2014 was the year in which the world was finally shaken out of complacency. Ukraine triggered Russia's inevitable confrontation with the United States and Europe. Economic malaise in Europe became impossible to ignore, with anti-establishment groups growing louder with each passing election. An intensifying anti-corruption drive in China exposed how far and deep the Chinese leadership is willing to go in trying to manage political resistance amid a slowing economy.
Stratfor has long emphasized that two of the three pillars of the international system — Europe and China — were in structural decline while the United States, buoyed by an energy boom, would maintain a position of relative hegemony. As Robert Louis Stevenson would remind us, sooner or later, we will sit down to a banquet of consequences. Indeed, as we begin 2015, the price of Brent crude oil has been slashed by more than half of what it was a year ago and now hovers around $50 a barrel.
While energy traders, politicians and producers alike scramble to find the bottom of the barrel — the nadir of global oil prices — the world's ability to cope with or exploit an oversupplied oil market will shape many of the trends we are looking at for 2015. The standoff between OPEC swing producers and U.S. oil producers will wind down as low oil prices reach a point where U.S. production growth will stall. At the same time, OPEC's key producers — Saudi Arabia, Kuwait and the United Arab Emirates — have shown little interest in pulling back on their own production levels in order to increase oil prices (which would have them effectively subsidizing U.S. shale oil producers), leaving the oil market oversupplied.
The global energy climate will help bring about a de-escalation in the conflict over Ukraine. Russia can tolerate more economic pain than most countries, but deep cuts into energy revenue combined with sanctions are too much for even Russian President Vladimir Putin to bear as he tries to manage an increasingly shaky Kremlin. Russia maintains energy leverage over Kiev and can temper a frozen conflict in eastern Ukraine to sway the Europeans toward easing up on sanctions. The United States will not let up as easily and will continue beefing up military ties with states along the former Soviet periphery, but Washington will also be mindful of the consequences of unraveling Russia.
Germany will play a role in moderating the conflict with its eastern neighbor, but faces much bigger problems to its west. The artificial calm that was created by the European Central Bank and embraced by financial markets for the past two years is due to end with a rude awakening. Italy, Greece and Spain will bear close watching for triggers to a financial panic, while France and Germany will remain locked in conflict over how to revive the eurozone. Little will be done in the end to address the structural ailments fueling the political crisis on the Continent.
With various tensions persisting in Eurasia, the United States will try to reorient itself from peripheral issues in the Middle East to more central issues on the European mainland. This will be easier said than done. The fight against the Islamic State will be slow, as Washington relies on air power and the gradual buildup of local forces divided along multiple ethnic and sectarian lines. The United States' negotiations with Iran may not culminate in a grand rapprochement this year, but their working relationship will hold steady as lower oil prices fortify the Iranian government's resolve to reopen its economy, albeit at an unavoidably slow pace.
Out of all the oil producers stuck with slashed budgets, Venezuela has the most potential to tip over the edge this year. The country's finances are already highly strained, and as the government becomes less able to fund imports, social unrest will be inevitable. The security architecture around the government designed by former President Hugo Chavez is one of current President Nicolas Maduro's main vulnerabilities as he balances multiple competing factions while the government's inherited security patron, Cuba, re-engages with the United States.
We are now in the midst of the second wave of a generational shift that began in 2008-2009, with a global financial crisis that exposed Europe and China's weaknesses, a shale revolution that dramatically increased U.S. energy output and a Russian military invasion in the Caucasus that reminded the world of Moscow's need to maintain its buffer space. As we look at what 2015 holds in store, we know the oil markets are oversupplied, Europe and China will continue to stagnate, and Russia will work under heavy constraints to deny the West a strong foothold in crucial areas of its periphery while the rest of the world deals with the repercussions of these trends. The ebb and flow of this tumult is covered in the forecast that follows.