In our 2018 Annual Forecast, we made note of then-U.S. national security adviser H.R. McMaster's observation that geopolitics was "back with a vengeance." To us, the statement was right on target, and it's only gotten more relevant over the past year.
In 2018, the United States formally switched its defensive posture from a global war on terrorism focused on the Middle East to a great power competition focused on the near-equal strength of China and Russia. It also brought an end to one nuclear deal with Iran and the beginning of a possible new one with North Korea. New leaders replaced longtime leaders in Africa, India stepped firmly onto the world stage and Europe continued trying to figure its way through Brexit. And beyond all that, the two largest global economies entered into a trade war whose ripple effects have been felt around the world. Geopolitics is back, with a vengeance.
We had some strong hits this year. We missed a couple of items by degree, some through omission and one outright. In acknowledging our misses, we take the opportunity to learn and adjust going forward to produce a stronger forecast next time. And in recognizing our hits, we allow our analysts to celebrate a job well done. Without further ado, here's the Stratfor 2018 Annual Forecast Scorecard.
- When we wrote our forecast last year, tensions between the United States and North Korea were the highest they had been in a long time. Unfortunately, we focused too much on that continued trajectory, outlining military or containment options. What we did not forecast was a major diplomatic breakthrough, though we took the opportunity throughout the year to correct ourselves in our quarterly forecasts. In March, we said "ensuring North Korea's denuclearization would be a tall order, fraught with American suspicions of Pyongyang's duplicity and challenges in verifying its compliance." That has certainly been the case.
- This past year was an important one for China both politically and economically. We said that, at the start of his second term, Chinese President Xi Jinping would find it imperative to maintain his unrivaled authority. That proved true when the National People's Congress voted to lift presidential term limits and enshrine Xi's "Thoughts on Socialism with Chinese Characteristics in a New Era" into the constitution.
- As we forecast, Xi's firm grasp on power has allowed him to "speed the pace of reform" in response to China's slowing economy and growing external pressure. This year alone, the country has made reforms to foreign investment rules, cut import tariff rates, lowered foreign ownership caps in the automotive and financial sectors and increased foreign investor access to the Chinese stock market. Other reforms that we were specifically watching for this year, like the redistribution of wealth and tax reform, were only partially implemented, and we expect more movement in 2019. In trying to manage the fallout of the trade dispute with the United States, China has slowed certain rebalancing reforms, including pollution control and efforts to deleverage the corporate and local government in prioritizing pro-growth measures.
- Regarding the China-U.S. trade relationship, we forecast that the United States would stage multiple attacks on Chinese trade and economic behavior in 2018. We anticipated that Section 232 tariffs on steel and aluminum would come to pass, that the United States would pursue action against China both inside and outside the World Trade Organization (WTO) as a result of the Section 301 investigation, and that while China would try to avoid tariffs by offering some reforms in a negotiation, it would not succeed. What we did not anticipate was the escalatory nature of the U.S. responses to China's response, resulting in a trade war.
- As China continued trying to expand its technology exports and overseas investments, we forecast the emergence of a backlash in developed markets. Throughout the year, Australia, Germany, New Zealand, the United Kingdom and the United States all restricted or banned Huawei, one of China's largest tech companies.
- The Philippines, like so many other countries in the region, has spent recent years trying to balance the benefits and pitfalls of China's rise. In taking what we called a "conciliatory approach toward China" beginning in 2016, the Philippines was able to free up much-needed capacity to address issues at home. The Islamic State takeover of Marawi City in the second half of 2017 forced the Philippines to fall back on its still-strong U.S. security relationship. In 2018, Manila also rebalanced between Beijing and Washington and scored a major victory in quelling unrest in its Muslim south by passing the Bangsamoro Organic Law in July.
- For Vietnam, we forecast that domestic stability would allow the country to work more with "other countries such as Japan, India, Russia and the United States." Throughout the year, this forecast was confirmed in myriad ways, with the United States sending its first aircraft carrier to the country since the Vietnam War, an official statement inviting Indian investment in the region and a new joint investment project with Japan.
- After decades of close alliance with the United States, Japan is increasingly striving for better relations with neighboring China and Russia. In our forecast, we said Tokyo would "work with Beijing on its Belt and Road Initiative" in 2018. October's announcement that the two would undertake over 50 joint infrastructure projects across the region confirms that.
- For North America, much of 2018 was spent negotiating the fate of the North American Free Trade Agreement (NAFTA). Though U.S. President Donald Trump said he wanted to pull out of the agreement, we recognized that institutional and political constraints would likely prevent such a move, saying a withdrawal would "cause widespread disruptions in an array of important sectors in the U.S. economy." We also expected that Trump would want to "wrap up negotiations" on reforming the agreement before legislative elections in November. This looming deadline pushed all parties to agree on a deal in late August. We also correctly forecast that the United States would renegotiate the United States-Korea Free Trade Agreement, despite Trump's threats to withdraw.
- In Mexico, we recognized that "the country's endemic poverty, glaring wealth inequality and systemic corruption" primed it for the rise of a populist candidate in July's presidential elections. With Andres Manuel Lopez Obrador's decisive victory, the degree of Mexico's shift toward populism became evident. Where we erred was in just how big Lopez Obrador's victory would be. We expected him to be limited by a divided Congress; instead, he has both houses firmly on his side.
- For Brazil's elections, we identified that the country's citizens were "discontent with established political elites" and that traditionally strong political parties were "crippled," which would be a "boon for outsider politicians such as Jair Bolsonaro." "Boon" was certainly correct, as Bolsonaro was elected president in late October.
- In Venezuela, we expected that the country's already dismal economy would only worsen. Specifically, we said high inflation would "spiral into hyperinflation," and in July, the International Monetary Fund duly estimated the country's inflation rate to be a whopping 1,000,000 percent. We were also correct when we said economic strain would lead to increased political unrest; at its most extreme, the unrest contributed to an attempted assassination of President Nicolas Maduro in August.
Middle East and North Africa
- The United States and its allies had a clear approach to the Middle East in 2018: contain Iran — economically, politically and militarily. And, as we correctly forecast, this strategy had the effect of bringing together two historic adversaries: Israel and Saudi Arabia. Throughout the year, a once-hidden relationship proved that geopolitics can make for strange bedfellows.
- Bottom line up front: we said in our 2018 Annual Forecast that "as tension rises between the United States and Iran, the Joint Comprehensive Plan of Action (JCPOA) will hang by a thread, though it will probably survive the year." And we were wrong, in that the United States did end up withdrawing from the JCPOA. But we also said that Iran would reach out to Europe to protect the agreement, and that has happened. Now that the United States has left the JCPOA, the Continent is trying to work with Iran to set up a Special Purpose Vehicle that would facilitate transactions between EU countries and Iran as a means of compelling Iran to continue to uphold its commitments under the JCPOA. We also said that "harsher economic measures emanating from the United States will stir up hard-liners in Iran." The reimposition of U.S. sanctions has certainly brought that to pass, as moderate President Hassan Rouhani has faced increasing pressure. We updated our forecast throughout the year in our Quarterly Forecasts to appropriately address the U.S. decision to withdraw from the JCPOA.
- We correctly forecast that Israel would take advantage of the more aggressive U.S. approach to Iran to advance its own agenda in the region, specifically using this period to strike Hezbollah and other Iranian targets in Syria. Throughout the year, Israel proved our forecast right, hitting several Syrian targets.
- We forecast that Saudi Arabia would continue its ambitious economic reforms in 2018. And we expected that the kingdom would try to increase non-oil revenue with new taxes and subsidy cuts, while also trying to manage the "popular dissatisfaction" that could come with the price increases. It did exactly that.
- As Egypt recovers from years of domestic crises, it has spent this year reasserting itself on the global stage. We were correct that 2018 would bring greater overtures between the United States and Egypt; U.S. Vice President Mike Pence, First Lady Melania Trump and then-Secretary of State Rex Tillerson all made journeys to Egypt. We were also right in saying Egypt would balance these U.S. ties with similar outreach to Russia, best illustrated by Egyptian President Abdel Fattah al-Sisi's visit to Sochi to meet Russian President Vladimir Putin. We expected Egypt to exert independence by distancing itself more from Saudi Arabia in 2018. But while we still believe that is Cairo's goal, the distancing did not happen this year. Not only did both Saudi King Salman and Crown Prince Mohammed bin Salman visit Egypt, but Riyadh and Cairo also signed major economic and energy deals. We expected Egypt to get more involved in the Israeli-Palestinian conflict, specifically to "assist in Washington's efforts to negotiate a new peace deal." That deal has yet to materialize, but Egypt was active in negotiating multiple cease-fires between Israel and Palestine.
- After years of deteriorating relations with the United States and Europe, Russia has increased its overtures to and integration with Asian countries, especially China. We correctly forecast that Moscow and Beijing would "strengthen their defense ties through military exercises and cooperation," and while there were many small instances of cooperation throughout the year, China's inclusion in Vostok 2018, Russia's largest military exercises since 1981, was most notable. Additionally, we were right when we said Moscow would succeed in attracting more Chinese investments in 2018, with approximately $100 billion worth of deals signed at September's Eastern Economic Forum alone.
- Stratfor was confident that Moscow would attempt to use its prominent role in the Syrian Civil War as a tool to engage with other involved countries and shift the balance of the conflict. Russia tried emphatically to do just that throughout 2018, bringing Turkey into negotiations and agreements, such as the Idlib agreement, that have aided Russia's efforts to contain the rebels in the north. Russia also successfully maneuvered with the United States, Israel and Iran to secure the takeover of rebel areas in Daraa and Quneitra in return for a withdrawal of heavy Iranian units from the area, which is close to the Golan Heights.
- In our 2018 forecast, we rightly highlighted that arms control treaties between the United States and Russia would come under serious strain. For years, both sides have exchanged accusations of violations, specifically of the Intermediate-Range Nuclear Forces (INF) Treaty. And in 2018, the Trump administration declared its intent to eventually withdraw from the pact. We did not go as far as to anticipate the outright withdrawal from the INF, something that has not officially happened yet. But clearly the arms control regime between Moscow and Washington is under increasing political pressure, and some of these agreements — as well as negotiations on future ones — are in jeopardy.
- Domestically, 2018 was a big year for Russia, with presidential elections in April and regional elections in September. We didn't really go out on a limb when we explained why we expected Putin to hold onto power in April's contests. (We were correct.) We were bolder in our call that September's elections would be more of a competition than those in the past, leading to "a tighter race for United Russia," Putin's party. In 2017, United Russia didn't lose a single seat, but, as we expected, 2018 was different, with the party losing three elections.
- We had mixed results with our forecast in Central Asia. We were correct when we said that Kazakh President Nursultan Nazarbayev would "gradually devolve power to Parliament," but the process has been more gradual than we expected. Timing is one of the more difficult parts of forecasting, so we will wait and see if 2019 brings Kazakhstan's first political transition since before the Soviet Union's collapse. We had more success with our forecast for Kazakhstan's neighbor to the south, Uzbekistan. We said Uzbek President Shavkat Mirziyoyev would spend the year enacting economic reform and seeking foreign investment, matters on which he has had some measure of success. He signed $2.5 billion and $27 billion worth of deals with the United States and Russia, respectively.
- In the Caucasus, we missed the social upheaval that would lead to government changes in both Georgia and Armenia.
- We were right on the money when we said Italy would be the "main source of concern for the eurozone." We also said that regardless of the results of March's elections, "Rome's next administration will push to increase public spending and redesign the bloc's deficit goals," which the Italian government has done despite great protest from the European Commission. Additionally, with the coalition of the anti-establishment Five Star Movement and the right-wing League, we were also correct that Italy would become "more Euroskeptic."
- We forecast that talks about reforming "the European Union's structure and governance" would be a major theme for the year, led by Germany and France. And there were a lot of talks. The two countries, normally at odds over their vision for the European Union, found ways to compromise throughout 2018, even signing the Meseberg Declaration, a joint statement on reform ideas. However, this alignment still couldn't create enough reform momentum, with Brexit and migration issues taking up much of the bloc's time and energy in 2018. That said, on Dec. 13 and 14 the European Union will hold another summit where we expect France to push hard on some of its reform priorities, so there is still time for this forecast to develop.
- At this point, trying to say anything definitive on Brexit is dangerous. The only thing that is certain is that things could change at any moment. As we expected, London and Brussels did spend the year negotiating a transitional arrangement. And the European Union has now approved that arrangement. On Dec. 11, the British House of Commons will vote on the deal, so stay tuned as we wait to see how our overall forecast compares. Specifically, we forecast that determining the management of the border between Northern Ireland and the Republic of Ireland would be a sticking point in negotiations and that the United Kingdom would "have to soften its stance on leaving the EU single market." The current agreement being considered keeps Northern Ireland mostly in line with the rules of the EU single market until a better arrangement can be negotiated at some point in the future.
- We had a mixed bag of hits and omissions in Eastern Europe. We were correct when we said Hungary and Poland would "fend off Brussels' attempts to interfere with their internal decision-making." In fact, to start the year, the two countries met to discuss the European Union's application of Article 7 sanctions against Poland. Later in the year, Hungary found itself on the receiving end of the same type of censure for rule of law violations, with Poland agreeing to support Hungary in return for Budapest's earlier support. While Warsaw's relationship with the European Union was tense, Poland was intent this year to "preserve its alliance with the United States," as we expected, even going as far as requesting a permanent American base on Polish soil. With that said, we didn't mention Romania in our annual forecast, and 2018 was an interesting year for Bucharest with the resignation of Prime Minister Mihai Tudose in January and large anti-corruption protests.
- When we forecast that Pakistan would continue to support the Taliban "at the expense of its relationship with the United States," we didn't know just how soon Pakistan would have to pay for such a decision. But on Jan. 1, Trump tweeted that Pakistan would pay for its "lies & deceit," which amounted to the United States withholding over $1 billion in foreign aid. We were also correct in our assessment that neither side would go too far in straining the relationship and defense cooperation. Such cooperation was demonstrated during a visit to Islamabad in September by U.S. Secretary of State Mike Pompeo and Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford.
- One result of declining U.S.-Pakistan relations has been, as we forecast, that Islamabad has "enhanced its diplomatic and security outreach to Russia and Iran," which it has done over and over and over again throughout the year.
- We did not expect the degree of improvement in India and China's relationship that we have seen in 2018. We were correct that 2018 would not feature a confrontation on the level of the 2017 Doklam standoff. But instead of maintaining the uneasy tension we expected, the two traditional powers and rivals found ways to work together throughout the year.
- With that said, the two are still trying to shore up their spheres of influence across the Indian Ocean. We forecast that India would work to deepen its security partnership with Japan and the United States, and it has done so again and again throughout the year.
- Going into 2018, it was clear that South Africa's then-president, Jacob Zuma, stood on shaky ground: Cyril Ramaphosa had just been elected as the party head of the ruling African National Congress and pressure was mounting against Zuma due to ongoing corruption investigations. We correctly forecast that Ramaphosa would succeed Zuma this year, although we expected a bumpier transition. Ramaphosa was able to pull off a smooth power change, though he has not been as successful at running the country. As we expected, even new leadership could not resolve "South Africa's structural economic deficiencies," and the country continues to struggle to overcome "high unemployment, corruption, declining education standards, crumbling infrastructure and frequent strikes."
- Last year, we were in the midst of our forecasting process when the Zimbabwean military brought tanks into the streets of Harare and slow-rolled a coup to overthrow longtime President Robert Mugabe. As we forecast, new President Emmerson Mnangagwa has spent 2018 working on shoring up support. By calling elections for July, Mnangagwa ensured he would have the political legitimacy needed to undertake much-needed reforms domestically and pursue greater investment internationally.
- As with Zimbabwe, 2018 was the year new leaders took over in Angola. As we expected, new President Joao Lourenco was determined to sideline the family of former President Jose Eduardo dos Santos through various corruption probes. Dos Santos' daughter, Isabel dos Santos, is now being investigated for illegal financial transfers and his son, Jose Filomeno dos Santos, was fired from his position atop the country's sovereign wealth fund and is facing criminal fraud charges.
- Much of Nigeria's political establishment spent 2018 preparing for the country's 2019 presidential elections. Our forecast that President Muhammadu Buhari's party, the All Progressives Congress (APC), would "struggle to maintain a united front in the coming year, particularly as the People's Democratic Party (PDP) tries to poach more of its members," proved to be right on. Throughout the year, there were multiple reports of APC members defecting to the PDP.
- In the Horn of Africa, we correctly forecast that Ethiopia would "forge ahead with its flagship project, the Grand Ethiopian Renaissance Dam" in spite of strong objections from Egypt. And while we correctly forecast that Ethiopia would try to find a way "to connect its 100 million citizens to the Red Sea" in 2018, we missed the historic way that would come about. After protests led to a new government in Addis Ababa, new Prime Minister Abiy Ahmed managed to negotiate an end to 20-plus years of hostility with Eritrea. And as part of this newfound friendship, Asmara has given Addis Ababa the port access it has yearned for since Eritrea broke away in 1991.