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quarterly forecasts

Oct 10, 2016 | 00:09 GMT

53 mins read

2016 Fourth-Quarter Forecast

If the study of geopolitics focuses on the structural forces shaping the international system, then domestic elections only rarely matter. Leaders tend to bend to their environment, not the other way around. And yet in the final months of 2016 the United States, still the world's only superpower, will choose a president in an election that will shape U.S. foreign policy more than usual.
(MARK RALSTON/AFP/Getty Images)

Overview

If the study of geopolitics focuses on the structural forces shaping the international system, then domestic elections only rarely matter. Leaders tend to bend to their environment, not the other way around. And yet in the final months of 2016 the United States, still the world's only superpower, will choose a president in an election that will shape U.S. foreign policy more than usual.

This is because of the stark differences between the approaches of the two candidates. Both agree that the United States should preserve its hegemony, but they disagree on how to go about it. One argues that the United States should play the role it inherited after World War II, one in which U.S. power is more effectively wielded through alliances, global trade linkages and selective interventions. The other argues for self-reliance over globalism, the idea that the United States and its allies should defend their own interests instead of unnecessarily handcuffing themselves to security umbrellas and global trade pacts.

Our purpose is not to predict the result of the election but to forecast how it could alter the behaviors of other states. For those accustomed to living under U.S. scrutiny, political distraction in Washington can create opportunities. North Korea, for example, has already accelerated its efforts to develop a nuclear weapon and delivery system, and in the next three months it will have a chance to try to complete the final phases of its test cycle without risking pre-emptive military action. Regional security concerns over North Korea, meanwhile, will bring Japan, China and South Korea into much more active dialogue, even as tensions escalate with Japan's increased involvement in the South China Sea dispute.

For others, like Russia, the remaining three months of the year will be spent setting up negotiations with the next U.S. president. With Barack Obama on his way out, leaders in Russia understand there is little chance of striking an 11th-hour bargain in Ukraine or in Syria.

But there is still plenty of work for Russia to do in both theaters. In Ukraine, Russia will incrementally work to de-escalate the conflict in the east while lobbying the Europeans to ease up on sanctions. Moscow will expect political concessions from Ukraine in return, but since Kiev is not under enough pressure to capitulate, talks will stall again.

In Syria, on the other hand, Russia will rely more on military tactics than diplomatic wrangling to strengthen its negotiating position. Since the beginning of the year, Russia has tried to show that it can be both a disruptive and cooperative force on the battlefield. But the limitations in enforcing a cease-fire have been exposed, and the United States will not be in the mood for creative bargaining in the final months of Obama's presidency. The United States will forge ahead with offensives against the Islamic State in Mosul and Raqqa, focusing its efforts on managing competing forces on the ground and maintaining at least a minimal level of cooperation with Russia to de-conflict the Syrian battlefield. Russia, meanwhile, will concentrate its efforts on reinforcing the loyalist offensive against Aleppo to improve its leverage on the battlefield and thus its negotiating position with the next U.S. president. As the United States reinforces Sunni rebels in Syria and deprioritizes its dialogue with Moscow, the potential for clashes will rise going into the fourth quarter. Complicating the situation is Turkey, which now has boots on the ground in Syria. As it pushes farther south, it will have to rely on U.S. protective cover to avoid colliding with Russia. But trouble between the United States and Russia means less insulation for the Turks.

Then there are Washington's restless allies, watching and waiting to see if they can continue to count on U.S. commitments to protect them from their stronger neighbors. With the Trans-Pacific Partnership on ice and with U.S. reliability in question overall, Southeast Asian partners like the Philippines and Vietnam will hedge their bets by cooperating with Beijing on economic issues, if only to ease tensions on security issues. European divisions will deepen as political factions throughout the Continent call for changes to the EU treaty to assert their national rights. Smaller groupings will band together more tightly, particularly the Visegrad Group and the Baltics, as they try to hold their ground against Russia and await clarity from the United States on its security commitments. At the same time, Gulf allies in the Middle East will take advantage of friction between the United States and Russia to reinforce their Sunni proxies in their regional competition with Iran.

But proxy wars need funding. Though they have taken incremental steps to cut government expenditures like public sector salaries, Saudi Arabia and its Gulf allies have spent the year waiting to see if the oil market would rebalance itself. Moving into the fourth quarter, however, the Saudis are monitoring the potential for additional oil to come online in Libya, Iraq, Nigeria and Kazakhstan. If Riyadh believes prices will decline further, it will consider cutting production to match pre-summer surge levels, using the opportunity to try to persuade others to agree to a production freeze. But even if its members do reach an agreement, OPEC still faces severe limitations in influencing the price of crude so long as U.S. producers are able to respond quickly to even modest price increases.

As for the rest of the world, poor economic conditions will make for messy politics this quarter. The global economy will remain in the quagmire it's been in for the past nine months as markets wait for a interest rate hike from the U.S. Federal Reserve, however modest it may be. Uncertainty around the U.S. election will forestall trade negotiations and possibly lead to currency fluctuations for countries that trade heavily with the United States, with Mexico in the spotlight.

An aversion to risk could also result in sell-offs of more precarious stocks, leaving already stressed banks even more exposed in a world of low, and in some cases negative, interest rates. As Japan's monetary authorities try to incrementally repair bank balance sheets through new and untested methods, Europe will be particularly skittish this quarter as political instability in Italy threatens to draw scrutiny on troubled banks throughout the eurozone. That's not to say the next U.S. president will have to deal with a global banking panic, but it is to say that whoever wins the election will have a hard time finding the political consensus needed to manage a more enduring and uncomfortable structural shift in the global economy.

section

Mar 19, 2017 | 19:22 GMT

9 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
  • Political and financial uncertainty in Italy will also have a ripple effect on banks elsewhere in the eurozone.
  • Elections in France and Germany will leave the European Union without leadership.
  • In the United Kingdom, preparations for negotiations to leave the European Union will continue.
  • Some of the strongest criticism of the European Union will come from Central and Eastern Europe, but they will keep their disagreements with Brussels within manageable levels.
  • The European Union will be unable to honor all the promises it made to Turkey.
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Italy

The perennial connection between political instability and economic fragility in Italy could once again make waves across the European Union. Italy will hold a referendum on constitutional reforms on Dec. 4. In the weeks leading up to the vote, the government in Rome is likely to announce increased public spending and lower taxes to improve its popularity. This will create frictions with Brussels but is unlikely to lead to punishment for Italy for missing its deficit reduction targets. The Italian government is also likely to criticize EU institutions and Germany over issues such as austerity in the eurozone and the bloc's lack of a coordinated response to the migration crisis.

Italian opposition parties will campaign against the constitutional reforms as a way to precipitate the resignation of Prime Minister Matteo Renzi. A rejection of the reforms would ignite a political crisis, but one that can be contained. Early elections will be avoided as most parties in the Italian Parliament want to prevent a new vote that could raise greater uncertainty at a time when the country's banking problems are far from over.

Nonetheless, any degree of political uncertainty surrounding the referendum could reignite market fears about the stability of Italian banks and the government's ability to introduce reforms. Several Italian banks, including Monte dei Paschi (Italy's third-largest lender), are trying to attract fresh capital and reduce their burden of nonperforming loans. A political crisis in Italy could make it more difficult for its banks to achieve these goals. Political and financial uncertainty in Italy could also have a ripple effect on banks elsewhere in the eurozone. Germany's Deutsche Bank, in particular, is under growing scrutiny amid doubts about its financial health and ongoing legal problems. Should Italy's political instability reach a point where it severely undermines market confidence in its banking sector, the vulnerabilities faced by Germany's own banking sector will drive Berlin and Rome toward a compromise on state aid for banks at the eurozone level.

While the spotlight remains on Italy in the southern Mediterranean belt, Greece is likely to reach an agreement with its creditors to receive the next tranche of its bailout program. Though Greece still faces a host of structural ailments, the economic assistance should bring some temporary stability.

France and Germany: Distracted by Elections

The largest political and economic players in the European Union, Germany and France, will be making preparations for their general elections in 2017. This will reduce the number of issues on which Berlin and Paris can find common ground and leave the bloc without cohesive political leadership, both during the quarter and beyond.

In France, the government of President Francois Hollande will be fighting for its political survival ahead of the first round of the presidential election in April 2017. The Elysee is likely to announce lower taxes and higher public spending in a bid to improve its popularity, but these actions will have a negligible effect on the government's approval ratings. More important, the ruling Socialist Party will be internally divided, which will limit the government's ability to pass meaningful legislation. As the election date gets closer, the right-wing National Front will base its strategy on criticism of the European Union and the Socialist government and will promise to improve France's security. The center-right Republican Party will be divided over issues ranging from France's role in the European Union to strategies on how to integrate minorities. Overall, both parties will be competing for a conservative and Euroskeptic-leaning electorate.

In the lead-up to German elections in late 2017, members of the center-right/center-left "grand coalition" will work to differentiate their policy positions. As political polarization increases within the German government and as national interests are asserted across the European Union, Germany will not be in a position to present grand plans for EU integration.

Migration and security will heavily influence the political agenda in Germany because of concerns over immigration and terrorism, and the government in Berlin will face internal pressure (from the opposition but also from some factions within the coalition) to introduce both tougher policies on migrants and additional counterterrorism measures. Germany will push EU-wide policies to increase cooperation in defense and security, but such broader integration efforts will remain mostly in the rhetorical phase. Germany will also remain interested in keeping the migration agreement with Turkey alive in order to temper the migrant flow to the Continent. Berlin will criticize Ankara over its crackdown on its opposition, but it will still keep communication channels open to prevent the agreement from collapsing.

Brexit and Beyond

In the United Kingdom, preparations for negotiations to leave the European Union will continue, and the British government will hold informal conversations with the main political forces in the Continent ahead of formal negotiations to trigger the Brexit process early next year. The government in London will slowly give shape to a negotiation strategy based on an ad hoc agreement with the European Union that tries to preserve as much access to the EU internal market as possible while limiting migration by the bloc's workers. The financial sector will meanwhile pressure the British government to protect the country's "passporting rights" — which allow financial institutions operating in the United Kingdom to sell their services to the rest of the union — because companies are already expressing interest in relocating elsewhere in Europe. Growing nationalist sentiment ahead of elections in France, meanwhile, will drive Paris to maintain a hard line on Brexit concessions, creating more uncertainty and downward pressure on the British pound. The debate in the United Kingdom will be fraught with administrative complications and disputes within the government of Prime Minister Theresa May, as some members defend a substantial severing of ties with the bloc (the so-called hard Brexit) while others want to reach compromises. The British economy will emit mixed signals, and companies and households will delay some investment and spending decisions until they have a clearer picture of what the United Kingdom's negotiation with the European Union will look like.

EU: Regional Blocs

Some of the strongest criticism of the European Union will come from Central and Eastern Europe, as political forces both in government and in the opposition demand a repatriation of powers back to national governments. None of these countries, however, are ready to leave the union, and they will keep their disagreements with Brussels within manageable levels.

In Poland, the confrontation between the government and EU institutions will continue, but the European Union will not introduce any meaningful sanctions against Warsaw. In Hungary, in spite of the result of the Oct. 2 referendum in which voters rejected the prospect of European Union-dictated refugee resettlement, the government will continue to attack the bloc and question the authority of the European Commission. Despite their constant criticism of EU institutions, Poland and Hungary still see their membership in the bloc and NATO as key pillars of their foreign policy. This means that neither Warsaw nor Budapest will do anything to seriously endanger their relationships with either entity.

Austria will hold a runoff presidential election on Dec. 4. In the weeks leading up to the vote, the moderate government in Vienna will attack the EU agreement with Turkey, demand greater control of the bloc's external borders and keep its own border controls in place to deter an influx of migrants. More important, Austria could seek cooperation with other countries in the region (such as the Visegrad Group) to push for more decentralization of power in the European Union. The election will show popular discontent both with Austria's mainstream parties and with the bloc, as the candidate from the far-right Freedom Party is likely to perform well.

Romania will be an outlier in the region because its mainstream political parties will probably dominate general elections on Dec. 11. Though these parties differ on domestic issues, they are supportive of Romania's membership in the European Union and in NATO, so no significant changes in Romania's foreign policy should be expected after the vote.

Divided EU Foreign Policies

The European Union will remain interested in preserving its migration agreement with Turkey, but the political situation in Europe will make it impossible for the bloc to honor all of its commitments to Ankara. In the current political environment, the bloc probably will not grant visa liberalization to Turkish citizens by the October deadline agreed to by both parties. But because interest in working with Turkey remains, the bloc is likely to delay, rather than reject, the visa deal. Less controversial promises, such as continuing negotiations over Turkey's EU accession or providing Turkey with funds to assist refugees, are more likely to be honored, at least partially. In the meantime, the European Union will probably allow countries along the Balkan migration route to keep their borders closed to discourage migrants from trying to reach the bloc. The EU debate will also move in the direction of providing more financial assistance to countries in Africa and the Middle East to incentivize governments there to do more to prevent people from emigrating.

During the quarter, the European Union will debate its policy on Russia. Once again, this will highlight internal divisions over the bloc's policy on Moscow, especially when it comes to sanctions related to the crisis in Ukraine. Sanctions will remain in place this quarter, but sanctions fatigue and heavy Russian lobbying in Europe will drive vigorous debate on how to approach the Russian sanctions vote early next year and whether to consider partial easing in exchange for progress on the Minsk Protocol.

The Balkans is another European theater that will attract the attention of Russia and the West this quarter. Following a controversial referendum in Republika Srpska that challenged the Bosnian constitutional court, preparations for further moves by Bosnian Serbs to assert their autonomy at the expense of federal institutions will create tensions among the country's ethnic groups. This will remain a low-intensity conflict for now, but Moscow's defense of the Serbian position and the potential for ethnic frictions provides Russia with another arena to mediate in its negotiations with the Europeans and Americans.

Finally, a combination of political fragmentation, electoral calculations and anti-free trade sentiment in many member states will continue to hamper ongoing EU negotiations over free trade agreements. Little progress is expected this quarter on negotiations with the South American customs union, Mercosur, and the Transatlantic Trade and Investment Partnership deal with the United States will remain gridlocked through the end of the year.

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Mar 19, 2017 | 19:39 GMT

7 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
  • Moscow's strategy in Ukraine and Syria is putting Russia on a path toward escalation with the United States.
  • Budget negotiations will compound the struggles between Russian security services, big businesses, elites and even President Vladimir Putin.
  • Central Asia will grapple with several problems, including political instability, social unrest and militancy.
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Echoes of the Cold War

In the fourth quarter, three main factors will influence the standoff between Russia and the West: the waning days of U.S. President Barack Obama's administration, the European Union's upcoming vote on Russian sanctions and the economic stress driving budget battles in the Kremlin. Russia had intended to use the last part of the year to leverage its influence in the Syrian and Ukrainian theaters and drive toward a compromise with the United States and Europe that would ease sanctions pressure and build momentum for negotiations with the next U.S. president. Moscow’s limitations in Syria, however, are severely derailing this strategy, putting Russia back on a path toward escalation with the United States.

Though the United States is stepping back from negotiations with Russia over Syria, it will maintain a tactical dialogue with Moscow to deconflict the battlefield and mitigate the potential for outright clashes. If it wants to, Russia can still complicate the U.S. fight against the Islamic State and escalate the conflict in Aleppo. Moscow also has leverage outside of Syria, including the option of threatening to withdraw from nuclear disarmament agreements, to try to coerce Washington back to the negotiating table. 

In Ukraine, on the other hand, Russia will have more room to de-escalate during this quarter in hopes of bending European resolve on sanctions. Russia will try to curb cease-fire violations by the separatists but will stop short of a full military withdrawal from the battleground in eastern Ukraine. Moscow will instead demonstrate a degree of tactical compromise while standing firm on strategic issues such as control of its border with the separatist territories. More hawkish elements within the Kremlin will resist any substantial concessions in Ukraine, much as Kiev will refrain from making major political concessions to the separatist territories.

Moscow will also take advantage of EU disunity to try to get relief from sanctions, appealing to countries more open to easing the measures, such as Italy, Greece, Hungary, Slovakia and Cyprus. The United States, however, will continue to pressure EU members to continue sanctions until Russia has taken more steps toward implementing the Minsk accords. The United States will also try to use Russia's actions in Syria to maintain a European commitment to sanctions for the time being. Germany, which is keen on keeping relations calm with Russia, will be key in steering the bloc's debate over whether sanctions should be partially lifted or extended, though a formal decision is likely to be postponed until early next year.

Russia's Internal Struggle

Meanwhile, Russia will have various internal crises to contend with in the fourth quarter. In October, the Russian government must finalize this year's budget, and by the end of the year, it will have to come up with a budget for 2017 as well. Discussions over the budget will be highly contentious in and beyond the Kremlin, inspiring disagreements that will compound the struggles between Russian security services, big businesses, elites and President Vladimir Putin. With the parliamentary elections out of the way, Putin is likely to start heavily restructuring or reshuffling the Russian government to secure his power ahead of the 2018 presidential election.

Though the country's economy has shown modest signs of recovery, the government still has a $36 billion shortfall to fill before the end of the year or else it will well exceed its 3.5 percent budget deficit limit. The Kremlin has options for filling its budget gap, but each has its drawbacks. It could, for instance, drain the $32 billion Reserve Fund and part of the $72 billion Russian National Wealth Fund, but this would leave the government little cushion for next year. In addition, since the National Wealth Fund is intended to support pensions, drawing from it to cover unrelated costs could spur protests. By finally privatizing two of Russia's largest oil companies, Rosneft and Bashneft, the government could raise about half the funds it needs to cover its shortfall. The Kremlin will take another stab at doing so this quarter, despite the political battle that the companies' sale will incite among Russia's elites. Otherwise, the government could cut spending again — particularly in the military and security services budgets — but this, too, could spark a political firestorm.

As the Kremlin hashes over its budget, the Russian people will keep suffering the effects of the recession. Already, much of the population has withstood salary cuts and layoffs, and many Russians expect their economic situation to worsen in the next year, despite the slight improvements in the economy. As a result, protests will continue across the country in the fourth quarter, but the Kremlin will use its new anti-terrorism laws and National Guard to crack down on the demonstrations and prevent protesters from forming an organized movement.

Moscow Looks to the East

In the fourth quarter, Russia will attempt to move forward with the privatization of Rosneft, courting Chinese, Japanese and Indian firms for the $11.4 billion transaction. Putin will also head to Japan in December for a summit with Prime Minister Shinzo Abe. Though both leaders are interested in increasing trade and ties between their countries, Putin is not yet ready to strike a full peace treaty, including a plan for the disputed Kuril Islands, considering Russia's current nationalist drive to maintain territorial integrity.

Instability in Central Asia

Just as Russia will contend with major economic and political challenges in the fourth quarter, so will several other countries in the former Soviet space. Central Asia in particular will grapple with numerous problems, including political instability, social unrest and militancy.

Uzbekistan is in the midst of its first political succession as an independent state following the death of longtime leader Islam Karimov in September. The country will hold a presidential election on Dec. 4, after which acting head of state Shavkat Mirziyoyev will likely be officially installed as Uzbekistan's leader. In terms of foreign policy, Mirziyoyev is likely to continue Karimov’s isolationist and nonaligned foreign policy, at least in the near term. Domestically, the new president will face the challenge of balancing the interests of Uzbekistan's competing clans and preventing protests and militancy in a time of transition.

Meanwhile, Kazakhstan will experience fallout from the political reshuffle it carried out in the third quarter, making the country vulnerable to protests and militant attacks. The government will focus on tightening security measures and formulating a succession plan for its long-standing leader, Nursultan Nazarbayev (who, like Karimov, has been in power since the Soviet era). Despite its political and security worries, however, Kazakhstan will likely see a bit of economic relief this quarter when the long-awaited Kashagan oil project comes online. Though the wildly expensive project will not pay off in earnest for more than a decade, it will generate revenue from taxes and transit fees in the meantime.

In the next quarter, protests or militant attacks could also take place in Kyrgyzstan and Tajikistan. To counter militancy in the region and potential spillover from northern Afghanistan, Russia, China and the United States will continue to pursue their respective — and, at times, competitive — security cooperation and counterterrorism training efforts throughout Central Asia.

The Fight for Russia’s Borderlands

But political instability will not be confined to Russia and Central Asia. On the heels of its own third-quarter reshuffle, Armenia will also endure protests against the government. At the same time, skirmishes between Armenia and Azerbaijan will persist in Nagorno-Karabakh, though another major escalation in violence is unlikely. Russia will continue to mediate political negotiations between Yerevan and Baku, but Armenia's economic and political crises at home will impede any significant progress toward a settlement in the disputed territory. Georgia held parliamentary elections on Oct. 8, and though the results are not yet final, the country will remain in the West's camp regardless of the outcome.

In Eastern Europe, too, political tension will rise in the fourth quarter. Political infighting over reforms will divide the Ukrainian government, and a Cabinet reshuffle cannot be ruled out. On Oct. 30, Moldova will hold its first direct presidential election in 20 years, a contest that could serve as a flashpoint between pro-Russian and pro-Western forces in the country. No matter who wins the race, protests can be expected to erupt, potentially plunging Moldova back into political crisis.

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Mar 19, 2017 | 19:53 GMT

11 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 interests of forces fighting in Syria and their foreign backers will diverge even more noticeably in the fourth quarter.
  • Turkey's incursion into Syria  will force it to maintain a working relationship with the other military powers operating in the area -- namely, the United States and Russia.
  • Iraq will begin trying to recapture Mosul from the Islamic State.
  • Iran will prepare to hold its presidential election in the first half of 2017 -- a race that the United States' upcoming November vote will factor heavily into.
  • OPEC leaders in the Gulf will begin to negotiate supply cuts.
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The Syrian Civil War

The interests of forces fighting in Syria and their foreign backers will diverge even more noticeably in the fourth quarter. Even as Washington pulls back from negotiations with Russia on the strategic level, the United States needs to maintain open lines of communication with Russia and close military coordination with Turkey to avoid major incidents on the Syrian battlefield that could distract it from its operations against the Islamic State. Russia will nonetheless work to demonstrate to the United States the cost of downgrading its talks with Moscow by escalating its military support for the loyalists and trying to interfere with U.S. and Turkish operations. Ankara, as it pushes deeper into northern Syria to block Kurdish fighters' territorial expansion, will work more closely with Moscow this quarter in hopes of avoiding clashes with Russian-backed forces. The Gulf Cooperation Council (GCC), led by Saudi Arabia, will reinforce Syria's Sunni rebels all the while, taking advantage of a deterioration in U.S.-Russian ties. For the fighters on the ground, the consequences of meddling by foreign powers with competing agendas will reinforce their mistrust in internationally mediated peace talks, compromising periodic attempts to establish cease-fires and dragging out the conflict even more.

Aleppo province will continue to be the central focus of the conflict. Loyalist troops will do their best to drive the Syrian rebels out of Aleppo city, while the rebels will concentrate their efforts on breaking the siege. Should the rebels fail, allowing the siege to remain firmly in place, the loyalists would be free to direct some attention toward the Islamic State-held city of al-Bab — a target of significant interest to all sides this quarter. To the north, Turkish-backed rebels will advance toward al-Bab despite stiff resistance from the Islamic State, stopping short of the loyalists' front lines. Their advance will block the Kurdish People's Protection Units from moving closer to the city. Meanwhile, Washington will try to redirect the Syrian Democratic Forces' attention from al-Bab to Raqqa. Of course, Aleppo will not be the only territory up for grabs this quarter; Hama province will also be the site of extensive military action as the year winds down. Loyalist troops in the area will do what they can to thwart rebels' plans to seize Hama city and the vital lines of communication around it.

Turkey's Resurgence

Turkey's incursion into Syria and toward al-Bab will force it to maintain a working relationship with the other military powers operating in the area — namely, the United States and Russia. Ankara will not receive international endorsement for its plans to establish a safe zone on its border with Syria, but that will not stop it from pursuing one. Turkey will make use of its own minimal troops and its Free Syrian Army allies to begin carving out a security perimeter and building temporary housing for refugees in the border region.

Though Turkey and Russia will be cautious in their dealings with each other on the Syrian battlefield, they will cooperate more comfortably in the economic realm. Commercial flights between the two countries will pick up, as will trade, which will gradually increase throughout the end of 2016. Turkey will highlight the merits of the TurkStream pipeline project, angling for more favorable prices in its natural gas contracts with Russia.

In the wake of Turkey's failed coup, Ankara has sped up its timetable for cracking down on Kurdish militants and their political affiliates in the name of national security. When the Turkish parliament reconvenes in October, the ruling party will likely sideline the pro-Kurd People's Democratic Party (HDP) as lawmakers prepare to debate a raft of proposed constitutional amendments aimed at eroding the military's political power. (Some compromise can be expected in amendments regarding the judiciary, but the legislature will avoid shifting to a presidential system of governance for now.) Faced with mounting political oppression, the HDP will try to revive peace talks between the Turkish government and the Kurdistan Workers' Party (PKK), offering Ankara an opportunity to mitigate the European Union's concerns about human rights abuses in Turkey. The ruling party, however, will engage only superficially in dialogue to improve its image abroad and boost its standing in negotiations with Brussels. It will not substantially alter its policy of cracking down on the Kurds, nor are Kurdish militant groups likely to lay down their arms as a precondition to the talks.

In the meantime, Turkey's negotiations with Europe will carry on, despite the fact that their migration deal is coming under increasing strain. Brussels will keep chastising Turkey for ignoring human rights, just as Ankara will keep complaining about the bloc dragging its feet on liberalizing visas for Turkish citizens. Because Turkey will refuse to reform its counterterrorism laws, as Europe has demanded, the Continental bloc will stretch its debate over liberalizing Turkish visas into 2017. The European Union will continue to offer Turkey money in exchange for relieving the Continent's migrant burden, even as Ankara continues to grumble about how those funds are delivered.

The Battle for Mosul

To the south, Iraq will begin trying to recapture Mosul from the Islamic State in earnest toward the end of the year. And as in Syria, foreign powers with a stake in the conflict will shape how it unfolds. Turkey, Iran and the United States are all aware that any country with forces in the fray will have the ability to influence the political and economic future of Mosul once it is wrested from the Islamic State. To that end, each will be sure to have troops embedded within Iraqi units, playing an advisory role. Iran will work closely with the Shiite Popular Mobilization Units and Iraqi security forces, while Turkey will lend its support to the Sunni Hashd Watani group and the Kurdish peshmerga. The U.S.-led coalition against the Islamic State will funnel its aid to the Iraqi military, which — with the help of the Popular Mobilization Units and Western firepower — will advance on Mosul from the south and southwest. Once within striking range of the city, Iraqi forces will begin a concerted assault on Mosul proper. As the Islamic State struggles to hold its ground against the attacks on Mosul and Raqqa, its calls for its followers to conduct terrorist attacks abroad will grow louder in an effort to demonstrate the group's continued relevance.

The Mosul operation will force Baghdad and Iraq's Kurdistan Regional Government (KRG) to temporarily set aside their differences. But as the quarter progresses, efforts to clear the Islamic State will renew territorial disputes along the edges of Iraqi Kurdistan. Interference in the KRG's decision-making by Turkey and Iran will destabilize the region even more. As Ankara tries to insert itself in the Mosul offensive against Baghdad's — and by extension, Iran's — wishes, it will rely more heavily on its relationship with the KRG's ruling party. Tehran will look for deeper inroads into the KRG as well as it works to contain the growing threat of Kurdish insurgencies within its own borders.

Iran's Arc of Influence

Meanwhile, the Islamic republic will prepare to hold its presidential election in the first half of 2017 — a race that the United States' upcoming November vote will factor heavily into. The United States' policies toward Iran will not change much during the fourth quarter, but Tehran's hard-line conservatives will point to the political rhetoric of U.S. candidates — particularly regarding Iran's nuclear deal with the West and threats of renewed sanctions — to undermine President Hassan Rouhani's more moderate camp. The Islamic Revolutionary Guard Corps will use missile launches, military operations and drills in the Strait of Hormuz to remind Iranian politicians across the ideological spectrum of its clout as the competition for the presidency heats up.

As Iran's factions try to discredit one another with scandals and attack campaigns, an important item to watch will be the degree of economic reform and re-engagement with foreign investors that takes place under Rouhani's administration. Iranian hard-liners will seek to protect their own interests in the face of external competition as Tehran takes concrete steps to open up its energy sector in the fourth quarter. Iran plans to hold oil and natural gas tenders under its new investment framework as early as October, though any deals it reaches with foreign investors will not be finalized until late in the year, at the earliest. In the meantime, Iran will continue to court domestic financiers for funding.

Broken Contracts in the Middle East

During the first two months of the quarter, the OPEC members of the Gulf Cooperation Council (GCC) — Saudi Arabia, Kuwait, Qatar and the United Arab Emirates — will continue negotiating with other OPEC members on how to organize a supply cut for the group in the lead-up to OPEC's next meeting on Nov. 30 in Vienna. Iran, Libya and Nigeria will not be subject to cuts, and as exports from Libya and Nigeria return, they will add more pressure to the dispute between Iran and Saudi Arabia over who should shoulder cutting production and at what level Iran should freeze its production. Regardless of whether they reach an agreement, Saudi Arabia and the other GCC members will not attempt to jeopardize the recovery in oil markets. Instead, OPEC's members are moving toward a de facto freeze in production. With or without an agreement that reduces OPEC's overall production, Saudi Arabia will likely slowly pull back from its summer highs, when it used extra production to feed domestic power generation.

Iran's impending re-entry into the global energy market will doubtless be on the GCC’s mind as its members review their 2016 budgets and draft new ones for the coming year. Of the Gulf states, Saudi Arabia, Oman and Bahrain are experiencing the greatest financial stress, though Riyadh will probably manage to trim back its budget deficit as the year ends. Saudi Arabia will continue to introduce incremental economic reforms, unveiling the next phase of Saudization in December as it revises its labor laws amid growing demand for employment among Saudi youths. Riyadh, along with its fellow GCC members, is searching for ways to reduce its spending, in part by consolidating government ministries. Saudi Arabia will also issue upward of $10 billion in government bonds during the fourth quarter to replenish its coffers.

Economic strain will not be the only source of tension among GCC countries. Yemen's drawn-out war will put relationships within the bloc to the test as the country continues to fragment. An attempt to relocate Yemeni institutions to Aden will bolster southern separatists, driving a wedge between Saudi Arabia and the United Arab Emirates. (Abu Dhabi is more comfortable than Riyadh with the idea of a partitioned Yemeni state.) Saudi Arabia will be reluctant to make concessions to Yemen's Houthi rebels, who in turn will refuse to relinquish their weapons and territory, preventing any real headway from being made in the country's ongoing peace talks.

The Libyan Civil War

To the west, another bloody and protracted conflict shows few signs of nearing a resolution. During the third quarter, Libyan Field Marshal Khalifa Hifter made strides in securing oil export terminals in the east, strengthening his position — and that of the House of Representatives — in talks with the Government of National Accord (GNA). Negotiations between the two will last through the end of the year, making some progress in unifying the rival governments' institutions. That said, the talks will fall short of creating a single, cohesive government. The fragility of the peace process will likely ensure that sporadic clashes between militias supporting either side occur throughout the fourth quarter. And as the Misratan militias fighting alongside the GNA wrap up their operations against the Islamic State forces in Sirte, the jihadist group will undoubtedly respond to its losses by launching more terrorist attacks against Libyan cities.

Oil fields in central Libya could continue to increase their output this quarter, though the Tripoli-based national oil company's expectation of ramping up production to a million barrels per day is overly optimistic. Clashes between rival militias, or the flight of Islamic State fighters from Sirte, could lead to attacks on the country's oil and natural gas infrastructure and volatility in Libyan energy exports.

Egypt's Uphill Battle

A busy economic quarter lies ahead for Egypt as it fortifies its defenses against Islamic State militants fleeing from Libya. Cairo, already in the final stages of securing the largest tranche of International Monetary Fund aid in the Middle East's history, will be working to garner additional funds from the World Bank, GCC and China. Egypt plans to use the money to scale back its costly subsidy scheme in 2017. Public opposition to the impending austerity measures will rise during the fourth quarter but will remain at tolerable levels as the government focuses on recovering its financial footing.

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Mar 19, 2017 | 20:07 GMT

9 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
  • China will continue asserting its claims in the South China Sea.
  • Washington's indecision over the Trans-Pacific Partnership will create doubt about long-term U.S. interests in the region.
  • Beijing's main concern throughout the quarter will be its economy, which will continue to slow over the next three months.
  • the main focus of Japanese politics this quarter will not be the legislative agenda but the debates within the Shinzo Abe administration over the future of Abenomics.
  • In Southeast Asia, the expected U.S. interest rate hike will pressure some countries' economies.
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Asia-Pacific: Among Great Powers

In a July 12 ruling, the U.N.-backed Permanent Court of Arbitration rejected China's historical claims to the South China Sea encompassed by the so-called nine-dash line. The decision had a major effect on China and other claimant countries in the South China Sea. The claimants continued to shore up their positions but were still relatively conciliatory. While continuing to engage bilaterally with Beijing, they are working toward a binding code of conduct between China and the Association of Southeast Asian Nations (ASEAN), which they hope to complete by mid-2017. China, with its advanced (by regional standards) coast guard and fishery vessels, will continue asserting its claims to the sea.

The Philippines, looking to adopt a more balanced, less heavily pro-U.S. foreign policy, will engage with China barring Chinese island building in the Scarborough Shoal — an unlikely scenario for the next quarter. Indonesia, on the other hand, is taking a hard line against illegal fishing around Natuna Island, which could lead to conflicts in the area. Meanwhile, South China Sea claimant countries, in search of defense, security and economic cooperation in their territorial disputes with China, will welcome Japan's deepened involvement with ASEAN. Japan's participation in joint drills with the United States will elicit a response from Beijing, likely trade spats and increased intrusions in disputed areas of the East China Sea. Beijing could also use Japan's increased activity in the South China Sea to impose an air defense identification zone in the sea, though doing so would only harden the resolve of other claimants in the area to seek security backing from Japan and the United States.

While tensions between China and Japan rise over Japan's expanding presence in the South China Sea, the two countries will make a good faith effort to improve communication at a trilateral China-Japan-South Korea leaders' summit in Tokyo sometime in November or December. Little of practical consequence, however, will emerge from the meeting. For now, the significance of the summit rests in its taking place at all: Territorial rows led China and Japan to shelve the forum in 2012, reviving it only last November. Concerns over North Korea's accelerating nuclear program are driving China, Japan and South Korea to work together temporarily. China and Japan may consider discussing natural gas exploration in the East China Sea in a bid to use economic incentives to manage tensions between them.

Southeast Asian claimants may also move toward some bilateral or trilateral arrangements in areas of maritime drug-trafficking prevention, disaster relief and joint fishing patrols to tighten security coordination. Vietnam and the Philippines, given their own disputes over the Spratly Islands, will prioritize cooperation in other areas rather than in the South China Sea. Indonesia may try to be more cooperative in the South China Sea, taking advantage of its neutrality and leadership in ASEAN.

Globalization

With key U.S. congressional leaders publicly ambivalent about the Trans-Pacific Partnership (TPP), the chances the Obama administration will secure congressional approval of the pact before the Nov. 8 U.S. presidential election look increasingly slim. Obama's final opportunity to secure the TPP's approval will occur during Congress' lame-duck session, set to take place sometime between mid-November and early January 2017. No matter who wins the presidential election, getting the deal ratified in the United States during the next quarter will be an uphill battle.

U.S. indecision will create doubt about the pact among its key signatories in the short term — and about U.S. standing and interests in the Asia-Pacific region in the long term. Uncertainty could compel signatories such as Vietnam and Malaysia to delay domestic reforms for which TPP entry had provided an impetus during the quarter. It could also push TPP signatories to take a closer look at the Regional Comprehensive Economic Partnership trade proposal, touted as China's answer to the TPP. Beijing could use uncertainty over the TPP and Washington's regional reputation to promote its own trade agreement or other forms of bilateral cooperation with prospective TPP members. Japan would find a U.S. failure to ratify TPP in 2016 particularly unnerving. Tokyo has stressed the strategic (as opposed to the strictly economic) dimensions of the deal — especially as it relates to a rising China.

Even if Congress does not pass the TPP this year, open defections by signatories are unlikely. Nonetheless, signatories such as Vietnam, Malaysia and Japan may take actions that reveal the damage that U.S. foot-dragging on the deal has done to perceptions of Washington's regional position.

China in Transition

Beijing's main concern throughout the quarter will be its economy, which will continue to slow over the next three months. Most major indicators — such as imports and exports, industrial production, and energy and electricity consumption — will reflect the country's declining economic vitality and mounting internal stresses, even as the government relies on spending and monetary tools to ensure a base level of economic stability.

Below the surface image of an economy that is weakening but fundamentally stable, however, important changes will be underway in China's financial system this quarter. The likely expansion of a nascent corporate debt-to-equity swap initiative portends the start of a shift away from the state-backed credit- and investment-led model of finance that has long held sway in China, especially in the state-owned sector. The program's impact at the national level during the quarter will only begin to be felt but will include lower state investment in construction-related industries. Along with the expansion of a corporate bankruptcy legal infrastructure, these measures mark potentially important — if still untested — steps in China's march toward economic "rebalancing." Beijing will spend much of the quarter troubleshooting these measures, which should become far more significant in scope in 2017 and beyond.

These changes will take place against a backdrop of political struggle among China's political elite. President Xi Jinping's anti-corruption campaign and push to concentrate his grip on key Party and state institutions will continue apace this quarter. Xi will largely succeed in the latter effort as he places more allies in key provincial, ministerial and military posts. With the 2017 Party Congress approaching, any overt moves to oppose or otherwise hinder Xi will likely come to the fore this or next quarter, if they emerge at all.

A Japanese Awakening

Ratification of the TPP may top the agenda of Japan's extraordinary parliamentary session, which began Sept. 26 and is set to run 66 days. But the main focus of Japanese politics this quarter will not be the legislative agenda — so far, labor and other structural reforms do not appear to be on the Diet's docket, nor does constitutional reform — but rather debates within the Shinzo Abe administration over the future of Abenomics. Attention will focus on the Bank of Japan's efforts to implement a new monetary policy framework.

Instead of targeting a set amount of Japanese government bond purchases, the Bank of Japan will focus on targeting long-term yields of Japanese government debt. As Tokyo assesses the new framework, inflation will likely remain low (thanks in large part to low energy prices), meaning further easing is possible without increasing outright Japanese government bond purchases. Though major changes to the Bank of Japan's bond purchasing program are unlikely within the quarter, the coming months could see Abe and other leaders lay the groundwork for bolder changes to the country's monetary policy in 2017. A desire to make real headway on growth while the ruling Liberal Democratic Party remains united behind Abe (who is set to step down as prime minister in 2018) could lend urgency to these efforts within the quarter.

Southeast Asia: Burdened by Consensus

In Southeast Asia, the expected U.S. interest rate hike will pressure some countries' economies, particularly Malaysia and Indonesia, both of which rely heavily on foreign lending. The restructuring of China's economy and sluggish external demand will also continue to weigh on economies in the region that depend on exports, some of which will also face growing domestic political pressure.

In Malaysia, the ruling United Malays National Organisation party and Prime Minister Najib Razak continue to face serious corruption allegations and opposition pressure, including anti-government protests set for mid-November. Additional short-term financial volatility would make things worse for them. Still, the opposition will not be able to oust Najib in the immediate future, even though speculation that snap elections may be called for early 2017 will begin to unite it.

In South Korea, the fallout from the bankruptcy of Hanjin, the country's largest container carrier, in the third quarter illustrated just how much the country's economy is struggling. Meanwhile, South Korean President Park Geun Hye's administration is being grilled over corruption scandals and questions about the ability of the president to guarantee national security in the face of North Korea's accelerated nuclearization process. With the general election slated for December 2017 in mind, her opponents within and without her party could try to block some of the government's agenda in the short term, including economic restructuring, personnel appointments and foreign relations.

Thailand's floundering economy is also vulnerable. The junta's tight grip, however, will thwart any serious attempts by the political opposition to capitalize on economic discontent or instability stemming from potential wild cards such as the passing of the ailing Thai king. With cross-party support, Indonesian President Joko "Jokowi" Widodo has largely secured his position and is situated to weather any immediate political fallout from economic turbulence.

Duterte the Destroyer

Philippine President Rodrigo Duterte has opened up power struggles on multiple domestic fronts, but strong public and congressional support, and sufficient military support, will enable him to pursue an ambitious agenda this quarter. The benefits of stability, however, will be offset by the doubt created by his contentious policies and brash rhetoric, which are deterring foreign investment and raising the risk of long-term public blowback. Duterte will use uncertainty about his government's strategic intentions to its advantage on foreign policy matters, playing outside powers such as China, Japan and the United States off one another and gaining greater flexibility in its partnerships. But despite Duterte's anti-Western rhetoric, Manila's need to sustain its alliance with Washington and retain the political support of the Philippine military will prevent any major downgrade in relations with the United States.

section

Mar 19, 2017 | 20:53 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 dispute between Venezuela's government and political opposition over a proposed presidential recall referendum will be the major driver of events in the quarter. 
  • Mexico will have to contend with increased political and economic uncertainty in the fourth quarter.
  • During the fourth quarter, Colombia's government will begin to lay the groundwork for negotiations over a new peace agreement.
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Venezuela's Unraveling

The dispute between Venezuela's government and political opposition over a proposed presidential recall referendum will be the major driver of events in the quarter. The opposition coalition Democratic Unity Roundtable (MUD) will attempt to collect the signatures of 20 percent of the country's registered voters in its push for a referendum to occur before the end of the year. The opposition faces an uphill battle in this effort, since the ruling party controls most of the political and security institutions in the country and can continue to set high barriers to holding the vote. But the MUD's leadership will push for the referendum anyway because the coalition needs to maintain enough unity and momentum ahead of regional elections and the 2019 presidential vote.

The MUD's efforts alone will not be enough to force a recall referendum in 2016. Though the ruling United Socialist Party of Venezuela (PSUV) is divided, key stakeholders appear to be united for now in their effort to prevent a referendum from proceeding. A much larger and sustained wave of economically motivated unrest — one that coalesces with the referendum push — would be needed to sway dissident PSUV factions toward holding the recall vote.

Low oil prices will continue to strain the finances of Venezuelan state energy firm Petroleos de Venezuela (PDVSA) — the government's main source of income. The company and the central government, however, will most likely be able to meet the remaining $5 billion in foreign debt payments due later in the year, albeit at the cost of further constricting imports of staple goods.

The Importance of Mexico

Mexico will have to contend with increased political and economic uncertainty in the fourth quarter, exacerbated by a yearlong trend of slower-than-usual economic growth. A core source of this uncertainty is the U.S. presidential election. In the immediate future, a Republican win in November could spur some capital flight from Mexico and further weaken the peso, which has fallen in value relative to the dollar by around 30 percent over the past two years. But the election's biggest impacts on Mexico will not be felt until inauguration in January. In light of the recent political rhetoric about a potential U.S. withdrawal from the North American Free Trade Agreement, Mexico will spend the coming months focused on lobbying Washington to gauge to what degree the new U.S. administration will be looking to reshape trade policy with its southern neighbor.

Colombian Peace Process

During the fourth quarter, Colombia's government will begin to lay the groundwork for negotiations over a new peace agreement with the Revolutionary Armed Forces of Colombia (FARC). Since voters struck down the original peace deal on Oct. 2, the government will be forced to negotiate not only with the FARC but also with the opposition party Democratic Center, which is the main source of opposition to the peace agreement. The most likely points of contention between all three sides will likely be transitional justice mechanisms that serve as substitutes for prison time, as well as political participation for the FARC. Allowing the Democratic Center to take part in the negotiations over the shape of a new peace deal will carry some risks. Now that the opposition party has the tacit backing of those who voted down the original deal in the plebiscite, it may feel empowered to make demands of the FARC that would likely lead to gridlock in the negotiations, costing the government valuable time in which a deal could be hammered out.

The FARC's internal unity will be a decisive factor that will determine the eventual success or failure of the new negotiations. Some factions of the militant group have already split off, and if defections continue, it will severely undermine the government's rationale for holding negotiations with the rebels. With the FARC talks effectively on hold, it is unlikely that significant progress will be made toward opening talks with the smaller National Liberation Army (ELN).

Brazil and Argentina

With the long impeachment saga of former President Dilma Rousseff finally settled, the new Brazilian government will move quickly to push its legislative agenda, taking advantage of the narrow window it will hold power before the 2018 presidential election. In the fourth quarter, the government will focus primarily on implementing fiscal and economic reforms intended to reduce public spending and improve the country's economic outlook in the coming years, mainly a cap on future spending. The government may also propose a controversial pension reform — intended to ease the heavy budgetary burden of the country's pension system — but this particular reform will be shelved until next year. 

Argentina's government will focus primarily on boosting the economy's attractiveness to investors and attempting to implement natural gas price hikes, a key part of its fiscal adjustment measures. The measures, which were previously delayed in July, are an essential part of raising government revenue and making the country's energy deposits economically viable over the long term.

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Mar 19, 2017 | 21:03 GMT

5 mins 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
  • Indian Prime Minister Narendra Modi's efforts to win 2017 elections in Uttar Pradesh -- India's most populous state and therefore most important electoral state -- will be the center of gravity in South Asia this quarter.
  • To win those elections, Modi will continue to criticize Pakistan, specifically over unrest in Kashmir.
  • Afghanistan's chief executive is unlikely to become the prime minister as outlined in the agreement that formed the unity government to begin with.
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India's Own Worst Enemy

Indian Prime Minister Narendra Modi's efforts to win 2017 elections in Uttar Pradesh — India's most populous state and therefore most important electoral state — will be the center of gravity in South Asia this quarter. Modi needs to win in Uttar Pradesh to increase his party's representation in the upper house of parliament, which will then help him pass legislation on land, labor and tax reform. His chances of winning another term in 2019 may also depend on these reforms, whose passage would promote labor-intensive economic growth. But by focusing on elections in Uttar Pradesh, Modi will have less political and financial capital at his disposal to woo other states to support his reforms — including the two remaining pieces of federal legislation on tax reform, the Central Goods and Services Tax and the Integrated Goods and Services Tax — during the winter session of parliament. India's federalist system creates competing demands that make it difficult to pass reforms, which in this quarter will prevent the economy from meeting its overall growth targets.

Focusing on elections has other implications for Modi and his Bharatiya Janata Party (BJP). To win votes, the BJP is willing to compromise on issues of language, religion, culture and caste. But its political pragmatism will raise the risk of localized rifts with the Rashtriya Swayamsevak Sangh (RSS), the BJP's ideological parent organization. The RSS promotes Hindu nationalist policies and will want the BJP to do the same. But in Uttar Pradesh, the BJP needs to reach out to the Dalit (or untouchable) caste, which forms 20 percent of the population in the state. (The party also will need to reach the Brahmins caste, which makes up 10 percent of the population.) Modi will continue appealing to Dalits this quarter, holding some 200 Dalit rallies in Uttar Pradesh in the coming months. But it will come at a cost, likely disenchanting RSS supporters. Managing competing voting blocs in such a large state will be Modi's challenge, one born of his own success after winning a majority in the lower house of parliament in 2014, which made him beholden to meet the disparate interests of many large constituencies.

The India-Pakistan Rivalry

To win Uttar Pradesh elections, Modi needs to protect his right-wing Hindu nationalist base while reaching out to Dalits. To do that, the BJP will be compelled to keep up its criticisms of Pakistan, specifically over unrest in Kashmir, to appease the RSS. Though New Delhi and Islamabad have exchanged harsh words over recent militant attacks in the border region, India and Pakistan will not escalate tensions into a large-scale military buildup. And though Indian paratroopers launched a cross-border raid on at least five suspected terrorist camps in the Pakistan-administered region of Kashmir on Sept. 28, leaders from both sides still showed a degree of restraint afterward. Their restraint stems from the fact that neither side wants to go to war, but both sides will still exploit Kashmiri unrest for domestic politics. Modi can afford some unrest in Kashmir: It gives him a pretext to pin blame on Pakistan, enabling him to rally Hindu nationalists. It also helps him distract the electorate from the domestic grievances Kashmiris harbor against New Delhi, including the enforcement of the Armed Forces Special Powers Act, which sustains a 500,000-man military presence in the province.

In Pakistan, the heightened tension will help the military preserve its power in Islamabad as Prime Minister Nawaz Sharif chooses a successor to chief of army staff Gen. Raheel Sharif. His term as army chief, Pakistan's most powerful military position, ends in November. The military will use India's own military posturing and growing Indian-Afghan defense cooperation as a pretext to maintain control over the country's foreign policy, limiting Sharif's ability to pursue his ambitions for stronger Indian-Pakistani ties. Notably, to keep the military from exerting too much influence over politics, Sharif needs to ensure civilian control over the Ministry of Defense. The military, however, recently forced Sharif to accept its nominee, retired Lt. Gen. Zamirul Hassan Shah, for defense secretary — just below the minister of defense — reaffirming the military's continued role in Pakistani politics.

South Asian Militancy

In Afghanistan, the unity government between President Ashraf Ghani and Chief Executive Abdullah Abdullah failed to implement all of the electoral reforms that were due in September. A parliament unable to pass legislation, deeply entrenched patronage networks and ethnic rivalries have made it difficult to implement reforms, weakening the Afghan central government. As a result, Abdullah is unlikely to become the prime minister as outlined in the agreement that formed the unity government to begin with, potentially dividing it further. Reforms are required to institutionalize elections, strengthen governance, broaden the tax base, and supply and fortify the Afghan military. Failing to pass them will undermine Afghan troops, enabling the Taliban to sustain their insurgency through the winter months. Still, Afghan security forces, backed by U.S. air power, will thwart any attempts by the Taliban to permanently take over provincial capitals in the country, despite the militant group's successes this year.

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Mar 19, 2017 | 21:10 GMT

6 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.
section Highlights
  • The Nigerian government will struggle to manage the country's economy, which has been weakened in part by low global energy prices -- a situation expected to persist through the end of 2016.
  • Still stinging from its electoral losses in August's municipal elections, South Africa's ruling African National Congress (ANC) will try to win back voter support through the end of the year and into the next election cycle.
  • Ethiopia is moving from a period of relative political stability to one of contested rule. 
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Nigeria: Obstacles to Prosperity

The Nigerian government will struggle to manage the country's economy, which has been weakened in part by low global energy prices — a situation expected to persist through the end of 2016. Several concurrent economic issues will sap the administration's attention, preventing President Muhammadu Buhari and his government from devoting time and resources to other areas in need of it. Moreover, Nigeria's weak finances will hinder efforts to negotiate peace with Niger Delta militants, who resumed attacks on oil and natural gas infrastructure in January. Even if the government could afford to give the militants what they want, the militants are so divided that a negotiated resolution will remain just out of reach.

Despite the bleak outlook, Nigerian oil production will receive a boost in the fourth quarter. With repairs completed, several important terminals are set to come back online, and several cases of force majeure imposed by international energy companies will be lifted. It will take time, however, for the benefits of increased production to make its way into government coffers, and in the meantime, militant attacks could take more production offline.

Buhari will make gains in his fight against corruption, which, along with combating militancy, was a key component of his 2015 election campaign. Despite Nigeria's fragile institutions, Buhari has overseen many high-profile investigations and has recouped millions of dollars lost through corruption. In fact, Buhari's presidency has become defined by his tough stance on corruption, and he is currently attempting to pass legislation to strengthen Nigeria's judicial system. Of particular import is the Special Crimes Court Bill, which the National Assembly has been reviewing since August and which would set up a parallel court system to expedite the trials of those accused of corruption.

The push against corruption will continue to ensnare lawmakers from the former government and will discourage members of the current administration from illegally negotiating with militants in the restive oil-producing Niger Delta region. But weak institutions will not be strengthened overnight. The Petroleum Industry Bill, which has stalled over funding disputes, delaying investment in Nigeria's deep-water fields, is a prime example of how difficult it is to pass legislation in the country and of just how detrimental that can be.

The Post-Apartheid Era Ends

Still stinging from its electoral losses in August's municipal elections, South Africa's ruling African National Congress (ANC) will try to win back voter support through the end of the year and into the next election cycle. It will struggle to do so, however, given the country's poor economic position. The South African economy, Africa's most industrialized, will experience only a slight recovery at the end of the year, slowed by a weak and volatile rand, low global demand for commodities (most significantly, platinum), and a demanding and unionized labor force, among other things.

South African President Jacob Zuma will try to boost employment to appeal to and expand the ANC's voting base. He will intervene more in state-owned enterprises, causing disputes between the ANC's more leftist wing and its more business-minded wing. Competition within the ANC will further escalate as party elites begin vying for its presidency — which Zuma currently holds — ahead of the party congress at the end of 2017. There are already signs of a contest brewing between Deputy President Cyril Ramaphosa and Zuma's former wife, Nkosazana Dlamini-Zuma. This competition and Zuma's attempts to extract political benefits from state-owned companies will further divide the party and accelerate the ANC's decline, significantly altering South Africa's politics.

Around the Horn

Long-running protests outside of Addis Ababa have expanded in size and scope and have taken on a more overt ethnic — and possibly generational — tone. Dissent has spread from Oromo areas, where protests have been held since 2015, to the more urban Amhara regions, where protesters have been pitted against security forces more often. Each region contains more than 30 percent of the country's total population, and together they represent a veritable challenge to the Tigray-dominated government. The protests, which have included sit-ins, road blockages and running battles with security forces, amid other forms of defiance, are proving to be the biggest challenge to Ethiopia's central government in years.

In light of the sustained and inclusive protests and the resulting government crackdown, we assert that Ethiopia is moving from a period of relative political stability to one of contested rule. The dominance of the Tigray group in Ethiopian politics is disproportionate to its prominence in the country, where it accounts for only 6 percent of the population.

The government has cracked down on the dissent, conducting widescale arrests and enacting political reforms to undermine the movement. But the disorganization of the protests — no national coordinating body exists — has made them difficult to stop, even though that lack of organization has reduced the potency of the movement against the central government. Consequently, though the situation is volatile, and though the central government's hold on power will loosen, the protests do not immediately threaten its hold altogether.

Somalia will meanwhile hold presidential and parliamentary elections in the fourth quarter, after delays to the process. Clan elders will select delegates, who will then choose lawmakers. For the presidential election, incumbent Hassan Sheikh Mohamud will run against a host of other candidates in a multiple-round system designed to weed out candidates until someone can claim a majority. It is unclear if this method can produce a government able to effectively govern, given the history of discord between the president, National Assembly speaker and prime minister. A breakdown of the delicate power balance in Somalia would end the relative calm established by the previous government.

Beyond the fourth quarter, a rise in political instability in Somalia would undoubtedly complicate the 22,000-strong African Union Mission in Somalia (AMISOM), which began in 2007. The force, which includes international partners Kenya, Uganda, Ethiopia, Djibouti and Burundi, has made notable gains against the militant group al Shabaab in recent years. Consequently, the disintegration of Somalia's political framework would greatly complicate AMISOM's progress as security forces split along clan lines and political affiliations become more uncooperative. (It could also end Somalia's unified foreign policy stance toward AMISOM contributors.) Additionally, political infighting would lead to a less effective distribution of resources.

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