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Monday, January 5, 2015
SUPPLY CHAIN RISK, GEOPOLITICAL RISK
These geopolitical risks are also supply chain risks--
TIME foreign affairs columnist Ian Bremmer provides a guide to the global storylines of the year, beginning with an unstable Europe.
This post is in partnership with Time. The article below was originally published at Time.com.
By Ian Bremmer, TIME
International stories rise and fall so quickly in today’s media. On Monday, it’s civil conflict in Ukraine. On Tuesday, it’s the rise of the Islamic State of Iraq and Greater Syria (ISIS). By Wednesday, the headlines are on to something else. Amid the global whiplash, it’s easy to lose sight of the larger picture. So as the new year begins, it’s useful to take a broader look at where these stories are headed—and to track the next wave of market-moving surprises in international politics.
Every January Eurasia Group, the political risk consultancy I founded and oversee today, publishes Top Risks, a roundup of the geopolitical trends we consider most likely to change our world in the coming year. This ranking reflects our forecast of which global storylines are most likely to play out over the next 12 months, which will have biggest impact on the markets and politics—and where we can expect surprises.
In 2015, political conflict among the world’s great powers is in play more than at any time since the end of the Cold War. U.S. relations with Russia are now fully broken. China’s powerful President Xi Jinping is creating a new economy, and the effects will be felt across East Asia and the rest of the world. Geopolitical uncertainty has Turkey, the Gulf Arab states, Brazil and India hedging their bets.
But the year’s top risk is found in once placid Europe, where an increasingly fractured political environment is generating new sources of conflict.
1. The politics of Europe
European economics aren’t as bad as they were at the height of the eurozone crisis in 2012, but the politics of the continent are now much worse. Within key countries like Britain and Germany, anti-EU political parties continue to gain popularity, undermining the ability of governments to deliver on painful but needed reforms. Friction is growing among European states, as peripheral governments come to increasingly resent the influence of a strong Germany unchecked by weak France or absent Britain. Finally, a resentful Russia and an aggressive ISIS will add to Europe’s security worries.
Sanctions and lower oil prices have weakened Russia enough to infuriate President Vladimir Putin, but not enough to restrain his actions. Moscow will continue to put pressure on Ukraine, and as a result, U.S. and European sanctions will tighten. As Russia’s economy sags, Putin’s approval ratings will depend increasingly on his willingness to confront the West. Western companies and investors are likely targets—on the ground and in cyberspace.
3. The effects of China slowdown
China’s economic growth will slow in 2015, but it’s all part of Xi’s plan. His historically ambitious economic reform efforts depend on transitioning his country to a consumer-driven economic model that will demand levels of growth that are lower, but more sustainable. The continuing slowdown should have little impact inside China. But countries like Brazil, Australia, Indonesia and Thailand, whose economies have come to depend on booming trade with a commodity-hungry China, will feel the pain.
4. The weaponization of finance
For the moment, the American public has had enough of wars and occupations, but the Obama administration still wants to exert significant influence around the globe. That’s why Washington is weaponizing finance on a new scale. The U.S. is using carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy. The advantages are considerable, but there is a risk that this strategy will damage U.S. companies caught in the crossfire between Washington and targeted states. Transatlantic relations could suffer for the same reason.
5. ISIS, beyond Iraq and Syria
ISIS faces military setbacks in Iraq and Syria, but its ideological reach will spread throughout the Middle East and North Africa in 2015. It will grow organically by setting up new units in Yemen, Jordan, and Saudi Arabia, and it will inspire other jihadist organizations to join its ranks—Ansar Bayt al Maqdas in Egypt and Islamists in Libya have already pledged allegiance to ISIS. As the militant group’s influence grows, the risk to Sunni states like Saudi Arabia, the United Arab Emirates and Egypt will rise.
6. Weak incumbents
Feeble political leaders, many of whom barely won reelection last year, will become a major theme in 2015. Brazil’s Dilma Rousseff, Colombia’s Juan Manuel Santos, South Africa’s Jacob Zuma, Nigeria’s Goodluck Jonathan and Turkey’s Recep Tayyip Erdogan will each face determined opposition and formidable obstacles as they try to enact their political agendas.
7. The rise of strategic sectors
Global businesses in 2015 will increasingly depend on risk-averse governments that are more focused on political stability than on economic growth, supporting companies that operate in harmony with their political goals and punishing those that don’t. We’ll see this trend in emerging markets, where the state already plays a more significant role in the economy, as well as in rogue states searching for weapons to fight more powerful governments. But we’ll also see it in the U.S., where national security priorities have inflated the military industrial complex, which now includes technology, telecommunications and financial companies.
8. Saudi Arabia vs Iran
The rivalry between Shiite Iran and Sunni Saudi Arabia is the engine of conflict in the Middle East. Given the growing reluctance of Washington and other outside powers to intervene in the region, increasingly complex domestic politics within these two countries and rising anxiety about the ongoing negotiations over Iran’s nuclear program, we can expect Tehran and Riyadh to use proxies to fuel trouble in more Middle Eastern countries than ever in 2015.
Relations between China and Taiwan will deteriorate sharply in 2015 following the opposition Democratic Progressive Party’s landslide victory over the ruling Nationalist Party in local elections this past November. If China decides that its strategy of economic engagement with Taiwan has failed to advance its ultimate goal of reunification, Beijing might well backtrack on existing trade and investment deals and significantly harden its rhetoric. The move would surely provoke public hostility in Taiwan and inject even more anti-mainland sentiment into the island’s politics. Any U.S. comment on relations between China and Taiwan would quickly increase resentment between Beijing and Washington.
Lower oil prices have helped, but President Erdogan has used election victories in 2014 to try to sideline his political enemies—of which there are many—while remaking the country’s political system to tighten his hold on power. But he’s unlikely to win the authority he wants this year, creating more disputes with his prime minister, weakening policy coherence and worsening political unpredictability. Given the instability near Turkey’s borders, where the war against ISIS rages, that’s bad news. Refugees from Syria and Iraq are bringing more radicalism into the country and adding to economic hardship.