Research Highlights

JAPAN: Abe will not push aggressive nationalist policy agenda that derails Abenomics

3 July 2013: PM Abe will not pursue an aggressive nationalist policy agenda after an upper house election victory this month, but will remain focused primarily on Abenomics. Abe will continue promoting efforts to strengthen Japan's security and defense posture, but will not push for near-term revisions to the constitution. Though unlikely, a hard and fast move by Abe to enact a constitutional revision proposal would slow momentum behind Abenomics, with a potential visit to Yasukuni Shrine posing a risk as well, but a lesser one.

PORTUGAL/EUROZONE: Early elections most likely scenario; "light" program exit plans will suffer as a result

3 July 2013: The resignation of Paulo Portas, head of the junior coalition partner, is motivated by his belief that Prime Minister Passos Coelho's choice of replacement Finance Minister would not result in a more balanced austerity-growth policy mix. Although Passos Coelho has not accepted Portas' resignation, the talks between the two government coalition parties over the next few days is unlikely to succeed; early elections are the most likely outcome. The economics already made it unlikely that Portugal would exit its current bailout unaided; the current political situation further reinforces this likelihood.

IRAQ: Basra bombing signals downshift in security, but unlikely to have immediate impact on oil production

3 July 2013: The bombings reflect the expected extension of Sunni radical violence into Shia areas; targeting of foreign interests is now a realistic prospect. Coming so soon after the ousting of Maliki ally Khalaf Abd al-Samad from the governorship of Basra the bombing will exacerbate local political tensions. For companies the bombings will lead to comprehensive reviews of security, but further such attacks should be considered likely in the coming months.

EUROPE/AZERBAIJAN/GAS: The TAP pipeline decision will drive further European integration

3 July 2013: The selection of the Trans Adriatic Pipeline (TAP) over Nabucco West to deliver gas from the Shah Deniz project in Azerbaijan to customers in Southern Europe is primarily the result of geopolitical considerations. For Eastern and Central European countries that hope to reduce their dependence on Russian gas, the setback to Nabucco will complicate this goal. The construction of additional interconnectors and pipelines will now become the highest priority for the EU to bring Azerbaijan gas to other parts of Europe.

US/IMMIGRATION: Immigration bill remains likely to become law this year

28 June 2013: More than 2/3 of the Senate voted to pass comprehensive immigration reform yesterday. While it is unclear precisely how the House will proceed, there are a variety of pathways toward passage. We continue to believe that there is a 60% chance a final comprehensive overhaul is signed by the president this year.

TUNISIA: Constitution likely to be adopted by late 2013, delaying elections until next year

27 June 2013: We expect the new constitution to be adopted by October by a 2/3 majority of the Constituent Assembly, thus avoiding a referendum. The next elections will take place in the first half of 2014, when a coalition led by Ennahdha is likely to face a heterogeneous anti-Islamist center-left bloc. As for security, the authorities' stance towards Salafists and Jihadists has hardened, but political violence is likely to continue to pose a threat.

IRAN: Looming sanctions will complicate US approach to Rowhani, and could affect markets early next year

27 June 2013: While the US is trying gauge whether President-elect Hassan Rowhani will ease tensions on the nuclear issue, new sanctions that take effect on 1 July will at least modestly strain US-Iran relations. Meanwhile, a bill that would require removal of significant additional volumes of Iranian crude from the market is likely to pass the House in July; though the Senate is unlikely to move quickly, House passage would harm prospects for diplomacy. The US will probably engage Iran in diplomacy for the remainder of 2013: if a deal is reached, some Iranian volumes will probably come back on line; however, if talks fail, the US will likely seek to take additional Iranian crude off the market.

CHILE: Corporate tax rate set to rise under likely Bachelet administration

27 June 2013: Leading presidential candidate Michelle Bachelet presented the details of her tax reform proposal last week, which includes raising the corporate tax rate from 20% to 25% following last year's 3% hike. Bachelet is strongly favored to win the election, along with a slim majority in congress, and will likely prioritize tax reform in order to pursue structural education reform. More broadly, popular demands for better public services will maintain pressure on officials to increase spending; concerns about quality of living will also drive environmental challenges to power generation and mining projects.

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