Mexico and Cambodia hold key local elections. The Paris Climate Accord heads for uncertainty. IPO for energy infrastructure giant Kinder Morgan offers window into long-term market views of oil industry. All in The Week Ahead.
Mexico local elections could elevate left-wing firebrand ahead of 2018 presidential elections
On Sunday, Mexico State will hold gubernatorial elections, which have the potential to elevate a populist leftwing party as well as kneecap President Enrique Pena Nieto’s PRI. This election has more at stake for the PRI than any other party or candidate after it lost several major elections last year, including one of its strongholds Veracruz to a PAN-PRD coalition. Mexico State represents the most important stronghold for the PRI; it serves not just as the chief basis for its political power but was also where President Pena Nieto established his own political career. Pena Nieto himself had been governor of the state before being elected to the presidency.
The leading contenders for the governorship are President Pena Nieto’s cousin, PRI candidate Alfredo del Mazo, and emergent National Regeneration Movement (Morena), candidate Delfina Gomez. With polls showing a very close race between the two candidates, a Gomez victory could pose a significant symbolic blow to the PRI. On the other hand, it could provide a substantial boost to the Morena party, and its leader Andres Obrador. Obrador, who is planning to contest the 2018 presidential elections, has been a major presence on the Mexico state campaign trail and would receive a boost in the minds of voters across Mexico if Gomez emerges victorious on Sunday. An Obrador victory in 2018 could cause substantial damage to the traditional 2-party system. It could also severely affect relations with the United States and make any effort to reform the North American Free Trade Agreement extremely perilous.
Cambodia local elections could see erosion of prime minister’s party as third parties struggle to compete
On Sunday, Cambodians will head to the polls to vote on local commune elections. The elections will largely pit Prime Minister Hun Sen’s Cambodian People’s Party (CPP) against the Cambodian National Rescue Party (CNRP), as numerous third parties have failed to gain sufficient oxygen to compete with the two largest parties, in part due to the fact that two smaller parties had merged to form the CNRP. The campaigns have recently been marked by harsh criticism from independent election monitors over the rhetoric employed by Prime Minister Hun Sen and the CPP, particularly the prime minister’s assertion that violence will be likely if the CPP fails to win. Others have questioned the independence of Cambodia’s National Election Committee due to its reliance of government funding, although the NEC has responded that equal representation of the political parties prevents undue influence from the government.
A significant rise of the CNRP could provide a symbolic shock to Cambodia’s political system, even if actual power does not change hands: the last national elections that saw a substantial rise of the CNRP that rattled the leadership of the CPP as it cracked the understanding that Cambodian politics would remain persistently in the hands of the CPP. The current CNRP head, Kem Sokha, remains confident heading into the elections, as the CNRP fills the vacuum of opposition left by the resignation of Sam Rainsy, who is currently in exile in France after years of threats, including jail sentences, from Hun Sen. However, the CNRP does remain untested at the local level: in 2012 elections the party hadn’t even been formed and the CPP had received about 70% of the vote. If the CNRP does emerge victorious and real questions of the power of the CPP emerge it could lead to pressures from the CPP to tamper with the integrity of independent electoral agencies.
U.S. may withdraw from Paris climate accord despite pressures at home and abroad
This week, the White House has signaled it may offer a final determination on whether to withdraw from the Paris Climate Accord following pressure from key advisors, which was signed by every negotiating country except Syria and Nicaragua — the latter allegedly because the accord did not go far enough. It is uncertain what tangible benefit could be gained by U.S. withdrawal; the U.S. commitments are not particularly onerous as a significant proportion of the U.S. reduction would have occurred through regulatory frameworks like the Clean Power Plan, and over 1/3 of the reduction had already been achieved before the accord through the reduction in coal demand. This may help to explain why dozens of major U.S. businesses have urged the administration to remain in the accord and work toward meeting U.S. targets.
Abroad, the administration has faced enormous pressure to remain within the Paris climate agreement; the G7 tried unsuccessfully to get the administration to reaffirm its commitment to the climate accord, the Chinese government has expressed its support for the agreement, and European heads of state have also urged the U.S. to remain within the agreement. Nevertheless, it remains uncertain what would happen in the event of a U.S. withdrawal: the agreement may collapse, but given the broad range of interested stakeholders across both developed and developing countries, the other signatories may hold out for either an unlikely change of heart from the administration, or possibly wait for the next administration to reaffirm the U.S. commitments.
IPO for energy infrastructure giant Kinder Morgan could offer window into long-term market views of oil industry
This week, the Canadian subsidiary of Houston-based energy infrastructure firm Kinder Morgan will open an initial public offering of over 100 million shares, and approximately 30% of the company, at an initial price of $17 per share. The resulting sale is likely to raise over $1.75 billion for the company in its efforts to expand its Trans Mountain pipeline to support the production capacity of the tar sands oils in Alberta. The $17 per share initial offering is below the previous range expected to be offered, $19-$22, which may reflect some degree of market skepticism over large infrastructure projects in the current economic environment.
Last week, Greenpeace Canada submitted a request to the Alberta Securities Commission that the offering being stopped due to a “overly optimistic view of the international oil market” provided by Kinder Morgan ahead of the sale. The IPO itself may be a sign of relatively weak demand, as it had been the intention of Kinder Morgan to engage in a joint venture to complete the Trans Mountain pipeline, and market analysts were surprised by the offering. Interest in the IPO could prove a useful proxy to determine market willingness to invest in long-term non-renewables projects, particularly as climate change has become an increasingly prominent component of investments.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
This edition of The Week Ahead was written by GRI Analyst Brian Daigle.
