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quarterly forecasts

Sep 9, 2018 | 18:03 GMT

46 mins read

2018 Fourth-Quarter Forecast

Stratfor's 2018 Fourth-Quarter Forecast explores what the coming months ahead will bring, looking at international affairs through the prism of geopolitics.
(ANDREAS GEBERT/ZACHARIAS ABUBEKER/RONALDO SCHEMIDT/LARS HAGBERG/PETER MACDIARMID/JORGE SILVA/AFP/Getty Images/Wollertz/Shutters

Overview

 

The White House's Enduring Gamble Over Trade Policy. As the White House finalizes a deal to preserve the North American Free Trade Agreement (NAFTA), the Trump administration will increase trade risks elsewhere. China will have to weather an even bigger squall of tariffs this quarter as trade negotiations stall out. European efforts to neutralize the U.S. auto tariff threat will drag beyond the quarter, but ultimately fail.

The Mounting Cost of U.S. Unilateralism. The United States needs all the allies it can get in an era of great power competition. A blunt U.S. policy on tariffs and sanctions will, however, drive strategic middle powers — like Turkey and Pakistan — to seek non-Western alternatives and compel great powers — like Europe — to rebuild their economic and security sovereignty with transatlantic ties under great strain.

The Global Oil Supply Contracts. Even as high summer demand fades, a steep drop in Iranian oil exports will strain global supply and sustain higher prices. Heavy White House pressure on Saudi Arabia to use its spare capacity to balance the market will leave dangerously little room for Riyadh to respond to other looming supply disruptions from countries such as Venezuela and Libya. 

A Stressful Period for Emerging Markets. Higher oil prices and further monetary tightening in the United States will continue to place strain on emerging markets: For Argentina, complying with the International Monetary Fund's requirements will come at heavy political cost; India and South Africa's populist drives ahead of elections will come at the expense of financial prudence; the Brazilian economy hangs in the balance of a highly fragmented political race; Turkey, by far the most fragile of the lot, will see its economic crisis deepen as a result of political resistance to reform, magnified by worsening relations with the United States.

The EU Contends with Italy and Brexit. Italy will unnerve markets with its plans for fiscal expansion, but market pressure will keep Rome within the European Union's deficit limits. And as the Brexit deadline approaches with no resolution in sight, we'll be watching for EU political leaders taking over from technical negotiators to try and avert a no-deal exit.

 

 

Storm Clouds Over the Korean Peninsula. Familiar threats will resurface as the U.S.-North Korea talks stumble, but the war of words is unlikely to degenerate into a full-blown military standoff this quarter. South Korea, China and Russia will sustain engagement with Pyongyang to stymie Washington's maximum pressure tactics.

No Respite for Beleaguered Iran. The Iranian economy will continue to reel from sanctions as the United States, Saudi Arabia, the United Arab Emirates and Israel forge ahead with a strategy to weaken Iran regionally. Tehran will still be able to manage internal unrest resulting from the economic pressure and will take care to avoid military escalation with the United States in the Persian Gulf. However, the power struggle within Iran's leadership will only intensify.

Russian Weakness Will Be Exposed in Syria. The limits of the Kremlin's influence in Syria will be exposed as Moscow tries to advance a proposal to end the civil war, thereby containing Iran and mitigating Russia's own risk in the conflict zone. While Moscow seeks to draw Washington into broader negotiations, increased U.S. sanctions on Russia this quarter will sour the negotiating climate, though some progress on arms control is possible.

Smoothing out the Bumps in China's Belt and Road Initiative. Beijing will attempt to transform growing resistance to its Belt and Road projects into an opportunity to temper frictions with neighbors by lowering its own profile and drawing in third-party investors. India, meanwhile, will prioritize bilateral arrangements with key countries, rejecting any bloc alliances to counter China as New Delhi tries to balance against its more powerful neighbor.

The AMLO Era Begins in Mexico. Mexico's new president, Andres Manuel Lopez Obrador, will lay the groundwork for an emerging political dynasty. He has grand plans to build ties with energy companies and teachers unions, increase public spending and recentralize the role of state-owned oil company Petroleos Mexicanos, or Pemex, and intends to harness referendums and his congressional majority to cement power. These efforts together will take Mexico down a more populist and nationalist path.

Ethiopia Drives Big Change in East Africa. Ethiopia's bold prime minister will plow ahead with moves to consolidate power internally and normalize ties with neighbors externally, with an eye toward stabilizing the country's more restive regions and expanding economic linkages to the sea.

section

Jul 24, 2018 | 16:59 GMT

11 mins read

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.

section Highlights
  • The United States will pile more tariffs on China, targeting $200 billion worth of imports, and may ramp up the pressure further after midterm elections in November as trade negotiations stall.

  • While the successful renegotiation of the North American Free Trade Agreement will mitigate the U.S. administration's threat to impose tariffs on automobiles and auto parts in North America, the European Union will probably fail to avoid the measures.

  • A steep decline in Iranian oil exports, along with looming production disruptions in countries such as Libya, Nigeria, Venezuela and Iraq, will constrict global oil supplies, prompting the White House to try to coerce Saudi Arabia to dig dangerously deep into its spare capacity.

  • U.S. unilateralism in tariff and sanctions policy will push regional powers such as Turkey to pursue ties with non-Western states and drive world powers such as Europe to reclaim their economic sovereignty.

China Braces for More Tariffs

As U.S. President Donald Trump approaches the midpoint of his presidency, he will take his controversial trade policy into more extreme territory in the final quarter of this year. China is already bracing for more U.S. economic pressure as trade talks between the two giants stall. Beijing will still keep the door to dialogue open, sticking to its offer to buy more U.S. goods and to liberalize select sectors, but it will not cave to U.S. demands for deeper structural reform. That means more tariffs ahead.

Having completed the first phase of its tariff assault, targeting Beijing's Made in China 2025 industrial campaign, the White House will follow through with a threat to impose 25 percent tariffs on $200 billion worth of Chinese goods. Though the U.S. administration could modify the tariffs list to try to soften the blow to American consumers, it has demonstrated a tolerance for incurring industrial and consumer costs in pursuit of its tariff policy. Beijing so far has responded in kind to the tariffs, but in the next phase of the trade war, it will have to resort to more indirect retaliatory measures, as well, including passing prohibitive regulations on U.S. goods and companies. Frustrated that a stronger dollar and weaker yuan are blunting the tariffs — and that the strategy overall has yet to compel China into a deal on Washington's terms — the White House could even step up its threat to cover all Chinese goods. (Mindful of consumer impact, however, the White House will probably wait until after the midterms and deploy the threat toward the end of the year, when it's likely to hit another impasse in negotiations with Beijing.) 

A Selective Subduing of the White House's Auto Tariff Threat

The United States' risk of a trade war is highest with China for two reasons. First, the trade assaults — as well as the investment reviews and export control discussions that Congress will debate this quarter — fit into the White House's broader strategy to weaken an emerging great power adversary. Second, Washington has considerable latitude to use investigations of trade abuses under Section 301 of the Trade Act of 1974 — a particularly powerful legal tool — to hammer Beijing with multiple rounds of tariffs. But outside China, the White House's hard-line devotion to reducing its global trade deficit by slapping tariffs on its trade partners, and threatening indefinite rounds of retaliation, will run into serious constraints. The White House's threat to apply tariffs up to 25 percent on finished vehicles and automotive parts for national security reasons under another investigation under Section 232 of the Trade Expansion Act of 1962 will take the spotlight this quarter, putting Mexico, Canada, Germany, Japan and South Korea on edge — and for good reason.

Given the economic hit the United States will take from expanding tariffs on China, the White House will probably have to dial back (though not entirely rescind) its threats of auto tariffs this quarter.

Relative to the U.S. tariffs on steel and aluminum imports, which the Trump administration also justified on national security grounds, the prospective auto tariffs would have a much greater impact, affecting more than $200 billion in imports. The Center for Automotive Research estimates that they would put at least 750,000 jobs at risk and cost the United States as much as $42.2 billion in lost gross domestic product — and that's without considering the fallout of likely retaliation.

Given the economic hit the United States will take from expanding tariffs on China, the White House will probably have to dial back (though not entirely rescind) its threats of auto tariffs this quarter. The U.S. Commerce Department may, to that end, recommend lowering the auto tariffs or excluding auto parts from them when it issues its review on whether auto imports constitute a national security threat. The prospect of auto tariffs could also motivate Congress to check the president's authority on Section 232 cases and give the secretary of defense more authority over trade-related matters of national security.

A graphic showing top sources of U.S. auto inputs for 2017.

The White House will get mixed results from wielding auto tariffs in its ongoing free trade negotiations. Mexico and Canada stand the best chance of tempering the threat through their revision of the North American Free Trade Agreement, which will tighten up rules of origin for the continent as a whole. The United States, after all, would deal itself a massive political and economic blow if it were to destroy the deeply integrated automotive supply chains that stretch across North America. By contrast, proposals among non-NAFTA countries to eliminate auto tariffs altogether through a limited trade deal with the United States would contradict the White House's drive to reduce trade deficits. The White House, then, will push for more comprehensive agreements to balance out foreign auto imports by favoring other U.S. exports, namely agriculture. That's when negotiations could hit a wall.

Outside North America, the U.S. trade discussions will be a mixed bag. Korea will try to lean on its existing negotiation over the U.S.-Korea Free Trade Agreement to escape the threat of auto tariffs. Japan will try to piggyback on Seoul's talks with Washington and will try to draw the Trump administration's attention to its auto investments in the United States. Eventually, though, it could give in to the White House's demands for a more comprehensive free trade negotiation. The outlook for the European Union's trade talks with the United States, meanwhile, is the bleakest. U.S. demands to include agriculture in the talks to help balance the trade deficit will prevent consensus in the Continental bloc, dragging the negotiations into next year and hampering Germany's ability to shield its automotive sector from tariffs.

A chart showing EU employment in direct automotive manufacturing.

To try to ease the inevitable trade clash with the United States, the European Union will work to promote its proposal to reform the World Trade Organization (WTO) this quarter. The Continental bloc is focusing on addressing mutual concerns about Chinese trade abuses and U.S. complaints about the organization's Appellate Body since the United States has already moved to reduce the number of judges on the court to three, the bare minimum. Though the proposal may take the edge off EU negotiations with the White House, it won't be enough to defuse the threat of auto tariffs.

Iran and Potential Supply Disruptions Will Drive a Tight Oil Market

Crude oil markets will remain tight in the fourth quarter, primarily because of the sharp reduction in Iranian oil exports due to the return of U.S. sanctions. Iran's crude exports have already declined by more than 1 million barrels per day from their high of about 2.7 million bpd in May, and once sanctions take effect Nov. 4, they could drop below 1 million bpd. As the United States prepares for midterm elections, scheduled for the same month, anxiety over high oil prices will rise in Washington. 

Trump will lean heavily on Saudi Arabia to keep oil markets well supplied and oil prices under control.

The kingdom has about 2 million bpd in spare capacity — enough to make up for Iran's production drop. Doing so, however, would prevent Riyadh from responding to supply disruptions elsewhere, for instance in Libya, Iraq, Nigeria or Venezuela, where production is also at risk this quarter. (Venezuela's economic crisis will keep steadily depressing production regardless, and if a coup were to take place, it could cause a more abrupt disruption.) Furthermore, a lack of pipeline capacity is likely to limit U.S. production growth in the fourth quarter. So even though Saudi Arabia supports the White House's efforts to weaken Iran through sanctions on the country's oil exports, the initiative will put its own domestic production capacity, and the international oil market as a whole, at great risk.

Looming Risks for the Global Economy

Clouds will gather over the global economy in the fourth quarter, but the storm will not hit just yet. While the White House is taking a more aggressive approach to its trade policy, the economic headwinds of more extreme tariffs on China and of auto tariffs, if enacted, will take more time to build. NAFTA will survive the quarter as a trilateral pact, despite the White House's threats, even if it takes on a new name. And though trade risk will certainly factor into the U.S. Federal Reserve's deliberations, the Fed lacks a complete picture of the effect that many of the trade moves underway will have. Economic modeling of tariff effects is imperfect at best, considering that most don't account for retaliation, the rising cost of inputs in integrated supply chains and consumer sentiment. Recession concerns will likely become more pronounced next year, but for now, the Fed will stay on course with its tightening cycle and is due to enact at least one more interest rate hike before the end of the year.

Meanwhile, the European Central Bank will weigh the rising risk from Brexit, Italy and Turkey against the Continent's modest economic growth and the return of inflation to the eurozone as it prepares to end its quantitative easing program late this year. And as China braces for a more direct economic hit from the United States, Beijing will carefully manage the yuan to prevent the currency's steep decline, while injecting fiscal and monetary stimulus as needed.

For countries already struggling with weak currencies, expanding current account deficits and financial outflows, U.S. monetary tightening, rising energy prices and growing trade risk will make for a particularly stressful quarter.

Argentine President Mauricio Macri will stick to the reforms and liberalization required by the International Monetary Fund (IMF), effectively ending his political career in the process. A populist push in India ahead of the country's next general elections in 2019 will limit fiscal prudence, even in the face of a rapidly rising oil import bill. But Turkey, faced with dwindling reserves, a ballooning current account deficit and maturing corporate debt, takes the cake when it comes to emerging market risk. Escalating strife with the United States, coupled with Turkish President Recep Tayyip Erdogan's reluctance to shift away from loose monetary policy and fiscal expansion, will weigh heavily on the Turkish lira.

Pushing Back on U.S. Unilateralism

In fact, Turkey will be a compelling case study this quarter in the broader trend of pushback against U.S. unilateralism in trade and sanctions policy. Caught in the great power competition between the United States and the Eurasian axis of China and Russia, Turkey will keep one foot in NATO while also building up its strategic ties with the east. But Ankara will gravitate more toward non-Western powers in its time of need, since the United States is only making its economic straits worse. Pakistan, likewise, may turn to China rather than the IMF for a $10 billion loan to ease its financial distress.

At the same time, France and Germany will lead the push to reclaim European sovereignty from the United States. European powers will have limited options in the short term for insulating their banks and companies from the U.S. secondary sanctions on Iran. In the long term, however, discussions over an autonomous payment and settlements system — a reaction to the U.S. threat to sanction SWIFT, the worldwide communications network that underpins international financial transactions — could change the global financial system. If Europe joined forces with China and Russia to build a blockchain-based financial payment and settlements system, for example, it could erode U.S. financial clout.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • September: The European Union is expected to circulate a proposal on reforming the WTO.
  • October: The U.S. Treasury report on China's currency manipulation is due.
  • October: Canada to host a multilateral summit on reforming the WTO.
  • Nov. 6: U.S. midterm elections, a litmus test for the Republican Party under the Trump administration, will be held.
  • Nov. 30-Dec. 1: G-20 leaders summit. 
  • Dec. 1: Andres Manuel Lopez Obrador will take his oath of office as Mexico's president.
  • Dec. 14: Canada's parliamentary session ends.
 

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Sep 9, 2018 | 18:30 GMT

6 mins read

Asia-Pacific

The Asia-Pacific is home to more people than any other region. Centered on the western rim of the Pacific Ocean, this region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast. Several of these countries, most notably China, experienced rapid economic growth in the second half of the 20th century, giving the region a new sense of global economic relevance that continues today. That relevance, however, depends largely on China, a power in transition whose rise is testing the network of U.S. alliances that have long dominated the region. How effectively Beijing manages its transition will shape the regional balance of power in the decades to come.
Centered on the western rim of the Pacific Ocean, the Asia-Pacific region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast.

Key Trends for the Quarter

China and the U.S. Continue Their Trade Dispute

China's stock market and currency value are reeling after the first round of U.S. tariffs on $50 billion worth of Chinese goods, and the next round will hamper the country's slowing, debt-ridden economy. A 25 percent tariff on $200 billion of Chinese goods will go into effect this quarter and will primarily impact electronic parts and machinery. And although the United States may adjust tariffs on some goods to minimize the impact on prices for U.S. consumers, Chinese manufacturers of products with thin profit margins, including furniture, auto parts and leather, will feel growing pressure or even risk bankruptcy. This situation will contribute to economic and employment stresses in coastal export regions such as Zhejiang, Jiangsu, Shanghai, Shandong and Guangdong. However, China will likely avoid negotiating ahead of U.S. midterm elections in November, since it expects U.S. President Donald Trump to make even more aggressive trade decisions after the elections.

A map showing which of China's regions will be hardest hit by tariffs.

Tariffs Disrupt China's Internal Machinations

To ease the pain of the ongoing trade battle, China will fall back on expanded credit and infrastructure spending, subsidies and rebates to prevent job losses and private sector revenue declines. This will not prevent a rise in corporate defaults and risk to local government debt, as the value of maturing bonds reaches up to $17 billion. Beijing will also step in to prevent the yuan's value from sliding too far while trying to temper U.S. accusations of currency manipulation. Economic challenges will increase pressure on the government and on President Xi Jinping in particular, since Beijing will be forced to juggle its economic agenda with strategies dealing with Washington. Ultimately, the Chinese government will be more willing to withstand economic struggles than to make compromises on its industrial policies. With Washington's threats to weaken China in mind, Chinese authorities will prioritize internal stability and cohesion over division, checking any threats to Xi's power and reinforcing social and internet controls.

The Middle Ground on North Korea Will Erode

Progress toward the U.S. goal of denuclearizing North Korea will be slow throughout the quarter. The United States has lost the middle ground and will now push for tangible progress on denuclearization, beginning with North Korea disclosing the scope of its program and committing to a clear timeline. But North Korea will first ask for progress on a Korean War peace deal, while pushing to have some sanctions lifted and to achieve international normalization. The North still maintains diplomatic momentum with South Korea and China, and both will continue engaging with Pyongyang and working to prevent U.S. military action. However, the United States will remain dedicated to a maximum pressure strategy, putting South Korea in a difficult position. But the United States will increasingly struggle to maintain its pressure as the North's good behavior erodes international support for sanctions. Russia, in particular, will shore up its support of the North ahead of a summit between North Korean leader Kim Jong Un and Russian President Vladimir Putin.

The U.S. and China Square Off on the Periphery

The United States will solidify its naval presence in the South China Sea and continue building up defense and economic ties along China's periphery from Taiwan to Southeast Asia. In response, Beijing will continue strategic efforts to improve its relations with its neighbors. China will hold its first shared naval drill with the Association of Southeast Asian Nations (ASEAN), and China and the Philippines will make progress on maritime management and on joint South China Sea energy exploration. However, countries such as Vietnam and Indonesia will continue to pursue defense and economic partnerships with the United States and Japan to balance against China. Beijing's tactic to isolate Taiwan, meanwhile, will likely strengthen the domestic Taiwanese pro-independence voice in November's local elections. And the United States will continue to focus on building ties with Taiwan in an effort to counter China.

A map showing chokepoints in the South China Sea and where the U.S. could encroach.

Bumps Continue to Crop Up on the Belt and Road

Beijing will adjust its Belt and Road strategies in reaction to partner countries becoming suspicious of motives and to various projects running into trouble. Greater local and international scrutiny could prompt China to reach out to other countries, such as India, Japan and the core powers in the European Union. Indeed, a top leadership meeting between Japan and China in October will bring Tokyo onboard with some projects, probably in Southeast Asia or Africa. But the European Union will remain unwilling to accommodate China's gesture and will propose an alternative infrastructure project during an October meeting between Asian and European countries. 

A chart showing countries along China's Belt and Road route that have high debt to GDP ratios.

Japan Will Try to Stay Stable

Japan's ruling Liberal Democratic Party is not eager to risk instability by trying to unseat Prime Minister Shinzo Abe in September's elections, so he will likely secure a third term. In response to U.S. tariff threats on Japanese auto exports, Japan will try to leverage its long-standing investment in U.S. plants and recent lowering of barriers in other markets. As a last resort, Tokyo could explore trade talks with Washington. Meetings between Putin and Abe might produce economic deals, but Russia will continue its trend of stopping short of any economic cooperation that could erode its sovereignty.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

  • China's Belt and Road Initiative is facing increasing headwinds in its host countries, even as it makes headway across the entire target area. Read more about the current Silk Road frictions
  • Beijing's outreach to the Philippines will bear further fruit this quarter in the form of progress on joint energy development. Read more about how China is employing a charm offensive.
  • Japan's long-serving Prime Minister Shinzo Abe is aiming for a third term. Even amid scandal, lawmakers will likely support his bid given the uneasy global environment. Read more about why Abe is on the ropes.
  • Tokyo has long hoped to secure its territorial interests in the Kuril Islands by making incremental progress with Russia. But Moscow has remained steadfast on sovereignty. Read more about why Japan's outreach to Russia is stalling.
  • Washington is threatening to impose steep tariffs on a Japanese auto sector reliant on access to the U.S. market. This might change Japan's thinking on a bilateral trade deal. Read more about how Japan's auto sector is handling the pressure

Key Dates to Watch

  • Sept. 11-13: Russia's Eastern Economic Forum, which will be attended by Chinese, Russian and Japanese leaders.
  • Sept. 18-20: Fifth inter-Korean summit in Pyongyang.
  • Sept 18- Oct. 5: The U.N. General Assembly.
  • Sept. 20: Japan's ruling party will select the next prime minister.
  • September/October: The earliest time frame for the imposition of U.S. tariffs on $200 billion of Chinese products, which China will likely respond to with retaliatory tariffs on $60 billion of U.S. goods.
  • October: The deadline for a U.S. report on alleged Chinese currency manipulation.
  • October: Japanese Prime Minister Shinzo Abe will visit China.
  • Oct. 20: Potential date for U.S.-South Korea joint naval training exercises.
  • Late October: Japan's prime minister will likely visit China.
  • November: China's president will visit the Philippines.
  • Nov. 11-15: The ASEAN summit in Singapore.
  • Nov. 24: Taiwan's local elections.
  • Nov. 6: U.S. midterm elections, which could influence U.S. trade policy toward China.
  • December: The U.S. and South Korea may hold Vigilant Ace air force exercises.

section

Sep 9, 2018 | 20:39 GMT

5 mins read

Americas

The Americas stretch from the Arctic Circle in Canada to the southern tip of Chile. This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world — an ascendance aided in part by bringing Mexico and Canada into its sphere of influence. Farther south, the nations of South America are like islands, separated by vast spaces of impenetrable mountains, rivers and jungles. Try though these countries may to integrate more closely, deeper ties such as those that characters North America will prove elusive.
This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world

Key Trends for the Quarter

U.S. Pressures Canada in NAFTA Talks

After successfully pushing Mexico to agree to its key demands in NAFTA talks, the United States is turning its eye on Canada. It will use threats of auto tariffs and a bilateral trade agreement with Mexico to press for the resolution of contentious issues related to trade between the countries. Canada will resist the tariffs by emphasizing how they could harm the web of connections between the U.S. and Canadian auto industries. Though the White House will keep alive the threat of breaking NAFTA into bilateral trade deals, the move is unlikely to gain traction in Congress as lawmakers continue to emphasize the trilateral nature of any North American trade deal. Furthermore, if the Republican Party loses control of the House of Representatives in the midterm elections, obtaining congressional approval for negotiations on a bilateral deal would become extremely unlikely.

A graphic showing auto manufacturing trade between NAFTA countries.

In Mexico, a New Political Agenda Takes Shape

The main domestic priority for President-elect Andres Manuel Lopez Obrador and his administration will be laying the groundwork to help their National Regeneration Movement remain Mexico's strongest political party. To accomplish that, the government will increase social spending and also expand ties to the national teacher's unions and federal oil and gas unions that can help it marshal votes. But the administration will also consider using its control of Congress to tighten its authority over the exploration for and production of oil and natural gas and slow foreign investment in the sector. The government will halt new bidding rounds while it considers laws to give the country's state-owned energy company much greater authority over how energy blocks are allocated to investors for exploration and production. Those laws would reduce the appeal of the country's oil and natural gas resources to foreign investors virtually overnight. Read more about how public referendums would increase Mexico's instability.

Venezuela's Government Will Emphasize Cash Flow

As domestic oil production plummets, the Venezuelan government will make shipping crude to the U.S. market and repaying Chinese and Russian lenders its top priorities. Those relationships will remain crucial lifelines for Caracas. The United States is a major source of export revenue, while Russian oil company Rosneft and Chinese banks are key lenders. As hyperinflation, food shortages and mass migration worsen, more military dissidents will rise to challenge the government's hold on power. Venezuela's ruling body, the National Constituent Assembly, will remain close to President Nicolas Maduro. But its loyalty could be tested if powerful assembly members come to the decision that negotiating an amnesty deal with the United States and the political opposition is a preferable alternative to fending off further coup attempts.

A map showing South Americas travel rules for Venezuela.

Mercosur and Trade in Brazil and Argentina

The Common Market of the South — the South American trade bloc also known as Mercosur — could make progress on some of its free trade negotiations this quarter. However, political uncertainties surrounding the Oct. 7 presidential vote in Brazil might cause problems or even incur delays. In that race, candidates from both ends of the political spectrum have good chances of getting elected. However, Brazil's moves toward economic reform and trade liberalization would be at risk if one of the main center-left candidates, Ciro Gomes or Fernando Haddad, gets elected, because they will push protectionism. But the Mercosur trade talks that are already underway with the European Union, the European Free Trade Association and the Pacific Alliance are less vulnerable to changes in Brazil and less likely to suffer delays from a new government. In Argentina, despite growing current account and trade deficits and an unpopular administration, President Mauricio Macri will not soon deviate from trade and economic liberalization policies seen in the previous quarters. Read more about the trade bloc's plans.

Colombia Takes a Harder Line on Drugs and Security

In the fourth quarter, Colombia's new administration will take a stricter approach to its domestic security. The government will begin destroying coca plants wherever they are found. And in peace negotiations with National Liberation Army militants, the government will adopt more intransigent positions, likely leading the talks to stall. These policies will improve Bogota's relationship with the United States, but cutting coca production will reduce revenue for some criminal groups. This will spark greater violence as the groups move into other parts of the country and spread into extortion and kidnapping. Southwestern parts of the country, regions along the border with Venezuela, and the Colombian northwest face the largest risk of increased violence. And heavier violence in these areas would affect mining, energy production, agriculture and transportation. See what's ahead for the country in our assessment on the Colombian president's new policies.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Oct. 7: Brazil to hold federal elections and the first round of its presidential election.
  • Oct. 27: Brazil will hold the second round of its presidential election.
  • Nov. 6: Midterm elections to be held in the United States.
  • Dec. 1: President-elect Andres Manuel Lopez Obrador will take office.

section

Sep 9, 2018 | 21:23 GMT

5 mins read

Europe

To the west of Eurasia lays Europe, a region predisposed to division. It is surrounded on nearly all sides by islands and peninsulas that make it difficult for Europe to cohere. The northern half of the continent, moreover, sits on a plain whose short, meandering rivers tend to empower countries without forcing them to work with others. The southern half is situated on more mountainous terrain that has historically impeded the creation of strong, unified economies. As a result, Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.
Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

Key Trends for the Quarter

EU-U.S. Trade Frictions in the Offing

The European Union will continue negotiations with the United States to end non-auto industrial duties with an eye to ultimately eliminate the threat of higher American vehicle tariffs. But if the White House pushes to include agriculture in the trade talks, as expected, friction will grow between Berlin, which wants to preserve its valuable exports to the United States, and France, which wishes to protect its agricultural sector from American competition. In such a dispute, countries with large agricultural sectors — such as Italy — would side with France. Even if Brussels bows to U.S. pressure and agrees to open up agriculture to discussion, the European Union is unlikely to approve a deal that affects the sector. And if the United States introduces trade measures against the European Union, Brussels will respond immediately with its own tariffs. Discover more about the trade disputes between the European Union and the United States.

A chart showing EU car exports to the U.S. by country, for 2016.

Italy Creates Risks for the Eurozone

Italy will present a budget and fiscal and pension reforms that will increase its deficit, originally expected to reduce from 1.6 to 0.8 percent of gross domestic product in 2019. The measures will concern markets already worried about the sustainability of Italy's debt. Pressure from financial markets could persuade Rome to moderate its plans and keep the deficit within the 3 percent limit established by the European Union, but the mere change of policy direction from deficit reduction to deficit increase could induce market volatility. The European Commission will demand that Italy enact corrective measures, but Rome is spoiling for a fight — and a long one, at that. Italy's membership in the eurozone will remain secure throughout the quarter, but uncertainty about its future will continue. And now that economic growth and inflation have returned to the eurozone, the European Central Bank plans to end its bond-buying quantitative easing program by the end of the year. However, risks associated with Italy, Brexit and Turkey will compel the bank to proceed slowly with monetary tightening as 2019 begins. Read our assessment about how Italy's new government is challenging the European Union.

Crunch Time for Brexit Negotiations

Political leaders in the European Union and United Kingdom will replace technical negotiators in an effort to avoid a no-deal Brexit. A withdrawal agreement establishing the legal terms of the United Kingdom's exit from the European Union is possible during the quarter, since both want to minimize economic disruptions and introduce a transition between March 2019 and December 2020. Less likely, however, is a comprehensive agreement detailing their future trade ties, as Brussels and London have different visions of their relations (a vaguer declaration of intent is possible). The withdrawal agreement will face two main hurdles. The first is the British government, as hard-liners unwilling to make concessions to the European Union could oust the vulnerable prime minister, Theresa May. The second is the British Parliament, which is internally divided and could vote against a deal. If London and Brussels fail to reach a withdrawal agreement by the end of 2018 — or if the British Parliament votes against an agreement — the parties could still salvage a deal in early 2019, but the chances of a no-deal Brexit would be much higher. Delve more into the chaos surrounding the United Kingdom's exit from the European Union with one of our recent assessments.

Make the EU Great Again

France will push to implement its proposals for EU reform but will face a Continental bloc that is focused on more urgent issues (such as trade disputes and Brexit). France will also face resistance from Northern Europe. Ideas to increase investment or strengthen the bloc's ability to handle financial crises could find approval, albeit in a gradual manner. Nevertheless, plans to increase financial risk-sharing, such as a common deposit guarantee for eurozone banks, will likely be postponed. At France's behest, a group of countries may even take steps to harmonize the corporate tax base across the union, but an EU-wide agreement is unlikely. Paris and Berlin will take the lead in a debate on ways to increase the European Union's strategic autonomy on issues such as defense, finance and energy, though the process will take years. The European Union will also debate whether to create a European Monetary Fund and reach decisions regarding foreign policy, defense and security by majority voting rather than unanimity, but these talks are still at an early stage. See our assessment about how the European Union is making a bigger push for strategic autonomy.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

 

  • Sept. 20: The European Union meets to discuss immigration and Brexit.
  • Sept. 27: Italy releases its economic and financial document.
  • Sept. 30: Macedonians vote in a referendum on whether to change the country's name.
  • Oct. 15: EU members present their draft budgets to the European Commission.
  • Oct. 18: The European Council meets to discuss Brexit and EU reform.
  • Late October: S&P and Moody's review Italy's credit rating.
  • Dec. 13-14: The European Council convenes once more regarding Brexit and EU reform.

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Sep 9, 2018 | 17:38 GMT

5 mins read

Middle East and North Africa

The Middle East and North Africa is the world's crossroads. It encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between. The story of the region, as is so often the case of places stuck between foreign players, is the story of trade, exchange and conflict. The traditional powers of the region are Turkey and Iran — Saudi Arabia and Egypt are the current Arab powers — and their competition for influence over the region's weaker states makes the Middle East and North Africa an arena of violence and instability.
The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.

Key Trends for the Quarter

Iran Will Hurt — but It Will Survive

The United States will continue its hard-line strategy of sanctioning Iran, a course designed in part to increase domestic unrest. Economically motivated protests will spread, but, for now, Iran will be able to manage them. Conservatives within the Iranian government will accelerate their political attacks against President Hassan Rouhani's moderate allies, but protection from Supreme Leader Ayatollah Ali Khamenei will ensure Rouhani's political survival. Foreign companies with exposure to the United States, with the exception of those in China and Russia, are more likely to comply with U.S. sanctions and cut back their transactions with Iran rather than retain Iranian contracts.

The European Union's plans to provide money to companies in the bloc that risk incurring U.S. sanctions for trading with Iran will be a political sign of support that won't help Iran much economically. They would also set up the potential for U.S.-EU friction if Washington tries to disconnect Iranian banks from SWIFT, the main network for international monetary transactions.

To retaliate and build leverage for future negotiations, Iran will blur the line of acceptable behavior within the boundaries of the Joint Comprehensive Plan of Action, aka the Iran nuclear deal, and engage in limited nuclear development. Iran will also cling to its proxy militant activity abroad; it will engage in cyberattacks, harass U.S. and allied vessels and oil infrastructure in the Persian Gulf, and posture about closing the Strait of Hormuz to build some leverage against the United States, even as it seeks to avoid sparking a larger conflict. Read more about Iran's economic strategy under sanctions.

Syria's Civil War Enters a New Phase

The Syrian civil war will challenge the Russians in new ways, especially in the last major rebel bastion, Idlib province. Russia will try to balance Iran and Turkey in Idlib, and Turkey will hold its ground. Israel will continue to strike Iran inside Syria, even as Russia tries to ensure that these conflicts do not spiral into a major regional war. Finally, the United States won't pull out of Syria, but its Syrian Democratic Forces allies will prepare for the future by building subtle connections to Damascus. Read more about how Russia is carrying out its strategy in Syria.

A map showing territorial holdings in the Syrian civil war.

Erdogan Won't Back Down

Pressured by his country's deteriorating relationship with the United States, Turkish President Recep Tayyip Erdogan would rather risk amplifying Turkey's economic crisis than implement more restrictive fiscal and monetary policies. Even though the Turkish government will announce plans to cut back on national spending and halt inflation, Erdogan's tight grip on control within the government will limit the ability of the country's economic institutions to enact desired changes. To avoid being pressured by the European Union to make substantial policy shifts or address human rights conditions, Erdogan will look for assistance primarily from friendly foreign allies, like Qatar, China and Russia, rather than the International Monetary Fund. But such support, especially if the lira plunges again, will likely be limited. For the quarter, a powerful Erdogan will use the economic crisis and growing frictions with the United States to rally nationalist support. If he chooses to call early municipal elections, any deeper reforms would come after. Read more about how Turkey ended up in an economic crisis.

A graphic shows just how deep a financial crisis Turkey is in.

Saudi Arabia Will Slow Its Reforms

Saudi Arabia will slow the pace of both social and economic reforms in the coming quarter, buoyed by an increase in oil revenue that it will use to draft another expansionary budget in December. Riyadh's Public Investment Fund (PIF) remains the main source of money for the kingdom's modernization plans, but rather than using the still-pending Aramco IPO to generate capital for it, the Saudi government is seeking less politically contentious means. This could include allowing Aramco to issue debt to buy the PIF's 70 percent stake in petrochemical firm SABIC, which would be worth approximately $70 billion. Read more about Saudi Arabia's long and ambitious path to reform

A chart showing Saudi Arabia's public investment fund.

America Seeks an Arab NATO

Despite U.S. efforts to build a strategic alliance with its Arab allies, the reality is that the United States' Middle Eastern partners are divided among themselves and neither able nor interested in taking on Washington's regional security burden. The Israeli-Saudi-Emirati alignment with the United States will advance in certain places — like in Syria with Israel, in Yemen with the Saudis and Emiratis, and in Iraq with the Saudis — where America can execute its strategy to weaken Iran through its allies. But none of these powers will commit to the kind of formal, region-spanning alliance that the United States wants. Meanwhile, neutral actors such as Kuwait and Oman will find themselves pressured to align their policies with those of Saudi Arabia and the United Arab Emirates

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Sept. 30: Iraq's Kurdistan Regional Government holds parliamentary elections.
  • Oct. 30: Israel holds municipal elections.
  • Nov. 4: U.S. sanctions against Iran's energy sector and central bank transactions are reimposed.
  • Nov. 24: Bahrain holds parliamentary elections.
  • Dec. 10 [tentative]: Libya potentially holds elections.
  • Dec. 13: Turkey's Central Bank Monetary Policy Committee meets.

section

Sep 9, 2018 | 14:39 GMT

5 mins read

South Asia

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders. The Himalayan Mountains form the northern border of South Asia, whose two main rivers, the Indus and the Ganges, support the region’s great population centers. India is the region’s dominant country, home to the world’s fastest growing economy. But its rivalry with neighboring Pakistan, a fellow nuclear power and growing consumer market, has made South Asia one of the world’s most dangerous nuclear flashpoints. The region is also a testament to how militancy and militarism can undermine the regional integration needed to unleash higher economic growth.
Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

Key Trends for the Quarter

India and the U.S. Draw Closer to Counter China

Recent U.S. actions that have rankled India — including not exempting it from steel and aluminum tariffs, threatening it with secondary sanctions for being a Russian arms customer, and pressuring it to reduce purchases of Iranian oil — will not derail the continued development of bilateral defense ties during the fourth quarter. The United States and India share the goal of thwarting Chinese hegemony in Asia and the Indo-Pacific, and progress on defense will take precedence in New Delhi's eyes. To safeguard the relationship, India will delay imposing retaliatory tariffs, and the two countries will probably begin implementing a security pact, the Communications Compatibility and Security Agreement (COMCASA), this quarter. Read more on the strategic concerns that bind India and the United States.

India and China Compete in South Asia and the Indian Ocean

While continuing to recalibrate its regional tactics, India will also try to keep easing tensions with China this quarter. Focused on the May 2019 elections, Indian Prime Minister Narendra Modi will avoid a politically costly confrontation such as the 2017 Doklam standoff. As Beijing works to deflect U.S. pressure, it will want to cautiously manage tensions with India and other powers on its periphery. Although India and China will explore areas of cooperation — including an infrastructure project in Afghanistan — Chinese expansion into South Asia and the Indian Ocean through the Belt and Road Initiative will push New Delhi to extend its own regional soft power efforts.

India's foreign policy will emphasize good relations with the new governments in Bhutan and Bangladesh after elections in those countries during the coming quarter. However, relations with the Maldives are headed for a long-term chill if President Yameen Abdul Gayoom secures another term. His victory would indicate that India is losing the ability to shape politics in its neighborhood, highlighting a serious strategic challenge for its foreign policy.

A map showing Chinese expansion into the Indian Ocean.

The Pre-Election Costs of Modi's Populism

As Indian politics enters the campaign season, the Modi government will indulge in populist spending and protectionism this quarter while the Reserve Bank of India is entering a tightening cycle. This spending will increase the government's borrowing costs, widen the fiscal deficit and slow the country's fiscal consolidation drive. And the focus on elections also means politically sensitive land and labor reforms will be off the agenda during the winter session of Parliament. The economy will continue to recover as the effects of demonetization and the Goods and Services Tax fade, but the lack of reform and a high proportion of nonperforming assets on corporate and banking balance sheets will hold back further labor-intensive growth and private investment. See our assessment of what the decrease in the rupee's value will mean for the Indian economy.

Pakistan and the U.S. Will Clash Over Afghanistan

Newly elected Prime Minister Imran Khan's hands-off approach to the military means Pakistan's foreign and defense policies on Afghanistan, India and the United States will remain under the army's control. Relations with the United States will remain troubled this quarter as Washington tries to coax Islamabad's new government into abandoning its support for militant proxies in Afghanistan. As the United States moves closer to India, Pakistan will continue exploring a deeper security partnership with Russia. Meanwhile, Pakistan's balance of payments will stabilize this quarter as Khan procures a $10 billion loan from the International Monetary Fund or China. However, borrowing from either carries risks. See what other challenges Khan will face as he continues to settle into his leadership role.

The Taliban and Three Great Powers in Afghanistan

The Taliban's desire to position themselves as serious political actors means the movement will seek to further elevate its diplomatic profile this quarter. Taliban representatives had already agreed to join Russian-sponsored talks on the Afghan war, tentatively set in Moscow. Those talks, when they occur, will also draw delegates from the Kabul government, marking the first time that both parties would be present at a multinational summit on the almost 17-year-old war. That breakthrough would allow Russia to claim a diplomatic victory and strengthen its leverage in the NATO-backed conflict while its relations with Washington remain tense. Meanwhile, Beijing's concerns about Uighur militants using Afghanistan as a base will compel it to play a greater role there, and progress on a Chinese-funded base in Badakhshan province will be a key development to watch this quarter. As for the United States, it will probably consider adjusting its strategy if President Donald Trump's frustration prompts a policy review of the conflict

A map showing district stability levels in Afghanistan for 2018.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Sept. 18: India's deadline to impose retaliatory tariffs on the United States.
  • Sept. 23: Presidential elections in the Maldives.
  • Oct. 7: 17th anniversary of war in Afghanistan.
  • Oct. 16: Bhutanese parliamentary elections.
  • Oct. 20: Afghanistan parliamentary elections.
  • Nov. 4: U.S. deadline for India to reduce Iranian oil imports.
  • December: State elections in the Indian states of Rajasthan, Madhya Pradesh, Mizoram and Chhattisgarh.
  • Dec. 27: Likely date for parliamentary elections in Bangladesh.

section

Sep 9, 2018 | 21:17 GMT

4 mins read

Eurasia

Eurasia is the world’s most expansive region. It connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia. Forming the borders of this massive tract of land are the Northern European Plain, the Carpathian Mountains, the Southern Caucasus Mountains, the Tien Shan Mountains and Siberia. At the heart of Eurasia is Russia, a country that throughout history has tried, to varying degrees of success, to extend its influence to Eurasia’s farthest reaches — a strategy meant to insulate it from outside powers. But this strategy necessarily creates conflict throughout Russia’s borderlands, putting Eurasia a near constant state of instability.
Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.

Key Trends for the Quarter

The Russia-U.S. Standoff Heats Up

As the United States approaches midterm elections, and political pressure rises over Russian activity — alleged meddling in elections, accusations of poisonings and the conflict in Ukraine — Washington is almost certain to expand sanctions against Moscow. The extent to which it does, however, will be a product of deliberation and compromise between Congress and the White House. The United States is unlikely to pursue the extreme option of sanctioning Russia's sovereign debt or severing its banks' access to dollar settlements, but the U.S. government will target more Russian officials, oligarchs and state-run firms. As part of its likely response to increased U.S. sanctions, Russia could restrict its own exports to the United States, pursue military buildups and undermine U.S. interests in Ukraine. Meanwhile, Moscow's efforts to strengthen its financial stability and diversify its economic ties as part of its longer-term sanctions insulation strategy will enable Russian leaders to avoid any major economic disruptions in the fourth quarter. Russia will take measures to decrease exposure to the dollar by offloading U.S. Treasury bonds and purchasing gold, as abundant reserves and strong energy prices will help the Kremlin weather its financial challenges in the short term.

Regardless of anticipated sanctions, Russia and the United States will continue to negotiate in a bid to address bilateral sticking points. Talks on arms control offer the best chances for progress, although a conclusive agreement to renew the New Strategic Arms Reduction or the Intermediate-Range Nuclear Forces treaties is unlikely this quarter. Meanwhile, Russia will attempt to undermine trans-Atlantic unity by exploiting the divisions between the United States and European Union over sanctions policy and energy projects such as Nord Stream II. Read our full forecast on the likely extent of Washington's sanctions against Moscow.

Russia Looks East for Economic Deals 

Amid the difficulties with the West, Moscow will continue to bolster ties with the East to improve its broader economic and strategic position. Russia will strive to strengthen economic ties with China, Japan and other Asian countries, particularly during the Eastern Economic Forum in Vladivostok on Sept. 11-13. Both Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe will attend the summit, which will focus on the economic development of Russia's Far East. Take a look at our assessment of how Russia and China are pursuing closer relations.

Russia Uses Syria as a Tool in the Middle East

In the Middle East, Russia will use its position in Syria to play up its role as regional interlocutor. Moscow will work to limit Iran's presence near the Golan Heights — an arrangement that Tehran could accept in the short term. However, Russia is neither able nor willing to accede to U.S. demands that it expel Iran from Syria. Russia will try to reach an agreement with the United States on reconstruction and refugees that would legitimize the Syrian regime and secure Moscow's position in the country, but such a stance will likely provoke U.S. resistance, particularly among skeptics in Congress. See our assessment about Russia's calculations in Syria.

A battle map of Syria showing which factions control which parts of the country.

Moscow Weathers Regional Elections Amid Unpopular Reforms

September's regional elections will challenge the dominance of the ruling United Russia party in some gubernatorial races and are likely to produce protests against Vladimir Putin's government. Ongoing pension reform efforts especially could spark protests and even create frictions within the government during the quarter. Wary of the possible reaction, the Kremlin will likely soften the pension reform legislation in order to placate the public and prevent major rifts within the government. Take a look at the conundrum facing Russia's leaders on the divisive topic of pension reform.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Sept. 9, 23: Russia holds regional elections.
  • Sept. 11-13: Russia plays host to the Eastern Economic Forum in Vladivostok.
  • Oct. 23: U.S. sanctions against Rusal are scheduled to take effect.
  • Oct. 28: Georgia conducts presidential elections.
  • Late November: A second installment of U.S. sanctions against Russia over the Skripal poisoning case are set to enter force.

section

Sep 9, 2018 | 21:56 GMT

4 mins read

Sub-Saharan Africa

Sub-Saharan Africa is a study in diversity. Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, the region is home to countless cultures, languages, religions, plants, animals and natural resources. It’s no surprise that it captured the imagination of Europe’s earliest explorers — and that it continues to capture the imagination of current world powers eager to exploit it. And yet despite the region’s diversity, Sub-Saharan African countries have common challenges — transnational terrorism, rapid population growth, endemic poverty and corruption — that prevent them from capitalizing on their economic potential. The coming years will be critical for the region, especially as its political institutions mature in a rapidly globalizing world.
Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, Sub-Saharan Africa is home to countless cultures, languages, religions, plants, animals and natural resources.

Key Trends for the Quarter

Ethiopia Embraces Reconciliation and Reform

Continued efforts by landlocked Ethiopia to stabilize its political system, open its economy and secure greater access to regional ports will drive change in East Africa over the fourth quarter. Prime Minister Abiy Ahmed will work to assert control over security forces in the Somali region of eastern Ethiopia. Meanwhile, his attempts to privatize companies such as Ethio Telecom, Ethiopia's telecommunications monopoly, could meet resistance from members of the elite who could try to block or undermine the reforms.

Ethiopia, which earlier in the year moved to mend fences with longtime nemesis Eritrea, will benefit from increased trade and access to its ports. The removal of U.N. sanctions on Eritrea stemming from their reconciliation could accelerate this process. Should the normalization continue, the use of Eritrean ports would help improve Ethiopia's connections to global supply chains and attract investors to its growing market. With these goals in mind, the government also has invested in ports in Sudan, Djibouti and the semi-autonomous republic of Somaliland.

Another Tumultuous Transition in the Democratic Republic of the Congo

The Democratic Republic of the Congo is scheduled to hold much-anticipated and repeatedly delayed elections Dec. 23. The country has never had a peaceful transfer of power, and this time around is shaping up to be no different. Longtime President Joseph Kabila, who is stepping down from office and has appointed a loyalist, Emmanuel Ramazani Shadary, to run in his stead, will try to ensure that his successor wins the tightly controlled election. The Congolese electoral commission, in fact, has barred at least one main opposition candidate from the electoral list (another, Moise Katumbi, is banned from entering the country). Nevertheless, the opposition will try its best to present a unified front against Kabila's political machine. Violence is likely in the wake of the vote, especially if opposition leader Jean-Pierre Bemba rebuilds his militia and mounts an armed resistance against Kabila. Given the Democratic Republic of the Congo's history of tumultuous transitions, unrest may well continue into next year and beyond.

Nigeria Prepares for 2019 Elections

In Nigeria, policy efforts will slow as politicians prepare for February 2019 elections. All signs point to President Muhammadu Buhari seeking re-election on the ruling All Progressives Congress (APC) ticket, but high-profile defections from the APC to the opposition People's Democratic Party (PDP) have weakened his coalition. Defections will remain a concern for the party during the fourth quarter, as will questions over Buhari's health and his fitness to beat the opposition and keep leading. If the PDP follows through on its plans for choosing a candidate, moreover, Buhari will have to square off against a fellow northerner in the race. That means northern Nigerians will retain their control over the lucrative oil industry in the southern part of the country regardless of the election's outcome. Even so, militant groups in the Niger Delta region will stay more or less dormant during the quarter. The government's recent efforts to placate militants by revitalizing its amnesty program and regional development projects have paid off, making them reluctant to conduct attacks for fear of losing these benefits.

A map showing energy infrastructure and ethnicities in Nigeria.

South Africa Returns to Populism

South Africa's ruling African National Congress (ANC) will face a crucial election by the middle of next year. As the contest approaches, President Cyril Ramaphosa will bow to political pressure, shifting from his business-friendly agenda to a more populist platform to shore up support for the party. The leader has largely failed to pull South Africa's economy — the most industrialized in sub-Saharan Africa — out of its doldrums, and economic indicators suggest only modest growth ahead. Consequently, the ruling party will keep up its fight against corruption while focusing on issues popular with the ANC's voter base, such as the controversial proposal to expropriate land without compensation. That initiative will drive foreign investment away from South Africa, though Ramaphosa will try to downplay its effects. Despite promises of economic benefits and a conservative approach to the issue, expropriation will damage the economy and spark concerns about South Africa's future.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

As Nigeria's 2019 election approaches, militants in the country's far south and far north will watch to see how the race will affect their struggle against the government

The threat of the Islamic militant group committing brutal attacks close to international energy installations in Mozambique probably won't grow in the fourth quarter, but it will give energy companies pause as they consider additional investment.

Key Dates to Watch

  • Oct. 7: Cameroon holds its presidential election.
  • Nov. 7: First round of Madagascar's presidential election.
  • Dec. 19: Second round of Madagascar's presidential election.
  • Dec. 23: General elections in the Democratic Republic of the Congo.

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