Prospects for the Middle East in the third quarter

Subject Prospects for the Middle East in the third quarter. Significance International negotiations over Iran's nuclear programme are set to culminate in an agreement early in the quarter, reshaping the regional geopolitical map. Meanwhile the new leadership in Saudi Arabia will be tested on multiple fronts, including Yemen, the expanding influence of Islamic State group (ISG), and adjusting its economic policies to a new era of lower oil prices. Libya is looking for agreement on a national unity government.

Subject Prospects for the Middle East in the second quarter. Significance With average oil prices in 2015 likely to be 30-40% lower than in 2014, most countries in the Middle East and North Africa (MENA) region will see a huge change in their financial performance. Oil exporters could face major falls in fiscal revenue and foreign exchange earnings, while oil importers will receive a welcome boost to their budgetary and external accounts. On the security front, regional governments will focus on the threat from an expanding Islamic State group (ISG), and the fallout from a possible nuclear deal between the P5+1 world powers and Iran.


Subject ISG infiltration of refugee flows. Significance Refugee arrivals in Europe in 2016, large if not at 2015 levels, will put yet more pressure on the EU, which is already struggling to address economic crises, political polarisation and inter-state divisions on how to address security crises in Ukraine and the Middle East. Suspicions have grown that among the refugees are operatives of the Islamic State group (ISG). Impacts ISG's foreign fighters in Iraq and Syria will seek to expand their relationships with existing extremist networks in Europe. Speculation over ISG's presence within refugee flows will continue, especially as far-right parties continue to perform well in elections. The EU-Turkey deal may slow refugee flows, but the existing numbers of refugees will continue to attract suspicion from authorities.


Significance An informal rapprochement between Turkey and Russia has lifted Moscow's ban on holidays in Turkey, implemented after Turkish jets downed a Russian warplane last November. However, an attack on Istanbul's main airport less than a day after the Russian deal was announced left 45 dead and has been blamed on Islamic State group (ISG). The third attack targeting tourists this year, it has demonstrated that Turkey faces an uphill struggle both in dealing with Islamist extremism, and in convincing foreigners that it is safe to visit. Impacts Russian tourists are rushing to book holidays, but the summer total will be much lower than the 700,000 visitor average of previous years. Unless a new peace initiative with Kurdish separatists is launched, they could focus attacks on the tourism sector. Restrictions on media freedom will make it harder to combat negative publicity about Turkey.


Subject Iran's role in Yemen. Significance Yemeni and US officials have long claimed that Iran backs the northern Huthi movement, which follows the Zaydi branch of Shia Islam. Yemeni President Abd Rabbu Mansour Hadi and his Gulf allies fear that Iran is helping the group to overthrow Hadi's government as part of an attempt to establish an arc of Iranian interference in the Arab Middle East, from Lebanon and Syria to the Gulf. However, the Huthis deny any such ties with Tehran, and, until now, Yemen has remained low down on Tehran's regional agenda. Impacts Iran will use the Saudi intervention as an opportunity to build its networks inside Yemen in order to gain more leverage in the Gulf. More tangible Iranian interference in Yemen is likely to stoke further sectarian tensions in the region. Rising sectarianism within Yemen would enable al-Qaida and Islamic State group to gain greater traction in the country. Iran will refrain from military intervention so long as the nuclear negotiations continue. Tehran will lobby diplomatically to boost Shia rights and Huthi representation in any future government.


Subject Arab youth opinion. Significance Arab youth views Islamic State group (ISG), terrorism and unemployment as the top obstacles facing the Middle East today, according to a new survey released on April 12 by a United Arab Emirates (UAE)-based PR firm, ASDA'A Burson-Marsteller. With the failure of regional governments to meet the aspirations of the region's large youth population contributing to the 2011 uprisings, the attitudes of today's youth expressed in the survey will shape the outlook for stabilisation, security and economic reform. Impacts Reconciliation between Riyadh and Tehran will be a fundamental first step to the region's stabilisation. Concerns about unemployment and falling living standards will drive social unrest and recruitment to militant organisations. Strong anti-US opinion will complicate Washington's engagement in Iraq, Lebanon and Yemen.


Significance The latest bombing is the third in the capital since October, taking the total killed to nearly 170. The October incident is attributed to Islamic State group, the February one to ultra-hardline Kurdish terrorists. For many Turks repeated bombings in Ankara and Istanbul -- unprecedented in the country's history -- are the consequence of the ever-more inflexible and rigid rule of President Recep Tayyip Erdogan, ratcheting up tensions, particularly among the Kurds, but failing to ensure security for ordinary people or tackle Islamic extremism. Impacts The government says it knows the perpetrators, but has again made informed comment very difficult by immediately imposing a reporting ban. A rising spiral of political violence will weaken business confidence. Kurdish reprisals will continue for the crushing of the insurgency in towns in the south-east.


Subject Turkey's limited options in Syria. Significance Although it ostensibly targeted Islamic State group (ISG), Turkey's military incursion into northern Syria primarily aimed at preventing the Democratic Union Party (PYD) from extending its territory. Ankara's decision to launch the incursion was partly driven by domestic considerations, but has further strained Ankara's already very tense relationship with Washington, caused alarm in Russia, Iran and the Middle East, and further complicated international efforts to combat ISG. Impacts Turkish-backed forces' unprovoked attacks on the PYD have infuriated Washington, and will deepen the crisis in bilateral ties. Turkish troops' presence in a former Ottoman province will exacerbate Sunni Arab states' concerns about Ankara's neo-Ottoman ambitions. Syrian Kurdish distrust of Ankara has worsened and may lead to intensified PKK violence inside Turkey.


Subject Government reforms. Significance Although some of Prime Minister Haider al-Abadi's reform programme is purely aspirational and unlikely to be implemented, the measures already taken constitute an unprecedented downsizing of Iraqi government in the post-2003 era. The reforms were well received initially by the political parties, partly due to support from the Shia clergy. However, increasingly, critical voices are making themselves heard, not least from hardliners within Abadi's own Shia coalition. Impacts Failure of Abadi's reform programme could increase political instability in Baghdad, harming efforts to defeat Islamic State group (ISG). Reforms may damage ties with Tehran, with Iran fearing that Abadi is using the process to develop stronger autonomy from it. If the reforms succeed, this may increase Sunni Arab confidence in Abadi as a potential buffer against pro-Iranian forces. Impact on government efficiency and the economy will be limited given other major challenges, notably low oil prices.


Significance The past year witnessed further jihadi gains amid the political turmoil in the Middle East that has followed the Arab uprisings -- most significantly the Islamic State Group (ISG)'s conquest of Sunni provinces Iraq in June and proclamation of a caliphate. However, the advance is not even across the board; the threat remains centred on regional targets, more than those in the West. More spillover from a metastasising jihadism in the Middle East is to be expected, including sporadic high-profile attacks in the West. Impacts The international reputation of Syria's Assad regime will gradually improve as the West remains focused on the threat of the ISG. Authoritarian regimes will exploit the jihadist threat to justify internal security crackdowns and delay democratic reforms. US-Iranian collaboration against ISG will reinforce the perception of an anti-Sunni conspiracy -- a key feature of jihadi propaganda. The US shale oil revolution will continue to offset disruption to oil supplies by the ISG. Tourism in affected countries, particularly Egypt, will continue to suffer.


Subject Islamic State group threat to Russia. Significance Russia is using arrests and violence to curb the growth of the Islamic State group (ISG), which has expanded in the North Caucasus at the expense of established domestic jihadist groups such as the Caucasus Emirate. The outflow of militants to the Middle East has contributed to relative calm in the North Caucasus, but as combatants return, some may be intent on violence. Russia's stated intention of defeating ISG on the ground in Syria could encourage reprisal attacks on Russian soil. Impacts Putin will cite domestic terrorist threats as justification for clampdowns on civil rights. The focus on security will be used to control dissent among the Crimean Tatars, who are unhappy with their new status as Russian citizens. Chechen leader Ramzan Kadyrov will be even more indispensable as Moscow's most powerful ally in the North Caucasus.


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