13 November 2013 | Vol. 4, № 42.

From the Editor’s Desk

Dear FDI supporters,

Welcome to the Strategic Weekly

Analysis. This week, following the recent

round of P5+1 negotiations between Iran

and the West, we open with a look at

efforts by the Iranian leadership to attract

more buyers for the country’s oil.

Still in Iran, we examine the increasingly

perilous water security situation

confronting the country, ahead of

warnings that water rationing will be

imposed in the capital, Tehran.

Next, the Global Food and Water Crises

Research Programme investigates the

activities of a coalition of developing

countries led by India, China and

Indonesia. The group is lobbying for

increases to World Trade Organization

subsidy limits to help combat food

insecurity and poverty.

Looking to Indonesia, we analyse the

prospects for Indonesia’s successful – and

evolving – democracy, in the wake of the

annual Bali Democracy Forum and ahead

of presidential and parliamentary

elections next year.

In Malaysia, we investigate the waning

popularity of former Prime Minister

Mahathir Mohamad, in the wake of a by-

election in the opposition stronghold of

Kedah.

Moving to Africa, we consider the efforts

of the International Criminal Court to

bring to trial Kenyan President Uhuru

Kenyatta and Vice-President William Ruto.

Both men have been charged with crimes

against humanity, related to the deaths

that followed the 2007 election in that

country.

I trust you will enjoy this edition of the

Strategic Weekly Analysis.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

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Iran Tries to Lessen Impact of Economic Sanctions

Iran’s recent bid to attract former oil clients could ease the pressure of the Western

economic sanctions and renew the country’s essential economic lifeline.

Background

Western sanctions, in particular the embargo on Iran’s oil and gas exports, have pressured

buyers to reduce purchases from Tehran, crippling its economy. The United States has yet to

ease its sanctions on Iran, despite being involved in discussions with Iran as part of the P5+1

talks.1 Despite some promising signs, the most recent talks in Geneva ended with no

agreement, dashing immediate hopes of ending the standoff over Iran’s controversial

nuclear programme. There are signs, however, that the latest efforts by President Hassan

Rouhani could attract former oil customers and deliver much-needed revenue to the Islamic

Republic.

Comment

Although Iran claims the fourth-largest proven oil reserves in the world, sanctions imposed

in July 2012 have taken a significant toll on the Iranian economy. In the first year of

sanctions, the country’s oil exports fell to their lowest level since 1986, when Iran was

involved in an eight-year war with Iraq. Although China, India and Japan – which together

account for half of Iran’s crude oil exports – have received a six-month exemption to import

Iranian oil, a condition of that exemption is that their imports must demonstrate an overall

gradual decline.

The reduction in exports has cost Tehran billions of dollars per month, vital to the state’s

revenue. In addition, financial sanctions have also made it difficult to repatriate from the

proceeds of the oil sales, cutting off a main source of Iranian income. In India, Japan and

South Korea, billions of Tehran’s oil money is stuck in bank accounts, held up by the

sanctions.

Of late, Rouhani has been determined to boost Iran’s primary economic lifeline. The new

president and his Cabinet have adopted measures such as offering large discounts on oil,

and, most recently, free delivery of crude to India. The Iranian Government has also put

together a new re-insurance package for refineries processing Iranian oil, offering Indian

clients a significant price discount if refiners increase purchases. While any discount on oil is

beneficial to India, its six-month exemption is up for renewal in early December and New

Delhi is likely to be hesitant to increase imports prior to a review of its waiver from the US

sanctions. India, however, has sought to pay its oil debts in rupees rather than dollars, a deal

that Tehran has not been eager to accept.

Some hope that a deal between Rouhani and the West might lead to a lifting of sanctions, as

talks between Iran and the P5+1 recommence on 20 November. If sanctions were lifted, it

would open up opportunities for international investment and the restoration of exports. It

1 The P5+1 is comprised of the United States, the United Kingdom, France, Russia, China and

Germany.

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may be difficult, however, as Iran has lost market share and that may be difficult to regain.

Higher production in the US, Saudi Arabia and Iraq has offset the loss of Iranian exports, and

crude exports from the Middle East and West Africa have largely replaced Iranian oil in the

Asian marketplace. To boost exports to pre-sanction levels, Iran would need to attract

clients other than its long-time patrons in Asia. For this reason, Rouhani and his Cabinet

have been seeking broader access to international markets. In October, ten member states

of the European Union received waivers from the sanctions. Turkey has also increased its

imports.

As talks resume later this month, Iran’s leaders strongly oppose abandoning the nuclear

programme, but it is unlikely that the United States would allow an increase in oil exports,

before Tehran accepts a series of restrictions on its nuclear activities.

Kaelin Lutz Research Assistant Indian Ocean Research Programme

*****

Water Rationing in Tehran as Iran Faces Looming Water Crisis

Water rationing may be imposed in Tehran if residents fail to reduce their water

consumption by 20 per cent following a sharp decline in annual precipitation.

Background

Reduced rainfall across Iran is leading to significant reductions in groundwater reserves and

fears a water crisis is looming. Faced with a critical shortage of water the government has

called for water conservation and greater water use efficiency nation-wide. With increased

drought events, population growth and climate change creating the “perfect storm” for

future water insecurity, greater management is required now to address declining water

availability.

Comment

In an attempt to reduce water consumption, Iran may be forced to introduce water rationing

in the capital, Tehran. Iranian Energy Minister Hamid Chitchian has announced the capital

will face water rationing and shortages if a campaign to reduce domestic water consumption

by 20 per cent fails. This follows calls from President Hassan Rouhani for a water

conservation plan to address Iran’s water shortages.

Despite imminent shortages, water use in Iran remains inefficient with domestic use 70 per

cent higher than the global average. With a national population of 75 million people, 12

million of who reside in the capital, demand for water is rapidly increasing even as major

lakes and groundwater resources begin to shrink.

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Located in one of the most arid regions in the world, Iran has an annual average

precipitation rate of 252 millimetres, approximately one third of the global average.

Estimates suggest the lower-than-average precipitation this year has caused a 30 per cent

reduction in the volume of water in dams across the country, with only five exceeding 90 per

cent capacity. According to the Institute for Forest and Pasture Research, groundwater levels

have also dropped two metres in recent years across 70 plains, accounting for as much as

100 million hectares.

Aquifer extraction through the drilling of wells is a key contributor to Iran’s dwindling water

resources. Iranian environmentalist Eskander Firouz believes Iran’s growing population and

expanding agriculture sector has led to unsustainable aquifer withdrawal. As many as

100,000 water wells are operating in Iran, many without licences or permission to do so.

Chitchian estimates at least 100 billion cubic metres of water have been extracted from

aquifers in recent years, leading to the salination of farmland wells and reduced

groundwater access.

Agriculture accounts for over 90 per cent of water use in Iran. The government’s food self-

sufficiency and agricultural development policies have contributed to the high consumption

rates of the industry and, according to Iranian ecologist Mohammad Darvish, have only led

to drastic shortages in water. One of the key sectors for Iran’s economy, water scarcity is

restricting development and increasing uncertainty in the agricultural industry.

Iran is facing an impending water crisis. Climate change, lower precipitation and population

growth are all leading to an increased demand for a dwindling supply. The government has

been constructing dams to address water shortages since the 1950s, but this will not address

the growing gap between demand and supply. Water rationing and campaigns to use water

more efficiently, as with those suggested for Tehran, are only a small part of a much larger

management redirection.

Addressing Iran’s policy on agricultural self-sufficiency is critical to effectively managing

water use in the state. Historic underinvestment and mismanagement of resources has led

to an unsustainable industry and burden on available water. Water efficiency in the industry

is also required. Modernising irrigation and closely monitoring groundwater access will only

begin to address water waste.

While the future of Iran’s water security looks grim, the recent change of government has

led many commentators to expect a change of direction for water management in the state.

President Rouhani, in his call for a national water-conservation plan said that domestic

water use needed to be reduced; the agricultural sector made more water efficient; and that

the protection of groundwater and the regulation of wells was required to begin addressing

Iran’s water shortages. Darvish believes the new Rouhani government will engage with

experts to resolve arising issues and address water management.

Sinéad Lehane Research Analyst Global Food and Water Security Research Programme slehane@futuredirections.org.au

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*****

G-33 to Lobby WTO to Raise Subsidy Levels for Poor Farmers

Developing countries led by India, China and Indonesia are seeking changes to WTO

agreements to allow them to implement domestic subsidy programmes in support of food

security.

Background

The G-33 – a coalition of developing countries with large populations of smallholder farmers

– will propose fast-tracked agreements seeking flexibility on food-security elements of

agricultural trade at the WTO conference in Bali this December. Led by India, China and

Indonesia, the group proposes three changes to the WTO rules, which they argue would

allow developing countries to better manage the food security of their low income small

farmers. The key change would allow food purchased at administered prices (above the

prevailing domestic market price) from low-income or resource poor producers, to be

exempt from legal challenge should quantities exceed the proscribed maximum ceiling.

Comment

In a paper produced by the International Centre for Trade and Sustainable Development

(ICTSD) and the Food and Agriculture Organization (FAO), the requests of the G-33 are

described as ‘symptomatic of the challenges many countries face in designing policies to

achieve food security goals in the new price environment.’ It goes on to observe that

‘although agricultural markets have evolved dramatically since 2007, global trade rules have

not.’ The current state of negotiations is reflective of the agricultural market of the late

1980s and 90s, which was characterised by structural challenges of over-supply (and, hence,

low prices). For this reason, the currently incomplete agricultural trade rules may not be

sufficiently reflective of the current state of volatility and high prices and the impact these

have on food security.

In order to realign agricultural policy with food security goals, the G-33 have proposed three

measures. First, that a range of schemes to support small farmers – such as farmer

settlement, land reform and other rural development programmes – be reclassified as

permissible “green box” payments under WTO rules. The other two changes relate to easing

the requirements for domestic food aid and food stockholding programmes to allow

countries to increase the quantity of food purchased at administered prices without legal

challenge.

These changes would enable countries such as India to extend programmes where food is

purchased from local farmers at above market price. This can increase incomes for farmers

who gain access to guaranteed outlets and predictable prices. Increased income can

encourage investment and improvements that further increase production. The purchased

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food can then be held in reserve for emergency use or distributed to the food insecure at

below market price.

While subsidised procurement and distribution programmes can help to lift farmers out of

poverty and reduce food security, their success is far from guaranteed and depends on

multiple determinants, including household characteristics, market development and

functionality, and the degree of smallholder market participation. Programmes may have

the opposite effect to that intended if they fail to take these considerations into account.

Furthermore, there are fears that the G-33 proposal, while aiding some developing

countries, could negatively affect others by distorting global food markets. Procurement

programmes could affect trade flows. Stock management by governments of their food

reserves could have detrimental effects for other exporters if the release of large quantities

of stock on thin global markets were to down prices. Not all developing countries will have

the resources to pursue subsidy programmes similar to those of India and Indonesia. Food

exporters from such countries could be harmed by acceptance of the G-33 proposal. For

further discussion of the fiscal burden of supporting subsidy programmes, see Food and

Farm Subsidies in the Global Food System.

Come December, it is possible that a “temporary arrangement” could be reached regarding

the proposals. This would occur in light of the changing global food security situation and the

record of delays on agricultural agreements at the WTO. Any temporary arrangements

reached should be made in view of achieving a concrete outcome at later negotiations.

Lauren Power Research Manager Global Food and Water Crises Research Programme lpower@futuredirections.org.au

*****

Bali Democracy Forum a Success, but Reforms Needed in

Indonesian Democracy

While the sixth annual Bali Democracy Forum was hailed a success and continues to grow,

Indonesia may soon need to reform its own democratic system, especially if it is to remain

a leading example for the region.

Background

Indonesia last week hosted the sixth annual Bali Democracy Forum, an international meeting

aimed at developing democracy in the Asia-Pacific on 6-8 November. The forum was

attended by 86 countries, including Australia. Attendees discussed a range of important

issues, with leaders emphasising the challenges of consolidating democracy. Since the

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country’s first elections in 1999, Indonesia has often been held up as a global success story.

But, although the South-East Asian giant remains committed to promoting democracy in the

region, commentators have claimed that its own democratic system may be in need of

reform.

Comment

The forum, the sixth of its kind since it was established in 2008, built upon previous meetings

and saw participants discuss a range of issues and ideas. In particular, the forum’s theme,

“Consolidating Democracy in a Pluralistic Society”, saw leaders talk of the challenges of

consolidating democracy and balancing human rights and stability.

In his opening address, President Susilo Bambang Yudhoyono drew on Indonesia’s own

experience with democracy to stress the importance of the rights of all citizens. He said, ‘as

a nation rich in diversity, Indonesia is a reflection of the pluralism that marks the Asia-Pacific

Region.’ Yudhoyono went on to praise the country’s fledgling democracy, paying particular

attention to the way in which its 250 million people, of various ethnic groups, have been

brought together. He acknowledged, however, that while Indonesia’s democratic system

was a substantial achievement, it is still a work in progress.

For Australia’s part, Foreign Affairs Minister Julie Bishop said Canberra remained committed

to supporting democracy in the region. She said Australia would achieve this initiative

through aid programmes and electoral support aimed at boosting participation, the training

of electoral officials, civic awareness and making elections accessible for the disabled.

Australia has attended every Bali Democracy Forum since its inception in 2008, when then

Prime Minister Kevin Rudd co-chaired the event.

The forum was largely hailed a success, with attendees highlighting its value as a means of

exchanging experiences and best practices in democracy and good governance. It is also

seen as an important platform in providing fresh insights for countries that are in the

transition to democracy. In this way, the forum has grown to become an important annual

fixture, along with other multilateral summits such as APEC and the East Asia Summit.

Yet, even as Indonesia continues to promote democracy, and the forum goes from strength

to strength, commentators claim that the archipelago state may soon need to reform its

own system. As Vikram Nehru, a senior associate at the Asia Programme at the Carnegie

Endowment, recently stated, ‘in the short time since the country’s first election in 1999, the

principles underpinning Indonesian democracy have begun to fray. The Indonesian

democratic system is in need of reform.’

He says that, although Indonesia remains a robust democracy, certain trends have made it

less representative and fair in the past few years. This sentiment is echoed by other analysts

too, who point to a number of new rules that have significantly altered Indonesia’s

democratic system. Such rules require political parties to have branches in all of Indonesia’s

33 provinces and three-quarters of all districts in such provinces. Moreover, parties must

win at least 3.5 per cent of the national vote to gain a seat in parliament and nearly one

quarter of the national vote to nominate presidential and vice-presidential candidates.

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These rules, along with a drastic a reduction in the subsidies paid to political parties, have

had damaging consequences for Indonesia’s democracy. For starters, the number of parties

in Indonesia has dramatically declined. In 1999, 48 parties took part in Indonesia’s inaugural

parliamentary election; by 2014, that number is expected to be 12. But it is not just the

number of parties that are changing Indonesia’s democratic makeup.

A reduction in subsidies and stringent new rules means that it is frequently the political

élites that contest elections. Other parties, meanwhile, are forced to gain the backing of

powerful oligarchs to raise election funds or form coalitions to gain nominations. The result

is that Indonesia’s political process is becoming more a representation of power and

privilege than a choice between distinct political parties.

Nehru warns that, ‘should this trend continue, the electorate will become more dissatisfied

and the very cause of democracy itself may be undermined.’ Any major political reforms,

though, are unlikely ahead of the 2014 elections. Further, given that the recent electoral

rules favour the current crop of political parties, many will be cautious in overhauling the

country’s democracy to address such issues. But, if Indonesia is to continue to promote

democracy throughout the region, including using its own experience as an example, it will

need to address these issues.

Andrew Manners Research Analyst Indian Ocean Research Programme amanners@futuredirections.org.au

*****

Malaysian By-election Reveals Extent of Mahathir’s Waning

Influence

The by-election in the state of Kedah saw significant but futile efforts by UMNO to win a

seat from the opposition. The main driver behind the campaign was former Prime Minister

Mahathir Mohammad, whose waning influence will cement the ability of current Prime

Minister Najib Razak to implement his own agenda.

Background

The recent by-election for the state assembly of Kedah was won by the Party Islam se-

Malaysia (PAS), defeating a significant challenge by the United Malays National Organisation

(UMNO) candidate. UMNO currently holds a comfortable majority of seats in the state

parliament and is one of the dominant parties in the long-ruling federal Barisan National

(BN) coalition, while the PAS is one of the key parties in the opposition Pakatan Rakyat

coalition. Although the seat is considered to be a PAS stronghold, UMNO exerted a

significant effort in attempting to wrest control of the seat by spending large amounts on

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infrastructure and subsidies, as well as organising several high profile visitors in support of

their candidate. Amongst the most active of the visitors to the district was the 88 year old

former Prime Minister, Mahathir Mohamad.

Comment

Mahathir’s son Makhriz decisively won the Kedah State elections in May 2013, having

resigned from federal parliament to lead the state branch of the UMNO party. It was highly

unlikely that this seat would have been taken by his party’s candidate, however, as the

district had been held for a long time by a popular PAS member who recently died. While

UMNO did well in the Kedah elections, the party has recently been suffering from poor

public perception nationwide, especially after the opposition credibly claimed that there was

significant rigging in the federal election. With BN holding 21 of the 36 seats in the state

assembly, why would both father and son expend a lot of political capital on a single seat? In

essence, this appears to have been a bid by Mahathir and his supporters to regain some

influence, by demonstrating that they still enjoy the support of the majority.

Though he formally stepped down as Prime Minister in 2003, Mahathir Mohamad has

continued to wield significant power behind the scenes of BN. Although he pledged to leave

politics, Mahathir quickly became involved as a consultant with several prominent Malaysian

companies and frequently wrote columns in papers, even starting his own blog. Several

members of UMNO remained loyal to Mahathir and formed a significant faction within the

party. The extent of his post-office influence can be gauged by Mahathir being credited with

helping to compel his successor, Abdullah Badawi, to resign in 2009, following frequent

public criticisms after a falling out in 2005.

In recent years, however, it has become increasingly apparent that his influence is beginning

to fade. While his son Makhriz entered politics and immediately found his way into the

forefront of UMNO, owing to his father’s name, he has struggled to go much further. In

2009, Makhriz contested the post of UMNO Youth Chief, losing to Khairy Jamaluddin, the

moderate son-in-law of Badawi. In October 2013, UMNO internal elections saw the current

Prime Minister Najib Tun Razak’s lieutenants win all the top leadership spots, despite Najib

leading the party to the closest election in Malaysian history and strong criticisms coming

from Mahathir’s supporters in the press. Following this strong endorsement of Najib, none

of Mahathir’s faction, including Makhriz, holds any significant leadership positions within

UMNO. The recent by-election result in Kedah will probably cement the growing perception

of Mahathir’s declining influence, with some local UMNO members even suggesting that his

presence actually cost votes.

With the influence of Mahathir and his conservative faction within UMNO apparently

neutralised, both UMNO and the BN have begun to take a more centrist approach. Now that

Najib has solidified his position as head of the party, with his loyal lieutenants in other

positions of power, he is unlikely to suffer the fate of his predecessor Badawi. Consequently,

he can continue with some of the tentative reforms that he began in his first term. Examples

of these reforms include removing some of the remaining colonial-era laws, increasing

governmental transparency and changing the affirmative action economic policies that

favour ethnic Malays. The recent disputed national election results will place more

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importance on pursuing these reforms, as non-ethnic Malays overwhelmingly supported the

opposition and there was public anger over alleged vote rigging and corruption. With the

internal opposition defeated for the time being, Najib will probably try to further his reforms

in an effort to win back the BN’s credibility and the support of the voters.

Stephen Westcott Research Assistant Indian Ocean Research Programme

*****

Pressure on ICC to Conduct Fair and Legitimate Trials of

Kenyan Leaders

Despite the fact that the ICC trials of President Uhuru Kenyatta and his deputy, William

Ruto, are to go ahead, questions are being raised as to how successful the prosecutions

can be and their effect on the standing of the ICC in Africa. After repeated delays and

support for both men from the African Union, pressure is building on the ICC to conduct a

fair and legitimate trial.

Background

President Uhuru Kenyatta and his deputy, William Ruto, are both to face the International

Criminal Court (ICC) on charges of crimes against humanity. The charges arose from the

post-election violence in 2007 and 2008, which the ICC claims was incited by Kenyatta and

Ruto. But there have been continued delays to the trials, fuelling speculation that both men

will attempt to avoid the ICC altogether. In addition to these delays, questions have been

raised as to who the ICC decides to bring cases against, with some African leaders claiming

that the court is actively pursuing cases against them, to serve the political interests of the

powerful.

Comment

After the election results were released at the end of December 2007, Kenya was plunged

into chaos. Mwai Kibaki was declared the winner of the election, as he narrowly defeated

Raila Odinga. Odinga immediately disputed the outcome and, as a result, supporters from

both sides engaged in violent clashes. This violence ended up claiming over 1,200 lives, as

well as forcing around 600,000 people to flee their homes. To bring a stop to the violent

protests, Kibaki and Odinga signed a power-sharing plan in February 2008. Although this did

not have an immediate effect, the violence did slowly subside.

Kibaki remained as president until Kenyatta defeated Odinga in the March 2013 election.

Just over a year before Kenyatta won that election, the ICC confirmed that he and Ruto

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would be charged as indirect perpetrators of crimes against humanity. Under the Rome

Statute, the charges include persecution, murder and the deportation or forcible transfer of

members of the population. Both men have denied the charges and have been actively

trying to avoid trial.

Even though Ruto’s trial has begun, both processes have been riddled with delays.

Kenyatta’s trial was set to start on 12 November this year, but has recently been postponed

until 5 February 2014. Kenyatta has repeatedly claimed that his trial would put a strain on

his ability to lead his country, with time being taken away from domestic affairs. His defence

lawyers have argued this point in the context of the recent siege at the Westgate shopping

centre, in Nairobi. They claimed it to be a ‘national and international crisis’, requiring the

President’s attention. While the prosecution’s lawyers denied the idea that ‘presidential

duties are a reason to delay the trial’, they have now agreed to the delay to enable them to

present witnesses in the order they wish.

President Kenyatta is not alone in believing that his trial should not take place. Rwandan

President Paul Kagame has accused the ICC of dispensing “selective” justice. Speaking at the

UN General Assembly about the impending trials of Kenyatta and Ruto, Kagame said that

‘instead of promoting justice and peace, it has undermined efforts at reconciliation and

served only to humiliate Africans and their leaders, as well as served the political interests of

the powerful’. Both men also have the support of the African Union (AU), which demanded

that their trials be deferred. The AU also stated that if this demand is not met, it would

support a trial no-show by Kenyatta.

Concerns over the trials have also been raised by a former chief prosecutor of the ICC, David

Crane. He has suggested that the ICC has ignored political realities in pursuing trials against

Kenyatta and Ruto, which he said ‘could be the beginning of a long slide into irrelevance for

international law’. After the ICC stepped in, as a last resort, to seek out those responsible for

the 2007-08 post-election unrest, prosecutor Luis Moreno-Ocampo accused both Kenyatta

and Ruto. Previously political rivals, the pair were forced together as the “coalition of the

accused”, resulting in a successful election campaign, which portrayed the ICC in a poor

light. Crane believes that, should the two accused be seen to win against the ICC, it would be

a major setback to the court’s credibility in Africa.

David Martin Research Assistant Indian Ocean Research Programme

*****

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Any opinions or views expressed in this paper are those of the individual authors, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au

What’s Next?

British Prime Minister David Cameron will visit India and meet with his Indian counterpart, Dr Manmohan Singh, on 14 November.

The latest round of negotiations between South Korea and Indonesia for a comprehensive economic partnership agreement concludes on 15 November.

Yemeni President Abd Rabboh Mansour Hadi is on an official visit to China until 15 November.

The Bangladeshi Islamist groups, Hefazat-e-Islam and Bangladesh Tarikat Federation, are to hold rallies in the capital, Dhaka, on 15 November.

Arun K. Singh, India’s Ambassador to France, is meeting with French Overseas Territories Minister Victorin Lurel in Paris on 15 November.

The Commonwealth Heads of Government Meeting (CHOGM) will be held in the Sri Lankan capital, Colombo, from 15-17 November.

The aircraft carrier INS Vikramaditya (formerly the Russian aircraft carrier Admiral Gorshkov) will be handed over to the Indian Navy on 16 November, in a ceremony at the Sevmash military shipyard in the northern Russian city of Severodvinsk.

Malaysian Prime Minister Najib Razak will visit Bangladesh on 17 November to discuss labour export and investment issues.