Quarterly Forecasts

2017 Fourth-Quarter Forecast

86 MINS READOct 2, 2017 | 07:58 GMT
An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst.

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. 



An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....


Global Trends

In today's world, nations are becoming increasingly interconnected by air, land, sea and cyberspace. As globalization has knitted countries and continents closer together, the borders of the map and the barriers of geography have been rendered, in some ways, obsolete. Now events in one region can more easily have consequences in another, at times even rippling across the globe. We explore those with the greatest impact on international decision-making during the forecast period below.
10 MINS READSep 28, 2017 | 13:54 GMT
The United States will head into the last quarter of the year facing one of the greatest direct nuclear threats to the American mainland since the Cuban missile crisis.
section Highlights
  • North Korea's nuclear ambitions will occupy most of the United States' attention as Washington searches for ways to halt the progress of Pyongyang's weapons program, even as China and Russia continue to subtly prop up their belligerent neighbor.
  • Distracted by North Korea, the United States will not be willing to create another headache for itself by withdrawing from its nuclear deal with Iran. Russia, meanwhile, will deepen its involvement in several conflicts around the world to strengthen its own bargaining position in talks with the United States.
  • The White House will keep putting its trade policies into practice in the fourth quarter, but despite its tough talk in the opening phase of NAFTA negotiations, the United States will have a hard time persuading Mexico and Canada to meet its steep demands.
  • Across the Atlantic, Europe will turn to the difficult task of reforming institutions within the European Union and eurozone now that national elections in France and Germany have wrapped up.
  • Though the world's oil inventories have declined, they haven't fallen quickly enough to suit the organizers of a pact among oil producers to slash output, signaling the group's likely intent to extend the quota beyond March 2018.

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

The Start of a Dangerous Race

The United States will head into the last quarter of the year facing one of the greatest direct nuclear threats to the American mainland since the Cuban missile crisis. Over the past three months, North Korea has stepped up its nuclear and ballistic missile tests, leading U.S. intelligence officials to conclude that Pyongyang will obtain a reliable intercontinental ballistic missile (ICBM) capable of carrying a nuclear warhead before next year is out.

Washington will race against the clock to find ways to stall North Korea's progress and bring it back to the negotiating table. The United States will likely try to court the support of Russia and China in this endeavor as it doubles down on employing diplomatic and financial pressure to dissuade further weapons tests by Pyongyang. But getting their help will not be easy. Even if the United States casts a wider sanctions net to include Russian and Chinese firms that trade with or provide financial services to North Korea, it will not weaken either country's determination to protect the stability of the government in Pyongyang while advocating a policy of engagement rather than isolation.

But therein lies the problem.

Dialogue between North Korea and the United States presents somewhat of a Gordian knot. Pyongyang will agree to talk with Washington only as an equal, and it will not curb its weapons development to do so. Pyongyang is also willing to accept the risk of further sanctions, confident that its troop presence on the Korean Peninsula and its burgeoning nuclear capabilities would preclude any military action against it. Washington, on the other hand, has demanded that Pyongyang freeze its nuclear weapons tests before talks can begin. Washington also views coercion as the most effective method of blocking Pyongyang's continued weapons development. Because the two adversaries' positions are incompatible, their dispute will doubtless escalate in the coming quarter.

As North Korea continues to conduct weapons tests, the risk of U.S. military action against it will rise. Though the United States could launch a limited strike against North Korea with the assets it currently has near the peninsula, Washington is far more likely to gradually build up its military presence in the region throughout the quarter, giving diplomatic overtures and sanctions a chance to take effect. And though an accident or close call during a North Korean missile launch may force the United States or its allies to shoot down the device, they will not make the decision to initiate a more serious military intervention before the end of the year.

The Side Effects of U.S. Tunnel Vision

As the United States becomes consumed with managing the North Korean threat, other foreign policy priorities will take a back seat. Despite U.S. President Donald Trump's opposition to the nuclear deal with Iran — and his desire to contain Tehran's growing influence over its neighbors — the White House won't be able to afford to withdraw from the agreement entirely. After all, doing so not only would risk the resumption of Iran's nuclear weapons program amid a similar crisis with North Korea, but it would also revive the specter of a military confrontation with Iran as the United States deploys its forces to the Asia-Pacific region.

Even as the deal stays in place, however, tension between Tehran and Washington will mount. Though the United States will continue to waive sanctions related to Iran's nuclear program, it will expand its punitive economic measures against Iranian individuals and entities in other areas. Washington will also maintain its support for Iran's rivals in the Gulf Cooperation Council, perhaps even granting the U.S. military freer rein to engage with Iranian vessels in the Persian Gulf in the event of a provocation.

Meanwhile, the diplomatic standoff between the United States and Russia will drag on as the sanctions that the U.S. Congress signed last quarter leave Trump with few options for easing friction. Similarly, the Kremlin won't be able to make the concessions needed to persuade U.S. lawmakers to lift the measures before Russia's presidential election in March 2018. Yet as the two countries' ties sour, Russia will continue to seek a pivotal role in regional crises around the world, collecting bargaining chips that it can use in talks with the United States down the road.

In fact, that strategy may begin to bear fruit next year. Russia's recent request for the deployment of U.N. peacekeepers in eastern Ukraine could come with many strings attached, but it has laid the groundwork for negotiations between Russia and the West over the conflict. For Moscow, the proposal has the added benefit of driving a deeper wedge between its Western foes: European leaders like Germany consider the offer to be a positive step, while the United States remains suspicious of the motives behind it.

A continent away, Russia is gaining ground in yet another regional conflict: the Syrian civil war. Loyalist forces, backed by Russia and Iran, broke the Islamic State's grueling siege against Deir el-Zour in September. Now those troops will be free to push toward the Iraqi border even faster. As they do, the United States will have to maintain contact with Russia to prevent the outbreak of clashes between their battlefield proxies.

Closer to home, Washington will have to come to grips with Moscow's presence in a third unstable environment. Venezuela is inching closer and closer to a financial default, and Russia (along with China) is one of the last allies the foundering country has left. Caracas has even asked Moscow to restructure Venezuelan debt as U.S. sanctions weigh heavily on its finances.

As Western Protectionism Surges, the World Adjusts

The return of protectionism will continue to manifest in trade, investment and technology relationships across the globe through the end of the year. As has been true for most of 2017, the United States will lead the charge, particularly with the renegotiation of NAFTA underway. In fact, Washington has already put forth plans outlining the ways in which bilateral trade deals should be implemented instead. It has also called for the introduction of a U.S. content requirement in certain sectors, stipulating that foreign goods must contain a given share of parts produced in the United States in order to qualify for reduced tariffs. Washington has even gone so far as to suggest an automatic sunset clause that would terminate NAFTA under certain circumstances.

Both proposals have drawn criticism from Canada and Mexico, but they also have signaled Trump's determination to significantly revise the North American pact. Despite adopting an aggressive opening stance in the talks, however, the United States will not abandon NAFTA. Instead, the three partners will eventually reach an agreement, albeit beyond the fourth quarter's end.

Over the past few months, the United States has shifted more attention toward its trade complaints with China and South Korea. As a result, disputes between Washington and both Asian nations will become more heated in the months ahead. U.S. investigations into China's technology transfer requirements and other practices related to intellectual property could lay the groundwork for sweeping action against China, including broad tariffs. However, such moves likely won’t come until next year.

The United States may not wait that long to clarify its intention to pursue a case against China through the World Trade Organization (WTO). If U.S. investigators discover that Chinese tactics are inconsistent with the bloc's rules, Washington will be compelled by both its WTO obligations and U.S. law to bring the disagreement to the organization before unilaterally imposing other punitive trade measures. On the other hand, if China's activities are found to hurt American companies in ways that are not addressed by WTO regulation, the United States will be able to more swiftly respond as it sees fit.

The United States is not the only party concerned about Beijing's strategy for acquiring Western technology, either. In September, the European Commission called for the Continent to establish more mechanisms for scrutinizing investment into strategic sectors from companies backed by states outside the European Union — a move clearly aimed at Chinese money. Italy, France and Germany have each supported this sentiment as well, fearing that the Chinese government may be using the resources of the state to encourage takeovers of European companies to "buy" the core technologies and know-how that underpin the world's modern economies. As usual, France will lead the protectionist charge within the European Union in the months ahead. But Paris' proposals will create controversy among market-oriented countries, such as Denmark, and Eastern European states, which will view with suspicion any undertaking that could rob them of Chinese investment opportunities or increase Brussels' control over their economies.

These differences of opinion, along with many others, will be on full display this quarter as Europe tackles the task of reforming the union. Now that critical elections in France and Germany have concluded, the bloc will weigh proposals to create a European Monetary Fund, boost public investment across the Continent and introduce risk-sharing measures in the eurozone. Though Berlin is willing to find common ground with Paris, Germany will spend the remainder of the year building a governing coalition at home. Even so, the debate over Europe's future that will become a defining feature of 2018 will kick off within the next three months.

Amid the resurgence of economic nationalism in the United States and parts of Europe, the rest of the world will scramble to adjust its expectations and strategies. The 11 members left standing in the Trans-Pacific Partnership will continue to hash out a pact without the United States, but there is no guarantee that they will find compromise. The group's large, developed members — Japan, Australia and Canada — are certainly eager to sign a deal, but their less-developed counterparts may demand enough concessions to precipitate the negotiations' collapse. The incipient bloc's best chance for success, then, lies in its speed, suggesting that talks could progress quickly before the year's end.

With the WTO's biennial ministerial meeting set to take place in December, countries will likely spend the months leading up to it lobbying for their pet projects. The bloc will also hold an unprecedented "mini-ministerial" meeting in October to try to firm up an agenda for the full summit in Buenos Aires. But this year's convention may not be as fruitful as some states had hoped. In light of dissent from the United States, India and South Africa earlier this year, China and Germany's hopes of reaching a comprehensive agreement on the facilitation of investment have been dashed, as has any chance of a deal to restrict agricultural subsidies. Even so, some progress on issues such as e-commerce, public stock holdings and fisheries subsidies cannot be ruled out.

A Crude Awakening

Meanwhile, the world's oil stockpiles are declining, but not quickly enough for global producers' liking. In the United States, one of the most closely watched markets in the industry, crude oil inventories totaled 471 million barrels (about 24 percent higher than the five-year average) as of Sept. 22. Such gluts will spur the strongest advocates of production cuts — Saudi Arabia, Russia and Venezuela — to redouble their efforts to extend the quotas among OPEC members and non-OPEC states beyond March 2018. At the same time, they will ratchet up pressure on exempted OPEC members Libya and Nigeria, which have increased their collective output by 622,000 barrels per day since the fourth quarter of 2016, to join the pact. However, these states are unlikely to sign on. And if the cuts are extended, it won't be long before compliance among existing signatories starts to weaken.

Oil Production Cuts Offset by Production Increases

The United States, for its part, continues to see its output climb. But by the end of June, U.S. crude production reached a little under 9.1 million bpd — just 27,000 bpd higher than its February total. This suggests that the recent growth in U.S. output is not as resilient as industry experts initially expected. And though the country's production will keep rising slowly throughout the quarter, it will not be cause for debate and contention among the global producers trying to counter the persistent oversupply in the oil market.

U.S. Commercial Crude Oil Stocks



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.

14 MINS READSep 28, 2017 | 13:55 GMT
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.

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
  • Heedless of the sanctions mounting against it, North Korea will continue to steadily conduct weapons tests while the United States pursues every economic and diplomatic tool available to stop it.
  • Next door, China will work to pre-empt the crisis in Pyongyang while fortifying its own administration in Beijing, completing a leadership transition within the Communist Party that will likely result in a strong show of support for President Xi Jinping.
  • Though China will focus on preserving its economic and social stability once the crucial party congress is over, the conclusion of its leadership transition will give Beijing greater flexibility in its foreign policy, making room for it to grow more assertive in South Asia and the South China Sea.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

War Looms Over the Korean Peninsula

North Korea will remain at the center of the region's — and the world’s — attention as the year comes to a close. Over the third quarter, Pyongyang made steady strides in its intercontinental ballistic missile (ICBM) and nuclear weapons  programs, even going so far as to conduct launches over Japanese territory. And as Pyongyang inched closer to fielding a nuclear device capable of striking the U.S. mainland, China's temporary detente with the United States on North Korea crumbled. Hoping to sever Pyongyang’s economic lifelines for good, Washington stepped up pressure on Beijing and, at times, Moscow by slapping their citizens and companies with new sanctions, both unilaterally and with the support of the United Nations.

North Korea's weapons tests will proceed apace in the coming quarter as the country closes in on a credible nuclear deterrent. The United States will exhaust every economic and diplomatic tool at its disposal to arrest Pyongyang's progress and to persuade China to step in on its behalf. Though Washington will also hedge its bets by continuing to build up strategic and tactical assets on the Korean Peninsula and in the Asia-Pacific, it will opt for an incremental expansion of its military footprint in the region to give its other sticks and carrots time to take effect. At the same time, the United States will strike deals with Japan and South Korea aimed at bolstering their defenses — especially their missile defense systems — over the long run.

North Korea's Arms Push

Determined to counter the U.S. military buildup on its doorstep, China will work to amass its own forces along the North Korean border. Pyongyang will also keep shoring up its defenses as it continues to test devices in accordance with its technical needs and in response to U.S. actions. Such tests may include firing ICBMs (perhaps even several at a time) to prove North Korea's ability to overwhelm nearby missile defense systems.

During the fourth quarter, the likelihood that these tests will trigger a conflict on the Korean Peninsula is greater than the possibility of a preventive military strike by the United States. Should a North Korean missile come perilously close to or break up over Japanese or South Korean territory, the United States and its allies would have to decide whether to try to shoot it down. The attempt would be costly, no matter the outcome: Success would risk retaliation from North Korea, while failure would undermine the credibility of the region's missile defenses. Pyongyang, moreover, may feel the need to counter the movements of U.S. air and naval assets in the region. Its responses could inadvertently lead to a rapid military escalation, as could a decision by Pyongyang to test a missile near the U.S. mainland. Another North Korean nuclear test cannot be ruled out either, and if that was an atmospheric test, Washington may feel the need to halt it by downing the missile carrying the test warhead.

It is possible (albeit unlikely) that the United States will use the forces it already has stationed in the region to launch a punitive or preventive strike against North Korea's nuclear and missile programs. Washington might resort to such drastic measures in response to an unforeseen crisis or to unexpected progress in Pyongyang's weapons development. However, the United States would be far more likely to preface an attack by deploying more military assets to the Asia-Pacific to better respond to any retaliation by North Korea.

Of course, the United States has many avenues it can pursue before turning to a military solution. To that end, Washington will continue to isolate Pyongyang economically and diplomatically, leaning on North Korea's dwindling trade partners to fall in line with the initiative. China may consider squeezing some flows of aid to North Korea in the interest of averting a U.S. intervention — a prospect it fears even more than the collapse of the government in Pyongyang. Russia, however, will work to undercut any endeavor that threatens to undermine the North Korean administration.

As China comes under mounting pressure from the United States to cut economic ties to North Korea, Russia will move to soften the resulting blow to Pyongyang's finances. In hopes of discouraging such behavior, Washington may pursue secondary sanctions against China and Russia in the months ahead. But as both countries distance their most important firms from North Korea, these measures will likely affect companies and individuals with relatively minor roles in the Chinese and Russian economies.

Meanwhile, Beijing and Moscow will continue to emphasize the importance of easing tension and diplomatically engaging with Pyongyang. The two will try to dissuade Washington from taking military action against North Korea, advocating dialogue between the North and South instead. The installation of the Terminal High-Altitude Area Defense (THAAD) system in South Korea, however, will feed tension between Seoul, on one hand, and Moscow and Beijing on the other. Eager to fortify its alliance with the United States, South Korea will remain broadly aligned with the White House's stance, temporarily shelving its own attempts to pursue a dialogue with North Korea for a more opportune time while reinforcing its indigenous defenses.

China's President Tightens His Grip

China, for its part, will have bigger concerns to grapple with at home this quarter. The Chinese Communist Party's careful preparations for a change in leadership will be realized in mid-October at its quinquennial congress. The event will bring reshuffles at the highest ranks of the party and serve as an important test of President Xi Jinping's attempts to consolidate power.

So far, all signs point to the president's success in tightening his grip over the country's top decision-making bodies. Xi has already secured the honored status of "core leader," not just of the Communist Party but also of the Chinese state and military. He has also managed to rapidly promote many of his associates to prestigious positions in recent months. Looking ahead, as many as 11 Politburo and five Politburo Standing Committee members are nearing retirement — vacancies that would give Xi the opportunity to fill the majority of seats in both bodies with political allies. Perhaps even more important, party members are likely to endorse the inclusion of Xi's guiding philosophy in the Communist Party Constitution at the approaching congress, allowing him to join the venerated ranks of Deng Xiaoping and Mao Zedong.

A graphic showing contenders for the Politburo Standing Committee

But the summit will also signal the lengths to which Xi must go to secure the political compromises he seeks. It remains to be seen whether the president will be able to break the ruling party's customary age limit to keep longtime ally and anti-corruption czar Wang Qishan on the Politburo Standing Committee. It is similarly unclear whether Xi intends to try to extend his presidency beyond the two-term ceiling specified in the Chinese Constitution.

Even so, Xi will likely emerge from the party congress with the political capital needed to see many of his grand visions through. But in the wake of widespread turnover among the Party's upper ranks, the president will focus his immediate attention on stabilizing the country. Xi will look to contain any socio-economic issues at home or diplomatic disputes abroad that could threaten the image of the Party or the president's status within it. This effort will include steadying China's precarious financial system and highly leveraged companies while mitigating the risk of external volatility. To that end, China has attempted to blunt the effect of U.S. trade measures, insisted on negotiation with North Korea while discouraging U.S. military action and struck a temporary deal with India to end their tense border standoff.

China's sensitive political environment will not cause its leaders to completely ignore economic reform, though. The party's newly instated officials, after all, will need to boost the public's confidence in the government as the economy remains stable but weak. Over the past few months, Beijing has combined broad-based structural reforms such as the consolidation of industries, production cuts and the enforcement of environmental regulations with renewed efforts to chip away at the mountain of debt crippling the country's state-owned enterprises, financial sector and local governments. These reforms will only accelerate in the coming quarter.

The Growing Mountain of Chinese Debt

Beijing, however, will have to hedge against the significant risks associated with the reforms. They include threats to corporate solvency and a slowdown in the all-important real estate market on which China's heavy industries and construction sector depend. Underpinning these problems are the long-term risks that the country's considerable debt presents to the Chinese economy, which will only become more fragile over time if it is not paid off. And though Beijing has the resources and fiscal tools with which to contain the danger of widespread default, relying on them will only exacerbate the government's debt problems in 2018 and beyond.

The global resurgence of protectionism, moreover, will run counter to China's desire to avoid upheaval outside its borders. Over the past few months, the United States has opened several investigations into China's technology transfer requirements as well as other matters related to the protection of intellectual property. In the months ahead, discord between the two countries will only worsen in the trade realm. Even if the United States chooses not to take action against Chinese practices, Washington will probably expand its investigations into critical Chinese industries, such as semiconductors. As it does, it will doubtless use the same justification — safeguarding U.S. national security — that it has used to target China's steel and aluminum sectors before. China, which is eager to dissuade the United States from targeting its economy, will ramp up its efforts to increase the protection of intellectual property at home while leveraging market access and investment in its negotiations with Washington. But the United States is not alone in its scrutiny of China: A recent decision by the European Union to deepen investigations into Chinese takeovers of high-tech companies on the Continent underscores the growing backlash against the country's overseas investment into crucial industries.

Despite the economic nationalism sweeping across the developed world, Beijing will continue its effort to upgrade its domestic manufacturing base and to invest in infrastructure in countries participating in the Belt and Road Initiative. It will, however, maintain close control over the outflow of capital into foreign industries it deems risky, including property, entertainment and sports. Countries whose property markets have been buoyed by China's previous spending sprees will feel Beijing's tightening grip most acutely.

Asia's Biggest Powers Square Off

China will try to ease mounting U.S. pressure on trade issues and North Korean threats where it can. But Beijing will be particularly wary of any attempts by Washington to raise the touchy subject of Taiwan's status before or during the Communist Party Congress. Once the summit is over, however, China will have more flexibility in its foreign policy.

As the United States disengages from Southeast Asia, China will continue its amicable outreach to the members of the Association of Southeast Asian Nations (ASEAN), offering to negotiate a code of conduct in the South China Sea and to formalize discussions with the Philippines on joint energy development in the disputed waters. But Beijing will also keep its coercive options open in dealing with states that prove uncooperative, increasing the likelihood of new spats emerging between China and Vietnam.

The Philippines, for its part, will try to strike a balance between its relationships with China and the United States. Manila hopes to secure its maritime boundaries by maintaining its detente with Beijing, but it also relies on the assistance of the U.S. military to combat militants linked to the Islamic State in the restive region of Mindanao. Once the few insurgent pockets left in Marawi City fall, the Philippine military will have the opportunity to clear the region of any remaining fighters. But Manila will also face the challenge of reconciling with the mainstream militant Moro Islamic Liberation Front, which has assisted military operations in Marawi City and will expect political concessions in exchange for its help.

Meanwhile, China's foray into South Asia through the Belt and Road Initiative will continue to inspire similar projects among Beijing’s regional rivals, including India. New Delhi already has entered the proposal stages of the India-Japan Freedom Corridor and of the joint construction of ports by India, Japan and the United States. None of these undertakings, however, will notably progress during the fourth quarter.

As China builds up its infrastructure and troop presence along its contested border with India, New Delhi will follow suit, blazing its own roads while seeking out new defense relationships with Asian partners such as Vietnam, Mongolia and Australia. Chief among them, however, will be Japan. The common ground that New Delhi and Tokyo find in maritime security and in their mutual aspirations in Africa and Southeast Asia could drive Beijing to expand its own outreach in India's backyard. If it does, states like Nepal, Bhutan and Sri Lanka will have to find a way to juggle their relationships with India and China. In much the same way, China will work to solidify its security and economic ties with Pakistan amid the United States’ calls for India to play a larger role next door in the stabilization of Afghanistan.

The Tale of Two Trade Deals

Scrambling to account for the recent swell of global protectionism, countries in the Asia-Pacific will feverishly negotiate deals to increase their connectivity with international markets. The 11 members left in the Trans-Pacific Partnership will try to pick up the pieces of the crumbling pact as tension rises between its more- and less-developed signatories. Pressure to reach an agreement will only grow as the rival Asia-Pacific Economic Cooperation bloc prepares to meet in November. Nevertheless, states will have a tough time finding a compromise on thorny issues such as data exclusivity, investment regulations and copyright protections.

The outlook of another major Asian trade pact under negotiation — the Regional Comprehensive Economic Partnership — is even less promising. Its members are largely split into three camps. Developing nations, many of which belong to ASEAN, are interested in discussing little beyond tariffs on goods. By contrast, developed countries such as Japan and Australia aim to hash out a more comprehensive pact. Caught in the middle, India is reluctant to discuss measures to ease the trade of goods but is keen to liberalize the trade of services. These stark differences are guaranteed to lead to dysfunction in talks regarding the deal.

Proposed Trade Agreements Centering on the Pacific

All the while, the United States will continue to hassle Asian exporters — particularly South Korea and China — to change their trade policies. Though Washington will not take any concrete steps to revamp the United States-Korea Free Trade Agreement in the coming quarter, Seoul suspects that it will eventually, regardless of how much South Korea cooperates with U.S. attempts to rein in North Korea. Seoul will likely try to pre-empt any punitive measures against the South Korean electronics and automotive industries by agreeing to some concessions in its trade arrangement with Washington.

Japan's Ruling Party Makes a Bid to Preserve Power

Like China, Japan will concentrate on the political changes underway within its borders this quarter. Over the past few months, few challenges have arisen at the national level to the rule of the Liberal Democratic Party (LDP) as its opponents have remained in disarray. But Prime Minister Shinzo Abe's approval ratings have dipped repeatedly amid a series of scandals and his use of the LDP's majority to ram unpopular bills through the legislature. The public made its growing dissatisfaction clear in Tokyo elections on July 1, dealing the LDP a humiliating blow with the victory of a right-wing contender backed by the capital city's governor, Yuriko Koike.

On the heels of a Cabinet reshuffle and a rebound at the polls, Abe recently decided to take advantage of lingering disunity among his opponents by calling for snap elections in late October. The vote will bring Koike's new political party to the national stage for the first time. It will also test the popularity of Abe's ambitious proposal to revise the Japanese Constitution to pave the way for the normalization of the country's military and for a massive economic reform package. North Korea's persistent weapons tests, particularly those that involve launching missiles over Japanese territory, will certainly drum up support for the prime minister and his party.

If the LDP sweeps the elections on the promise of constitutional revision, the win would give Abe a broad mandate to pursue his reform agenda. On the other hand, a loss of seats would jeopardize the ruling party's plans, particularly if coalition ally Komeito or the opposition party led by Koike — both of which are ambivalent to the prime minister's proposals — carve out a bigger share of seats. And though the opposition has long been disunited, there is a risk that it will start to coalesce into a more coherent force. More important for Abe, however, the snap elections will serve as a bellwether of the prime minister's political future as his party nears a leadership transition scheduled for late next year.



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.

12 MINS READSep 28, 2017 | 13:56 GMT
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
  • As EU members discuss institutional reforms, they will expose the strategic differences between the bloc's southern, northern and eastern members and offer a preview of disagreements to come next year.
  • Germany and France will try to preserve their strategic alliance throughout the discussions, which will cover issues such as reforming the eurozone and increasing spending across the bloc, but compromise will be difficult.
  • Central and Eastern European countries will face strategic decisions about their futures, while elections in Austria and the Czech Republic will test the strength of nationalist sentiments.
  • France's efforts to protect national economies from competition within the bloc and to prevent outside investors from acquiring companies in strategic sectors will meet with only limited success.
  • Differences will continue to arise between the United Kingdom and the European Union as the two negotiate the Brexit, but both parties will work to reach an agreement, even if it takes longer than expected.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

The EU Discusses Its Future

During the first three quarters of the year, elections in key EU countries such as Germany, France and the Netherlands brought the bloc's political processes practically to a standstill. Now that the electoral season is over, the European Union will hold serious discussions about its future. The issues on the table will include introducing investment programs across the bloc, completing the banking union, creating a European Monetary Fund, deepening military cooperation among EU members and retooling the eurozone. Though the negotiations won't be in full swing until next year, the fourth quarter of 2017 will offer a preview of the debates that will take place in 2018 as EU member states and institutions position themselves and present proposals to defend their interests.

Three main groups will emerge over the course of the debates. Countries in Southern Europe will push for increased spending across the bloc and the introduction of risk-sharing measures in the eurozone, such as a common deposit insurance scheme for banks in the currency area or a common unemployment insurance program. In exchange for considering the proposals, Northern European member states will request greater control over their southern counterparts' fiscal policies. Central and Eastern European countries, meanwhile, will have to decide whether to deepen their ties with Western Europe, and perhaps give up more national sovereignty in the process, or to defy the EU institutions in Brussels and risk isolation in the bloc.

The European Union and the Eurozone

Beyond intense debate among its members, the European Union will get little done this quarter. Germany and France, the countries at the European Union's political and economic core, will struggle to strike a balance among the conflicting interests in the Continental bloc. France is willing to compromise to get Germany on board with its reforms, though it is also worried that Berlin will try to water down the measures. And Germany's leaders will be too preoccupied with domestic politics in the wake of the Sept. 25 general elections to make strategic decisions in the bloc. Since the election produced a fragmented Bundestag, German politicians may spend much of the quarter trying to work out an agreement to form a government. That doesn't mean Berlin will refrain from expressing its opinion; still, it will take a while for EU politics to get back up to speed as the dust settles from the last of this year's major electoral contests.

Pushing for Protectionism

Along with institutional reforms, the European Union will discuss changes in the single market to enhance protection for national economies. The issues up for debate will include mechanisms to guard companies in strategic sectors from investors outside the bloc and ways to close tax loopholes that benefit internet-based companies in some member states. Leaders also will propose revisions to regulations that enable workers from Eastern Europe to undercut local workers in Western European countries.

France will be the most vocal advocate for the reforms, but because the measures are controversial, it probably will have to settle for toned-down versions of its proposals. The European Union, for example, likely will agree to redesign the posted workers system under which companies can temporarily hire Eastern European workers for jobs in Western Europe at lower wages than local workers would earn. But to avoid deepening the divide between Eastern and Western European countries, the bloc probably will stop short of abolishing the system, opting instead to restrict its use. Similarly, the European Union may well agree to increase vetting procedures for foreign investment in strategic sectors, but Brussels probably will leave the bulk of the scrutiny to national governments, giving the European Commission a more advisory role. The matter of closing tax loopholes for digital companies will be more complicated, because the European Union requires a unanimous agreement among its members to change tax policy. Countries such as Ireland and Luxembourg will resist the proposed reforms, which would challenge their economic models, thereby delaying a decision on the matter.

Key Dates in Europe: 2017-2024

Central and Eastern Europe at a Crossroads

During the next stage of reforms, the European Union may officially accept the "multispeed" model to enable further integration among core member states without the participation of every EU country. The system would present the nations of Central and Eastern Europe with a strategic dilemma. On the one hand, they depend on the European Union for investment, subsidies and protection, and they are interested in working with the bloc on issues such as energy diversification. On the other hand, most of the states are outside the eurozone and are skeptical of reforms that would give Brussels greater authority over their domestic affairs. EU members in Eastern and Central Europe will keep grappling with this predicament well into next year as they begin hashing out how they want to proceed.

Hungary and Poland likely will remain critical of Brussels, since neither faces an immediate decision over its future in the bloc. Even so, European integration caused strife in the Polish government recently after Poland's president vetoed portions of a controversial judicial reform package that the bloc criticized. The discord in Warsaw could intensify during the final months of the year. Other countries in the region such as Slovakia and the Czech Republic, by contrast, probably will make overtures toward deeper integration with the European Union.

The Czech Republic is preparing to hold general elections to name its next government Oct. 20-21. Because most voters and political parties in the country back its membership in the European Union and NATO, the Czech Republic's foreign policy will probably continue largely unchanged after the election. But eurozone membership is still a controversial subject among the Czech electorate. Consequently, the next government in Prague probably won't make any weighty decisions on the issue during the fourth quarter. It will, however, work to make its voice heard in the European Union's reform discussions and to strike a balance between its ties to the Visegrad Group — which also includes Poland, Hungary and Slovakia — and its connections with Western Europe.

Just a few days before Czech voters cast their ballots, Austria will hold its own general elections. The Oct. 15 vote will reveal the popularity of nationalist parties in the country. Immigration will be one of the most prominent issues during the campaign. Austrian voters are worried not only about the flood of asylum seekers who have arrived in their country over the past two years, but also about unfair competition from cheaper Eastern European labor. Apart from immigration, Brussels' authority over Austria's domestic affairs will be another focus in the election; some parties will promise to limit EU institutions' influence in the country and to protect strategic Austrian companies from foreign takeover.

Should the far-right Freedom Party enter Austria's next government, Vienna will be more willing to confront the European Union on issues such as migration, the future of the Schengen Agreement and efforts to revamp the bloc to address southern members' concerns. Austria would be careful not to jeopardize its membership in the eurozone, but at the same time, it would be warier of Continental integration. And regardless of whether the Freedom Party makes it into the government, the next administration in Vienna will try to protect Austria's borders, as well as its workers and companies. From a foreign policy perspective, the country's next government will be interested in preserving a degree of political and economic influence over the former Habsburg territories in Central Europe and the Balkans. Vienna also will remain skeptical of cooperating with Turkey and will push to enhance security collaboration among EU members.

Brexit Negotiations Continue

During the fourth quarter, the United Kingdom and European Union will continue their negotiations over the Brexit. EU leaders will discuss the status of the first phase of negotiations, covering the terms of the United Kingdom's departure, at a summit on Oct. 19. London hopes the bloc will use the opportunity to authorize the second stage of Brexit talks — discussions over their future trade agreement — though based on the lack of progress in recent rounds of negotiations, Brussels may delay the next phase. The October summit is more a symbolic date than a concrete deadline, however. Even if the European Council doesn't give the go-ahead by that time, the United Kingdom and the European Union will be keen to move on to the next phase of talks later this year or early next.

In the meantime, London and Brussels will carry on with the difficult task of sorting out what will become of the EU budget after the Brexit. The European Union needs the United Kingdom to keep paying into the budget. Otherwise, the remaining 27 member states would have to increase their contributions, something Northern Europe opposes, or agree to cut spending on items such as agricultural subsidies or development funds — an unacceptable option for Southern and Eastern Europe. London has its own economy to think about and is hoping for an implementation period before eventually reaching a permanent settlement to soften the Brexit's economic effects. Making contributions to the EU budget, however controversial among the British public, will help the United Kingdom realize that arrangement.

While the British government negotiates with its peers in the European Union, it will continue pursuing trade deals with as many countries outside the bloc as possible. London cannot legally sign any of its own free trade agreements until after it leaves the European Union, but it is working to set the stage for future deals. The United Kingdom may not get very far in this endeavor, however, since most of its potential trade partners would rather wait and see how its relations with the bloc shake out before making any decisions.

Although each side of the negotiation has its own priorities for the Brexit, both want to preserve the peace process in Ireland during and after the separation. For much the same reason, Ireland will be watching the discussions closely. The Irish government in Dublin is interested in the softest possible Brexit to safeguard its trade ties with the United Kingdom as well as its open border with Northern Ireland. Dublin will lobby in favor of an agreement on the exit negotiations and push to keep them moving apace, but its power over the talks will extend only so far.

An Intense Quarter in France, Italy and Spain

France will be focused on fiscal issues this quarter, having approved a raft of labor reforms during the last one. The French government will include tax cuts for companies and households in its budget for 2018 in an effort to boost economic growth. But it must also keep its deficit under control. To that end, Paris may introduce tax hikes and spending cuts in other areas. Whatever fiscal plans it comes up with, France's government will have little trouble passing them through the legislature, where its solid majority gives it a strong advantage over the weak and fragmented opposition. Because unemployment is still high, though, and economic growth still modest, Paris could find itself dealing with a dissatisfied public next year.

Europe's "Big Four"

In Spain, meanwhile, the political and institutional crisis generated by the independence process in Catalonia will continue. After the police crackdown on voters during the Oct. 1 independence referendum, the Spanish government will probably take additional actions to suppress the independence movement. Madrid's options include suspending Catalonia's autonomy or dissolving the Catalan government and calling for new regional elections. Either option would lead to further social unrest and renewed clashes between security forces and protesters. Prime Minister Mariano Rajoy will be playing a delicate game, because calls for his resignation will grow louder if opposition parties become increasingly critical of Madrid's handling of the Catalan crisis. The European Union could also play a significant role, as the bloc may respond to the renewed unrest in Catalonia by pressuring Madrid to open a dialogue with the rebel regional government.

Elections will loom large over Italy this quarter, too. The country has until May 2018 at the latest to hold its next election. Having failed to agree on a new electoral law before their summer recess, Italian lawmakers will spend the next few months trying to hammer out the legislation, which will influence the outcome of the next vote. Center-right and the center-left parties will push for a law that would make it harder for the anti-establishment Five Star Movement to form a government, but at the same time, most of the country's parties will criticize the European Union to appeal to voters. While some politicians will attack the euro, most will aim their attacks at the bloc's fiscal rules, arguing that they should be modified to give Italy more leeway to spend. The country's discontent with the European Union will play an important role in determining the bloc's future. An uncooperative government in Rome, after all, would make compromise even more difficult to reach in the negotiations over EU reforms and raise questions about Italy's continued membership in the eurozone.

Talking Migration and Russia

Migration will be a hot topic in the European Union during the quarter. But the bloc is more likely to come up with a compromise to manage the problem in the short term than it is to address the issue with profound reforms. To alleviate the pressure on destination countries, for example, the European Union probably will offer them more money and resources. It will also offer increased funding and logistical support to origin and transit countries in Africa, and to EU patrolling missions in the Mediterranean, to try to slow the flow of migrants onto the Continent. Substantial changes to the Dublin system, under which migrants must apply for asylum in the country where they first entered the European Union, are unlikely, however. And though nations along the main migration routes in Central and Northern Europe may agree to lift their current border controls, they won't hesitate to reinstate them in case migration picks up again.

Similarly, the bloc is unlikely to change its position on Russia. EU members will discuss their policy on Moscow as the expiration date for their sanctions against it approaches in January. But member states probably will opt to extend the sanctions until Russia has fully implemented the Minsk peace agreement, as they have in each previous vote on the matter.


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.

13 MINS READSep 28, 2017 | 13:56 GMT
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.

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
  • Whether or not the White House certifies Iran's compliance with the nuclear deal this quarter, the United States will not abandon the agreement entirely, even as it puts more financial and military pressure on Iran in an effort to contain its influence in the Middle East.
  • Though Iran will respond to rising tension with the United States by easing its relationships with Saudi Arabia and Turkey, Tehran's competition with its regional rivals will continue to play out in proxy battles throughout the Middle East.
  • An independence referendum in Iraqi Kurdistan will lend new momentum -- and tension -- to negotiations between Arbil and Baghdad over oil revenue-sharing and disputed territories as Iraqi politicians prepare for crucial elections in 2018.
  • As the Islamic State continues to lose ground in Syria, the U.S.- and Russian-backed forces combating it will risk coming into contact with each other, increasing the danger of clashes between them that could draw their foreign sponsors further into the fray.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

Against the Nuclear Deal, the U.S. Stands Alone

From war in Syria, Iraq and Yemen to the independence referendum in Iraqi Kurdistan, Iran will have a hand in nearly every pressing issue in the Middle East this quarter. The region will thus be watching closely to see how Tehran interacts with the world, especially at a time when its nuclear deal with global powers is more fragile than ever. In an effort to curb Tehran's expanding influence in the Middle East, many U.S. officials are lobbying to reimplement some of the sanctions against Iran that the Joint Comprehensive Plan of Action (JCPOA) has frozen. U.S. President Donald Trump has also advocated extending the deal's duration, a stance that runs counter to the views of the accord's other signatories — namely, China, Russia, Germany, France and the United Kingdom.

The issue will come to a head on Oct. 15 when the U.S. State Department, following the president's recommendation, will decide whether to recertify the nuclear deal. Because most evidence, including the findings of the International Atomic Energy Agency, suggests that Tehran has upheld its end of the bargain, it will be nearly impossible for the White House to justify withholding certification on the grounds of a material breach by Iran. But Washington could choose not to issue the certification by arguing that the deal is not in the best interest of U.S. national security. Should the White House refuse to submit its certification — or to submit a report at all — the U.S. Congress would have 60 days to mull the reinstitution of sanctions tied to Iran's nuclear program.

Looking at the JCPOA

Given the enduring support for the agreement among Washington's allies, coupled with the intense U.S. focus on North Korea this quarter, U.S. lawmakers would not take a proposal to reinstate sanctions against Iran lightly. After all, the move not only would violate the deal but it also would hurt European and Asian companies that interact with Iran. Moreover, the United States would lose the trust and buy-in of its foreign partners, making it difficult to hammer out the extension of the deal's time frame that the president desires. Taken together, these consequences suggest that though the JCPOA is fragile, it will likely stay intact through the end of the year. Nevertheless, the White House will make its distaste for Iran's political and military activities throughout the Middle East known, and it will hem in Tehran where possible by layering on new sanctions unrelated to the country's nuclear program and by ordering swift military responses to Iranian provocation.

Despite wavering U.S. support for the JCPOA, Iran will try to keep the deal in place by firming up its ties with other parties to the agreement, maintaining compliance and improving its international image. Unshackled from a heavy sanctions regime, the Iranian economy has rebounded since the JCPOA's implementation, and few factions in Tehran are willing to undo that progress. In fact, the broad scope and quantity of Iran's recent economic deals with countries across Europe and the Asia-Pacific attest to its eagerness to leave its international isolation behind. In much the same way, Iran has begun to rehabilitate its image as a rogue state, albeit in part to deflect attention away from its use of proxies in conflicts throughout the region.

Iran Keeps Its Enemies Close

Iran's attempts to normalize its role in the international community won't end with its recent trade deals with Europe. As pressure from Washington mounts, Tehran will seek relief elsewhere by gradually rekindling ties with Saudi Arabia and Turkey. Less hostile relations with these longtime competitors would enable Iran to keep its rivals close while achieving certain goals, including the repair of its reputation.

Since Saudi Arabia executed a prominent Shiite cleric in early 2016, inciting an attack against the Saudi Embassy in Iran, ties between Riyadh and Tehran have been particularly acrimonious. But the kingdom will have motive to explore a limited rapprochement with Iran: Saudi Arabia is preparing for a sensitive leadership transition, and it aims to mitigate the extent to which Tehran can undermine the government in Riyadh. Iran, for its part, hopes to prevent Saudi Arabia's influence from stretching into its own diplomatic strongholds.

While the longtime rivals test the waters of cooperation, the competition between them will persist. Their contest will take center stage in Iraq, which has found itself at crossroads of sorts. Over the past few months, Saudi Arabia (and to some extent, Kuwait and the United Arab Emirates) have made inroads into Iraq's political and security apparatuses, offering support to Iraqi politicians from many different religious and ethnic backgrounds as the war-torn nation prepares to rebuild itself — and to hold provincial and parliamentary elections in the first half of 2018.

Iraq's top Shiite politicians will have to find a way to balance the nationalist demands of voters with the insistent support of its historical ally, Iran, and the fresh aid of its newfound partner, Saudi Arabia. The Sunni kingdom has made clear its intention to broaden its appeal throughout the country — and to increase its presence in territory Iran has traditionally considered its domain — by preparing to build two consulates in the central Shiite-majority regions of Iraq. The move will demonstrate the Iraqi government's independence from Iran and boost politicians' legitimacy among Arab voters ahead of the 2018 votes.

A Slow Burn in Syria and Yemen

The interests of Saudi Arabia and Iran will collide on yet another Middle Eastern battlefield: the Yemeni civil war. With no end in sight to the protracted conflict, the cracks within the country's northern and southern alliances have begun to spread. To the north, the pragmatic alliance between the Houthis and the followers of former President Ali Abdullah Saleh has come under increasing strain as the two factions' members have fought each other. Still, the rebel coalition will endure as long as a political resolution to the war remains elusive. And with each new attempt by Houthi rebels to launch missiles toward Saudi Arabia, Riyadh will become more convinced that Iran is lending weapons to them, worsening the threat on the kingdom's border. The southern movement, meanwhile, will seek more autonomy from the Gulf states and Aden-based government on its side.

In the Levant, Syrian forces backed by the United States will wrap up their operation against the Islamic State in Raqqa this quarter. As the extremist group steadily loses ground in Syria and Iraq, troops loyal to Damascus will consolidate their positions in Deir el-Zour before pressing eastward toward the Iraqi border. They will race to get to their destination before the U.S.-aligned Syrian Arab Coalition (SAC) can intercept them by striking southward along the Khabur River, but the risk of intermittent clashes between the two groups will be high. Though efforts by the United States and Russia to deconflict the battlefield will prevent the situation from escalating, both parties will vie for control of oil fields in the area — including Syria's largest, the al-Omar field.

The Iraq-Syria Battlespace

In the meantime, Turkey will concentrate its efforts on reversing the gains of the Kurdish People's Protection Units (YPG). To that end, Ankara will launch fresh attacks against the group in its stronghold, the Afrin canton. But there Turkey will encounter stiff resistance from Russia, which maintains a military presence in the area and has repeatedly blocked the movement of Turkish forces in Syria before, despite Ankara's attempts to negotiate with Moscow (and Tehran) for an opportunity to pursue its offensive against the YPG. Turkey likewise will remain frustrated by continued U.S. support for Kurdish fighters and their close ally, the SAC.

Within the Syrian peace talks hosted in Astana, Kazakhstan, Russia and Iran have tried to persuade Turkey to rethink its aid for rebel groups in Idlib. And as it happens, an unlikely source of support for their cause has emerged: Hayat Tahrir al-Sham. Cognizant of a loyalist attack on the horizon, the Salafist militant group has shored up its defenses in Idlib province for months, beating back Turkey's rebel partners in the process. Eager to reclaim the ground and influence it has lost to Hayat Tahrir al-Sham, Turkey may choose to take a more active military role in the province's north as Russian- and Iranian-backed loyalists attack the group in the region's south and east over the next few months.

As the momentum of the Syrian civil war shifts in the loyalists' favor, one of their primary allies — Lebanese militant group Hezbollah — will be free to amass its forces on Israel's borders once more. Aware of the impending return of its Iranian-backed adversary, Israel will step up its strikes against Hezbollah and its partners before the organization has a chance to regroup. Iran's increasing influence in Syria could encourage Israel to take even swifter action against Hezbollah, though doing so would first require complex negotiations with Russia. Regardless, Israel will move aggressively in Syria in the coming quarter as Iran's lasting presence there becomes more and more assured.

Kurdish Independence Is Still Just out of Reach

One of the few things Middle Eastern powers can agree on is the Kurdish referendum. The stateless nation's long-awaited vote to claim independence from Iraq's central government took place on Sept. 25, resulting in a resounding "yes" that granted the ruling Kurdistan Democratic Party (KDP) the popular mandate it sought. Now the party will use that mandate to fortify its position at the helm of Iraqi Kurdistan and to improve its standing in negotiations with Baghdad over energy rights, finances and disputed territories. But the KDP's biggest rivals — the Patriotic Union of Kurdistan and the Gorran party — will work to secure their share of political and financial power during talks with Baghdad, which will begin in earnest in 2018 after the central government's fury with the referendum subsides. And as the Kurdish parties try to ensure that the plebiscite's outcome is realized, the fissures among them will deepen, fueling discord that will be made clear in parliamentary and presidential elections slated for November.

Actual and Claimed Territory of Iraqi Kurdistan

Kurdish infighting will only worsen as the KRG's biggest financial backers — Turkey, Iran and the United States — support Baghdad's position and withhold additional aid to Arbil to keep the referendum from becoming anything more than a symbol, for the sake of stability throughout the region. Now that the immediate Islamic State threat has diminished, the Kurdish and Arab forces arrayed against it are at risk of turning their ire toward one another as they struggle for control over valuable territories. Arbil and Baghdad both have militias in disputed regions such as Kirkuk and Diyala, and as tension between them rises, so will the risk of clashes on the ground. United in their disapproval of the referendum for fear of the precedent it will set for their own Kurdish communities, Iran and Turkey will use their proxies in Iraqi Kurdistan to defend their interests in those territorial disputes this quarter. And as they work with Iraq's central government to contain the fallout from the vote, their relationships with Baghdad will grow ever closer. 

Rows and Reforms in the GCC

Across Iraq's southern border, Saudi Arabia will be dealing with a few crises of its own. In recent months, the kingdom has led a handful of its peers in the Gulf Cooperation Council (GCC) in a campaign to isolate Qatar as punishment for some of its policies. The spat has laid bare the flaws in the bloc's plans for greater integration by exposing its members' conflicting imperatives. For instance, Saudi Arabia and the United Arab Emirates share the goals of halting the spread of both Iranian influence and Islamist groups — two of the main motives behind the blockade against Qatar — but their operational priorities diverge. Qatar's recent resumption of ties with Iran, moreover, has shown the extent to which the blockade has backfired, as well as the extent to which Doha is banking on its relationships with Tehran and Ankara to resist the damaging effects of its isolation.

In the long run, the blockade will weaken the fabric of the GCC in its entirety. Tit-for-tat media wars will continue long after the two sides reach a diplomatic solution to the standoff, and their enduring enmity will be on full display during the bloc's annual summit in December — if it is even held. Nevertheless, the GCC states will individually try to pull together their 2018 budgets and meet their agreed-upon January deadline to enact a common value-added tax. Mutual mistrust, fanned by the feud with Qatar, will not make either of these goals easier to achieve.

As this quarrel plays out, Saudi Arabia will face the added challenge of seeing through several sweeping changes within the highest ranks of its government. Recently anointed Crown Prince Mohammed bin Salman will be keen to ensure that he has the firm support of the country's leaders and populace, particularly after overhauling the kingdom's security agencies. His attention to his political base has only increased amid rumors of the king's impending abdication, indicating that he will likely assume the throne in the near future. Saudi authorities' recent arrest of several prominent clerics, activists and scholars signals the prince's intent to clamp down on dissent as the royal succession looms and as Riyadh's financial problems persist. The kingdom will struggle to boost its non-oil revenues during the fourth quarter while putting into practice the latest iteration of a plan to increase employment among its citizens. All of these tumultuous changes will give Saudi Arabia added reason to seek calm where it can, including in its relationship with Iran. 

In Libya, a Peace Process Renewed

Libya will be anything but calm in the coming quarter as the representatives of the Tripoli-based Government of National Accord and the Tobruk-based House of Representatives continue to negotiate a political resolution to the conflict, a new constitution and the role of Field Marshal Khalifa Hifter's army in any future unity government. Though a United Nations-led action plan unveiled in September has reinvigorated the talks, they are unlikely to lead to a breakthrough before the end of the year. After all, Hifter is still a divisive figure in western Libya who controls enough of the country — and boasts enough foreign support — to continue holding out as his political rivals in the west weaken.

Libya's Governments

Libya's oil production will remain as volatile as its politics. Though output peaked at about 1 million barrels per day in July — the highest figure seen since 2014 — the spike was short-lived. Security personnel and militias shut down several key pipelines and oil fields in August and September in an attempt to barter for higher salaries or unpaid wages. The use of pipelines as leverage by local communities and militias is a consistent feature of Libya's energy industry and will likely continue over the next few months.

Meanwhile, the Islamic State's Libyan branches have resurfaced. After launching several attacks during the third quarter, the militants will likely continue to threaten security checkpoints and oil and water infrastructure through the year's end. Their activity will encourage tactical cooperation between rival Libyan forces who share the goal of stamping out the Islamic State, such as Bunyan al-Marsous and Hifter's Libyan National Army.

The return of Islamic State branches will not be unique to Libya. As the extremist group loses ground in Iraq and Syria, it will revert back to the insurgent and terrorist tactics it relied on before the establishment of its so-called caliphate. At the same time, it will focus on boosting its wilaya, or provinces, in the Sinai Peninsula, North Africa, Afghanistan and Pakistan to divert attention from its setbacks on the battlefield. Despite its loss of territory and manpower, the Islamic State still has viable propaganda outlets capable of inspiring grassroots attacks around the world. But though these outlets have called for sophisticated and elaborate operations, from cyanide poisonings to train derailments, the types of attacks the group's followers are more likely to conduct will be tactically simpler knife and vehicular assaults.



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 characterize North America will prove elusive.
11 MINS READSep 28, 2017 | 13:57 GMT
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

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 United States will try to implement some of its proposed protectionist trade policies during the fourth quarter by working to renegotiate NAFTA to its advantage and advancing a trade investigation into Chinese technology transfer demands on U.S. companies.
  • Venezuela's state-owned energy company and government run the risk of a financial default before the end of the year, raising the possibility of greater social unrest or an attempted military rebellion as the current administration tries to cling to power.
  • Colombia's president will push Congress to pass the legislation necessary to implement his government's peace agreement with the Revolutionary Armed Forces of Colombia, but he may not sway lawmakers before the end of the year.
  • In Brazil, President Michel Temer's coalition will stay strong enough to prevent his removal from office over the criminal investigations underway against him.
  • The Common Market of the South, better known as Mercosur, and the European Union will move closer to signing a free trade deal.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

The U.S. Puts Its Trade Policy Into Practice

The United States will continue putting its trade policies into action during the fourth quarter. Negotiations to update the North American Free Trade Agreement will move into full swing as the year winds down. But considering the challenges entailed in harmonizing the three signatory countries' priorities, the negotiations probably won't wrap up this quarter as planned and likely will drag into next year. That means the revised NAFTA won't take effect until later in 2018 at the earliest, since the U.S., Canadian and Mexican legislatures will each need to approve the new agreement.

As the talks progress, they will reveal the protectionism that still underpins U.S. President Donald Trump's trade strategy despite the White House's efforts to distance itself from the more defensive policies he espoused on the campaign trail. Washington will focus on retooling the free trade deal to reduce the United States' bilateral trade deficits — particularly the $66 billion disparity in its dealings with Mexico last year. To that end, the U.S. administration will push for more stringent rules-of-origin requirements, as well as domestic content requirements for the U.S. steel and automotive sectors. The latter policy could become a sticking point. Content requirements in multilateral deals, after all, typically apply to content produced in the bloc as a whole, rather than in a single signatory country. Ottawa and Mexico City will also face pressure from Washington to increase U.S. access to their domestic markets and, in Mexico's case, to improve wages, labor standards and environmental standards.

U.S. Goods Trade Deficit With Mexico

At the same time, Mexico and Canada have their own priorities for the negotiations. Canada, for example, wants to keep the Chapter 19 dispute settlement mechanism, though the United States already has said it wants to do away with the institution. The chapter prescribes binational panels to rule on anti-dumping and countervailing duties cases, and without it, disputes would go through member states' domestic courts to be adjudicated by judges who don't necessarily specialize in foreign trade. Ottawa would rather avoid that scenario. In addition, it will press the United States to allow for freer movement of labor among NAFTA members, a new chapter on labor standards and enhanced access to government procurement. By advocating these changes, Canada hopes to make the most of the renegotiations. Mexico, on the other hand, would sooner leave the agreement alone. Its main objective for the renegotiations is to preserve its extensive access to the U.S. market. But to do that, Mexico City will have to resist Washington's efforts to make its exports less competitive under the new agreement and oppose U.S. attempts to erect additional trade barriers.

NAFTA isn't the only trade deal under the United States' microscope. The White House also has targeted the United States-Korea Free Trade Agreement, or KORUS, for revisions. But because the Trade Promotion Authority Act requires Washington to give Congress 90 days' notice before entering official negotiations with Seoul, talks to amend the deal won't begin this quarter.

Beyond trade deals, the United States will continue to advance its economic interests abroad with investigations into China's trade practices. The inquiry into China's technology transfer requirements for U.S. companies investing in the country will continue to be the centerpiece of the investigations. The Trump administration is looking into whether Beijing's policies on intellectual property, including stipulations that U.S. firms must share technology with China in exchange for market access there, violate World Trade Organization (WTO) agreements or unfairly discriminate against American businesses. During the fourth quarter, the United States will focus on gathering facts to build its case against China, though it probably won't pursue action against the country — either unilaterally or through the WTO — until next year. The path Washington chooses against Beijing will depend in part on what the investigation uncovers, but in the past, White House officials have argued in favor of bypassing the WTO when challenging China's trade practices.

Default Looms Large in Venezuela

In Venezuela, the government has more pressing concerns. Having temporarily gained the upper hand over the dissidents in its ranks, the ruling United Socialist Party of Venezuela (PSUV) will focus in the fourth quarter on ensuring the current administration's longer-term survival. It will keep ruling by decree through the National Constituent Assembly (ANC), a body designed to skirt the opposition-controlled congress and cement the PSUV's absolute power over the country. Nevertheless, as inflation continues to skyrocket and dissatisfaction grows among the lower ranks of the armed forces, the ruling party will face its share of challenges this quarter.

The most immediate threat to the administration will be the possibility of financial default by state-owned oil company Petroleos de Venezuela (PDVSA) or the central government. If PDVSA defaults on its foreign debts, Venezuela's already declining oil production would plummet within months as oil services companies and joint venture partners pull out. The drop in oil production, in turn, would translate into reduced food imports and rising inflation, spurring greater social unrest and raising the risk of a military rebellion.

Considering that the government has less than $2 billion in its liquid reserves — and $3.6 billion in loan repayments due mostly in October and November — Caracas may well default if it doesn't secure more funding. And since the United States has virtually cut off Venezuela's government from its financial system, Caracas would have to turn elsewhere for financial help. It could try to work out a one-off agreement, for example by arranging a bond buyback with its Chinese creditors, restructuring or delaying its repayments to other creditors, or cobbling together additional purchase agreements with other oil companies. Even if it avoids default in the fourth quarter, however, that danger will follow it into next year.

The fate of Venezuela's foreign obligations, and its government, rests partly in Washington's hands. By resorting to rule by decree through the ANC, Caracas has invited heavier sanctions from the United States — a tool Washington will keep handy throughout the quarter and beyond. The U.S. government has an array of options to increase the pressure on Venezuela, including additional sanctions against individual politicians and more severe measures such as a ban on imports of Venezuelan oil, which would make default almost inevitable. But Venezuela is hardly the only foreign policy issue facing the United States. As the U.S. government juggles competing crises around the world, it will take a measured approach to Venezuela for now to avoid triggering a full-blown catastrophe in its own backyard.

Mexico, meanwhile, could take advantage of Venezuela's straits. This quarter, it will move forward with negotiations to facilitate exports of oil and fuel to Cuba. The prospective arrangement could benefit Mexico in a couple of ways. For one thing, it would boost the country's influence in the region. For another, it would help Mexico drive a wedge between Cuba and Venezuela, giving Mexico City leverage with the United States. Cuba may have less reason to continue its close security alliance with Venezuela if it starts getting its oil from Mexico. Weakening the relationship between Caracas and Havana, in turn, would help the United States coerce the Venezuelan government into returning to a more democratic rule.

Colombia Ties Up Loose Ends

Colombia is still trying to bring its peace deal with the Revolutionary Armed Forces of Colombia (FARC) into effect. The government in Bogota will use the fourth quarter to try to wrap up legislation pertaining to the agreement. For outgoing Colombian President Juan Manuel Santos, the biggest priority will be to push legislation to begin the amnesty process for former rebels. The measures have been held up in the legislature because many lawmakers have been campaigning for re-election instead of passing bills. The Radical Change party, whose votes are necessary for the laws' passage, has also refused to vote on them unless specific changes are made. Santos has issued a decree to get amnesty courts up and running, but he still needs to pass the legislation that will keep them operating for years. If the Santos administration can't corral enough legislators into Congress to pass the laws during the current session, which ends in December, it will likely try to convene extra sessions to get the bills through. Otherwise, the process will bleed into next year, when preparations for the general elections kick into high gear. It's unclear whether Santos will succeed in this endeavor, however, given the divisions in the legislature.

As it scrambles to finish its peace deal with the FARC, the Colombian government may find itself with two more peace negotiations on its hands. The smaller National Liberation Army (ELN) will enter a cease-fire with the government Oct. 1. If the group manages to avoid kidnapping civilians or attacking security forces and energy infrastructure from that date until Jan. 12, it will improve its chances of continuing peace talks with the government after the next administration takes office in 2018. The Gaitainista Self-Defense Forces of Colombia (AGC), meanwhile, will also try to negotiate an eventual demobilization deal with the government. Like the FARC and ELN, the criminal organization will need special legislation to sanction its surrender. But in light of the upcoming elections, seeing the bill through the legislative process this year would be a tall order. Instead, the AGC's surrender proceedings will likely begin next year should the group decide to follow through with its demobilization.

Mercosur Takes a Step Toward Freer Trade

Negotiations will also figure prominently this quarter in the Common Market of the South, better known by its Spanish acronym, Mercosur. The bloc's member states are working to expand their foreign trade partnerships. After a year of discussions, negotiators from Mercosur and the European Union will be closer than ever to clinching a free trade deal; they may reach a political agreement over a future pact this quarter, before ironing out the details next year. The South American bloc's negotiating team will lobby to raise EU import quotas for select goods. Though the European Union probably will agree to increase its import quotas of beef and ethanol, products that rank among Mercosur's key exports, it may refuse to include sugar — one of Brazil's biggest export commodities — in the final deal.

Mercosur's Trade With the EU and China

As the bloc progresses toward expanding its trade ties, some of Mercosur's members will spend the quarter mired in domestic political and economic problems. In Brazil, for example, corruption investigations will keep threatening to topple President Michel Temer, but his strong ruling coalition will stave off impeachment for as long as it can. Voting to allow Temer to stand trial would disrupt parties' planning ahead of the October 2018 presidential and legislative elections; Brazilian politicians intend to use the quarter to cement their alliances and winnow their lists of potential candidates. Similarly, beginning impeachment proceedings against the president would probably have unpleasant repercussions, such as delaying the EU-Mercosur trade deal. Given the alternatives, Temer's coalition is more likely to try to keep him in power until the end the end of his term.

At the same time, Brazil will move to auction off blocks of pre-salt oil in the fourth quarter. Interested companies will submit bids for eight blocks Oct. 27. The auction is part of the Temer administration's campaign to tone down Brazil's resource nationalism and keep the country an attractive destination for international oil companies. To that end, the government has revived tax incentives for energy investments in Brazil and removed requirements mandating that state energy company Petroleo Brasileiro (Petrobras) operate each oil block in Brazil. The upcoming auction will reveal whether its efforts have paid off.

In Argentina, the results of the next legislative elections will determine the pace of economic reform in the country. Argentine voters will cast their ballots Oct. 22 to elect legislators to 127 of the 257 seats in the Chamber of Deputies and 17 of 72 seats in the Senate. Going into the election, President Mauricio Macri's Cambiemos coalition holds one-quarter of the seats in the Senate and just over one-third of those in the lower house. A significant setback in the election would risk slowing Macri's drive for reforms. If Cambiemos maintains or improves its position in Congress, on the other hand, Macri's government will feel confident enough to move ahead with economic measures in 2018, including proposed changes to the tax and labor laws. The labor reform will prove particularly contentious. Argentina's labor unions will resist the measure, which would make it easier for businesses to hire and fire employees, thereby threatening their political influence and collective bargaining power. And even if it makes gains in October's election, the ruling coalition probably won't secure the majority it needs to pass the reforms itself and will have to turn to the opposition for help.

While elections in Argentina could give proposed reforms a boost, Chile's presidential election Nov. 19 will probably postpone a change to the country's pension system. Cutting public spending is a priority for Chile, where low copper prices have taken a toll on the country's commodity-heavy economy. But as the election approaches, Chile's legislature likely will refrain from voting on potentially controversial measures to reduce pension payments. Instead, lawmakers will probably wait to pass bills about pension reform until 2018.


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.

7 MINS READSep 28, 2017 | 13:57 GMT
Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

section Highlights
  • India's ruling Bharatiya Janata Party will focus on working out the kinks of tax reform implementation during the quarter, bumping land and labor reforms off this year's legislative agenda.
  • Weak credit growth and tepid private investment will contribute to the continuing economic slowdown in India and put pressure on the government to respond with stimulus measures.
  • India will keep building up infrastructure and military assets along its contested border with China to improve its response capabilities, while cautiously expanding its security cooperation with Japan and the United States to counter Beijing's assertiveness.
  • Despite pressure from the United States to change its behavior, Pakistan will stick to its current strategy in Afghanistan as 3,000 U.S. troops arrive, dimming the prospects for negotiations with the Taliban to end the war.
  • India and Pakistan alike will work to contain Zakir Musa's new al Qaeda branch in Kashmir, which threatens both countries with transnational jihadism.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

India's Internal Evolution

Over the first three quarters of this year, India's ruling Bharatiya Janata Party (BJP) focused on bringing the Goods and Services Tax into effect. The ambitious measure is part of a decadeslong effort to formalize the Indian economy and, in turn, to fight poverty, create jobs and push the country toward middle-income status. As the year enters its final stretch, New Delhi will keep pushing the initiative by working to smooth out the bumps in the tax program's implementation. The government, striving for several consecutive months of efficient tax collection, will fine-tune the IT infrastructure underpinning the new system to reduce errors. At the same time, businesses in India's vast informal economy will keep taking steps to comply with the new system, however reluctantly. Companies will have little choice but to accept the Goods and Services Tax, though they will protest the administrative burden that the complex new structure has put on them.

The GST: Moving Toward a United India

With its focus locked on the tax system, the Indian government probably will defer investing political capital in land and labor reforms during Parliament's winter session this quarter. New Delhi doubtless will try to relieve the strain on state-owned banks and corporations that has constrained credit growth, along with private and household investment, but it won't manage the task before the end of the year. As a result, India's economy will continue to slow this quarter, and job growth will remain lackluster. Prime Minister Narendra Modi will be more willing to take dramatic executive actions, like the controversial demonetization scheme and cattle slaughter ban he introduced earlier this year, to show his base that his administration is still making progress.

Apart from its economic struggles, India's government will face challenges to its policies this quarter as well. As the ruling party asserts its political dominance, and as the opposition fails to muster a unified front to counter the prime minister, the country's judiciary will assume a more prominent role as a check on the Modi administration. The Supreme Court's recent landmark decision that privacy is a fundamental right, for example, will continue to reverberate in India as cases related to the government's biometric data collection program wend their way through the court system. And in Gujarat, the results of a state election could reveal daylight between the Modi administration and the voters of his home state, whose influential textiles industry decried the Goods and Services Tax.

India Takes on China

On the foreign policy front, China will command India's attention this quarter. New Delhi will prioritize speeding construction on 73 strategic roads leading to its contested border with China in the wake of their recent standoff on the Doklam Plateau. The onset of winter, however, will impede progress on the projects, which will continue to languish after years of fitful development. The Indian government also will continue working with the United States and Japan toward the informal trilateral defense partnership Washington has proposed to counter China's activities in the Asia-Pacific region. India will support Japan by ramping up its criticism of North Korea — an action New Delhi can afford to take since it doesn't have much at stake in its relationship with Pyongyang. In addition, Modi will work to bolster India's trade ties with Southeast Asia under his administration's "Act East" policy by advancing the India-Myanmar-Thailand Trilateral Highway and the Kaladan multimodal port project with Myanmar. And as China pushes on with its Belt and Road Initiative projects in South Asia — namely the China-Pakistan Economic Corridor — New Delhi will work to undermine Beijing by affirming its support for freedom of navigation in the South China Sea.

Buildup on the Border

China's infrastructure projects could cause their share of political strife elsewhere in South Asia, too. In Sri Lanka, the government could face more public backlash as it moves forward with plans to grant Beijing access to 6,070 hectares (15,000 acres) of land for the Hambantota port project. Nepal, on the other hand, will have fewer qualms as it looks to capitalize on the $8 billion in investments China promised it this year for projects including infrastructure development ventures. Voters in the country will head to the polls in November to elect their next prime minister, marking an important benchmark on Nepal's path to democracy. Though India and China have intensified their struggle for influence in Kathmandu over the past year, the competition probably won't sway Nepal's next leader. Instead, whoever wins the upcoming election likely will continue the country's outreach to Beijing as part of a strategy to diversify Nepal's strategic partnerships beyond India.

While nearby countries grapple with China's growing clout in the region, Bangladesh will be preoccupied with a different issue. Relations between the country and neighboring Myanmar will become more difficult as the Bangladeshi government in Dhaka accommodates more than 300,000 Rohingya refugees. Myanmar's government is reluctant to take back the displaced population because of the potential political costs for the country's de facto leader, State Counselor Aung San Suu Kyi.

Afghan Security Deteriorates as Pakistan Digs Its Heels in

Afghanistan, meanwhile, is bracing for an influx of foreign troops. Following through with the strategy it proffered in the third quarter to stabilize the South Asian country, the United States will send more than 3,000 military personnel to Afghanistan this quarter. The troops will be on hand mainly to train, advise and assist Afghan security forces in their long-standing war against the Taliban, and the additional deployment could help slowly turn the tides of the conflict in Kabul's favor.

U.S. Troop Levels in Afghanistan

But a breakthrough on the battlefield would require a heavier air and ground presence as well a concerted effort from Pakistan to goad the Taliban's leadership to the negotiating table. To that end, Washington will pursue a political campaign aimed in large part at pressuring Pakistan into cracking down on the militant groups it hosts. The U.S. administration will consider more stringent punitive actions against Islamabad, including withholding more of the $1 billion annual aid package it has pledged to Pakistan, sanctioning officials in the Pakistani government and even revoking the country's non-NATO major ally status. The threat of these measures, however, will only compel Pakistan to strengthen its alliances with regional powers such as China, Russia, Turkey and Iran. What's more, U.S. efforts to encourage India to get more involved in Afghanistan could deepen Islamabad's resolve against Washington (though the Indian defense minister announced Sept. 26 that New Delhi would not send troops there).

And so, Pakistan won't make any significant changes to its foreign policy on Afghanistan, regardless of U.S. ultimatums. Nevertheless, to try to pre-empt more pressure from Washington, Pakistan will attempt a fragile rapprochement with Afghanistan.

On the domestic front, Pakistan's political parties will spend the quarter preparing for national elections in 2018. Former Prime Minister Nawaz Sharif's anti-corruption trial will continue to play a defining role in the country's politics throughout the quarter. The opposition will try to seize on Sharif's ouster and the proceedings against him to break his Pakistan Muslim League-Nawaz (PML-N) party's stranglehold on Punjab, the country's most politically consequential province. So long as Sharif maintains cohesion in the party, though, the opposition will fail in this endeavor. The current prime minister, moreover, will help ensure the PML-N's dominance by prioritizing energy projects, including a coal-fired power plant in Port Qasim and the Suki Kinari hydropower station, as part of the government's pledge to end electricity blackouts before the next elections.

Finally, after a relative lull in previous months, tensions could rise again between India and Pakistan in the fourth quarter. India's ruling party could try to whip up enmity toward Pakistan among its public to try to win the Hindu nationalist vote in Gujarat. Coupled with the risk of a cross-border attack into Indian-administered Kashmir, and the chances — however modest — that New Delhi will enhance its presence in Afghanistan, the increased animosity toward Pakistan could heighten hostility between the longtime rivals. Yet on at least one issue, New Delhi and Islamabad will remain in a rare and inadvertent alignment as they try to contain Zakir Musa's new al Qaeda branch, which threatens Pakistan and India alike with transnational jihadism



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.

7 MINS READSep 28, 2017 | 13:57 GMT
Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.

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
  • Increased checks on White House power and expanded sanctions from the U.S. Congress will limit President Donald Trump's options for de-escalating tensions with the Kremlin, while the Russian elections slated for 2018 will keep Moscow from making major concessions to the West.
  • Russia will continue to publicly support the limited sanctions on North Korea that the United States has pushed even as it quietly skirts them behind the scenes. And Moscow probably will veto more substantial measures against Pyongyang.
  • The negotiations over the Ukraine conflict will pick up this quarter because of Russia's proposal to deploy a U.N. peacekeeping force in Donbas, which could ease the pressure on Moscow and give it more leeway in dealing with the United States and the European Union.
  • Ahead of presidential and local elections, the Kremlin will try to manage the deepening divisions and burgeoning protest movements among the Russian electorate.
  • Russia will use the political instability and growing threat of militancy in Central Asia to strengthen its security presence in the region.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

Echoes of the Cold War

The standoff between Russia and the West will continue through the fourth quarter. Diplomatic spats, strategic differences and political tensions will persist between Russia and the United States. In Washington, U.S. President Donald Trump's administration will have few options for alleviating the strain because of heightened checks on the president's power and expanded sanctions from the U.S. Congress. In Moscow, meanwhile, upcoming local and national elections will prevent the Kremlin from making significant concessions. As a result, sanctions enacted on Russia by the United States and the European Union likely will stay in place through the end of the year. Depending on how the investigations into Russia's role in the 2016 U.S. presidential election shape up, Washington may even ramp up the political and economic pressure on Russia.

Similarly, North Korea will be a critical issue in determining the direction of U.S.-Russian relations over the fourth quarter. Russia will keep going along with the limited sanctions that the United States has pursued against Pyongyang, but Russia will also skirt the measures and provide economic assistance to North Korea as it sees fit. In addition, it will probably veto more substantial measures offered against North Korea's government. As Moscow's stance toward Pyongyang puts it more at odds with Washington, its relationship with China will continue to improve. Moscow and Beijing, after all, are united in their opposition to the U.S. missile defense plans in their regions, and they will work to undermine the U.S. alliance with Japan and South Korea by emphasizing their differing interests. At the same time, Moscow will try to create inroads to stronger economic relationships with Tokyo and Seoul, playing them off each other, and off Beijing, to its advantage. Japan and Russia have another round of talks over economic cooperation planned for November, though China is still Moscow's main partner in the region.

Meanwhile, near Russia's western border, negotiations over the conflict in Ukraine will pick up as the year winds down. Russia's proposal to send a U.N. peacekeeping force to Donbas will gain traction this quarter, despite disagreements between Russia and Ukraine, along with its Western supporters, over the deployment's parameters. The plan probably won't come to fruition by the end of the year. Nevertheless, it could reduce the violence in eastern Ukraine, easing the pressure on Moscow and giving the Kremlin more room to maneuver with the United States and the European Union in the process. And although the United States will continue to threaten to send lethal weapons to Ukraine, it won't follow through on the rhetoric, which was intended merely to deter Russia from ramping up the violence in Donbas.

Two other breakaway territories in Eurasia — Transdniestria and Nagorno-Karabakh — will remain potential flashpoints this quarter. The joint border controls that Moldova and Ukraine imposed in Transdniestria will spur Russia to increase its security activity there, whether by conducting more frequent military exercises or amassing more weapons in the territory, for instance. And in Nagorno-Karabakh, the long-simmering standoff between Armenia and Azerbaijan could flare up again. Still, the disputed regions will avoid full-blown war for the remainder of the year.

Breakaway Territories in the Former Soviet Space

Compared with the prospects for progress in Ukraine, the chances for a breakthrough in the Syrian civil war, where Russia is involved militarily in support of the Syrian government, will be slim in the fourth quarter. Negotiations between the United States and Russia have so far largely stalled at deconfliction, and both sides will be wary to compromise beyond perhaps arranging another cease-fire. Their differences notwithstanding, Washington and Moscow will strive to prevent escalation as Russian- and Iranian-backed loyalist troops converge on Deir el-Zour, where U.S.-supported rebel forces are fighting the Islamic State. Israel also will try to negotiate with Russia to limit Tehran's influence as Iran and the loyalists gain momentum in Syria. Moscow, however, will be focused on hammering out tactical agreements and arranging safe zones with Iran and Turkey. Moscow may make some headway with Ankara and Tehran in this endeavor, but their competition for influence in the region will keep them from reaching a comprehensive deal.

Closer to home, Russia will maintain a larger military presence in its Western Military District and leave some of its military assets in Belarus in the wake of the Zapad military exercises, held in mid-September. The United States and NATO, in turn, will boost their security support for the Baltic states to counter Russia's buildup and discourage Moscow from taking offensive action.

Keeping a Lid on Growing Opposition

As Moscow works to shore up its borderlands and secure its interests abroad, the Kremlin is gearing up for a domestic political battle. With less than six months to go before the next presidential election and with local votes following close behind, the current administration will bolster strategic sectors to help Russia's slow economic recovery. Many Russian firms and banks are still on shaky ground since the country pulled out of a recession earlier this year, and the Kremlin will be sure to bail out or take over those businesses that could make the most difference to the electorate. To keep voters happy, Moscow will also use its limited funds to prioritize social spending, craft a less austere budget for 2018 and broker deals in and beyond OPEC to prop up oil prices ahead of the elections. Concurrently, Moscow will have to contend with growing opposition movements.

Russian Protests

Even so, the Kremlin will manage to contain the unrest this quarter. President Vladimir Putin's popularity is still more or less intact, despite the popularity of various opposition groups, some of which chalked up significant wins in September's municipal elections and continue to gain supporters. To keep the growing movements on the left and right from coalescing into a credible political threat, the government will seize on their differences and detain their leaders. And using its new laws on social media, the Kremlin will shut down online platforms as needed to thwart protests and flood others with pro-government messages to influence voters.

The struggles among members of Russia's political elite, meanwhile, are becoming increasingly pronounced as two prominent factions work to maintain their influence. Oil czar Igor Sechin has expanded his power base over the past year by commandeering energy firms, accessing foreign funds, reshuffling the Federal Security Service and taking down his rivals. In response, Putin will continue building his coalition of politicians, silovarchs, financiers and National Guard personnel to protect his position as the Kremlin's ultimate authority. However, the president will refrain from launching crackdowns against his rivals ahead of the elections to avoid destabilizing the Kremlin. Clashes between the two camps could play out in the energy, finance and security sectors, as well as in the Cabinet.

Instability in Central Asia

Central Asia

Central Asia will experience its share of political upheaval this quarter as well. Kyrgyzstan's presidential election in October could spawn violent protests. (No matter who wins the vote, though, the country will still be aligned with Russia.) Furthermore, the economic weakness and political instability that have long beset the region will continue this quarter, and the threat of militancy will keep growing across Central Asia. The region's volatility, as well as its geographic proximity to Russia, will give Moscow a pretext to enhance its security presence there. In October, Russia will hold bilateral military exercises in Uzbekistan — its first in over a decade. Moscow will continue collaborating with Tajikistan to secure the Central Asian country's long, porous border with Afghanistan as the quarter progresses, while also holding discussions with Kyrgyzstan over a possible second Russian military base in its territory. Because of their shared interest in the region, Moscow and Beijing will work together in Central Asia to keep instability and militancy at bay. But their cooperation in the region will give way to competition in the long term.


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.

11 MINS READSep 28, 2017 | 13:58 GMT
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.

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
  • As their terms draw to an end, South African President Jacob Zuma and his Nigerian counterpart, Muhammadu Buhari, will work to strengthen the hands of their chosen successors, fueling infighting within their ruling parties as their ability to enact much-needed reforms declines.
  • A historic decision by Kenya's Supreme Court to redo the country's recent presidential election will increase the risk of ethnic violence and constitutional crisis as the expectations of the incumbent and his challenger mount.
  • The differences in the leadership transitions of Angola and the neighboring Democratic Republic of the Congo remain as stark as ever as the former's rigid succession plan steadily progresses and the latter's political process stalls, inviting new international sanctions.
  • Despite insufficient funding and an unclear organizational structure, the new G5 Sahel force will continue to receive political support and resources from France as Paris searches for a way to reduce its military presence in the perpetually unstable region.
See more on this Region

An emerging nuclear crisis on the Korean Peninsula will rise to the top of the United States' agenda this quarter, reducing the priority of less pressing issues as Washington works furiously to avoid -- and prepare for -- the worst. As the White House's gaze remains fixed on Pyongyang's arsenal, Europe, Japan and China will turn their attention inward to wrestle with important questions about their political futures....

Now Is the Season of Voters' Discontent

During the fourth quarter, all eyes in Africa will be fixed on a series of crucial elections taking place across the continent. Some, such as Angola's legislative elections, have already wrapped up, though their results are just beginning to be felt. Others have yet to be held in Kenya, South Africa, the Democratic Republic of the Congo and Nigeria. The impending votes will increasingly occupy the attention of the rulers of these countries, at times spurring intense competition among the political elite as opponents and populaces protest the leaders' attempts to cling to power a little longer.

South Africa: The Battle for Two Presidencies Begins

For South Africa's ruling African National Congress (ANC), the primary political battleground in the coming quarter will be a high-stakes party congress in December. At the summit, members will select a new party president, who will play a leading role in steering South Africa's economy and politics in the years ahead. He or she will also probably become the favorite to succeed Jacob Zuma as the country's president in 2019. Aware of the opportunity that winning the vote could present — and of the perils that losing to rivals could pose — factions within the ANC elite will be working furiously to shore up support ahead of the contest.

Having survived another vote of no confidence in August, Zuma will do all he can to strengthen the hands of his chosen successors in the run-up to the congress. This pro-labor, pro-security and ethnic Zulu camp includes Zuma's former wife Nkosazana Dlamini-Zuma. Should she clinch the December nomination, Dlamini-Zuma would likely take steps to support "radical economic transformation," including reforms intended to redress racial inequities in land ownership, to boost her party's popularity among the country's impoverished black majority before the 2019 presidential election. Moreover, the populist and patronage politics that have characterized the Zuma era would doubtless continue under her rule, as would the pervasive infighting that such tactics have historically fueled within the ANC.

If Zuma fails to install one of his trusted allies at the head of the ruling party, the process of handing off the national presidency would become far more fraught. Zuma's opponents could even try to remove him from his post early. Groups within the ruling party aligned against the president, led by Cyril Ramaphosa, have already begun using perceptions of corruption and mismanagement within the ANC to rally their supporters. But even if Ramaphosa manages to become the party's next chief, he will still have to grapple with the same electoral realities that have shaped Zuma's policies. And to keep the peace within the party, Ramaphosa would have little choice but to seek additional funding for populist programs while abandoning many of his pro-business proposals for reform.

Nigeria's North-South Divide Deepens

Nigerian politicians are gearing up for crucial party primaries as well. The country will hold presidential and parliamentary elections in early 2019, but the ailing President Muhammadu Buhari has brought the leadership transition to the forefront of the nation's consciousness ahead of schedule.

After spending more than three months overseas and out of the public eye to receive medical attention, Buhari returned to Nigeria on Aug. 19. But he has continued to lean on Vice President Yemi Osinbajo to fulfill the day-to-day duties of governing Africa's largest economy. Osinbajo has exercised skillful leadership in the president's absence, but concerns about Buhari's health have renewed doubts about the president's ability to head up the All Progressives Congress (APC) ticket in 2019. And as the possibility of another lengthy trip to London for medical treatment looms, Buhari will struggle to make his presence felt in the fourth quarter.

The continued empowerment of Osinbajo — a southerner from Lagos — could also exacerbate regional competition and generate further unease within the ruling party. The APC contains a group of northerners who defected from the People's Democratic Party (PDP) in 2015 in response to the controversial re-election bid of former President Goodluck Jonathan, a southerner, which threatened to disrupt the careful rotation of power between Nigeria's regions. Uncertainty about the political future of Buhari, who hails from the north, could spur disillusionment among the APC's northern faction and perhaps even defections to the rival PDP, which intends to select a northern candidate to top its ticket in 2019. At the same time, competition among rival factions within the ruling party will intensify. Each of these factors will weaken the APC in the long run, forcing it to lean on its base of support in the south instead of equitably distributing national resources across the country.

Even so, Osinbajo's continuing influence over policy may promote peace in one particularly restive region: the oil-producing Niger Delta. The vice president has consistently called for reconciliation with militants in the area, a stance that could further efforts to find a lasting peace deal between the region and the central government. The amount of resources that Abuja can devote to the Niger Delta, however, will be limited as low oil prices continue to strain the government's finances. Though the administration will try to buy itself more time by granting piecemeal concessions to the Niger Delta, the region will eventually run out of patience, increasing the risk of renewed attacks against the country's oil and natural gas infrastructure into the new year.

For the First Time, Kenya Votes Twice

Kenya's Supreme Court, meanwhile, has raised eyebrows across the continent with its recent decision to redo the nation's Aug. 8 presidential election. The ruling, which was the first nullification of an election due to alleged irregularities in both the country and the continent, marked a watershed moment in Africa's political evolution.

President Uhuru Kenyatta and his challenger, Raila Odinga, are gearing up for their next bruising matchup on Oct. 26. Ahead of the vote, the incumbent will try to reassure his base that he will replicate his August win. Odinga, on the other hand, will lobby for concessions from Kenya's electoral commission — including the dismissal of officials who allegedly helped Kenyatta "steal" the election — in hopes of avoiding another defeat by nearly 10 percentage points. As the expectations of both sides harden, the chances of unrest and bloodshed before and after the electoral rerun will increase.

If Odinga believes that the government has not met enough of his demands to improve his odds of winning, the perennial opposition candidate may boycott the election. Should Odinga withdraw, allowing the election to proceed with Kenyatta as its sole candidate, the president's second term would be marred by claims of illegitimacy. Though this scenario is less likely than a repeat contest between Odinga and Kenyatta, it would have a more devastating impact on the country by inciting further ethnic violence — perhaps even creating a climate ripe for armed resistance as Odinga and his allies regroup in their western strongholds with the intention of challenging a victory that they perceive to be fraudulent.

Both scenarios could lead Kenya into a constitutional crisis. If the elections take place and result in a win for Odinga, the ruling party could retaliate by trying to impeach the new president, even though that process is exceedingly difficult to complete. On the other hand, the government may push off the elections again, whether as a result of logistical problems in organizing another vote or because of a boycott by the opposition. Either way, the electoral redo will be an important test of Kenyan democracy to watch.

Angola's New Leader Angles for More Autonomy

Unlike Kenya, Angola encountered few surprises in its Aug. 23 legislative elections as the ruling party carefully managed the transfer of power from longtime President Jose Eduardo dos Santos to his chosen successor, Joao Lourenco. The Sept. 25 investiture of Lourenco marked a quiet end to the first phase of the African oil producer's planned leadership transition.

The next phase may prove more eventful, however, as Lourenco seeks to demonstrate his independence from his predecessor. The new president's quest for autonomy may not sit well with dos Santos and his family, who have acquired bigger stakes in the engines of the Angolan economy over the past few years and are determined to hold on to them. But given the tightly managed stagecraft of the ruling Popular Movement for the Liberation of Angola (MPLA) — as well as its enduring grip on the country's military and oil sector — Lourenco is unlikely to make any sudden moves against the dos Santos clan in the fourth quarter. After all, the former president will remain the head of the MPLA and will retain the powers that come with the post, at least for now. This arrangement will begin to change toward the end of 2018 as the MPLA prepares for a new generation of leaders after nearly four decades under dos Santos.

A Congolese President Clings to Power

One of the new Angolan president's top foreign policy priorities this quarter will be containing the simmering unrest in the neighboring Democratic Republic of the Congo. In contrast to Angola's own orderly power transition, the leadership turnover of its neighbor has stalled as President Joseph Kabila has stubbornly remained in office and as new elections have failed to appear on the horizon. Because the Democratic Republic of the Congo's resource wealth and security threats have drawn in nearby states with conflicting interests for decades, the country's neighbors — including Angola — have long kept a close eye on Congolese politics. Angola, which has firmly backed Kabila during his tenure (and his father before that), also has the added motive of ensuring that a friendly figure stays in power in the Congolese capital, Kinshasa.

The Democratic Republic of the Congo's independent electoral commission recently has made notable progress in registering millions of voters. But the window for holding a presidential race by the end of the year is closing. And Kabila, who is struggling to find an acceptable replacement to oversee his fractious political alliance, will likely use lingering violence in Kasai province and questions about election funding as justification to postpone the contest until 2018. That would almost certainly lead to social unrest spearheaded by the president's opponents, but protests are unlikely to prevent the delay. Instead a response more dangerous to Kabila could come from beyond the Congolese borders, if countries such as France or the United States seek to punish him by imposing additional sanctions or if critical allies such as Angola begin to more quickly withdraw their support for his administration.

Sudan Cozies Up to the West

Sudan will likewise be keeping an eye on its relationships abroad during the next quarter. The coming months will reveal whether attempts made by the government in Khartoum to improve its standing with the West — particularly the United States — will reap the rewards it hopes for. In July, U.S. President Donald Trump shelved until Oct. 12 a decision on whether to make former President Barack Obama's suspension of some sanctions against Sudan permanent.

If the White House does not delay the decision again, the circumstances surrounding the issue will be much the same as they were in July. A decision to formalize the removal of some sanctions would encourage Khartoum to work more closely with Washington on counterterrorism, to improve its human rights record and to take steps to resolve conflicts at home. But a decision against sanctions relief probably wouldn't halt Sudan's attempts to ingratiate itself with the United States, given how far it has already come in its reorientation toward the West and the Gulf states.

No matter the outcome, one serious constraint to Sudan's foreign policy approach will remain: its leader. President Omar al Bashir has vowed to stay in office until 2020, but the International Criminal Court's outstanding warrant for his arrest will limit the closeness of Washington's relationship with Khartoum while he remains at the helm of the Sudanese government.

France's Solution to Sahel Security

Since its military intervention in Mali in 2013, France has acted as the primary security guarantor of the unstable Sahel region. But after years in the role, Paris is searching for an exit strategy. To that end, French President Emmanuel Macron plans to use the newly formed military group assembled by the Group of Five Sahel countries — a 5,000-strong force made up of battalions from Chad, Mali, Burkina Faso, Mauritania and Niger — to gradually reduce France's military footprint in the region. The joint force also aids Macron's plans to shift his country's relationship with Africa from one based on military ties to one rooted in economic cooperation and development.

Violent Incidents in the Sahel

However, the incipient force will face many challenges from the outset. Burdened by financial and security problems at home, the joint operation's members will struggle to amass the funding for its budget. Combined with an unclear organizational framework, this shortfall could delay the G5 Sahel force's operational date, which has been set for sometime in October or November. Nevertheless, Paris will maintain its political momentum behind the initiative, suggesting that the force will eventually be deployed.

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