MS Risk Blog

Hedging Between Great Powers & the VFA

Of all the Southeast Asian states the Philippines has traditionally been one of the closest to the United States. Since decolonisation in 1946 the country has remained on friendly terms with the US, acting as an outpost during the Vietnam War, and maintaining a US military presence ever since. While neighbours like Indonesia and Malaysia are happy to cooperate with the United States in private to combat issues like terrorism, the Philippines has been happy to play the role of close ally in public.

A symbol of this partnership is the Visiting Forces Agreement (VFA). The VFA was brought in in 1999, and it essentially gives all United States military personnel based in the country diplomatic immunity unless the US authorities decide that person should be subject to local laws. The law has resulted in a number of controversies, most notably the Subic rape case, where four US troops were acquitted of raping a Filipino woman in 2006.

The VFA made headlines again in early 2020 when President Duterte said that it would not be renewed. Since 2017 Duterte has been trying to rebalance a perceived over-reliance on the United States by building closer ties to China. These ties have at times included discussion, amongst other things, intelligence sharing. Duterte also prefers China’s policy of refusing to comment on their ally’s internal politics. A closer alliance with China therefore could provide him with political cover internally, as well as resources, trade, and weapons from their northern neighbour.

However, the Philippines ongoing dispute with China over the Spratly islands in the South China Sea has complicated this shift and appears to have forced Duterte to keep the VFA and try to find a balance between China and the United States. Back in March, 220 Chinese coast guard and fishing vessels were placed at the Whitsun Reef. This ignited a number of retaliatory measures, including overflights by the Philippine Air Force, a rebuke from the U.S. National Security Advisor, and both the Philippine and U.S. navies moving parts of their fleet into the region.

This shows the complicated path the Philippines, and other countries in the region, are winding between the China and the United States. On one hand, China will provide investment, resources, and no interference in local politics. But on the other, many ASEAN countries, the Philippines included fear China’s ambitions in the South China Sea and its expansive ambitions. The United States, however, presents a different challenge. Increased interaction with the US could lead to high-profile political criticism, especially on Duterte’s human rights record, and potentially even sanctions. But it is a lot less likely the US will stake a claim to any island chains in the region.

Duterte for now has agreed to extend the VFA. But it remains to be seen if he will change his mind again. It is highly likely China will continue to reinforce their various claims on the Paracel and Spratly islands, unless the ASEAN countries can form a unified response. So, if China do wish to build better relations with the Philippines and in turn reduce the US’s presence in the region, they will need to find another way to forge a stronger relationship with the Southeast Asian nation. In turn, if the US wishes to maintain their relationship with the Philippines while Duterte is in charge it is likely there will be a reduction in official criticism of his government coming from Washington.

Nord Storm 2 Pipeline Creates Divisions Within Europe

Finalising the construction of the Nord Stream 2 pipeline has become a hotly contested issue that has put all sides in a ‘lose-lose’ situation. The German government is acting as though the pipeline were a vital national interest and the US, Baltic States, Poland and Ukraine fear that it will make Europe overly dependent on Russia.

An objective security analysis suggests that the fears have a kernel of truth, nevertheless Ukraine is not necessarily in a detrimental position.

One might see that Ukraine’s fear over the project as a major security threat is justified. Following this perspective, indeed from a purely geostrategic sense, the Nord Stream 2 threatens Ukraine, and not just with the loss of billions of euros in fees for the transit of Russian gas to Europe. Once Russia stops the gas transit, it would not hold back on damaging Ukrainian gas pipelines, and this would mean that the threat of war for Kyiv would increase considerably. The situation could also impact on how quickly Ukraine integrated into NATO and the EU and that the country would need both military aid and financial assistance in the form of low-interest European loans and funds to compensate. Therefore some analyst concluded that if the physical flow of Russia gas through Ukraine stops, the risk of full-scale military aggression by Russia could go up substantially.

In Poland, too, the US-German deal prompted strong condemnation. Poland Government emphasized from the very beginning that Nord Stream 2 is a geopolitical project that destabilizes the political situation in central and eastern European. The Polish Government announced it was ‘surprised’ by the German-American agreement and that Germany was “unfortunately pursuing Russia’s interests,”. Moreover, there has been no adequate response from the EU. At the same time, Poland’s relations with the US and Germany are likely to cool further. The fear remains that the Kremlin will perceive the concessions from the US which could encourage them to pursue an even more aggressive policy with regard to Ukraine and the whole central and eastern European region.

Nevertheless, one needs to keep in mind that a pipeline creates a bilateral dependence: Russia depends on the EU remaining a reliable customer. The bilateral economic link is much more important for Russia since earnings from gas exports make up a significant portion of Russia’s overall export earnings (and the revenues of the Russian government) – but are only a tiny fraction of the European economy. Furthermore, Europe already has an alternative source of supply in the form of free capacity for LNG imports. This means that Russia depends much more on the EU as a customer than the other way round. To achieve its own ‘gas market independence’ from Europe, Russia would need to construct a costly capacity to export LNG from facilities closer to fields near the Arctic Circle. With Nord Stream 2 it has less of an incentive to do so.

This being considered the fact that a large part of its gas exports go through Ukraine did not deter Russia from annexing Crimea and creating a frozen conflict in Donbas. It is thus not clear why a further drop in gas transit should negatively affect Ukrainian national security. Despite their mutual hostility, the two countries still managed to reach an agreement whereby Gazprom will pay transit fees between of $1.5 and $5 billion per annum until 2024. Many US and European observers assume that the transit fees benefit ‘Ukraine’. In reality, these fees found their way into the pockets of oligarchs who siphoned off profits via shell companies and associated local companies. Some recent reforms, which began even before the election of President Zelensky, have improved the situation, as recognised in a report by the OECD. But the transit fees will remain a potential source of corruption, which remains engrained in the country’s energy sector, as noted by the Ukrainian anti-corruption agency. The country as a whole still ranks at the bottom of all indicators of good governance and corruption.

In terms of the goal of bringing Ukraine closer to Europe, and of reducing corruption, the loss of Gazprom transit revenues should be counted as a plus. Ukraine no longer imports gas directly from Russia. The energy security of Ukraine is ensured by reverse flows from Western Europe towards Ukraine. But most of this gas (delivered from Slovakia to Ukraine) is actually Russian gas. Today, this gas arrives first through the Ukrainian transit pipeline into the EU and then returns. With Nord Stream 2 completed the flow would be somewhat more complicated (first to Germany, then through intra-EU Central European interconnectors and then back to Ukraine), but the substance would not change.

Analysing this, the geostrategic point raised initially, loses its linchpin assumption, namely that Ukraine stands to be negatively affected by the new gas pipeline. The discussion in its essence should revolved on how Germany, as the main gas beneficiary, could use its leverage point against Russia and not the other way around.

Deteriorating Security in Afghanistan Increasingly Threatens Neighbouring Pakistan

The Contentious Issue of the Grand Ethiopian Renaissance Dam

The Grand Ethiopian Renaissance Dam (GERD), as its name suggests, would herald in a new era for Ethiopia and the Horn of Africa region. The GERD, which is expected to be formed of 10 metric tonnes of concrete and reaching 175 metres, with a volume of 79 km3, is an outstanding achievement of engineering. When completed later this decade, the $5 billion dam will be Africa’s greatest hydroelectric-power project. Apart from the Congo River project of the Democratic Republic of Congo (once completed), the GERD will be unrivalled in the continent. Located on the Blue Nile, the dam would create 6,000 megawatts of energy, double as much as all of Ethiopia’s present output. Dams in general have several purposes, including to prevent floods, generating energy and storing water for irrigation. However, they create conflict and misery for many, due to environmental damage or the displacement of individuals whose dwellings will be lost underneath dammed waters. This dam has also been the cause of strife between Ethiopia, Sudan and Egypt. For years, the three countries have been locked in ineffective talks over the GERD, and despite severe objections, Ethiopia continues to build the dam, claiming that the hydropower project will considerably enhance livelihoods throughout the region.

Some of the points of contention are the rate at which a planned reservoir behind the dam would be filled, the manner of annual replenishment, and the amount of water Ethiopia will release downstream if a multiyear drought develops. To date, approximately 80% of the dam’s construction has been completed. Ethiopia is aiming for a seven-year filling schedule in order to begin producing power as soon as possible, but Egypt is expecting a lengthier period of 12 to 20 years. Egypt is concerned that the project will suffocate the Nile’s waters. Ethiopia’s timeline implies a reduction in the Nile’s flow in Egypt, which depends on 59% from the Blue Nile. The Nile provides 95 percent of the water used by the country’s 115 million people. According to some experts, the GERD might cut the river’s yearly flow by a quatre and prevent fertile silt from reaching the Nile Delta. Sudan shares a sense of dependency and concern. The Blue Nile River also produces the majority of the silt that contributes to the richness of the soils along the river’s path. Crop production in both countries may be harmed as a result of the dam.

The unbalanced use of the river is a major stumbling block for Ethiopia. The Blue Nile is a major tributary of the Nile River, with Ethiopia accounting for up to 85% of its flows. Despite this, Ethiopia only uses 1% of the river’s capacity. The history of asymmetric river allocation dates back nearly a century, to the 1929 Anglo-Egyptian agreements, which granted Egypt and Sudan nearly all of the Nile’s waters. This agreement, as well as subsequent negotiations in 1959, defined consumption rights that excluded the eight other states that the Nile runs through. Egypt was allocated 55.5 billion cubic metres and 18.5 billion cubic metres was allocated to Sudan – nearly 90% of the Nile’s 84 billion cubic metres total flow. Upstream countries, irrespective of origination point or internal demand, were left without any formalised rights to the river’s waters as a result of these accords.

Rounds after rounds of talks between Sudan, Ethiopia and Egypt have failed  to overcome the impasse over the contentious project. This is preceded by years of failed negotiation between the riparian countries. The negotiations over the Blue Nile’s use have been marked by a complex process of trilateral negotiation and international mediation, with Ethiopia frequently withdrawing before any real deal could be reached.

Ethiopia considers past restrictions on its capacity to consume even a small portion of the waters that originate within its borders to be a violation of its sovereignty. Ethiopia’s upstream position, along with the GERD’s development, gives them the potential to substantially regulate the flow of the river’s waters, bolstering their claims to production-based river use. As a matter of fact, Ethiopia has utilised practically every step of dam construction and negotiation as a means of reclaiming self-reliance in the region, assuming that neither Egypt nor Sudan will explore military alternatives to return the region to a state of stagnation that favours them unevenly. The GERD has become a source of pride and a symbol of the country’s future, and it is seen as a method to reinforce the country’s dominance in the area. Completion of the $5 billion (USD) dam, which is entirely self-financed, is expected to be the lynchpin in Ethiopia’s economic turnaround.

However, for the Egyptians, the GERD is a threat to their hydro-hegemony in the region, as well as its capability to provide for its people, who are nearly totally reliant on the river for freshwater. Only 4 billion cubic metres of the Egypt’s 55.5 billion cubic metres allotment are emptied into the Mediterranean Sea each year, meaning Egypt uses 93% of its yearly allocation. With plans to develop the agricultural sector, even fully utilising the river’s water allocation will not be enough to fulfil Egypt’s rising demand. To complicate matters, Egypt has a record of openly hostile responses to any threats to its hegemony over the river, frequently backed by military intervention threats. While it is imprudent to rule out the possibility of conflict between the nations, full-out war between the states is improbable. Thus, Egypt’s intervention through proxies in Ethiopia’s current and increasing intra-state crisis is a real likelihood.

Sudan’s GERD stance is comparable to that of Egypt. Sudan’s Minister of Irrigation and Water Resources, Yasser Abbas, has indicated that the dam’s next filling, which has reportedly started (5^th July 2021), could represent a direct threat to Sudan’s security. Egypt announced Ethiopia had informed them that the second phase of filling at the GERD had begun, but it denounced the move as a threat to regional stability. Sudan confirmed that it had received the same notification. According to Egypt, the second filling of the dam, which went ahead without having reached an agreement with the downstream riparian countries, will intensify the region’s crisis and tension, resulting in the formation of a situation that jeopardises regional and international security and peace.

To avoid conflict in the Horn of Africa, a stalemate in negotiations between the three countries over the GERD must be resolved quickly and peacefully. However, Ethiopia has repeatedly rejected and opposed calls for outside mediators, stating that the country “believes in resolving African problems by Africans.” In the wake of the second filling, and with it the potential rise in tensions, the United Nations has urged all parties involved to recommit to dialogue and to refrain from taking unilateral measures. The African Union’s involvement in mediating between the countries is supported by UN Secretary-General Antonio Guterres. Similarly, the United States has said all parties must commit to a negotiated settlement that is agreeable to all parties.

However, it seems that despite rising international pressure on Ethiopia – whether over the GERD or the conflict in Tigray – the Ethiopians appear unwilling to make any meaningful compromises. Ethiopia maintains that the GERD is within its sovereign domain. Thus, it will not be restricted by external restraints that reduce the GERD’s benefits because it needs the dam for the country’s development. A compromise between those two opposing viewpoints may appear difficult to achieve, yet it is necessary to handle this lingering issue that has the potential to generate conflict.

Peru Presidential Elections

Peru’s transformation has just started.

Last month’s Peruvian election was hotly contested, but the result was clear. Pedro Castillo, a Catholic rural teacher from Cajamarca in Peru’s far north, narrowly defeated his far-right opponent Keiko Fujimori by 42,000 votes. Nonetheless, the losing candidate, the daughter of ex-dictator Alberto Fujimori, has accused the election of fraud and has filed a judicial challenge to overturn the outcome. Indeed, Fujimori’s political opponents are not used to such losses. After all, this is a nation that has historically been seen as part of the United States’ backyard. Since General Juan Velasco Alvarado’s military dictatorship in the late 1960s and early 1970s, no progressive, left-wing, or left-nationalist government has held power. The outcome on June 6 signalled a significant departure from this conservative heritage. Argentina’s, Bolivia’s, Nicaragua’s, and Venezuela’s presidents have all congratulated Castillo on his election as president-elect. However, even weeks after the election, the Fujimori camp seems eager to take power, perhaps via a procedure similar to Bolivia’s November 2019 coup against Evo Morales.

Soon after the results were published by the country’s official electoral body, the National Jury of Elections (JNE), Fujimori condemned the elections as “fraudulent” and launched a legal fight to shift the tide in her favour. She has sought the annulment of over two hundred thousand votes cast in rural areas, asked for an “international audit,” filed nearly a dozen requests for the election itself to be annulled, and even claimed that her defeat was the result of a worldwide “leftist” plot. Simultaneously, a letter signed by several retired and former military figures calling for “military intervention” to prevent Castillo from forming a government began to circulate on private and social media. Since the first week after the election, a tremendous sense of tension and polarisation has engulfed the country, as Castillo supporters began organising marches to prevent Fujimori from attempting to steal the result, and Fujimori supporters rallied against what they perceived as a fraudulent election and the imminent arrival of “communism” with Castillo’s victory.

Fujimori supporters attacked several members of the National Office of Electoral Processes (ONPE). Other members of the legal system, such as the head of the anti-corruption prosecutor, José Domingo Pérez, have been subjected to physical assaults and death threats. Pro-Fujimori groups have also attacked peasant and indigenous activists rallying outside the JNE headquarters. Many international commentators have compared Fujimori’s strategy to Trump’s reaction to the 2020 election results and subsequent attempts to overturn the results.

However, almost a month after the election, Fujimori’s legal alternatives have significantly reduced. Almost all observer missions, from the United States to the Organisation of American States (OAS) and the European Union, have declared the election free, fair, and transparent. The most notable instance included the resignation of one of the JNE’s judges, Luis Arce Córdova, in response to what he said was a “lack of openness” inside the judicial organisation. Because the JNE needs a complete quorum of four judges to make a final judgement on election results, his departure was seen as an effort to further delay the process and open the door to a repeat election. If no president is recognised by July 28, a new temporary president chosen by Congress must arrange a fresh election.

Latin America was engulfed in social unrest before the COVID-19 pandemic hit. Now a string of elections that continues into 2022, protests in Colombia and upheaval over Chile’s constitution have investors bracing for a new wave of uncertainty over policy making. On top of that, the coronavirus is still ravaging the region, with Argentina, Colombia, Brazil and Chile recording far more confirmed cases per million people than India.

Faced with the obvious election result, many right-wing and centrist opposition leaders have either distanced themselves from the pro-coup narrative, denounced Fujimori for her actions, or even met with Castillo to explore the prospect of building alliances in Congress. The right-wing National Victory (NV) party’s George Forsyth denounced the JNE issue as an attempted “coup” by Fujimori, while the Purple Party of current temporary president Francisco Sagasti acknowledged Pedro Castillo as president-elect. Because there has been no agreement between the country’s right-wing and liberal political forces, Pedro Castillo has had both time and space to continue organising mass rallies against the slow-motion coup, while also meeting with local and regional authorities across the country in preparation for assuming the presidency.  Many past and present progressive heads of state in Latin America, including Alberto Fernández of Argentina, Luis Arce of Bolivia, Nicolás Maduro of Venezuela, Evo Morales, Rafael Correa, Fernando Lugo, Lula da Silva, and others, have acknowledged his triumph on the world arena.

However, Fujimori’s inability to prevent Castillo from becoming the president does not imply the threat has gone. He will have to deal with a hostile, but mainly unpopular, legislature, in which his Free Peru party presently has just 37 of the 130 seats. The Left’s total legislative authority is slightly under one-third of Congress, thanks to the five seats held by friends from the “Together for Peru” alliance.

Fujimori’s Popular Force party presently has twenty-four seats, the Alliance for Progress has fifteen, Aliaga’s Popular Renewal has thirteen, and Podemos Per has five, bringing the far right and conservative bloc to a total of fifty-seven seats, which is close to half of the total. Popular Action, We Are Peru, Avanza Paz, and the Purple Party were among the centrist-neoliberal parties that won thirty-one seats. Castillo’s ambitions to transform Peru are likewise under danger. The dogmas of the US-based “School of the Americas” continue to dominate Peruvian military and police, while private media have spent three months attempting to vilify and delegitimise the Left in every manner possible. The Lima-based business elite, as well as constant pressure from the US, are also opposed to antagonism. The fight for Peru had only just started, and it was up to all anti-imperialists across the globe to protect the country’s first left-wing administration in decades.