Mexico was the lone holdout yesterday on an OPEC+ deal to collectively cut oil production by 10 million barrels a day (b/d) in May and June to stabilize oil prices, and today says it reached a production cut deal with President Trump whereby the US would compensate for a portion of the cuts that Mexico would not agree to, though OPEC had not publicly confirmed as of this morning. Prices have cratered under the impact of a pandemic-fueled economic slowdown and a Russia-Saudi price war that flooded the market with cheap crude. Many major oil producers rely on oil revenues to fund government spending, and a prolonged period of low prices poses risks to their financial and political stability, especially if revenue losses are steep enough to impact basic services like social programs and infrastructure. In the US, the price collapse has already led to rounds of layoffs and major cuts to capital spending budgets. Oil producers have little choice but to take action to try to stem the bloodletting, meaning that a deal is likely, even if it takes some wrangling. But the duration of demand losses is an unknown – as the virus rages on, it is unclear how long lockdowns will last, and whether they will need to be applied intermittently over the next several months. Estimates for demand losses from the pandemic vary widely, with some reaching as high as 20 or even 35 million b/d. If those high-end estimates come to pass, a 10 million b/d cut can only do so much. Deal developments will continue throughout the day – an agreement could be hammered out as soon as this evening.
ISIS has claimed responsibility for a rocket attack on the US’s Bagram Airfield in Afghanistan. Though there were no casualties reported, the attack came just after the start of an Afghan-Taliban prisoner exchange considered a key component of the US-Taliban peace deal agreed in February. ISIS is attempting to rebuild capacity under the cover of the global novel coronavirus pandemic and seeking to reoccupy the territory left unprotected by the withdrawal of US troops from the region. The US has worked closely with Iraq in recent years to fight ISIS, but as US troops withdraw, Iraq will be left to do much of that work on its own. And Iraq is beset with other challenges as it starts to battle the spreading coronavirus outbreak – Iranian-backed militias trading fire with the US, months of protests, a revolving door of Prime Ministers-designate, and a collapse in oil prices – leaving limited capacity to effectively counter ISIS’s resurgence without assistance.
Remittances to Latin America have tumbled as the coronavirus/COVID-19 pandemic sweeps the United States. Across Latin America and the Caribbean, remittances from the United States could drop 7-12% this year as compared to 2019, when the region received $75 billion. This will be an enormous blow to the region with potential generational impacts. Recognizing the hit Mexico will take from the loss of remittance dollars, President Andrés Manuel López Obrador recently appealed to migrants living across the border to “not stop thinking about their loved ones.” Remittances to Mexico from the United States and other countries totaled $36 billion in 2019. Along with oil revenues and the tourism sector, remittances are considered a key component of the Mexican economy, which was already contracting before the coronavirus shutdowns. Bank of America has predicted that Mexico’s GDP could contract by 8% this year. To put it in perspective, that would be a larger drop than the 2009 recession when Mexico’s GDP contracted by 6.5% or the 1994 Peso Crisis when it contracted by 6.2%.
The US has labeled the Russian Imperial Movement a terrorist organization, the first such designation for a white supremacist outfit. The move, part of an effort by US law enforcement to address growing problems of domestic terrorism and white supremacist incitement and violence, enables the Treasury to bar Americans from financial transactions with the organization and ban members from entry into the US. And that in turn allows law enforcement to investigate US individuals with suspected links to the group for evading sanctions. US officials say the Russian Imperial Movement provides support, including military training, to “like-minded” people in the US and Europe, and may have assisted the Russian government’s annexation of Crimea by recruiting Russian fighters to aid pro-Russian separatists in the region. No concrete link between the group and the Russian government has been identified, but their goals are aligned in at least one respect. Both have sought to exacerbate racial tensions throughout the west – a tactic that has been repeatedly used by Russian government-backed troll farm Internet Research Agency to undermine democracies in the US and Europe.
The US Indo-Pacific Command is seeking $20.1 billion in additional funding in 2021-2026 to counter China’s growing clout in the region. The funding request would go towards a wide range of activities and hardware, including radar warning systems, cruise missiles, military exercises with regional allies, deployment of more forces and more intelligence-sharing. The request seeks to address what has long been considered a misalignment of military spending, wherein China is frequently touted as the US’s biggest competitor worldwide, but Europe receives the lion’s share of spending. And the goal of the proposed build-up is deterrence – to signal to China that the cost of any preemptive military action on their part will outweigh the benefits, and that the success of any such strikes is far from guaranteed. A chorus of experts is warning that China will seek to strengthen its regional position in the aftermath of the coronavirus pandemic, and with the U.S. and China already at odds over trade issues and the spread of misinformation about virus’s origins, tensions are likely to escalate.
