Week four of social distancing and quarantine is coming to a close in the great Commonwealth of Pennsylvania. We’re starting to see some encouraging signs about curves flattening, but the death toll this week has been a tragedy. This has been one of the deadliest weeks in modern U.S. history, so I encourage our readers to continue to stay inside in order to stay safe.
On Tuesday, we welcomed Asia Program Director Jacques deLisle to the discussion. He gave a great breakdown on important issues affecting the U.S.-China relationship that fit the theme of this Round Table series: “Beyond COVID-19.” If you missed our conversation, you can find it here.
Maia and Aaron are back to discuss all things Eurasia and the Middle East, with a dash of Asia from me. This Round Table features a conversation between Thomas J. Shattuck, Research Associate in the Asia Program at FPRI; Aaron Stein, Director of the Middle East Program and acting Director of the National Security Program at FPRI; and Maia Otarashvili, Deputy Director of the Eurasia Program at FPRI. We release these conversations twice per week (Tuesdays and Thursdays), and will continue to do so for the duration of the crisis (with occasional guests popping in), so that readers will not miss pertinent information and stories from the areas that FPRI covers.
General reminder to our readers to keep up to date with guidelines coming from the U.S. Centers for Disease Control and Prevention; continue to stay home as much as possible; and when you must leave your home and engage with people, be mindful of social distancing practices; and wash your hands frequently with soap for at least 20 seconds.
Thomas Shattuck: Maia, is there an end in sight for the Russia-Saudi oil war?
Maia Otarashvili: I think the Russia-Saudi oil war situation is still an issue that merits a lot of attention, and would be the biggest headline if the pandemic had not broken out. As most people may have noticed by now, gas prices are at record low at the moment. This is a result of the OPEC+ framework between Russia and Saudi Arabia collapsing. The two had jointly propped global up oil prices until a disagreement forced Russia to walk out of the OPEC+ meetings in March. Oil prices have plummeted as a result of overproduction, threatening Russia’s economy, especially when coupled with the economic fallout from the coronavirus crisis.
This week, we saw some signs that the two parties might come together to reach an agreement, but the emergency OPEC+ meeting, scheduled for April 6, was postponed and is supposed to take place today (in the form of a video conference). Even if Russia and Saudi Arabia reach a compromise, much damage has been done already, and plenty of issues still remain as a result. According to our BMB Russia experts, “These include debates about whether to move forward if the U.S. does not agree to limit production (both Russia and KSA want U.S. cooperation) and disagreements about how to calculate and distribute the cuts. Saudi Arabia, for instance, wants to cut based on its current output (which has risen from 9.8 to 12 million barrels per day in that last week). Russia, which has not meaningfully increased output, understandably wants the cuts to be based on Q1 output.” The situation is constantly changing, so I highly recommend FPRI’s BMB Russia as a go-to source for regular updates on this.
Tom, China made some surprising news at the United Nations. What can you tell us about China’s new role at the UN?
Shattuck: Yes, China was recently appointed to the Consultative Group for the UN’s Human Rights Council. Oman submitted a letter to the Secretariat of the Human Rights Council announcing the appointment of Jiang Duan, who currently serves as Minister at the Permanent Mission of the People’s Republic of China. For the next year, China will hold the Asia-Pacific member slot on the five-member group on the Council. This position allows China to influence the selection of “at least 17 UN human rights mandate-holders over the next year, known as special procedures, who investigate, monitor, and publicly report on either specific country situations, or on thematic issues in all parts of the world, such as freedom of speech and religion.”
Yes, this is the same China that has detained over one million Uyghurs “reeducation camps” in Xinjiang and detains human rights lawyers, democracy activists, and people who dare criticize Xi Jinping. Most recently, Beijing has announced the detention of Ren Zhiqiang, a billionaire real estate mogul who called Xi a “clown” for his COVID-19 response. In an essay written about Xi’s response to the pandemic, Ren wrote, “Standing there was not some Emperor showing us his ‘new clothes,’ but a clown with no clothes on who was still determined to play emperor. Even though he was clutching some rags in an attempt to cover up the fact he wasn’t wearing any clothes, he couldn’t cover up his ambition to be emperor, and his ambition to destroy whoever might want to stop him.” Detention (and eventual prison time) has become commonplace across China for people who speak out against Xi or the regime.
Unfortunately, President Donald Trump left the Human Rights Council in June 2018. Then-Ambassador to the UN Nikki Haley said at the time, “I want to make it crystal clear that this step is not a retreat from human rights commitments. . . . On the contrary, we take this step because our commitment does not allow us to remain a part of a hypocritical and self-serving organization that makes a mockery of human rights.” The hypocrisy charge is not entirely unfounded because an interesting assortment of countries are members of the Council, including Congo, Afghanistan, Pakistan, Somalia, Sudan, and Venezuela. These countries do not exactly look like staunch defenders of human rights. However, by leaving the Council, the Trump administration has no ability to guide it into making better decisions. Now, the United States is stuck complaining about choices the Council makes from the outside.
The decision to leave the Human Rights Council fits the Trump administration pattern of leaving, defunding, and threatening to defund various UN organizations. It left the UN Educational Scientific and Cultural Organization (UNESCO) in 2018, and Trump is floating the idea of cutting funding for the World Health Organization (WHO) due to its poor response to the COVID-19 pandemic. These actions only make it easier for China to fill the missing leadership role that the United States abandons. Cut funding or leave, and China can make up the difference and increase its influence.
Aaron, let’s turn our attention to Turkey and some worrying news about its economy. This isn’t normally something you talk about, but what are you seeing with Turkey and the issues it is facing after years of top-down efforts to stimulate growth via low interest rates?
Aaron Stein: I am tracking Turkey’s foreign currency reserves situation. Turkey needs reserves as an insurance policy to underwrite its large foreign financing obligations and also to help it to stabilize the lira at times of volatility. But in all measures of reserves, they don’t have enough.
The central bank’s gross FX reserves, excluding gold, fell to around $58bn in the first week of April. That compares with around $170 billion of short-term debt coming due this year. And net reserves—which offer an indication of the central bank’s firepower to defend the currency—are also very low, with some estimates as low as $1.5 bn, or even in the negative once borrowed money is stripped out. Laura Pitel, a journalist for the Financial Times, wrote, “A surge in short-term borrowing masked a drop in Turkey’s net foreign currency reserves to just $1.5bn” at the end of February. This sharp decline in foreign currency reserves will make it all but impossible for the Turkish government to defend the lira, and will raise uncomfortable questions for the ruling Justice and Development Party (AKP) and President Recep Tayyip Erdogan.
Erdogan has politicized the Turkish central bank and has steadily co-opted its leadership, so as to turn the institution into a tool for his personal power. He has argued, incorrectly, that high inflation stems from high interest rates, so Turkey would be best served by keeping interest rates low. This measure was designed to stimulate the economy by making it easier to borrow, but has contributed to weakness in the lira, partly because it has—according to Bloomberg—“pushed domestic borrowing costs below inflation, making it unattractive to hold the local currency.”
Shattuck: Maia, let’s go back to you really quick. Despite the pandemic, Russia and Ukraine continue to fight a war in the Donbas. What’s been going on there recently?
Otarashvili: Orthodox Easter is coming up on April 19, and May 9 is celebrated as “Victory Day” in Russia and many of the post-communist countries. Both dates feed into pandemic-related anxiety right now; church services have not been cancelled, and we are going to see increased public activity around religious establishments, bringing heightened risk of community spread of the virus. It seems that some countries are still planning to hold their traditional Victory Day parades—Belarus has come under a lot of scrutiny for staging parade rehearsals in Minsk.
The forthcoming Easter Holiday has brought some positive developments, too: Ukraine and Russia-backed separatists in Donetsk have agreed to a prisoner swap. We don’t yet know how many prisoners will be exchanged, but we know the list has been finalized. The last prisoner swap between Ukraine and the Russia-backed separatists in the east took place in December 2019, and involved about 200 people. It is encouraging that amid the pandemic peace talks are still taking place. This agreement was achieved via a video conference call between the warring sides. According to RFERL, “During the video conference, held in keeping with recommendations against in-person gatherings because of the coronavirus pandemic, the sides also discussed demining and negotiations on the disengagement of troops in the Donbas region.” Back in March, the United Nations Secretary General called for an end to all active conflicts around the world while the pandemic continues. So far, all efforts have been unsuccessful in bringing a lasting ceasefire to Donbas. We’ll keep an eye on the situation, and let our readers know if the pandemic halts the war.
Aaron, that’s an interesting predicament that Turkey finds itself in at this critical juncture of the pandemic. Where do you see this going?
Stein: With the COVID-19 pandemic, there are concerns that Turkey faces two interlinked issues: First, it needs to continue to finance its foreign currency debt and its current-account deficit, which had disappeared when the country suffered a recession in 2018 and 2019, but has started to grow again in recent months. That may prove challenging during the market turmoil triggered by the coronavirus crisis.
The second is that the Turkish private sector has to finance debt in foreign currency, but works in a lira economy, and that lira has depreciated considerably and the central bank now doesn’t have the tools to defend the currency. In the past, these companies have been able to roll over their debt. The question is if this will remain an option moving forward.
According to economists, Turkey has three options—and none of them are easy. The first is to approach the International Monetary Fund (IMF), an institution the AKP has slammed as usurious and which will demand reforms to the Turkish economy that Erdogan may dislike as part of a bailout. The AKP is practical, but it has resisted going to the international bank and may continue to do so because the political costs of a bailout package would be deemed too high. A second option is to impose capital controls, a move Ankara has previously vowed not to do and which may not be enough to overcome this issue. The third is to approach Europe, the United States, or China for bilateral support via swaps, which economists like the Council on Foreign Relations’s Brad Setser suggest is possible, but unlikely. I would guess—and I am not alone here—that Ankara will try to do everything in its power to delay going to the IMF, but at some point, it may simply run out of fire power. But, honestly, who knows. It may have other tricks up its sleeve that I am not considering and that may seem obvious when instituted, but which I am not now considering. In any event, things may get tough for Turks in the coming months, and the government has some big things to consider. I think the Bloomberg headline today neatly captures the current reality: “Only Question for Erdogan Is Which Economic Taboo to Break.”
Shattuck: As usual, thanks for another great discussion Aaron and Maia!
The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.