, Tehran’s most capable proxy, could find itself as the spearhead of Iranian retaliation against Israeli or American targets. Doing so, however, would invite a massive Israeli and/or U.S. response in Lebanon. And a military conflict of that scale would usher in yet another troubling chapter in Lebanon’s crisis-ridden history.
 
Editor’s Note: The map accompanying this assessment has been replaced to correct a mislabeled city name.

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Europe, Politics

Why Spain’s New Coalition Will Struggle to Govern

This article has been republished with permission from our partner, Stratfor. The original version was first published in Stratfor’s WORLDVIEW and can be found here.

HIGHLIGHTS

  • Spain will be governed by an untested coalition that does not control a majority in parliament, which will render the policymaking process more complex and limit the new government’s effectiveness.
  • The Spanish economy is slowing, and a combination of risk factors (from ongoing trade disputes with the United States to unresolved secession disputes with Catalonia) will contribute to even slower growth in 2020.
  • Companies operating in Spain will deal with greater fiscal pressures and a government that will seek to backtrack on some of the labor market reforms that were introduced during the peak of the economic crisis in the early 2010s.

Spain has just appointed its first coalition government since the return of democracy in the late 1970s, but the new government will struggle to pass structural reforms at a time of growing political fragmentation and slowing economic growth. Prime Minister Pedro Sanchez, who won a vote of investiture in parliament on Jan. 7 and will lead a coalition between his center-left Socialist Party (PSOE) and the left-wing Unidas Podemos (UP), will have to deal with a worsening economic environment, a precarious labor market and secession pressure from Catalonia. Companies operating in Spain, for their part, will face higher taxes and the reversal of some of the market-friendly policies that were introduced during the peak of the economic crisis in the early 2010s.

The Big Picture

In recent years Spain’s political system has become more fragmented, general elections have become more frequent and structural reforms have become harder to implement. For the most part, the Spanish economy has been immune to political events, growing nonstop since 2014. But that immunity is ending, and Spain’s new coalition government takes office facing slowing growth, unresolved secession disputes in Catalonia and a precarious labor market.

See Europe section of the 2020 Annual Forecast

A Fragmented Political Landscape

Between the 1980s and early 2010s, Spain had single-party governments led by either the PSOE or the center-right People’s Party. But in recent years, a combination of factors ranging from the economic crisis to corruption scandals led to the emergence of new political parties on the left and the right. As a result, Spanish parliaments have become more fragmented, early elections have become more frequent, and governments have had a harder time implementing policy. This development explains why Sanchez is the first prime minister to lead a coalition government since the end of Gen. Francisco Franco’s dictatorship in the late 1970s.

In a further complication, PSOE and UP do not control the majority of seats in parliament, meaning members of the coalition will have to first agree on policy with each other, and then seek support in parliament on a case-by-case basis. This will open the door to disagreements between the coalition partners and create a complex legislative process wherein the government will need to make concessions to smaller parties in parliament to pass legislation. Policymaking will, therefore, become more complex, slower and subject to constant pitfalls.

This complex political landscape will subject companies operating in Spain to recurrent uncertainty, both about the survival of the government and about future policy. The Spanish Constitution makes it hard for the opposition to oust a government, rendering the chances of a successful no-confidence motion against Sanchez low. However, disputes between the PSOE and UP could lead to the dissolution of their alliance that almost certainly would lead to an early election. At the same time, parliament’s fragmentation may force the government to modify or abandon its policy proposals, making it difficult for businesses to make long-term predictions about the continuity of policy.

Businesses in Spain, particularly in sectors such as banking and energy, probably will face greater fiscal pressure since the new government is expected to try to raise taxes on high earners and large corporations. For example, the PSOE and UP have agreed to introduce a tax on financial services, which will affect Spain’s robust financial sector. PSOE and UP have also agreed to backtrack on some labor reforms introduced during the peak of the economic crisis in 2012 by making it harder for companies to dismiss workers, reducing the use of temporary contracts and giving priority to collective bargaining on salaries instead of company-specific negotiations. Without a parliamentary majority of its own, the PSOE-UP alliance will have to reach out to smaller parties to introduce reforms in taxation and the labor legislation. Center-left parties such as the Republican Left of Catalonia (ERC), Mas Pais and EH Bildu could endorse these reforms, but they will make demands of their own in exchange for their support.

A Slowing Economy

Spain’s economy has largely been immune to the country’s increasing political complexity and uncertainty, growing every year since 2014 thanks to a combination of business-friendly measures introduced by Madrid during the economic crisis and a generalized improvement in the eurozone economy during the late-2010s. But that immunity seems to be over. Most forecasts predict that Spain’s GDP growth will slow in 2020 and 2021. This slowdown is connected to multiple foreign and domestic factors.

Trade disputes between the European Union and the United States will continue in 2020 and take their toll on Spain’s economy. The United States introduced higher tariffs on some Spanish exports such as olive oil and wine in 2019, and the White House could raise tariffs on additional products in 2020, especially if the European Union targets the United States with its own tariff hikes. This move would dent the Spanish economy because the United States is Spain’s main non-EU export destination (roughly 5 percent of Spanish exports go to the United States). In addition, Madrid’s plan to introduce a tax on digital companies (a decision the White House would oppose vehemently) could also prompt the U.S. administration to retaliate with additional tariff hikes.

At the same time, Brexit-related uncertainty will ease during the early months of 2020 but will return by the end of the year. The United Kingdom almost certainly will leave the European Union on Jan. 31 and will remain in the single market until Dec. 31. But should London and Brussels fail to reach a comprehensive trade deal by the end of 2020, and should London refuse to request an extension to remain in the single market, significant disruptions in trade would follow. The United Kingdom is Spain’s fifth-largest export destination (almost 7 percent of Spanish exports go to Britain), while millions of British tourists visit Spain every year. New barriers to trade (such as having to implement World Trade Organization tariffs if the United Kingdom and European Union fail to reach a trade deal by year’s end) would damage Spanish exports, while a weaker pound vis-a-vis the euro would lead to fewer British tourists in Spain — to name only two of the many consequences of weaker EU-U.K. economic ties.

The new Spanish government will also deal with domestic economic problems, particularly connected to the labor market. While Spain’s unemployment rate has been falling fast in recent years, it remains the second-highest in the European Union after Greece’s. Spain also has high rates of youth unemployment (around 30 percent) and a serious problem of long-term unemployment (people who have been out of work for more than a year find it much harder to find jobs than those unemployed for only a few months). Finally, Spain has the European Union’s highest rate of workers under temporary contracts: One employee in four is under a fixed-term contract, twice the EU average. This precarious labor market drags down domestic consumption and investment, which, in turn, undermines economic growth. The PSOE-UP alliance will seek to address these problems through reform in labor legislation, but it will need to persuade like-minded parties in parliament to join the effort, which will not be easy.

Unresolved Catalan Issues

The new Spanish government will also have to deal with Catalonia’s push for independence. The region will not secede from Spain any time soon, but the secession issue will continue to generate friction between Madrid and Barcelona and raise questions about the future of Spain’s territorial integrity.

Sanchez will benefit from the tense relationship between Catalonia’s main pro-independence forces, Together for Catalonia (JxC) and the ERC, which reduces the chances of a coordinated push for secession. JxC and ERC, which compete to be the region’s main political party, advocate different strategies to achieve independence. Some JxC members want to take unilateral measures to secede from Spain, while the ERC favors a more pragmatic strategy that includes dialogue with the central government in Madrid.

Their competition will increase in 2020 because Catalonia probably will hold an early regional election. This vote means that pro-independence parties will not be strong enough or united enough to seriously threaten Spain’s territorial integrity. Moreover, Sanchez’s promise to keep an open dialogue with Catalan secessionists and to improve ties between Madrid and Barcelona suggests that the central government will seek appeasement rather than confrontation to deal with the rebel region.

An important fact remains unchanged. Madrid will not authorize a legally-binding independence referendum in Catalonia, and the region’s pro-independence parties will not stop demanding it.

An important fact remains unchanged. Madrid will not authorize a legally-binding independence referendum in Catalonia, and the region’s pro-independence parties will not stop demanding it.

However, an important fact remains unchanged. Madrid will not authorize a legally-binding independence referendum in Catalonia, and the region’s pro-independence parties will not stop demanding it. The situation of the pro-independence leaders who were jailed after the unilateral declaration of independence in 2017 will also continue to create issues between Madrid and Barcelona.

PSOE and UP have promised to introduce a “fairer” mechanism to distribute state funds among Spain’s autonomous communities and to “reduce the ambiguity” in the policy attributions of the central state and the regional governments, both of which are meant to appease Catalonia. But they will struggle to win enough support in parliament to pass these reforms. As a result, tensions between Madrid and Barcelona probably will not be as extreme as they were in 2017 when Catalonia unilaterally declared independence, but long-term questions about the future of the region will not go away either.

So, while companies operating in Catalonia will see some degree of stability in 2020, their doubts about the future of the region will remain unanswered. Political uncertainty so far has had a modest effect in Catalonia because the region’s economy has grown nonstop since 2014. However, Spain’s National Institute of Statistics recently reported that Catalonia’s regional GDP grew at a rate lagging the average for Spain as a whole in 2017 and 2018. In the meantime, thousands of companies have moved their legal seats out of Catalonia to other Spanish regions since Catalonia’s independence declaration in 2017. While the vast majority of these companies retained operations and workers in Catalonia, the change of legal seat highlights the concern that the independence process has created among businesses in the region.

While Sanchez’s appeasement strategy probably will lead to a decrease of frictions between Madrid and Barcelona, it will create the risk of a nationalist backlash among Spain’s conservative parties. The People’s Party already has announced that it will take to the streets to protest Sanchez’s decision to keep the dialogue with Catalan separatists open, and the right-wing Vox party could do the same.

At the same time, the European Court of Justice recently ruled that ERC leader Oriol Junqueras, who was elected to the European Parliament in May, enjoyed parliamentary immunity when he was sentenced to 13 years in prison in October for his participation in the illegal Catalan independence referendum in 2017. The final decision on whether Junqueras should be released from prison is in the hands of the Spanish Supreme Court, but the European court’s ruling in favor of a convicted Catalan separatist could exacerbate Euroskeptic sentiments in Spain, particularly among Vox voters. Even if Sanchez tries to calm frictions with Catalonia, the situation in the region will continue to be a central element in Spanish politics.

An important fact remains unchanged. Madrid will not authorize a legally-binding independence referendum in Catalonia, and the region’s pro-independence parties will not stop demanding it.

Stratfor LogoAs the world’s leading geopolitical intelligence platform, Stratfor brings global events into valuable perspective, empowering businesses, governments and individuals to more confidently navigate their way through an increasingly complex international environment. Stratfor is an official partner of the Affiliate Network.

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Foreign Policy, Middle East, Security

The U.S. Assassination of a Key Iranian General Throws Fuel on the Fire

This article has been republished with permission from our partner, Stratfor. The original version was first published in Stratfor’s WORLDVIEW and can be found here.

The Big Picture

In response to the latest round of escalation between Washington and Iran, in which protesters in Iraq breached the compound perimeter of the U.S. Embassy in Baghdad earlier this week — likely at the behest of Iranian Revolutionary Guard Corps Quds Force Cmdr. Qassem Soleimani — the United States has taken the opportunity to eliminate the Iranian military leader and other key architects of Tehran’s strategy in Iraq. But the question is, at what cost? Iran will retaliate in a significant fashion, increasing the risk of further escalation that could lead to a direct military confrontation between the two countries.

See Iran’s Arc of Influence

It’s the spark to ignite a major conflagration: Late on Jan. 2, the Pentagon said it launched an overnight strike in Baghdad killing several officials linked with Iran, including Qassem Soleimani, the powerful commander of the Islamic Revolutionary Guard Corps’ Quds Force. In addition to Soleimani, the head of the Iraqi Kataib Hezbollah militia, Abu Mahdi al-Muhandis, and the deputy head of Hezbollah in Lebanon, Naim Qassem were reportedly killed — although the latter’s death has yet to be confirmed. The Pentagon explicitly noted that among other reasons, the United States conducted the strike in retaliation for the attempt by supporters of Kataib Hezbollah to overrun the U.S. Embassy in Baghdad’s Green Zone on Dec. 31, but the decision to target one of Iran’s most important military figures is sure to raise tensions between Iran and the United States in the Middle East to new heights. 

Soleimani’s death, which had followed a stark warning by U.S. Secretary of Defense Mark Esper that the United States was willing to preemptively strike Iranian-backed militias in Iraq to protect U.S. forces, will reverberate throughout the Middle East. As the head of the Quds Force, Soleimani was, more or less, the peer of generals leading the U.S. military’s actions in Afghanistan or Iraq. Naturally, his killing opens the way for a significant escalation, as Iran could well target high-ranking U.S. military personnel in the Middle East in response. Ultimately, Iran will absolutely seek to retaliate against the United States — the only question is at what level, what scale and when. 

Here’s how Soleimani’s death might affect a number of areas around the Middle East — and the wider world:

Iraq

The risk that Iraqi militias backed by Iran would attack U.S. and Western forces, assets and, potentially, commercial interests was already high, but it’s just increased precipitously. Although Iranian-backed militias led by leaders like al-Muhandis were not popular among many Iraqis, the U.S. move to stoke a conflict with Iran on Iraqi soil will inject serious diplomatic tension into Baghdad’s relationship with Washington and fuel nascent efforts in the Iraqi parliament to reevaluate Iraq’s security cooperation with the United States. It will also complicate the Iraqi security force’s efforts to continue to work closely with Washington against the Islamic State.

Israel

Israel reportedly had come close to assassinating Soleimani a handful of times in recent years. And based on the missile threat that it perceives from the Quds Force and the Iraqi militias led by al-Muhandis and others, Israel will no doubt support this decision by Washington. But potential Hezbollah retaliation against U.S. interests in Lebanon could also turn into attacks on Israel, given the widespread perception in Lebanon — and throughout the region — that U.S. and Israeli interests against Iran and its allies are one and the same. In the worst-case scenario, that could touch off a separate fight between Israel and Iran.

Lebanon

Iran’s strong presence in Lebanon through Hezbollah makes the possibility of retaliation against U.S. targets there a distinct possibility. Hezbollah exercises influence in large swaths of Lebanon, including parts of Beirut, and has the capability to launch attacks against U.S. targets in the country. That risk will be even more pronounced if the death of Qassem, Hezbollah’s second in command, is confirmed.

Saudi Arabia and Gulf Oil Producers

It has been nearly four months since Iran attacked the Abqaiq and Khurais oil-processing facilities, taking half of Saudi Arabia’s oil production down. If the United States and Iran continue their escalation with direct strikes on one another, Iran could certainly retaliate against countries like Saudi Arabia, one of the closest U.S. allies in the region, and their economic interests. Each of the Gulf Cooperation Council states — particularly Bahrain and Qatar — hosts a significant U.S. military presence that Iran could target.

Persian Gulf

In addition to direct attacks on GCC member states, Iran could launch more attacks against the U.S. naval presence in the Persian Gulf. For most of U.S. President Donald Trump’s term in office, Iran has hesitated to use its naval assets to harass U.S. ships in the Persian Gulf, Strait of Hormuz and Gulf of Oman despite its aggressive strategy to counter U.S. sanctions pressure. That, however, could change: As it is, the USS Abraham Lincoln carrier strike group reported last month that Iranian naval ships had harassed it as it was leaving its deployment in the Gulf of Oman and Arabian Sea.

Syria

Soleimani’s death is a blow, but likely not a crippling one, to Iran’s ability to conduct its extensive operations in Syria. The United States does not have a significant presence in Syria compared to what it has in Iraq and the Persian Gulf, but the remaining U.S. forces in Syria are near Iranian-allied militia forces, meaning they could become a target. 

Afghanistan

Iran could decide to strike the United States in Afghanistan, given the target-rich environment of U.S. soldiers and military assets in the country, as well as Iran’s history of support for the Taliban. Iran is better positioned to strike elsewhere — since it does not directly control or direct the Taliban as it does other proxy forces — but the possibility of retaliation in the war-torn country cannot be ruled out.

Yemen

Iran could push the Houthi rebels in Yemen to launch retaliatory attacks against U.S. allies as well, even though Iran does not directly control that group, either. The Houthis maintain a robust arsenal of drones as well as ballistic and cruise missiles, which they have used to carry out attacks in Yemen, Saudi Arabia and surrounding waters such as the Bab el-Mandeb strait. Potential targets include, but are not limited to, airports, critical infrastructure, energy infrastructure, military targets and vessels transiting the Red Sea.

Beyond the Middle East

The threat of retaliation is not limited to the Middle East, given Iran’s history of conducting attacks against targets ranging from Latin America to Eastern Europe and South Asia, among others. Iran has also been linked to numerous plots in Western countries, including in Belgium, Denmark, France, the United States and the United Kingdom in recent years.

Stratfor LogoAs the world’s leading geopolitical intelligence platform, Stratfor brings global events into valuable perspective, empowering businesses, governments and individuals to more confidently navigate their way through an increasingly complex international environment. Stratfor is an official partner of the Affiliate Network.

www.stratfor.com