Mark Vitner

In a year marked by a heated presidential election in the United States, escalating tensions in the Middle East and most recently threats by Vladimir Putin to test the West’s resolve with a “mini operation” against a NATO nation, Moldova is largely overlooked. The lack of attention is unsurprising considering Moldova is one of the least visited countries in Europe.   Few people would likely be able to find it on a map. However, Moldova holds geopolitical importance. Positioned between Romania and Ukraine, it’s internally divided between influences from Russia and the West.

Formerly the Moldovan SSR, and before that part of Romania, Moldova received its independence upon the collapse of the USSR in 1991. Shortly after, Moldova fought a war with Russia and was forced to cede its northernmost territory to the pro-Russia breakaway government of Transnistria. The conflict remains frozen to this day, and there is still a Russian military presence in Transnistria, although the breakaway state has no international recognition.

Since independence, Moldova has seen a gradual shift toward Atlanticism. Both the presidency and parliament are currently controlled by the pro-European Party of Action and Solidarity (PAS).

Support for Russophile parties, often economically leftist and socially conservative in nature, has eroded in favor of pro-European social democratic parties. The mayor of Chisinau, Ion Ceban, was the latest notable figure to break with the established Party of Socialists and form his own party, citing disagreements over its Russophile platform.

This year will likely prove pivotal for the future of Moldova. On October 20, Moldovans will hold their presidential election. A referendum on European Union membership, strongly supported by incumbent President Maia Sandu, will be held concurrently. These will be the first national elections held in Moldova since the Russian invasion of Ukraine.

Moldova is bordered by Ukraine in three directions and has been a recipient of thousands of refugees since the outbreak of the war. Tensions with Transnistria have increased with several supposed attacks on the breakaway state reported to have been false flag operations by the Moldovan government. President Sandu has repeatedly accused Russia of trying to destabilize Moldova and even accused Russia of orchestrating a coup attempt in 2023.

With elections several months out, the candidate list is not yet finalized. President Sandu is running for a second term, and she will likely face a myriad of primarily Russophile opposition candidates. Polling indicates Sandu leads with a healthy plurality of the vote, although she will need a majority to avoid a runoff. Economic conditions in Moldova are generally positive for an incumbent, with inflation moderating and the unemployment rate remaining low.

President Sandu has repeatedly accused Russia of meddling in Moldova.

The President of Moldova is a largely ceremonial position. Like many European countries, Moldova has a parliamentary system of government, meaning most power is vested in parliament and the prime minister. As head of state, however, the president represents Moldova on an international level and has sway over the country’s foreign policy. This puts matters such as Transnistria, the Russian invasion of Ukraine, and relations with the west at the forefront of the election.

Maia Sandu has been very vocal during her tenure as president in her support for Ukraine and for European accession. With PAS having won a majority of seats in parliament during the 2021 election, Sandu has a mandate thus far to press forward with policies of reform and liberalization.

Anti-corruption measures are one of the biggest priorities of the current government. Widespread crackdowns on pro-Russia oligarchs and government officials, including Sandu’s predecessor Igor Dodon, have taken place over the past several years and will likely continue.

Moldova has made great strides at eliminating corruption and increasing transparency.

The policies implemented under the PAS government are yielding some positive results. Moldova’s Corruption Perceptions Index score remains low, ranked #76 globally, but it has risen each year since Sandu took office.[1] Likewise, Moldova’s Press Freedom Index ranking climbed from #80 in 2020 to #28 in 2023, placing it far ahead of the rest of eastern Europe and even ahead of the United States.[2]

Should Moldova’s referendum on the European Union pass, the timeline for their accession is still unclear. Moldova was granted EU candidate status in mid-2022, having applied to join in the wake of Russia’s invasion of Ukraine. In turn, EU President Ursula von der Leyen spoke favorably of Moldovan membership.

[1] https://www.transparency.org/en/cpi/2023/index/mda

[2]https://rsf.org/en/country/moldova

The decision from the EU to open accession dialogue was clearly made with geopolitical rather than economic incentives in mind, and Moldova nonetheless has to make several internal reforms before formal admittance.

Moldova is notoriously one of the poorest countries in Europe and is notably poorer than nearly all of its Eastern European and Black Sea neighbors. Its GDP per capita in 2023 was reported by the IMF to be $17,930, ahead of only Ukraine and Kosovo. To put this in perspective, Bulgaria, the poorest EU member state, has a GDP per capita of $35,960, about twice as high.

Moldova set 2030 as its goal for full accession to the European Union. In the meantime, it must complete the required criteria as outlined by the European Commission which entails reforms to the labor market, boosting economic efficiency, and tackling corruption.

A Sandu reelection coupled with a favorable vote on EU membership would be a welcome development for pro-European observers after a series of Euroskeptic and populist victories across Europe, most recently in the Slovak, Dutch, and Portuguese elections. The entire European Parliament is up for election in June, and Euroskeptic parties are poised to win an unprecedented number of seats according to polling.

Israel delivered its response to Iran’s earlier (April 13) missile and drone barrage by launching targeted simultaneous airstrikes an airbase in Isfahan, Iran as well as Iranian proxies in Syria and Iraq. The April 19 Israeli response was limited in nature and scope.

Israel typically refrains from officially acknowledging actions by its military. However, credible reports indicate at least three missiles were launched from outside  Iranian  airspace, targeting the Artesh airbase in Esfahan, Iran.  This airbase provides protection for the Natanz Nuclear Complex, Iran’s main uranium enrichment facility. The target of the strike appears to have been a Russian-made S-300PMU2 surface-to-air missile battery position, and the strike is believed to have damaged the battery’s target engagement radar. Both the International Atomic Energy Agency and various Western and Iranian media outlets have confirmed that Israel did not cause any damage to Iran’s nuclear facilities. Israel also hit Iranian proxy positions in Syria and Iraq, with either missiles or drones.

The IDF successfully sent a meaningful message of deterrence without escalating tensions.

The Israeli Defense Force (IDF) had to walk a fine line of sending a message that Israel has the capabilities and the willingness to respond to an attack on its territory without further escalating the conflict into a full-scale war. This attack appears to have been successful in this regard.

Iran heavily downplayed the Israeli response, claiming that all projectiles were shot down and any explosions were the result of falling debris. The Islamic Republic also downplayed the role of Israel itself and ruled out a retaliatory strike. Iran appears to have given itself an out after weeks of escalation and will likely revert to its prior strategy of conducting its shadow war with Israel through proxies.

Private satellite-based radar pictures from Umbra Space show what appears be damage to the mobile radar of the S-300 surface-to-air battery.^[1] Israel is believed to have fired a supersonic Rampage missile at the battery from some point outside of Iranian airspace, and likely fired the missile from an F-35.

The distinction between Iran and Israel’s attacks is striking. In Iran’s previous attack, Israel and its allies had ample time to prepare for the relatively slow-moving drones traversing Jordan, Syria, Iraq, and Saudi Arabia. These drones were accompanied by 120 fast-moving ballistic missiles, synchronized to enter Israeli airspace simultaneously with the drones. In contrast, Israel’s strikes on Isfahan were only revealed after they had been executed. This demonstrates Israel’s capability for stealthy and precise strikes against Iran, contrasting with the Islamic Republic’s more overt approach that was designed as much to garner media attention as it was to sow terror.

Iran’s intended military target was to terrify Israeli citizens and its political target was mollify hard-liner Islamic leaders in and outside Iran.

The difference in how the two nations chose to strike one another is their respective military capabilities and political priorities. Iran military aim was to terrify the Israeli public and cause Israel and its allies to use their relatively expensive defensive systems to counter relatively inexpensive drones and missiles.

Iran’s key political objective was to mollify hard-liner Islamic groups within Iran and its Middle East surrogates. The Iranian attack failed on the former and only partially succeeded on the latter. Iranians were shown pictures and video of fires in Texas and Chile and told that it was Israel.

Israel’s attack was primarily driven by political considerations. They could not let Iran’s drone and missile barrage go unanswered, as it would lead to more intense future attacks. The intended political target for the Israeli strikes was Iran’s leadership, which now knows the IDF can stealthily hit their most sensitive installations with pinpoint precession.

Israel is not the first country to directly strike Iran this year. In January, Pakistan launched airstrikes against targets in western Iran as a response to an Iranian missile strike on its territory. After this tit-for-tat exchange, the two countries made amends and no further hostilities followed.

Tensions between Iran and Israel will obviously remain hostile for the foreseeable future, but their recent exchange bears some similarities to the January Iran-Pakistan clashes in that the strikes caused few casualties and were clearly designed to showcase capabilities rather than instigate a broader conflict.

Passover may bring calm to the region but there is still plenty of potential for a re-escalation.

While Iran and Israel have de-escalated over the past few days, broader war is not out of the picture entirely. Israel’s anticipated Rafah offensive still looms, as does the potential for an Israeli move on southern Lebanon to confront Iranian-proxy Hezbollah. Iran could use either as justification for more attacks. Iran pulled most of its key military advisors out of Syria and Lebanon so that they would not be targeted by Israel. The return of those advisors would raise the possibility of additional strikes against those Iranian forces, particularly if they are engaging in planning or executing attacks on Israel.

This week marks the beginning of Passover, which might bring a period of relative calm in the conflict. Large and disruptive protests at Columbia University and other universities also raise the political stakes in the United States. These protests appear to be amplified by outside interests, which may account some of bellicose rhetoric. Israel has been cautioned about how it should proceed with a final push against Hamas forces in Rafah, and an attack resulting in a large number of civilian casualties would likely raise the decibel level of those protests and spark some political backlash.

The long delayed $17 billion military aid package to Israel passed the House over the weekend and looks certain to pass the Senate. The program will allow Israel to replenish and enhance their Iron Dome missile defense system and other critical air defense systems, as well as fund purchases of weapons, defense systems and other needed supplies. The measure also includes $9 billion of aid to Gaza and other war-torn areas around the world.

[1] https://www.bbc.com/news/world-middle-east-68866548

April 23, 2024

mark.vitner@piedmontcrescentcapital.com
Chief Economist (704) 458-4000

saul.vitner@piedmontcrescentcapital.com
Policy Analyst (704) 458-8570

Early Sunday morning (Saturday night in the U.S.), Iran launched hundreds of missiles and drones against Israel from its own territory in conjunction with its proxies in Lebanon and Yemen. The attack was a much-anticipated response to the Israeli strike on what Iran claims to had been a facility connected to its consulate in Damascus on April 1. That strike killed several top Iranian military officials, including Mohammed Reza Zahedi, a senior commander in Iran’s Islamic Revolutionary Guard Corps and Brigadier General Mohammad Hadi Haj Rahmi. Iran vowed swift retribution for the strike, and both American and Israeli intelligence believed such an attack was imminent days before it occurred.

Some feared a strong Iranian response would overwhelm Israel’s Iron Dome missile defense network. Israel successfully intercepted over 99% of the drones that entered its airspace. Minor damage was reported to one Israeli air base while two citizens were critically injured. Iran declared its response a success despite the minimal level of damage it wrought. The bar for success is low, however, with the goal being to appease hardline supporters of the regime within Iran and preserve the confidence of its key proxies (Hamas, Hezbollah, and the Houthis).

Most drones and missiles were intercepted before they entered Israeli airspace. Unconfirmed reports also note that a sizable proportion of Iranian missiles and drones either failed to launch or crashed to the ground on their own accord shortly after being launched. The attack was expected to include around 500 drones and missiles, from Iran and its proxies, but only around 300 are believed to have transited Syrian, Jordanian, Saudi, and Israeli airspace.

American, British, Jordanian, and Saudi militaries collaborated in shooting down Iranian drones as they flew over Jordan, Syria, and Iraq. The inclusion and effectiveness of Jordan and Saudi Arabia in this coalition impedes the narrative that Israel has been abandoned entirely by the Arab world. Saudi Arabia and Jordan have obviously planned and trained for such a contingency and the professionalism of their military leadership and skills of their fighter pilots and air defense systems is one of the more notable positive surprises from this confrontation.

Despite what Tehran and Israel say, it is difficult to see the events of April 13-14 as anything but a victory for Israel. Damage inflicted to Israeli bases was minimal. The Wall Street Journal reported that as many as half of Iran’s missiles either failed to launch or crashed prematurely. While fears about Iran’s military arsenal were amplified by the media, that arsenal ultimately proved impotent once it was compelled to act. We cannot see how an unanswered attack on Israel would ever be considered a victory by Israel.

That said, the geopolitical implications are more damning for Iran. Jordanian and Saudi coordination with Israel reveals the lack of sympathy Iran would receive should a regional war break out. Jordan has come under much internal pressure to adopt a more pro-Palestinian position, although its monarchy continues to have positive relations with Israel. Saudi Arabia still has no formal ties with Israel. The two countries were in the process of normalization prior to the October 7 attack. Disrupting normalization was a goal of Iran and its proxies in provoking the war in Gaza. The path to normalizing relations now looks as though it was merely delayed.

Israel has now vowed to respond to Iran’s attack, possibly with a direct strike on Iran. There is much Israel needs to consider before taking such an action. For one, the Biden administration has pledged not to assist an Israeli offensive action against Iran. President Biden has advised Benjamin Netanyahu to “take the win.” For its part, Israel does not consider the successful thwarting of Iran’s attack as a victory. The attack marks a notable escalation in how Iran will respond to attacks on its proxies or direct support of them. Those proxies are working to destroy Israel and the conflict with them will continue until Iran ends its support for them.

America and its Arab allies could be less receptive to assisting Israel in the event of an Iranian response to an Israeli counterattack. A targeted attack on a military or naval facility would be more palatable but would provide little long-term benefit to Israel or deterrent. A more likely target would be to increase attacks on Iranian proxies. Israel has already significantly downgraded the military threat from Hamas, effectively removing one of Iran’s chess pieces from the board. An effective strike on Hezbollah coupled with some sort of covert action against key Iranian defense infrastructure would seem to be a more effective way for Israel to counter Iran’s escalation, without jeopardizing the sudden upsurge in support Israel has received from the U.S., Britain, and its Arab neighbors.

The financial markets rallied at the open Monday morning and oil prices have stabilized around recent levels. The financial markets will likely remain on edge for the next few weeks. Passover begins next week but holy days have provided little protection from conflicts of late. The greatest threat to Israel is now Hezbollah, which has thousands of rockets positioned just across Israel’s northern border.  Congressional approval of a modest aid package to Israel would have a strong psychological impact on Israel and its adversaries. Its odds of passage have increased following this weekend’s events.