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Mar 28, 2016 | 08:45 GMT

Second-Quarter Forecast 2016

It's tempting to blame Syria for all the geopolitical intrigue that will characterize the second quarter of 2016. It is the scene of a protracted civil war, the source of Europe's migrant crisis and a major complication in Turkey's struggle with the Kurds. But in truth, Syria is merely a pawn in a larger game played by more powerful countries, each with its own designs in the Middle East.

Chief among them is Russia, which recently withdrew most of its troops from Syria. The military drawdown will not fundamentally alter the civil war, but it will certainly shape the political considerations of the countries invested in the conflict's outcome. Perhaps that was Moscow's intention all along. The Kremlin likely left, in part, to influence negotiations in Geneva and to extricate itself from a potentially long and costly military commitment. But it also left to try to shape Western perceptions of its actions in the Middle East, particularly before the Europeans decide in July whether they will lift their sanctions against Russia. (NATO members will also discuss plans to expand their presence on Russia's western flank.) Compelling the Europeans, however, will be easier said than done. Even the countries that are amenable to easing the economic pressure on Russia — Italy, Greece and Hungary, for example — would rather use the sanctions issue to bargain with Brussels for leniency on budget deficits, aid, bailout terms and bad bank deals.

The Russian drawdown will also complicate Turkey's negotiations with Europe on migration policies. Ankara has little intention of taking hundreds of thousands of migrants off Europe's hands, but it has tried to use the Continent's desperation to elicit a number of concessions. The most important is coalition support for Turkey's military incursion into northern Syria, where Kurdish militants have steadily extended their territory. As Russia scales down its role in the Syrian conflict and calls for the Kurds to be included in peace talks, Turkey will have a greater incentive to insert itself in northern Syria. But it will probably not have the support it needs to do so.

In fact, everyone involved in the Syrian conflict — and its associated conflicts — should manage their expectations. Russia has not yet left Syria, and even though its reduced presence could breathe some life into peace negotiations, few believe it will lead to a sudden and lasting breakthrough. In the meantime, attempts to impose a cease-fire in Syria will be limited, and Europe will keep searching for a viable solution to its immigration crisis as Euroskeptic voices grow louder. Turkey will not be able to get the support it needs to launch an effective offensive into northern Syria, and Kiev, fragile as it is, will be unwilling and unable to make political concessions in eastern Ukraine to satisfy Russia.

As Eurasia struggles to address its issues, the United States and China will shape the global economic climate in the second quarter. The U.S. economy will continue to grow, and the Chinese economy will continue to slow. A stronger dollar will create problems for China, leading to uncertainty that will, in turn, disrupt the U.S. economy. The relationship between the two economies will make global markets more volatile, but the European Central Bank's monetary stimulus should somewhat shelter the eurozone from the fallout. The same cannot be said for Japan, where a stronger yen and declining asset prices will likely hurt the economy. If they do, the government in Tokyo may enact additional stimulus measures. Meanwhile, the United Kingdom's June 23 referendum on whether it will leave the European Union will become more important as the quarter progresses, leading to rising instability in the United Kingdom and putting downward pressure on the value of the euro. But things will quickly stabilize if the British decide to stay in the union, as we suspect they will. Elsewhere in the world, smaller, healthier economies may be motivated to loosen monetary policies and weaken their currencies to stay competitive.

The global oil market, for its part, will remain oversupplied in the next three months as Iranian output returns to the market. Coordinating a production freeze will be at the top of OPEC's agenda during its June meeting, but Iran will refuse to make any significant cuts, as will other major producers. Saudi Arabia and its Gulf allies would rather wait for the market to slowly correct itself as U.S. output declines over the coming six months, suggesting another difficult quarter ahead for oil exporters.

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