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annual forecasts

Jan 13, 2011 | 12:17 GMT

31 mins read

2011 Annual Forecast

A line of U.S. Army armored vehicles lines up at Camp Virginia near the capital of Kuwait as soldiers pull out of service in Iraq.
(Joe Raedle/Getty Images)

Overview

The year 2011 is one of preparation and postponement, as Washington, Beijing and Moscow — among several others — are already looking to elections and leadership changes in 2012. The uncertainty of next year affects the actions of this year.

One of the biggest questions in 2011 concerns Iraq. The United States is officially obligated to complete its withdrawal of combat troops from Iraq by the end of this year, a move that could reshape the balance of regional power. If the United States withdraws, it leaves Iran the single most powerful conventional force in the region, and leaves Iraq open to Iranian domination. The ripple effect alters the sense of security for the Saudis and other Arab regimes, forcing them to accommodate a more powerful Iran. This effectively ends the balance of power in the Gulf region, something that Washington can little accept.

If Washington does not carry out a meaningful withdrawal, then Iran retains the option of stirring up militias and unrest in Iraq, increasing conflict and the attendant U.S. casualties, all while the U.S. presidential election season begins ramping up. From the political perspective, this is not acceptable. From the geopolitical perspective, allowing Iran (or any other single power) to dominate the region is unacceptable. We think the latter will take precedence over the former, and the United States will seek to retain a strong presence in Iraq rather than withdraw from the region. However, the United States is not likely to carry out any major military action against Iran.

That leaves one path if the United States wants to get out of Iraq at some future point: an accommodation (even if quiet) with Iran to ensure both U.S. and Iranian interests. While it is not likely to be very public, we expect a significant increase in U.S.-Iranian discussions this year toward this end.

While Washington looks to extricate itself from Iraq without leaving power in the region unbalanced, farther east China is struggling with its own economic imbalances. Stratfor has long been perceived as bearish on the Chinese economy. We are less bearish than realistic, and the reality is that the longer an economic miracle continues to be miraculous, the more likely it is to end its amazing run. We cannot help but notice the similarities between China and its East Asian economic predecessors: Japan, South Korea and the Southeast Asian "Tigers." The Chinese have shown great resilience, but the global economic crisis revealed the weaknesses of China's export-based model. While government investment now makes up the lion's share of the Chinese economy, Beijing is walking a very difficult path between rampant inflation and rapid economic slowing.

As China's leaders search for a solution and try to avoid the social consequences of a slip in either direction, they are also focused on the next major generational leadership transition, slated to begin in 2012. This discourages any radical or daring economic policies, and stability will remain the watchword as the politicians jockey for position. But given the status of the Chinese economy, and the continued effects internationally of the global slowdown, daring policies and ideas are perhaps what China needs. While Beijing is likely to procrastinate in making any radical economic policy changes, and thus avoid the likely short-term chaos that could entail, the longer the leaders delay fundamental action, the worse things may be when the system starts to unravel. 

Meanwhile, Russia will continue to attempt to roll back U.S. influence in Eurasia and solidify its own. Russia has largely completed its retrenchment to the borders of the former Soviet Union, with the notable exception of the Baltic states and to a lesser extent the Caucasus, and Moscow is now secure enough to shift from its more assertive stance to one that appears more conciliatory. This new strategy will play to all its relationships around the world, but will be effective in moving Russia's influence farther beyond its former Soviet sphere and into Europe — where the United States has been dominant since the end of the Cold War. Russia's focus this year is to mold understandings with states like the Baltics, while entrenching its strong relationship with Germany. Moscow knows that its time to act freely is ticking down as Russia watches the United States wrap up some of its commitments in the Middle East, but Moscow will also be looking internally, as the political elite position themselves ahead of the 2012 elections.

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Mar 28, 2017 | 22:54 GMT

5 mins read

Europe

To the west of Eurasia lays Europe, a region predisposed to division. It is surrounded on nearly all sides by islands and peninsulas that make it difficult for Europe to cohere. The northern half of the continent, moreover, sits on a plain whose short, meandering rivers tend to empower countries without forcing them to work with others. The southern half is situated on more mountainous terrain that has historically impeded the creation of strong, unified economies. As a result, Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.
Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.
section Highlights
  • Berlin will continue to press the rest of Europe to accept its point of view on fiscal matters, using the ongoing economic crisis as an opportunity to tighten the eurozone's existing economic rules and to introduce new ones. 
  • Germany's assertiveness will continue to breed resentment within other eurozone states. 
  • In Ireland, elections in the first quarter could bring anti-bailout or anti-austerity forces into power.
  • Other states may see changes in government (Spain, Portugal and Italy being prime candidates), but leadership change will not mean policy change.
  • With the United States preoccupied in the Middle East, Russia making a push into the Baltic states and consolidating its periphery, and Berlin and Moscow further entrenching their relationship, Central Europe will continue to see its current security arrangements -- via NATO and Europe -- as insufficient.
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The Fate of the Eurozone

The most important question for the Asia Pacific region is whether China's economy will slow down abruptly in 2011. Though growth may slow, Stratfor does not anticipate it to collapse beneath the government's target level. This will require a tightrope walk between excessive inflation on one side and drastic slowing on the other. China's leaders want a smooth transition to the next generation of leaders in 2012, and do not want the economy to collapse on their watch. They will err on the side of higher inflation, which could exacerbate social troubles, but Beijing is betting this will remain manageable. 

China's exports recovered in 2010 from the lows of 2009, but export growth is expected to slow in 2011. Wages, energy and utilities costs are rising; the government is letting the currency slowly appreciate; workers are demanding better conditions and more compensation while the demographic advantage and the amount of new migrant labor entering markets is slowing. All of these processes will continue in 2011 to the detriment of export sector stability. Already some manufacturers of cheap goods are operating at a loss. Reports of loss-making enterprises are not yet widespread, but they indicate the real strains from rising costs that will worsen in 2011. However, as long as the American recovery continues and there are no other big external shocks, the export sector will not collapse.

China's primary hope for maintaining targeted growth rates is investment. Since 2008, Beijing has relied on government spending packages and, most important, gargantuan helpings of bank loans to drive growth. The central government will continue these stimulus policies in 2011. Meanwhile, Beijing will allow banks to continue high levels of lending, and the banks appear just capable of surging credit for another year. Deposits are still growing and outnumber loans, several major banks raised capital in 2010, and Beijing has toughened regulatory requirements to increase capital adequacy, reserves and bad loan provisions. Nevertheless the credit boom cannot last much longer, and the sector is sitting on a volcano of new non-performing loans worth at least $900 billion. Without credible reform in lending practices, continued high levels of lending in China will increase systemic financial risks as companies take out new loans to roll over bad debt and invest in inefficient or speculative projects, while adding to inflation and compounding the sector's future burdens. Though a banking crisis may be averted in 2011, it cannot be averted for long.

With Beijing willing to use government investment and bank lending to avoid a deep slowdown, inflation will rise and cause economic and socio-political problems in 2011, generating outbursts of social discontent along the lines of previous inflationary periods, such as 2007-2008, or even, conceivably, 1989. Inflation is hitting all the essential commodities, and Stratfor sources perceive unusually high levels of social frustration from Beijing to Hong Kong. The government will use social policies, price controls and subsidies to alleviate the problem, but will not be able to prevent major incidents of unrest. Security forces are capable of dealing with protests and riots, but such incidents will reveal the depth of the problems the country faces.

Internationally, China will continue playing a more assertive role. Beijing will accelerate its foreign resource acquisition and outward investment strategy. It will continue pursuing large infrastructure projects in border areas and in peripheral countries despite resulting tensions with India and Southeast Asian states. It will increase maritime patrols in its neighboring seas and maintain a hard-line position on territorial and sovereignty disputes, increasing the risk of clashes with Japan, Vietnam, South Korea and others. China's military modernization will continue to focus on areas like anti-access and area denial and cyber capabilities, and the lack of transparency will continue to feed foreign suspicions. China's trade disputes with other nations — especially the United States — will worsen, though Beijing will make token policy changes and increase imports to reduce political friction. The United States will make bigger threats of imposing concrete trade measures against China as the year progresses, taking at least symbolic action, perhaps toward the end of the year as the 2012 election campaign starts to warm up. 

EU: Regional Blocs

Central Europe will have its own issues to deal with in 2011. With the United States preoccupied in the Middle East, Russia making a push into the Baltic states and consolidating its periphery, and Berlin and Moscow further entrenching their relationship, Central Europe will continue to see its current security arrangements — via NATO and Europe — as insufficient. Stratfor expects the Central European states to look to alternatives in terms of security, whether with the Nordic countries, specifically Sweden, or the United Kingdom, or with each other via forums such as the Visegrad Group. But with Washington distracted and unprepared to re-engage in the region, the Central Europeans might not have a choice in making their own arrangements with Russia, which could mean concessions and a more accommodating attitude, at least for the next 12 months.

section

Mar 28, 2017 | 21:43 GMT

4 mins read

Eurasia

Eurasia is the world’s most expansive region. It connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia. Forming the borders of this massive tract of land are the Northern European Plain, the Carpathian Mountains, the Southern Caucasus Mountains, the Tien Shan Mountains and Siberia. At the heart of Eurasia is Russia, a country that throughout history has tried, to varying degrees of success, to extend its influence to Eurasia’s farthest reaches — a strategy meant to insulate it from outside powers. But this strategy necessarily creates conflict throughout Russia’s borderlands, putting Eurasia a near constant state of instability.
Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.
section Highlights
  • In 2011, Moscow will feel secure enough in its position in the former Soviet sphere to shift from a policy of confrontation with the West to one characterized, at least in part, by a more cooperative engagement.
  • Russia knows that it will not be able to pull the Baltic states away from their alliances in NATO or the European Union, but it is trying to increase its influence with the countries in hopes of having some say in their foreign policy.
  • In the leadup to parliamentary elections, many figures in the country's elite will scramble to secure their positions or attempt to gain better ones. 
  • Moscow will use requests for security assistance from Kyrgyzstan and Tajikistan to increase its presence in Central Asia militarily, but will hold back from getting directly involved in the fighting.
  • Looming succession crises in Uzbekistan and Kazakhstan will encourage the countries' political elite to try to hold onto or gain power.
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The Fight for Russia’s Borderlands

Russia's consolidation of influence in the former Soviet Union is nearly complete, and in 2011, Moscow will feel secure enough in its position to shift from a policy of confrontation with the West to one characterized, at least in part, by a more cooperative engagement. Russia will play a double game, ensuring it can reap benefits from having warm relations with countries — such as investment and economic ties — while keeping pressure on those same countries for political reasons.

The most complex relationship will be with the United States, as many outstanding issues remain between the two powers. However, Russia knows that the United States is still bogged down in the Middle East and South Asia, so there is no need for a unilaterally aggressive push on Washington.

The most productive relationship will be with Germany. Moscow and Berlin will strengthen their ties politically, economically and financially in the new year. But, as throughout history, their inherent mistrust for one another will motivate them to prepare to pressure each other if needed in the years beyond 2011.

Moscow's strategy shift will also affect how Russia interacts with its former Soviet states. In 2010, Russia consolidated its control over Belarus, Ukraine, Kazakhstan and Kyrgyzstan, while strengthening its influence over Armenia and Tajikistan. Russia knows that it broadly dominates the countries and can now move more freely in and out of them — and allow the states more leeway, though within Russia's constraints.

There are still three regions in which Russia has not solidified its influence and thus will be more assertive: Moldova, the independently minded Caucasus states of Georgia and Azerbaijan, and the Baltics. Of these, Russia is furthest along with Moldova, and changing relations with Georgia can largely be left for another day. Russia's strategy toward the Baltics is changing, and Moscow is attempting to work its way into each of the Baltic states on multiple levels — politically, economically, financially and socially. Russia knows that it will not be able to pull these countries away from their alliances in NATO or the European Union, but it wants to have some influence over their foreign policy. Russia will be more successful in this new strategy in the Baltic state of Latvia and to a lesser degree in Estonia, while Lithuania will be more challenging.

Russia's Internal Struggle

Domestically, Russia is preparing for parliamentary elections at the end of 2011 and the highly anticipated presidential election in 2012. Traditionally, in the lead-up to an election, the Kremlin leader — currently Russian Prime Minister Vladimir Putin — shakes things up by replacing key powerful figures in the country. This time, Putin has asserted that his power over the Kremlin is strong enough that he will not need such a reshuffling, but many in the country's elite will still scramble to secure their positions or attempt to gain better ones. Should President Dmitri Medvedev's supporters move to break from Putin's grip, it could trigger another clampdown on the country politically and socially, similar to the one seen in the mid-2000s. But whether Putin decides to run again as president or remain prime minister, his control over Russia remains secure. 

Instability in Central Asia

In four of the Central Asian states, a series of unrelated trends will intensify in 2011, creating potential instability that could make the region vulnerable to one or more crises. In Kazakhstan and Uzbekistan, succession crises are looming, and the political elite are struggling to hold or gain power. In both Kyrgyzstan and Tajikistan, ethnic, religious and regional tensions are turning violent. This has been exacerbated by the return of militants who have been fighting in Afghanistan for the past eight years. Both countries have called on Russia to stabilize their security situations. Moscow will use these requests to increase its presence in the region militarily, but will hold back from getting directly involved in the fighting.

In these four countries, Russia's handling of the situation is the important factor. In 2011, Moscow will ensure that all its pieces are in place — whether political influence or a military presence — in order to keep control (and dominance) over the region.

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Mar 28, 2017 | 20:59 GMT

3 mins read

Middle East and North Africa

The Middle East and North Africa is the world's crossroads. It encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between. The story of the region, as is so often the case of places stuck between foreign players, is the story of trade, exchange and conflict. The traditional powers of the region are Turkey and Iran — Saudi Arabia and Egypt are the current Arab powers — and their competition for influence over the region's weaker states makes the Middle East and North Africa an arena of violence and instability.
The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.
section Highlights
  • The most important question in the Persian Gulf this year will be the degree to which the United States draws down its forces in the region. 
  • Should the United States remove all effective military force in Iraq and limit its forces in Kuwait, Iraq would fall under Iranian domination, and the states on the Arabian Peninsula would make concessions to Iranian interests to accommodate the new balance of power.
  • Pressure on the United States from Saudi Arabia and its allies in Iraq not to withdraw will be heavy, so the United States will keep enough forces in Iraq to block Iran.
  • Turkey's ruling Justice and Development Party (AKP) is unlikely to lose in the election, but the vote will highlight the core secular-religious divide in the country.
  • Several political and militant forces active in Egypt will be trying to take advantage of the historic opportunity the impending transition presents.
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Rebalancing Power in the Middle East

In Afghanistan, the U.S.-led International Security Assistance Force (ISAF) saw some successes on the battlefield in 2010, and more can be expected in the year ahead. However, the ISAF has neither the troop strength nor the staying power to truly defeat the Taliban through military force alone. The success or failure of the counterinsurgency-focused strategy therefore rests not only on the military degradation of the Taliban, but also on the ability to compel the Taliban to negotiate some degree of political accommodation. Some movement toward a negotiated settlement this year is possible, and Pakistan will try to steer Washington toward talks (in the hopes that Islamabad will be able to influence the eventual outcome of those talks), but a comprehensive settlement in 2011 seems unlikely at this point.

Turkey Awaits an Election

In Turkey, 2011 is an election year, with parliamentary elections scheduled for June. The ruling Justice and Development Party (AKP) is unlikely to lose the election overall, but the vote will highlight the core secular-religious divide within Turkey. As it seeks to consolidate itself at home, the AKP in 2011 will work toward a more coherent foreign policy, trying to learn from past efforts that had unexpected results. 

The Difficulties of North African Reform

Egypt begins the year with the successors of ailing 82-year-old Egyptian President Hosni Mubarak at odds over the pending transfer of power. The various factions — both in his National Democratic Party and the army — do not agree on who can best ensure regime stability and policy continuity once Mubarak is no longer in a position to lead. Another complication is that the presidential election is scheduled for September, and it is not clear whether Mubarak will run for a sixth five-year term. While the various elements that make up the state will be busy trying to reach a consensus on how best to navigate the succession issue, several political and militant forces active in Egypt will be trying to take advantage of the historic opportunity the transition presents. While the opponents of the regime — both those who seek change via constitutional means and those who prefer extra-constitutional methods — are not yet organized enough, the rifts within the government also create vulnerabilities for Egypt, where regime change will have profound implications for the region and beyond. 

Israel's Survival Strategy

In Israel, concerns remain about Hezbollah, the most serious threat Israel faces. But Hezbollah is focused on matters in Lebanon, and Syria has its own interests at stake, so another major Israel-Hezbollah war in 2011 is unlikely. In Gaza, on Israel's southern flank, things are not quite as stable. Hamas has an interest in maintaining a short-term truce with Israel, but pressure from competing Islamist movements and Israel's ongoing efforts to prevent Hamas from strengthening will likely lead to clashes within the year, though not to the extent seen in 2008-2009. 

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Mar 28, 2017 | 22:43 GMT

5 mins read

Asia-Pacific

The Asia-Pacific is home to more people than any other region. Centered on the western rim of the Pacific Ocean, this region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast. Several of these countries, most notably China, experienced rapid economic growth in the second half of the 20th century, giving the region a new sense of global economic relevance that continues today. That relevance, however, depends largely on China, a power in transition whose rise is testing the network of U.S. alliances that have long dominated the region. How effectively Beijing manages its transition will shape the regional balance of power in the decades to come.
Centered on the western rim of the Pacific Ocean, the Asia-Pacific region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast.
section Highlights
  • Though growth may slow in China's economy, it is unlikely to collapse beneath the government's target level.
  • The central government will continue its stimulus policies in 2011.
  • Beijing will accelerate its foreign resource acquisition and outward investment strategy as it continues pursuing large infrastructure projects in border areas and in peripheral countries despite resulting tensions with India and Southeast Asian states.
  • After a year of outright aggression toward South Korea in 2010, all indications suggest that 2011 will see a return to the more managed relations with North Korea seen a decade ago, barring a major domestic disagreement among the North Korean elite over Kim Jong Il's succession plans. 
  • The United States will continue its slow re-engagement with the region, providing an opportunity for China's neighbors to hedge against it.
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China in Transition

The most important question for the Asia Pacific region is whether China's economy will slow down abruptly in 2011. Though growth may slow, Stratfor does not anticipate it to collapse beneath the government's target level. This will require a tightrope walk between excessive inflation on one side and drastic slowing on the other. China's leaders want a smooth transition to the next generation of leaders in 2012, and do not want the economy to collapse on their watch. They will err on the side of higher inflation, which could exacerbate social troubles, but Beijing is betting this will remain manageable. 

China's exports recovered in 2010 from the lows of 2009, but export growth is expected to slow in 2011. Wages, energy and utilities costs are rising; the government is letting the currency slowly appreciate; workers are demanding better conditions and more compensation while the demographic advantage and the amount of new migrant labor entering markets is slowing. All of these processes will continue in 2011 to the detriment of export sector stability. Already some manufacturers of cheap goods are operating at a loss. Reports of loss-making enterprises are not yet widespread, but they indicate the real strains from rising costs that will worsen in 2011. However, as long as the American recovery continues and there are no other big external shocks, the export sector will not collapse.

China's primary hope for maintaining targeted growth rates is investment. Since 2008, Beijing has relied on government spending packages and, most important, gargantuan helpings of bank loans to drive growth. The central government will continue these stimulus policies in 2011. Meanwhile, Beijing will allow banks to continue high levels of lending, and the banks appear just capable of surging credit for another year. Deposits are still growing and outnumber loans, several major banks raised capital in 2010, and Beijing has toughened regulatory requirements to increase capital adequacy, reserves and bad loan provisions. Nevertheless the credit boom cannot last much longer, and the sector is sitting on a volcano of new non-performing loans worth at least $900 billion. Without credible reform in lending practices, continued high levels of lending in China will increase systemic financial risks as companies take out new loans to roll over bad debt and invest in inefficient or speculative projects, while adding to inflation and compounding the sector's future burdens. Though a banking crisis may be averted in 2011, it cannot be averted for long.

With Beijing willing to use government investment and bank lending to avoid a deep slowdown, inflation will rise and cause economic and socio-political problems in 2011, generating outbursts of social discontent along the lines of previous inflationary periods, such as 2007-2008, or even, conceivably, 1989. Inflation is hitting all the essential commodities, and Stratfor sources perceive unusually high levels of social frustration from Beijing to Hong Kong. The government will use social policies, price controls and subsidies to alleviate the problem, but will not be able to prevent major incidents of unrest. Security forces are capable of dealing with protests and riots, but such incidents will reveal the depth of the problems the country faces.

Internationally, China will continue playing a more assertive role. Beijing will accelerate its foreign resource acquisition and outward investment strategy. It will continue pursuing large infrastructure projects in border areas and in peripheral countries despite resulting tensions with India and Southeast Asian states. It will increase maritime patrols in its neighboring seas and maintain a hard-line position on territorial and sovereignty disputes, increasing the risk of clashes with Japan, Vietnam, South Korea and others. China's military modernization will continue to focus on areas like anti-access and area denial and cyber capabilities, and the lack of transparency will continue to feed foreign suspicions. China's trade disputes with other nations — especially the United States — will worsen, though Beijing will make token policy changes and increase imports to reduce political friction. The United States will make bigger threats of imposing concrete trade measures against China as the year progresses, taking at least symbolic action, perhaps toward the end of the year as the 2012 election campaign starts to warm up. 

A Return to Normal on the Korean Peninsula

North Korea's behavior in 2010 appeared off the charts — Pyongyang was accused of sinking a South Korean navy ship and killed South Korean civilians during the shelling of a South Korean-controlled island south of the Northern Limit Line, a maritime border the North refuses to formally recognize. In the past two decades, North Korea has demonstrated a clear pattern of escalating tensions with the South, with its neighbors and with the United States as a precursor to negotiations for economic benefits. These tensions centered on nuclear and missile developments, but not on outright aggression against the South — until 2010. Pyongyang appears to have made several very calculated decisions: First, that nuclear tests and missile launches no longer created the sense of uncertainty and crisis necessary to force the United States and South Korea into negotiations and concessions; second, that it had China's cover; and third, that Seoul and Washington would not respond militarily to a more direct form of North Korean provocation. All indications suggest that Pyongyang bet correctly, and it is looking like 2011 will see a return to the more managed relations with North Korea seen a decade ago, barring a major domestic disagreement among the North Korean elite over Kim Jong Il's succession plans.

The U.S. and the Balance of Power

The United States will continue its slow re-engagement with the region, providing an opportunity for China's neighbors to hedge against it. Washington will support greater coordination among Japan, South Korea and Australia (as well as India) on regional security and economic development in Southeast Asia, increasing competition with China. The United States will build or rebuild ties with partners like Indonesia and Vietnam and become more active in multilateral groups, including the East Asia Summit and the Trans-Pacific Partnership. Members of the Association of Southeast Asian Nations will try to balance both China and the United States.

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Apr 4, 2017 | 16:39 GMT

5 mins read

Americas

The Americas stretch from the Arctic Circle in Canada to the southern tip of Chile. This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world — an ascendance aided in part by bringing Mexico and Canada into its sphere of influence. Farther south, the nations of South America are like islands, separated by vast spaces of impenetrable mountains, rivers and jungles. Try though these countries may to integrate more closely, deeper ties such as those that characters North America will prove elusive.
This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world
section Highlights
  • The Venezuelan government will become increasingly reliant on its allies -- namely China, Cuba and, to a lesser extent, Iran and Russia -- to stave off a collapse. 
  • But though doubts will rise over the sustainability of the Venezuelan government and economy, the administration of President Hugo Chavez likely will not be toppled as long as oil prices allow Caracas to maintain a high rate of public spending.
  • Cuba will aim to lay off or reshuffle more than half a million state workers (10 percent of the island's work force) by March 2011 while attempting to build up a fledgling private sector to absorb the labor.
  • Brazil's focus will be absorbed by problematic currency gains, developing its pre-salt oil fields and internal security.
  • In Mexico, authorities will devote considerable resources to the Tamaulipas and Nuevo Leon regions, but these operations are more likely to escalate tensions between the Gulf cartel and Los Zetas than to reduce violence in these areas. 
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Venezuela's Unraveling

Economic decay, runaway corruption and political uncertainty will define Venezuela in the year ahead. Venezuelan President Hugo Chavez will resort to more creative and forceful means to expand his executive authority and muzzle dissent, but managing threats to his hold on power will become more difficult and more complex, especially considering Venezuela's growing struggle to maintain steady oil production and the country's prolonged electricity crisis

The Venezuelan government will thus become increasingly reliant on its allies — namely China, Cuba and, to a lesser extent, Iran and Russia — to stave off a collapse. However, Chavez is facing the developing challenge of a potential clash of interests among those allies. China, Cuba and Russia, for example, will attempt to place limits on Venezuela's relationship with Iran in the interest of managing their own affairs with the United States. Though doubts will rise over the sustainability of the Venezuelan government and economy, the Chavez government likely will not be toppled as long as oil prices allow Caracas to maintain a high rate of public spending.

Cuba in Transition

Cuba, meanwhile, intends to lay off or reshuffle more than half a million state workers (10 percent of the island's work force) by March 2011 while attempting to build up a fledgling private sector to absorb the labor. There are signs that Fidel and Raul Castro have reached a political consensus over the reforms and are serious about easing the heavy burden on the state out of sheer economic desperation. However, this will be a year of immense struggle for Cuba, especially as many of the new privately owned or cooperative businesses are expected to fail due to their lack of resources and experience and because of a shortage of foreign capital.

Cuba will continue to send positive, albeit measured, political signals in an attempt to make investment in the island more politically palatable to foreigners, but no drastic political reforms are expected. Cuba is headed for a major political change, but Stratfor does not see that happening in 2011. Such a change will take time to develop and will entail a great deal of pain inflicted on the Cuban economy. We suspect that those eyeing a change in the Cuban leadership would rather the Castros take the fall for the economic hardships to be endured during this slow process. Meanwhile, relations between Cuba and Venezuela are likely to become more strained. With Cuba exerting significant influence over Venezuela's security apparatus and Havana needing capital that Venezuela may not be able to provide in Cuba's time of need, the potential for quiet tension between the two remains.

Brazil's Rise to Regional Prominence

The year 2011 will be one mostly of continuity for an emergent Brazil as the country devotes much of its attention to internal development. Specifically, Brazil's focus will be absorbed by problematic currency gains, developing its pre-salt oil fields and internal security. The real gained 108 percent during President Luiz Inacio Lula da Silva's time in office, hitting domestic industry. The country is also facing investment needs of around $220 billion over the next five years for the offshore pre-salt oil fields, on which the country's geopolitical ambitions have been hinged. Crackdowns on select favelas in Rio de Janeiro are likely to continue this year, but constraints on resources and time (with the 2014 World Cup approaching) will hamper this initiative.

In the foreign policy sphere, Brazil will keep a measured distance from the United States as a means of asserting its own authority in the region while gradually building up primarily economic influence in the South American states, particularly Paraguay. Brazil is still in the very early stages of achieving regional prominence and will feel more comfortable making mostly superficial moves on issues far removed from the South American continent than appearing to intrude in its neighbors' affairs.

Security Challenges in Latin America

In Mexico, the next year will be critical for the ruling National Action Party (PAN) and its prospects for the 2012 elections. Logic dictates that for the PAN to have a reasonable chance at staving off an Institutional Revolutionary Party (PRI) comeback, the level of cartel violence must come down to politically acceptable levels. Though serious attempts will be made, Stratfor does not see Mexican President Felipe Calderon and the PAN making meaningful progress toward this end. If there is a measurable reduction in overall cartel violence, it will be the result of inter-cartel rivalries playing out between the two current dominant cartels — the Sinaloa Federation and Los Zetas — and their regional rivals, mostly independently from the Mexican government's operations.

Mexican authorities will devote considerable resources to the Tamaulipas and Nuevo Leon regions, and these operations are more likely to escalate tensions between the Gulf cartel and Los Zetas than to reduce violence in these areas. Political stagnation will meanwhile become more severe as Mexico's election draws closer, with parties forming alliances and the PRI taking more interest in making the PAN look as ineffectual as possible on most issues.

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Mar 28, 2017 | 20:58 GMT

1 min read

South Asia

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders. The Himalayan Mountains form the northern border of South Asia, whose two main rivers, the Indus and the Ganges, support the region’s great population centers. India is the region’s dominant country, home to the world’s fastest growing economy. But its rivalry with neighboring Pakistan, a fellow nuclear power and growing consumer market, has made South Asia one of the world’s most dangerous nuclear flashpoints. The region is also a testament to how militancy and militarism can undermine the regional integration needed to unleash higher economic growth.
Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.
section Highlights
  • In Afghanistan, the U.S.-led International Security Assistance Force (ISAF) can expect more battlefield successes in the year ahead. 
  • But the success or failure of its counterinsurgency-focused strategy rests not only on the military degradation of the Taliban, but also on the ability to compel the Taliban to negotiate some degree of political accommodation.
  • Pakistan will try to steer Washington toward talks, but a comprehensive settlement in 2011 seems unlikely at this point.
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South Asian Militancy

In Afghanistan, the U.S.-led International Security Assistance Force (ISAF) saw some successes on the battlefield in 2010, and more can be expected in the year ahead. However, the ISAF has neither the troop strength nor the staying power to truly defeat the Taliban through military force alone. The success or failure of the counterinsurgency-focused strategy therefore rests not only on the military degradation of the Taliban, but also on the ability to compel the Taliban to negotiate some degree of political accommodation. Some movement toward a negotiated settlement this year is possible, and Pakistan will try to steer Washington toward talks (in the hopes that Islamabad will be able to influence the eventual outcome of those talks), but a comprehensive settlement in 2011 seems unlikely at this point.

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Apr 4, 2017 | 16:22 GMT

4 mins read

Sub-Saharan Africa

Sub-Saharan Africa is a study in diversity. Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, the region is home to countless cultures, languages, religions, plants, animals and natural resources. It’s no surprise that it captured the imagination of Europe’s earliest explorers — and that it continues to capture the imagination of current world powers eager to exploit it. And yet despite the region’s diversity, Sub-Saharan African countries have common challenges — transnational terrorism, rapid population growth, endemic poverty and corruption — that prevent them from capitalizing on their economic potential. The coming years will be critical for the region, especially as its political institutions mature in a rapidly globalizing world.
Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, Sub-Saharan Africa is home to countless cultures, languages, religions, plants, animals and natural resources.
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  • Southern Sudan will be in a period of legal limbo for the first half of the year, since it will not be able to declare its independence from Sudan until July if the referendum on the matter, scheduled for January, passes. 
  • Until then, contentious negotiations centered primarily on oil revenue sharing will characterize the relationship between Juba and Khartoum.
  • Leading up to national elections in the first half of the year -- and even afterward -- extensive intra-party negotiations and backroom deals will occupy the Nigerian government. 
  • The African Union Mission in Somalia (AMISOM) will add a few thousand new peacekeepers  in 2011, and Somali Transitional Federal Government (TFG) troops will receive incremental training to increase their capabilities as well. But neither force will be equipped or mandated to launch a definitive offensive against al Shabaab. 
  • South Africa will continue its predominantly cooperative relationship with nearby countries, notably Angola.
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A Tale of Two Sudans

Sub-Saharan Africa's year begins with important votes in Sudan and Nigeria.

A referendum on Southern Sudanese independence takes place in January. However, if the referendum passes, the south cannot declare independence until July. Thus, Southern Sudan will be in a period of legal limbo for the first half of the year. These months will be defined by extremely contentious negotiations between north and south, centered primarily on oil revenue sharing. Khartoum will grudgingly accept the results of the referendum, and both sides will criticize each other for improprieties during the voter registration period and polling. 

The south knows it must placate Khartoum in the short term, and it will be forced to make concessions on its share of oil revenues during the negotiations. Juba will also seek to discuss other options for oil exports in the future during the year, with Uganda and Kenya playing a significant role in those talks. However, any new pipeline is at least a decade away. This will reinforce Khartoum and Juba's mutual dependency in 2011.

The northern and southern Sudanese governments will maintain a heightened military alert on the border, and small clashes are not unexpected. Minor provocations on either side could spark a larger conflict, and while neither side's leadership wants this to happen, Sudan will be an especially tense place all year. 

Nigeria: Obstacles to Prosperity

Nigeria will hold national elections during the first half of the year, with a new government inaugurated about a month after elections are held. Candidates for the presidency and other political offices will be determined around mid-January, when party primaries are to be held. Within the ruling People's Democratic Party (PDP), it is a race between President Goodluck Jonathan, who hails from the oil-rich Niger Delta in the south, and the man northern politicians are calling the consensus northerner candidate, former Vice President Atiku Abubakar, for the party's nomination. Both candidates are wooing PDP politicians throughout the country.  

Extensive intra-party negotiations and backroom deals will occupy the Nigerian government during primary season, the election campaign and after the inauguration, all as a matter of managing power-sharing expectations that could lead to violence. But the cash disbursed and the patronage deployed as part of the campaign will keep most stakeholders subdued even if their preferred candidate does not win. This means the event will not turn into a national crisis, and the Niger Delta region is likely to remain relatively calm this year.

The Fight for Peace in Somalia

The African Union Mission in Somalia (AMISOM) will see a few thousand new peacekeepers added in 2011, continuing its slow buildup (the contingent is currently 8,000 strong). Somali Transitional Federal Government (TFG) troops will receive incremental training to increase their capabilities.

This year will see attention focused on securing Mogadishu as well as increased political recognition of Somaliland and Puntland, two semi-autonomous regions in northern Somalia. But AMISOM and the TFG will still not be equipped or mandated to launch a definitive offensive against al Shabaab. Al Shabaab will not be defeated or even fully ejected from Mogadishu, let alone attacked meaningfully in its core area of operations in southern Somalia.

The TFG's mandate might not be renewed after it expires in August, if the government fails to achieve gains in socio-economic governance in Mogadishu amid an improved security environment. Even if there is no TFG in Mogadishu, though, there will still be a governmental presence of some sort to deliver technical and administrative services and to operate public infrastructure (such as the international airport and seaport).

Cooperation in Southern Africa

South Africa will carry into 2011 a predominantly cooperative relationship with countries in the southern African region, notably Angola. Pretoria will use that cooperation to gain regional influence. Negotiations with Angola over energy and investment deals agreed to in principle during Angolan President Eduardo dos Santos' visit to South Africa at the end of 2010 will continue during the first half of 2011, with both governments sorting through the details of — and inserting controls over — this cooperation. Relations between the two governments will be superficially friendly, but privately guarded and dealt with largely through the presidents' personal envoys. Beyond the commercial and regional influence interests Pretoria holds in Angola, the South African government will push for infrastructure development initiatives with other southern and central African countries to emerge as the dominant power in the southern half of Africa.

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Mar 28, 2017 | 21:29 GMT

4 mins read

Global Economy

An employee at Panmure Gordon & Co., a London investment banking firm, looks at global trading figures.
section Highlights
  • The United States will experience moderate to strong growth in 2011.
  • The financial crisis that started sweeping Europe in 2010 is far from over, and more states will likely join Greece and Ireland in the bailout line in 2011.
  • Japan's population has aged to such a degree that consumption is expected to shrink every year from now on, while its national budget is now majority funded by deficit spending.
  • China's challenge in 2011 will be to maintain sufficient services and subsidies to keep social forces in check at a time when the country's economic model will exacerbate inflationary problems.

A Strong Performance for the U.S.

The United States will experience moderate to strong growth in 2011. Unlike in other major economies, consumer activity comprises the bulk of the U.S. system — some $10 trillion of the $14 trillion total. That $10 trillion is approximately half of the global consumer market. (The combined BRIC states — Brazil, Russia, India and China — account for less than one-third of that amount). As the U.S. consumer goes, so goes the world.

When measuring what the U.S. consumer is going to do, Stratfor consults three sets of data: first-time unemployment claims (our preferred method for evaluating current employment trends), retail sales (the actual consumer's track record), and inventory builds (an indicator of whether or not wholesalers and retailers will be placing new orders, which in turn would require more hires). As 2011 begins, the first two figures look favorable to economic growth, while the last indicates employment may be slow to recover.

Stratfor pays close attention to two other measures on the economy: The S&P 500 Index indicates investors' risk appetite, and total bank credit as made available by the U.S. Federal Reserve indicates how functional the financial system is. Because the 2008-2009 recession was financial in origin, Stratfor pays particular attention to what investors and banks are doing and thinking. Both measures are strongly positive as 2011 begins.

But while the United States may be gearing up for a strong performance, the same is not true elsewhere in the world. 

The Fate of the Eurozone

Europe faces a structural problem. The euro was designed for and by the Germans, who want a strong currency and high interest rates to keep inflation in check and to attract the capital required to maximize their high value-added system of first-rate education and infrastructure. The Southern Europeans, in contrast, have economies that do not add nearly as much value. They must remain price competitive to generate growth, and the only reliable means they have of doing that is to sport a weak currency. Put simply, people will pay more for a German car, but they will only pay so much for a Spanish apple. 

Yet these economies (and others) are enmeshed into the eurozone. The financial crisis is depressing the euro, which would normally help the southern European states, but Germany's presence in the eurozone is acting as a sort of life preserver, limiting how far the common currency can sink. The result is a midground currency, prevented from falling to levels that would actually stimulate the south while holding at weaker levels that make the already competitive Germans hypercompetitive. The result will be growth bifurcation, with the Germans experiencing their fastest growth in a generation, and Southern Europe — the region that needs growth the most to emerge from the debt maelstrom — mired in recession.

Consequently, the financial crisis that started sweeping Europe in 2010 is far from over, and Stratfor forecasts that more states will join Greece and Ireland in the bailout line in 2011. In one bit of good news for the Europeans, Stratfor projects that the systems the Europeans built in 2010 to handle the financial crisis will prove sufficient to manage Portugal, Belgium, Spain and Austria, the four states facing the highest likelihood of bailouts, respectively.

Asia: Familiar Problems

In Asia the picture is more familiar. Japan has largely removed itself from the scene. Japan's population has aged to such a degree that consumption is expected to shrink every year from now on, while its national budget is now majority funded by deficit spending. Luckily for the rest of the world, Japan's debt is held almost entirely at home, and its economy is the least exposed to the international system of any advanced nation. Japan will rot, but it will rot in seclusion.

In China, nearly every government throughout its history has at some point been brought down by social unrest of some kind. Recently, Beijing was concerned that rolling back stimulus policies enacted in late 2008 would put economic growth at risk,  and with it employment. Stratfor has learned that, given these circumstances, Beijing has decided to keep that stimulus intact. This will solve the employment problem, but it comes at the certain price of higher inflation. China's challenge in 2011 will be to maintain sufficient services and subsidies to keep social forces in check at a time when the country's economic model will exacerbate inflationary problems.

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