Fareed’s MHI Global Briefing ;

How to Handle Illiberal Europe

As Secretary of State Mike Pompeo makes the rounds in Central Europe, there’s both good and bad in America’s engagement with Europe’s illiberal wing, Foreign Policy’s Robbie Gramer writes. On one hand, engaging with Hungary and Poland counters Russian influence; on the other, it enables those countries as they feud with the EU over liberal values.Pompeo addressed the issue head on during a visit Monday to Hungary, where he met with Prime Minister Viktor Orban and Foreign Minister Peter Szijjarto at the start of a five-country tour of Europe. “Too often in the recent past, the United States was absent from Central Europe,” Pompeo said during his Monday visit. “That’s unacceptable. Our rivals filled those vacuums.” The approach contrasts with the one taken by the Obama administration, which restricted its interactions with Hungary and publicly admonished Orban for curbing political rights and dismantling parts of the country’s democratic institutions. Champions of the engagement policy include outgoing Europe envoy Wess Mitchell, the assistant secretary of state for European and Eurasian affairs, who will leave his post this month. During his visit to Budapest, Pompeo pointed to strides in the U.S.-Hungary relationship, including a new defense cooperation agreement and discussions on arms deals. Daniel Fried, a retired career diplomat and former assistant secretary of state for Europe and Eurasia, said the United States “tended to fall back to a scolding, finger-wagging mode” in the past. “It didn’t do much good.” Fried cited Poland, where he said concerns about democratic backsliding had abated somewhat in the past 18 months, thanks in part to Washington’s engagement. Damon Wilson, the executive vice president of the Atlantic Council, pointed to the fact that Budapest joined its Western allies in expelling Russian diplomats following the poisoning of a former Russian spy in the United Kingdom and backing EU sanctions regimes against Moscow—despite being viewed as increasingly close to Moscow. Pompeo touted increased U.S. engagement in the region as a way to push back on Russian influence. “We’ve now had 14 senior-level U.S. visits throughout Central Europe in just the first two years of this administration. I won’t tell you how many there were in the previous administration, but it starts with a ‘Z,’” he said. (Though the last secretary of state visit was, in fact, in 2011.) Russian President Vladimir Putin visited Hungary twice last year, while the last visit by a U.S. president to Budapest was in 2006. Scolding Central Europe gets America nowhere, and we should keep in mind that Hungary may have right-wing political strains, but it’s still a democracy, writes Atlantic Council Executive Vice President Damon Wilson—which leaves room both for security cooperation and a values-based alliance. It’s important to keep Central Europe in the sphere of Western capitalism as Russia and China lead the charge on state-run economics, Wilson adds. Of course, as the Trump administration’s own liberalism comes into question, so does the kind of alliance America is drawing Hungary and Poland toward.

Is Huawei Really a Security Threat?

Perhaps no one has taken a closer look at Huawei’s technology than the UK, where a review board scrutinizes it for security threats. It’s notable, then, that a former top British intelligence official says concerns about Huawei are overblown—even as the US pushes allies to bar it from building 5G networks over concerns about Chinese spying, which Huawei has denied. Robert Hannigan, who directed the UK’s intelligence agency GCHQ, writes in the Financial Times that blanket bans aren’t necessary….companies such as Huawei merely underlines how ineffective a blanket security ban based on company national flags is likely to be. Instead we should make technical judgments based on a clear-eyed view of… In July, the UK’s board examining Huawei’s technology could only provide “limited assurance” about security risks, but Hannigan’s point is that the UK has never found malware in Huawei’s code, and as countries move toward 5G networks, they don’t have to let Huawei construct the whole thing: If countries pick and choose what parts to let Huawei build, security concerns can be avoided.

Europe’s Last Advantage?

The Wall Street Journal rightly identifies Europe’s problems signaling decline—a downgraded eurozone growth forecast to 1.3% and internal political rifts—but it also points to an advantage Europe still holds: A wealthy consumer class that allows it to regulate heavily how foreign companies operate within its borders. With a robust data-privacy law and heavy fines slapped on Google and Facebook, Europe has taken the lead, in particular, on tech. But signs of trouble exist in that sector, too: Europe lags its American and Chinese competitors on tech production, if not regulation, and André Loesekrug-Pietri, speaker of the Joint European Disruptive Initiative, calls in Project Syndicate for Europe to reorganize the way it develops tech and for France and Germany to lead the way on how Europe handles cyber and space. To that end, many concrete measures could be implemented immediately. The first is to establish an innovation agency that is open to all EU member states, oriented toward nurturing cutting-edge research and development, and driven by the innovation ecosystem to ensure maximum agility. Moreover, we must be bold in terms of cybersecurity, to protect our public infrastructure and democratic systems alike. Unlike Russia and the US, European countries lack the capacity to “attribute” and determine the origins of cyber attacks. Only with a cybersecurity alliance, data sharing, and law-enforcement coordination can Europe recover this essential element of lost sovereignty. Finally, Europe must be strategic about space, because that is where the race in communications, geolocation, and autonomous-vehicle technologies – to say nothing of military conflicts – will be decided. Unfortunately, the European rocket maker ArianeGroup has already had to shed 25% of its staff, owing to European member states’ obsession with securing short-term returns for themselves. Such narrow-mindedness is undermining Europe’s ability to act. We must adopt a radically different and more agile strategy before it is too late. The Treaty of Aachen could be a good base – but bold, immediate, and decisive action is needed.

Saudi’s Next Adventure

Becoming more assertive under Mohammed bin Salman, Saudi Arabia’s latest move involves oil. The Saudi state oil company will begin producing overseas for the first time, the Financial Timesreports; the country’s energy minister tells the FT the “world is going to be Saudi Aramco’s playground.” Until now, Saudi Arabia has relied on its own oil reserves while exerting influence over global prices—but without developing its state-run company into a global entity like Western oil giants Exxon, Shell, and BP.Despite ambitious reforms driven by Mohammed bin Salman, the Saudi crown prince, to wean the kingdom off what he has called its “dangerous addiction to oil”, Mr Falih mapped out Saudi Arabia’s plans to invest more in the sector that has underpinned its traditional economy. The move underscores how Saudi Arabia is likely to remain dependent on its oil and gas prowess for raising revenues, as it struggles to diversify into new sectors such as technology, tourism, healthcare and mining. The kingdom and Russia are leading global producers to curb supply to support oil prices after they fell by 40 per cent in late 2018. Crude is now hovering near $60 a barrel, while Saudi Arabia’s budget requires levels closer to $80.  Mr Falih said in March the kingdom would reduce production to near 9.8m barrels a day, from above 11m b/d in November. Exports would also fall to near 6.9m b/d, down from 8.2m b/d three months ago. Brent crude, the international benchmark, rose $1.82 a barrel to $63.34 after the FT reported the minister’s production outlook, though prices came off their highs later in the trading day. Mr Falih said oil and gas, which has dominated the Saudi economy for decades, would ultimately still make up at least 40-50 per cent of the kingdom’s revenues even if reforms took hold.  While the kingdom has invested abroad in refineries and petrochemicals, Mr Falih’s remarks are the clearest sign yet of its intention to develop oil and gas extraction projects overseas. The minister indicated that efforts would initially be focused on creating a “global gas” business. Many of the world’s energy majors are increasingly investing in gas, as the growth of demand is outpacing oil.  Saudi Arabia has eyed investments in Russia’s liquefied natural gas sector and is in talks about taking a stake in export facilities in the US. But Mr Falih also mentioned Australia as a possible investment destination. Saudi Arabia will also look to expand its energy sector overseas this week in areas that don’t involve pumping oil out of the ground: It’s preparing to sign $10 billion worth of deals with Pakistan on refining, liquefied natural gas, and mineral development. He compared Saudi Aramco’s exploration and production capabilities favourably with its global peers, saying: “We can stand shoulder to shoulder with anyone and outdo them.” Saudi Aramco caught the attention of the international financial community when Prince Mohammed revealed plans to sell shares in the state energy company through a stock market listing.  People familiar with the plans for the flotation have said it has been indefinitely postponed. But Mr Falih was adamant that its expansion plans reflected a need to please potential outside shareholders.  “If I have investors from New York or London or Tokyo that are investing in Saudi Aramco, they want Saudi Aramco to be competing with the world’s best international oil companies,” he said. Hurdles for what would have been the world’s largest initial public offering included an inability to achieve the $2tn valuation Prince Mohammed had sought, regulatory concerns and worries about legal exposure. The kingdom’s powerful sovereign wealth fund was due to be the main recipient of the $100bn that Riyadh expected to raise from the flotation. In its absence, Saudi Aramco has been instructed to acquire the fund’s 70 per cent stake in Saudi petrochemicals maker Sabic. Saudi Aramco will issue a bond to partly pay for the $70bn Sabic deal, with an investor roadshow due to start imminently, Mr Falih said. The move enables the PIF to raise cash quickly at a time when finance ministry handouts have shrunk. The Saudi economy has reeled from the aftermath of the 2014 oil price crash, which ushered in years of austerity measures.  As the kingdom struggled with a slowdown, the death of journalist Jamal Khashoggi last year sparked its biggest diplomatic crisis with the west since the September 11 2001 attacks in the US. Riyadh blamed rogue operatives for carrying out Khashoggi’s killing at its consulate in Istanbul and has put 11 Saudis on trial for the attack. “Obviously there is something of a cloud that was created by this tragic and unfortunate incident,” said Mr Falih. “[But] nobody is shying away . . . I would dispel that notion that people are avoiding investing in Saudi Arabia.” His comments come despite signs officials are concerned about the ability of Saudi Arabia to attract foreign capital and expertise to drive forward reforms. The kingdom faces shorter term challenges, including its relationship with the US, its oldest and most important ally. President Donald Trump has backed Saudi Arabia through the Khashoggi affair, but has long harboured animosity towards the Saudi-led Opec oil producers group.  Legislation that would make it possible for the US government to prosecute Opec member countries for manipulating oil prices is moving forward in Congress and is thought to have one of the best chances yet of becoming law.  Mr Falih said he trusted the US to “do the right thing” and warned that the legislation could be “harmful” for the global economy. The world would suffer “irreparably” from the loss of Saudi Arabia’s ability to quickly raise or cut oil production to balance the market.

Venezuela and the Limits of Russian Influence

The limits of Russian influence in Venezuela are beginning to show, writes Ana Palacio at Project Syndicate, as Russia is now calling for dialogue—a softening of its staunch support for President Nicolas Maduro. It offers a contrast with Syria and a lesson on Russia’s limits: Venezuela’s crisis involves a unified international coalition behind Guaido, a strong US stance, and no power vacuum—all elements that allowed Russia to step into Syria more aggressively. But Russia’s commitment to Maduro is also flagging because Venezuela’s neighbors and relevant regional organizations have adopted a unified position on the issue. This stands in stark contrast to the Syrian conflict, where deep divides among Turkey, Saudi Arabia, Qatar, and Iran have created plenty of opportunities for disruption. More important, many of the world’s major powers have shown far more resolve on Venezuela than they did on Syria. How can we forget US President Barack Obama’s unenforced “red lines”? In Syria, as in Ukraine, Russia filled a vacuum left by a West unwilling to act. In Venezuela, by contrast, the US has signaled that it will respond aggressively to provocation. When Maduro ordered US diplomatic personnel to leave the country, the US State Department refused, eventually forcing Maduro to reverse his demand. A few days later, the hawkish Elliott Abrams was appointed as special envoy for Venezuela. US National Security Adviser John Bolton then “unintentionally” revealed to cameras a notepad reading “5,000 troops to Colombia.” There is no vacuum in Venezuela – and Russia is backing down. Europe should take note. As the Syrian conflict wanes, with Assad reconsolidating his power there, Europe must be wary of further Kremlin disruption efforts. Already, Russia has established a presence in Libya, and last month, Russian Foreign Minister Sergei Lavrov visited Tunisia, Algeria, and Morocco, focusing on regional conflicts, among other issues. This is not a moment to panic, but it is a moment to prepare. Europe must act now to solidify ties with regional partners and build consensus internally. Otherwise, it could find itself blindsided, yet again, and unable to counter Russian interference. If the US is to prevail in its backing of Guaido—under President Trump’s veiled military threat—it will be a victory for the Monroe Doctrine of America only intervening in its own neighborhood, but The Economist points out that idea has led to American adventures that have fueled Latin American socialism, and Trump’s allusion to military force may end up disquieting some in the region.

Fareed’s MHI