Saudi King Salman travels to Moscow move to strengthen ties. En+ Group expected to issue its first IPO, setting stage for possible expansion of Russian firm. Mercosur and EU move to advance trade talks as US pulls back. Ousted Prime Minister Sharif of Pakistan may reemerge as party leader. All in The Week Ahead.
Russia-Saudi meeting in Moscow moves to strengthen ties
This week, Saudi King Salman is expected to travel to Russia to help build relations between the two countries. Although relations between the two were poor during the Soviet era, in the past few years relations have improved. Russia and Saudi Arabia appear to be increasingly collaborative on oil policy, although it is unlikely Russia will be able to sustain the level of hemorrhaging losses of low oil prices that Saudi Arabia can.
Another flash point in the relationship between the two countries has been on Syria which is arguably Russia’s most important ally in the Middle East; Saudi Arabia supports Syrian opposition forces and wants Assad to be removed from power. The two countries’ relationship with Iran is also a source of tension. One of Saudi Arabia’s main objectives is to limit the extent of Iran’s influence in the Middle East, and the potential carrot of stronger economic ties may help improve the likelihood of this happening. Russia is also able to point to the haphazard U.S. — the kingdom’s most important ally — and suggest itself as a source of a stable alliance.
In addition to discussing a shared position with Russia on de-escalation zones in Syria, which it had previously opposed, the Saudi government is likely to announce a deal to extend the 1.8 million barrel per day cut it agreed to in January. They will also discuss the strengthening of ties in the natural gas industry in an effort to limit the influence of U.S. energy producers.
En+ Group expected to issue its first IPO setting stage for possible expansion of Russian firm
This week, Russian mining, minerals, and energy organization En+ Group is rumored to be offering its first major IPO on the London Stock Exchange (LSE). The company, with a 2011 estimated value of $16 billion, is led by Russian aluminum magnate Oleg Deripaska, who also leads aluminum smelting firm Rusal. Deripaska is reported to maintain very close ties to President Putin stretching back to Yeltsin.
While estimates vary on how much En+ Group expects to raise, most estimates hover around $1-2 billion. The response to any IPO will be significant in determining the level of engagement Western firms are willing to have with a major Russian firm while sanctions continue and opposition to Russia in the United States Congress continues to harden. The placement of the IPO in London is also of interest to market analysts; after Russian sanctions from the European Union and United States were announced for its invasion of Ukraine, investment in Russian stocks generally dried up as Russian companies faced trading constraints and occasional problems for major executives. In addition, the Brexit vote caused a downturn in the LSE’s image as a future entrant to European markets. The response by traders to En+ Group’s IPO could be nearly as important to the London Stock Exchange as it tries to recuperate from recent damages.
Mercosur and EU move to advance trade talks as US pulls back
This week, the European Union and Mercosur — a trading alliance of South American states that includes Brazil and Argentina — will look to kickstart trade talks that have been off and on since 1999. In the past, a change of governments in South America has prompted a move back. The election of more left-leaning populists in Argentina and Brazil helped to put Mercosur-EU talks on the backburner several times. Venezuela was also a headache for the bloc, until it was suspended temporarily in December and permanently this past August. However, the election of Macri in Argentina and the presidency of Temer in Brazil has shifted the alliance more towards trade openness. There have been a few promising developments: the EU announced it would be including ethanol in its negotiation package — a key demand from Brazil, the world’s largest manufacturer — and would offer a quota for sugar imports.
On the Mercosur side, Argentina and Brazil have been more open to government procurement adjustments. Despite positive moves, and the recent conclusion of free trade deals between the EU and Japan and solid developments in Mercosur-Pacific Alliance talks, several EU member state governments have raised substantial skepticism that a deal can be made without causing damage to sensitive sectors in the agriculture industry, including beef, sugar, and poultry. Both sides are pushing for a December conclusion to the talks. Should a preliminary deal be forged, the EU will likely emerge as a predominant and willing trading partner as the US continues to shun international trade negotiations having withdrawn from the TPP, renegotiating NAFTA, and not moving on bilateral negotiations.
Ousted Prime Minister of Pakistan may reemerge as party leader
On Tuesday, former Pakistani Prime Minister Nawaz Sharif is likely to regain his position as leader of the PML-N party due to a new law that allows disqualified legislators to lead political parties; previously only those qualified to become MPs could be party leaders. Although Sharif is barred from holding a position as MP or Prime Minister due to a snowballing scandal that ultimately led to the Supreme Court disqualifying him, his position as party leader will effectively give him sway over the majority PML-N’s decisions in parliament. He would also be able to influence who is chosen in cabinet ministries and ultimately the prime minister, as he did when his replacement was selected by the party. Although his position within the party appears to be secure, particularly with the election of his wife as MP for the seat he once held, the Supreme Court may step in again to challenge the law. Opposition parties have already indicated they would sue to prevent the law from being enforced and that it was obviously a workaround to the previous Supreme Court ruling barring Sharif from holding public office. Whether the Supreme Court steps in to annul the law remains one of the most important developments to watch, and may have ramifications not just for Sharif but also the future success of the PML-N.
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 produced by GRI Senior Analyst Brian Daigle and Senior Editor Luke Iott.