Hello, and welcome to the Dispatch for July 16-23!

I’m continuing on last week’s theme of covering larger, slower-developing stories. This week, we’re revisiting Syria, looking at America’s failed corn crop, and touching briefly on the latest banking scandal at HSBC.

Syria

As always, Syria has been heavy in the news the past few weeks. Three stories in particular stuck out: On July 11, Nawaf al-Fares, Syria’s ambassador to Iraq, announced he had joined the Syrian opposition.

On July 18, a bomb blast in Damascus killed three top Syrian officials, including Assad’s brother-in-law, the Syrian Minister of Defense, and the regime’s Crisis Management Chief. Two days later, Syria’s intelligence chief died of wounds from the bombing. Finally, on July 19, the Free Syrian Army 0seized several border checkpoints, including all four crossings into Iraq, while the Syrian Army battled rebels in Damascus.

Put together, these three stories, more than any of the diplomatic maneuvering at the UN, point to the end of the Assad regime.

Al-Fares, the Iraqi ambassador, is not important just for the title he held: he is the head of a huge Sunni tribe which straddles the Syrian/Iraqi border. Syria, like much of the Middle East, is a patchwork of tribes. The Sunnis who hold a high position in the Assad regime usually do so because of family ties or political expediency, and al-Fares is no exception. His defection, more than most, could cause trouble for the regime, as his tribe is large, powerful, and is well positioned on the eastern border to cause problems for the regime.

The bombing was notable for two reasons: First, the men who were killed were significant figures in the Assad regime. Paramount among them is Assad’s brother in law, Assef Shawkat. He was seen as a central figure in the regime’s crackdown, though all four were trusted members of Assad’s inner circle. They will be extremely difficult for the regime to replace, and their absence may significantly curtail the regime’s flexibility. The bombing itself is of note as well: the attack was in the style of the Sunni extremist groups which have started to play a more prominent role in the rebellion. This is possibly the most consequential victory for the rebels so far; that it may have been accomplished by Sunni extremists is highly concerning.

Finally, the FSA border seizure validates an announcement by Israel that the Syrian army had pulled troops from the Golan Heights border region to deal with the uprising in Damascus. While several of the border crossings have since been reclaimed by the Syrian army, their seizure shows the Syrian army may be reaching a limit on where and how it can project force. They’re still better armed, better trained, and more capable than the fractious rebel forces, but they’re starting to get overwhelmed.

Overall, the picture that’s emerging doesn’t look good for the Assad regime: they’re losing support across the country, their command structure has been decapitated, and they’re running up against the limits on the Army’s ability to hold the whole Syrian territory. The concern is that there still is not a viable alternative government: there’s no single group with the support, credibility, and cohesiveness ready and able to step up as the new Syrian government.

Finally, one other story has been making the rounds: On Monday, the Syrian Interior Minister made an announcement concerning the country’s chemical weapons. He said three things: the Syrian regime was safeguarding its chemical weapons, they would not be used against Syrian civilians, and they would only be used to respond to foreign attacks. Much of the media seems to have run with the third point, saying Syria has threatened to use chemical weapons if attacked. This is a bit ridiculous. It comes as a surprise to nobody that Syria has chemical weapons; this is the first time they’ve acknowledged the fact, but it’s been well known for years that the regime has a massive stockpile of chemical weapons. It should also come as little surprise that the weapons are intended for use in case of an invasion. Sarin gas makes poor interior decoration, and indeed has few uses off the battlefield. The Syrian regime’s statement was in response to recent concerns by the US and Israel over the status of those weapons, and the message was intended to allay the sort of fears that would lead either NATO or the IDF to attempt to secure Syria’s chemical weapons. Whatever threat might have been contained in the message covered well-travelled ground, and certainly didn’t deserve the attention it has earned.

Crops

Thanks to Jon Buzan for general guidance and info

A crippling heat wave has wreaked havoc on the US corn crop, prompting the USDA to lower its output forecast by 18% and driving Corn futures up by over 40%. While a warm spring had lifted farmers’ hopes, June brought disaster: the worst drought in 56 years, with more than 55% of the country experiencing some form of drought. A weak harvest in South America earlier this year due to drought conditions is compounding the problem, and the governments of both Russia and Kazakhstan announced their crops would disappoint this year due to inclement weather. US Corn prospects are so dim that US livestock companies are looking to import corn from Brazil to make up the shortfall.

I’ll start with the elephant in the room, climate change. The short version is, it’s both extremely difficult and too early to draw conclusions about whether or not human influenced climate change had a hand in this drought. However, a recent study published by NOAA points to climate change as a likely driving factor behind a spate of severe weather events last year, indicating the likelihood of extreme weather has increased dramatically since the 1960s. Whether or not this year’s drought will be linked to climate change, both the scientific consensus and an increasing body of evidence point to human-driven carbon output as a clear threat to our climate, and, as this year’s crop shows, inclement weather is cause for concern.

Growers were perhaps overly optimistic this year too. After last year’s poor harvest, farmers took hope from an early spring and seeded more land than usual, but the mild winter may well have contributed to the severe drought sweeping the country.

The biggest issues domestically are likely to be economic. Farmers may lose most of their crops, and with it most of their revenues. Agriculture has been largely spared the recession so far – food tends to be extremely income inelastic (that is, people do not necessarily buy less as the cost goes up), especially corn-based food – but losing a crop is a different story. Insurance companies are now going to have to pay out on a far, far larger set of claims than usual, and if there’s one thing the last 5 years have taught us, it’s that when a financial company is under stress, there’s probably another one at risk too. There will be a series of ripple effects to producers of farm equipment, farm laborers, and other companies involved in the harvest, transit, storage, and processing of the grains involved. Finally, several of the states in the grain belt derive most of their state budgets from agriculture; a failed harvest could increase the number of states and municipalities facing bankruptcy, and the US economy is hardly in a place to absorb further bad news.

On a global scale, the impact is likely to be far more dire. The US exports nearly half the world’s corn and nearly a third of the world’s wheat and soy; a disaster in US agriculture is a disaster for the world. In 2008, a spike in food prices led to food riots across the globe, and the Arab Spring of 2011 coincided with another period of high food prices. The tie between food prices and global conflict has been studied extensively; little good will come of another year’s failed harvest, especially given the turmoil we’ve already seen this year.

HSBC

While the LIBOR affair is still working its way through the banking system, HSBC has added another scandal to the industry: on July 17, a US Senate subcommittee released a 340-page report detailing how lax compliance controls at HSBC enabled a host of groups, from Mexican drug cartels to Saudi terrorist financiers, to move money through HSBC’s banks to and from the US, flouting money laundering laws. The report also accused the Office of the Comptroller of the Currency of turning a blind eye to HSBC’s lax controls.

The LIBOR scandal is both a more widespread and certainly a more costly scandal – the LIBOR rate affects the cost of nearly every financial transaction in the world – but this scandal deserves note because of the sheer breadth of groups HSBC did business with. It’s rare to have a single scandal involve Mexican drug cartels, Saudi Arabian terrorist financiers, Iranians, Cubans, Sudanese, and Burmese. HSBC seems to have categorically violated every single US banking sanction over a four year period; it would be difficult to imagine how they could have broken more US banking laws. The head of HSBC’s internal control division resigned, as well he should, though the chairman of the company during the period investigated by the Senate is now a British minister and thus unlikely to face significant sanction. The scope of the scandal, though, suggests problems at a large number of HSBC affiliates: this is not the product of one department, or one lax regulator, but that of a large portion of HSBC. Focusing on who specifically is to blame misses the point: HSBC as a whole apparently became a go-to shop for money launderers across the globe.

Thanks as always for joining me, and my best for the week ahead!

Eric