Ones to Watch: 31 July 2017

Americas: Further US sanctions against Venezuela expected

Sectors: all
Key Risks: non-payment; FX shortage; civil unrest; deadly violence; political instability

In Venezuela, further US sanctions are expected following the controversial 30 July vote to elect a National Constituent Assembly (NCA) that will be tasked with rewriting the constitution, a move expected to further entrench President Nicolas Maduro’s power and officially upend what is left of Venezuela’s democracy. It remains unclear what the scope of the new sanctions would be, but reports suggest that they are not yet expected to include a ban on lighter US crude that Venezuela needs to dilute its extra-heavy crude to export. Additional sanctions could target regime-affiliated individuals, and financial restrictions could be placed on state oil company PDVSA. Broader sanctions could push Venezuela closer to default. The opposition has vowed to continue to take to the streets despite increasing deadly security-force repression. Further clashes should be expected across the country over the coming weeks.

Asia-Pacific: China’s People’s Liberation Army marks 70th anniversary with increased activity

Sectors: all
Key Risks: external conflict

On 1 August China will celebrate the 90th anniversary of the founding of the People’s Liberation Army (PLA) that defeated Nationalist forces to secure China for the Communists in 1949. On the day President Xi Jinping will inspect troops during a major parade in Inner Mongolia, but in recent months the PLA has increasingly gone beyond pageantry and acted with belligerence towards regional neighbours. A tense six-weeks long border standoff continues with India in the Himalayas. In July PLA jets made repeated incursions into Taiwanese airspace and buzzed a US recon plane in the East China Sea. Reports suggest it also threatened to Vietnam over the latter’s attempts to exploit oil in the South China Sea. With its budget increasing roughly seven per cent each year, the PLA is increasingly confident in its abilities, and more willing to flex its muscles to neighbours.

Eurasia: Putin may be setting up showdown with Trump; Uzbekistan prepares currency reforms

Sectors: all
Key Risks: sanctions, political interference, foreign exchange

On 28 July, Russia ordered the US to cut its diplomatic staff in Russia to 435 people. The move would result in a major degradation of US diplomatic and intelligence capabilities in Russia but would only come into effect on 1 September. Putin may be seeking a showdown with US President Donald Trump, who also announced that he would sign into law new sanctions against Russia, with Putin potentially seeking to negotiate an agreement to withdraw both. Meanwhile on 26 July Uzbekistan’s Deputy Finance Minister Mubin Mirzayev stated Tashkent’s foreign currency reserves were ‘about US$20bln’, far in excess of what was previously assumed. The statements came after the IMF reported Uzbekistan had ‘ample’ foreign currency reserves for plans to liberalise its currency, the som. While a timeline for undertaking currency reforms has not been announced, one can be expected by year’s end.

Europe:  EU – Russia tensions over Moldova, Romania

Sectors: all
Key Risks: external conflict

On 28 July Russian Deputy Prime Minister Dmitry Rogozin’s flight was refused access to Romanian and Ukrainian airspace and thereby prohibited from landing in Moldova. Rogozin, who is on EU sanctions lists, threatened Romania on Twitter, but he has long been known for his bluster. Further tensions should be expected. Russia is likely to step up its criticism of the Romanian government, which also announced this month that it would buy a US$3.9bln Patriot missile defence system from the US, a move Russian President Vladimir Putin explicitly warned against. Meanwhile the expected passage of additional US sanctions on Russia has raised the EU’s ire over fears it could result in European firms being affected. AKE views this as unlikely but the situation results in a Sword of Damocles hanging over sanctions compliance for such projects, which will strongly disincentive relevant financial institutions.

MENA: Qatar trade embargo likely to continue as neighbours maintain hard negotiating stance

Sectors: all
Key Risks: economic

Leaders of the quartet of Arab countries coordinating an embargo against Qatar recently indicated a willingness to work towards a negotiated settlement, but are unlikely to retreat from their stringent demands. In a sign of slight flexibility, leaders of the UAE, Saudi Arabia, Bahrain and Egypt stated they would allow Qatar to use their airspace in emergency situations. However, Qatar denied that any air corridors had been made available. Reports indicate that the four are likely to impose tougher sanctions that will have a greater impact on the Qatari economy, and will press Qatar to end its support of Islamist groups, which occured overtly in the aftermath of the Arab Spring. The situation appears no closer to a settlement, and the quartet, despite having signified a willingness to negotiate, will continue to increase pressure on Qatar until it has achieved overt concessions.

Sub-Saharan Africa: Tensions mount ahead of Kenyan elections

Sectors: all
Key Risks: pre- and post-election violence; voter intimidation; vigilantism; electoral fraud

With just over a week before Kenya goes to the polls, the electoral commission’s head of ICT, Chris Msando, was found dead, with signs of torture, on 31 July. This was the day Msando was meant to oversee public testing of the voting system. The incident follows a shootout at Deputy President William Ruto’s residence in Eldoret after an unidentified gunmen invaded the premises, and highlights a markedly deteriorating security environment ahead of the vote. Elections in Kenya have historically been a flashpoint for violence, given high stakes and ethnic-based politics. Recent polls indicate that the race between President Uhuru Kenyatta and Raila Odinga is too close to call. Fake news has been endemic during the campaigning period, while the opposition have claimed that the ruling party is trying to rig the elections. Pre- and post-electoral violence cannot be ruled out if there is a perception of electoral fraud.