Daily Comment (April 12, 2017)

by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EDT] SOS Tillerson is in Moscow as tensions are rising.  The White House is accusing the Kremlin of having prior knowledge of the sarin attack in Syria and attempting to cover up the attack.  Putin is suggesting that the U.S. is being “duped” by rebels into attacking the Assad regime.  It’s difficult to see how these talks have any hope of success.  We did mention yesterday that Tillerson met with European members of the G-7 in Italy.  The U.K., along with the U.S., called for Russia to abandon Assad; Italy and Germany, both facing refugee issues, were more cautious.

Yesterday, a tour bus carrying members of the Borussia Dortmund soccer team in Germany was attacked with three bombs.  One member of the team was reportedly injured.  The game was rescheduled for today.  Borussia Dortmund is one of the most popular teams in Germany; it appears this may have been a terrorist attack.

Iran holds presidential elections on May 19.  Registration for this office began yesterday and it seems the conservatives are running Ebrahim Raisi for the presidency.  In the past, the conservatives have run a number of candidates that tend to dilute the vote, giving hope to centrists (liberals are pretty much excluded from the race).  There is growing speculation tht Raisi was handpicked by Ayatollah Khamenei.  If it is a two-man race, the current president, Hassan Rouhani, would face an uphill battle for reelection.  If Raisi wins, we may see Iran retreat from foreign investment which would slow its development and may hamper oil production.  We note that former president Ahmadinejad is making noise about running.  Khamenei could probably prevent him from running by having the Guardian Council disqualify him, but such a move would be unpopular with the poor in Iran who remember the former president fondly.  A more conservative Iranian president would be an unwelcome outcome for the U.S. and Sunni powers in the region.

In response to rising tensions between the U.S. and North Korea, Trump issued a stark warning via Twitter that the U.S. is prepared to act alone if China is unwilling to intervene in North Korea.  Rodong Sinmun, a state-run newspaper in North Korea, stated that Pyongyang has its “nuclear sights” focused on U.S. military bases in South Korea and on the U.S. mainland.  In our opinion, even though North Korea does have the capability to strike U.S. bases in South Korea, it is still unable to launch a missile that could land in the U.S.  Nevertheless, China has issued a statement that it is committed to the denuclearization of the Korean Peninsula.  In addition, the Global Times, a Chinese state-run newspaper, reported that Beijing is losing patience with North Korea and would consider cutting off oil exports if it continues to cause trouble.  This Saturday could prove to be a test for both Kim Jong Un and President Trump as North Korea celebrates the birth of the country’s founder, Kim Il Sung.  It is expected that Kim Jong Un will use the occasion to showcase the country’s military capabilities by launching another missile.  If this were to happen, President Trump is likely to respond militarily, further escalating tensions between the two countries.  We will continue to monitor this situation as it unfolds.

View the complete PDF