Stratfor's Fourth-Quarter Forecast 2015

Oct 13, 2015 | 09:01 GMT

As we move into the final months of the year, credibility is on the line in many parts of the globe. The United States knew its credibility with Middle Eastern allies would be at stake as Washington tried to distance itself from the region's most consuming conflicts, but it also had to do so in order to regain credibility with its allies in other sensitive areas, such the Russian and Chinese peripheries.
Russia, not happy with the United States creeping too close in its backyard, is now escalating its presence in Syria and potentially Iraq, attacking the credibility of the United States in leading the fight against the Islamic State while using that obtrusiveness to draw Washington into a serious dialogue. Simultaneously, Moscow will keep the calm in eastern Ukraine, restoring its credibility among major European powers who would much rather negotiate with than confront the Russian bear.
Russia is playing a complex game with the United States this quarter, but Washington will not be coerced to the negotiating table. And as the United States reinforces its allies, the standoff with Russia will only deepen.
The credibility of the Chinese Communist Party is also at stake as the economic slowdown persists and as the limitations of Beijing's interventions become more apparent. Commodity prices will remain depressed as China contends with tremendous oversupply in the housing market, making a major boost in new construction unlikely before the end of the year. 

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Caught between an irresolvable migrant dilemma and a Greek bailout program that is sure to get snagged again when the reforms fall short, German Chancellor Angela Merkel will meanwhile fight to maintain her credibility at home. When the European Commission gives breaks to Spain, Italy and France for missing their budget deficit targets, the reform mandate from Brussels will be further compromised.

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The credibility of two very troubled governments going into elections this quarter is already at an all-time low, but that does not mean either will concede power easily. In Turkey, the ruling Justice and Development Party will be stuck with another hung parliament, prolonging the political limbo at the same time Russia is mucking up Ankara's plans for northern Syria. In Venezuela, the ruling United Socialist Party of Venezuela will do what it can to undermine the opposition vote at a time when the opposition still sorely lacks the energy to take to the streets.
This will also be the quarter when the biggest global climate change deal since the 1997 Kyoto Protocol will be signed, though its credibility will still be questioned. While the United States and Europe push for more aggressive emissions targets, developing countries will resist targets on overall emission levels, opting instead for targets on emissions intensity tied to GDP to avoid stymieing their economic development. A lack of enforcement, however, will reduce the deal's impact.


Regional Map - Forecasts - Europe

Regional Map - Forecasts - Europe

The main theme for Europe in the fourth quarter will be a recurring one: fragmentation. Indeed, the next three months will bring political and even territorial fragmentation to the Continent. The European Union will be dealing with three main issues, the migration crisis and political developments in Spain and Greece.

Germany will be increasingly hemmed in by domestic factors. Pressure from conservative forces within her government will force Chancellor Angela Merkel to continually seek accommodation. This will be the case, for example, with the migration crisis. On the one hand, Germany will introduce reforms to make it easier for refugees to join the workforce. On the other hand, it will toughen its asylum policies to slow the flow of refugees into Germany.

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Conservative pressure will also be felt in Merkel's handling of the Greek bailout. Berlin will give Greece's new administration enough time to come up with a governing plan. However, Berlin will also push Athens to honor its bailout commitments and will be willing to delay the disbursement of money in the likely case the reforms calendar is not respected. Merkel's position as chancellor is not under threat, but dissidents within her party will remain very vocal, forcing Merkel to seek the middle ground.

The Immigration Crisis

The arrival of asylum seekers will remain problematic for Europe during the quarter, but measures by EU members to enhance land and maritime controls and colder weather will temporarily reduce the influx of migrants into the Continent. During the quarter, Europe will focus its efforts on measures designed to prevent people from entering the Continent, especially by seeking to cooperate with countries in the Middle East and Africa.

However, European efforts to prevent migrants from reaching EU territory will have modest success. The European Union will provide more funds for countries in the Middle East and North Africa. This will only be modestly effective: In countries such as Libya, there is not a central government to negotiate with. The European Union's naval operation in the Mediterranean Sea will start boarding, searching and seizing vessels in international waters. This will increase the chances of violent clashes between EU forces and human traffickers. In addition, money will not be enough to keep migrants in countries like Turkey or Lebanon, where asylum seekers find legal barriers to work.

Under pressure from conservative forces at home, Germany will toughen its position on asylum, trying to become less attractive for asylum seekers. Access to asylum benefits will be made harder while repatriations will be made easier for certain groups (especially migrants from the Western Balkans). Sporadic border controls will remain in place across the Continent aimed at disrupting migration routes.

The Greek Crisis

During the fourth quarter, the Greek government will introduce just enough measures to receive funds from its bailout program, but the entire schedule of reforms and disbursements of money will be delayed. Because of the general elections that were held in September, Athens postponed the approval of many of the reforms included in its bailout package. As a result, the creditors will probably delay their assessment of the bailout and the disbursements of money (both were originally scheduled for mid-October).

The creditors are likely to give Greek politicians some extra time to come up with a government program and a plan for reform. But several governments in Northern Europe, including Germany, the Netherlands and Finland, invested significant political capital in approving the Greek bailout and promised conservative lawmakers at home that they would keep constant pressure on Athens. This means that the lenders will have some patience with Greece, but pressure will return by the end of the year.

The delays in the reviews and disbursement of money will also delay the International Monetary Fund's decision on whether to participate in the program. The Greek government will push for debt relief, but the creditors will not make any concrete moves. Talks on debt relief will start during the quarter but will probably not bear any fruit before the end of the year.

After making substantial debt payments to the European Central Bank in July and August, Greece faces a somewhat calmer calendar of debt maturities for the rest of the year. This means that Athens can probably survive a delay in the disbursement of bailout money. However, Greece is not out of the woods. The longer the implementation of the program is delayed, and the longer the disbursement of money is deferred, the greater the fear of a Grexit and the more political frictions within Germany are bound to escalate.

The Spanish Crisis

In Spain, the political effects of its economic crisis will be fully felt as secessionist sentiments continue to create problems between Madrid and Catalonia and as anti-establishment parties challenge the political establishment in the general elections.

In Catalonia, pro-independence forces will spend the first weeks of the quarter trying to form a government because the Together for Yes party, which won the Sept. 27 election, will need support from the small left-wing CUP party to appoint the next Catalan president.

Friction within the pro-independence parties will delay the secession process somewhat, and the next Catalan government will move cautiously: The Catalan parliament will probably approve a solemn declaration announcing the beginning of the independence process and will also announce plans to draft a constitution. However, political differences within the pro-independence camp will prevent Catalonia from making any drastic moves. The government in Madrid will turn to the Constitutional Court to block whatever measures it believes violate the Spanish Constitution.

At the national level, Spain will get ready for general elections on Dec. 20. After years of crisis, the two largest political parties (the People's Party and the Spanish Socialist Workers' Party) are discredited and will probably not be strong enough to form a government alone. This will lead to a coalition government, potentially including newcomer parties such as Podemos and Ciudadanos. Considering that Spain has little experience with coalition governments, 2016 will be a year of political fragility, as the decision-making process will become considerably more complex.

Italy and France Dodge EU Sanctions

The final quarter of the year will be eventful for Italy. Prime Minister Matteo Renzi will push ahead with his agenda of economic and institutional reform while trying to prevent a rebellion within his party and seeking to circumvent the EU Commission. Renzi will make progress in the process of constitutional reform because the Italian Senate will approve a plan to modify the composition and powers of the Senate with the goal of creating more stable governments.

The reform, however, will not be completed during the quarter; approval by the lower chamber and a popular referendum will only happen in 2016. The government in Rome will also introduce tax cuts for households when it presents its budget for 2016.

In France, the Socialist government will continue to make timid moves toward reform in the labor sector. Paris will enter negotiations with unions and businessmen to simplify labor regulations in early 2016. Like Rome, the government in Paris will also introduce tax cuts for households and seek to slow the pace of deficit reduction in its budget for next year. We expect the EU Commission to criticize Italy and France, but formal sanctions are unlikely — another illustration of Brussels' increasingly politicized role in moderating the Continent's economic affairs.

France will be particularly active in the Middle East as Paris continues its air campaign against the Islamic State in Syria. The Elysee is worried about being sidelined in negotiations over the future of Syria and will try to position itself alongside the United States as a counterbalance to Russia's presence in the country. Paris will also seek to mediate the political stalemate between rival political factions in Lebanon when French President Francoise Hollande visits the country late in the quarter, though Paris lacks the weight to meaningfully influence Lebanese politics.

Political Change in the East and the North

The fourth quarter will be very important for the two largest countries in Central and Eastern Europe: Poland and Romania. Poland will hold general elections in October that could result in the defeat of its business-friendly government. Should the nationalist opposition take over, it will try to reverse some of the policies implemented by the previous administration. It could, for example, announce higher taxes for the banking sector and lower the retirement age. Domestic political changes will not, however, substantially modify Poland's foreign policy, which will continue to be based on EU and NATO membership and a tough stance on Russia.

Romania will also face political turmoil during the quarter. Prime Minister Victor Ponta will be under pressure from the opposition to resign, and he will struggle to find support from his own party. But as with Poland, political frictions in Romania will not affect the country's foreign policy priorities, which involve keeping close ties with the United States and NATO. While political developments may prevent Poland and Romania from making any substantial progress in their bilateral relationship, Warsaw and Bucharest will remain interested in developing closer bilateral ties.

The fourth quarter will also feature the growing debate in Sweden and Finland over the issue of NATO membership. The threat of Russian aggression has prompted leaders in both countries to consider joining the military alliance, with which they already have close ties. While public opinion in Sweden is slowly starting to favor NATO accession, Stockholm will not act without Helsinki on board. Considering that the Finnish government is currently focused on the country's lingering economic crisis, Helsinki will be willing to discuss NATO membership but not to make any concrete moves during the quarter.

Climate Change Commitments

During the fourth quarter, more than 190 countries will send delegates to Paris for the 2015 United Nations Climate Change Conference in hopes of signing a legally binding deal on environmental standards and emissions targets designed to combat the effects of climate change. Although this will likely be the biggest global climate change deal since the 1997 Kyoto Protocol, it will still remain weak on enforcement, and developing countries will try to make sure emissions targets do not hinder economic development.

The United States and especially the European Union have opted for more aggressive measures targeting climate change. The European Union has outlined a target to cut greenhouse gas emissions by 40 percent from 1990 levels by 2030. The United States has set out a target of 26 percent to 28 percent by 2030 from 2005 levels. Most developing countries have chosen to establish targets on emissions intensity — emissions levels per unit of GDP — instead of targeting overall emission levels. The 2015 Paris summit will lead to some sort of an agreement in December, but it is still an open question whether it will obtain enough votes, particularly from the United States and China, for ratification to be legally binding, as Paris and Brussels hope.

Former Soviet Union

Regional Map - Forecasts - FSU

Regional Map - Forecasts - FSU

Russia Tries to Sow a Trans-Atlantic Divide

Russia's standoff with the United States will grow more complicated this quarter as Moscow tries to soften the Europeans on sanctions over Ukraine even as it escalates its military involvement in Syria. Moscow's maneuvers are designed in part to draw the United States into a strategic dialogue ultimately yielding a bargain with Washington to pull back on sanctions and set limits on U.S. involvement in the Russian periphery. But the United States will only tacitly engage with Russia. Washington will be more compelled to sustain economic pressure against Russia while trying to reinforce U.S. security guarantees to allies in Russia's near abroad.

Russia will be using the fourth quarter to create enough divisions within the European camp to give Moscow a chance of preventing a unanimous European vote to extend sanctions in January. Russia will only need to sway a handful of European countries to allow the sanctions to expire early next year; it will lobby Germany, France and Italy particularly strongly. The closer the Europeans draw to Moscow, the more Russia will be able to drive a wedge between the United States and its European allies as gaps widen between those willing to bargain with Moscow and those trying to maintain a hardline stance, such as Poland and the Baltic states.

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Keeping relative calm in eastern Ukraine this quarter will be essential to Russia's strategy with the Europeans. Russia will use its influence over separatists in eastern Ukraine to pull back heavy weaponry from the frontlines and to delay elections in the separatist regions in exchange for political concessions from Kiev on constitutional changes. Kiev will not be able to make meaningful compromises on eastern Ukraine's autonomy without risking a collapse of the government, especially ahead of Oct. 25 local elections. The Ukrainian government could come under greater political pressure following those elections, with potential shake-ups in the Cabinet or reshuffling within the ruling coalition. Strong opposition from far right and ultranationalist groups will further constrain Kiev as it tries to recognize and empower the separatist territories. Ukraine's loan from Russia for $3 billion is due in December. This deadline will play into the negotiation process between Kiev and Moscow as Ukraine looks to the International Monetary Fund (IMF) for assistance and as Russia attempts to use a potential default to complicate further IMF assistance to Ukraine.

The United States will provide enough financial and security backing to Kiev to prevent the government from caving to Russian demands, and it will continue to encourage the Europeans to maintain their sanctions next year. Even as Russia appears cooperative on Ukraine this quarter, it will still have the means to increase military pressure if its negotiations with the Europeans break down under U.S. pressure.

Relations between NATO and Russia will be tense over the next few months in spite of the calm in Ukraine. NATO still has room to increase training missions in Ukraine under the auspice of rebuilding the Ukrainian military while continuing its permanent rotation of forces in Central Europe. Polish rhetoric against Russia and appeals for Western security commitments will be on the rise during Poland's election season. Sweden and Finland, meanwhile, will draw closer to NATO but will stop short of joining it. Russia will counter NATO activity in its periphery through military exercises and by pressing Belarus to follow through on a long-pending deal to host a Russian military air base.

Russia's expanded role in Syria will further strain relations with Turkey. Tensions with Ankara have been rising because of Russia's improved relationship with Azerbaijan and because of stalled talks on a natural gas agreement — a prerequisite for Turkey to sign onto TurkStream, the proposed gas pipeline that would benefit Turkey while enabling Russia to circumvent its existing route to Europe via Ukraine. Turkey may try to work out an understanding with Russia over Turkey's desire to establish a safe zone for refugees in northern Syria, but Moscow will likely prioritize its relationship with Iran this quarter and scuttle Turkey's plans.

Russia-Asia Relations

Russia and Japan will attempt to mend relations this next quarter, with a possible visit by Putin to Japan before the end of the year. There is still a long way to go before Tokyo and Moscow can be as friendly as they were around 2013, when the two were making progress on a peace treaty to settle the disputes over islands — disputes that began when World War II ended. Sustained U.S. economic pressure on Russia will make it difficult for Japan to ease its own sanctions on Russia, especially as Russia's terms for a peace deal formally ending World War II are still politically intolerable to Tokyo. However, the political snags in the relationship will do little to slow growing economic ties between Russia and Japan. Russia will also continue its discussions with China over the Power of Siberia pipeline that would boost Russian natural gas exports from Eastern Siberia to Asia. We do not, however, anticipate a breakthrough this quarter on pricing.

The Kremlin Budget Debate Intensifies

The Kremlin debate will focus on Russia's weak economy. The Russian ruble is in store for more volatility against a strengthening dollar. Though a stronger dollar will benefit many large exporters like Gazprom and Rosneft, it will also put more stress on the Russian people and regional governments that rely on the ruble for daily transactions. The majority of the regional governments are near default or bankruptcy, and the regions need approximately $7 billion in the fourth quarter to service their debt. The Kremlin has pledged financial assistance before the end of the year and is encouraging Russian banks to renegotiate much of the region's debt. These moves will enable the regions to forestall social unrest, but harder days are in store for 2016.

The Kremlin will also debate the upcoming 2016 government budget, which must come to a vote by December. The budget debate will solidify Kremlin clan lines, as some — such as Finance Minister Anton Siluanov — are pressing to cut defense spending and raise taxes on Russia's politically influential energy firms. A cut in defense spending in the next budget is unlikely. Russian oil giant Rosneft battled Siluanov once before when Rosneft was refused financial assistance from the government, and is dead set against paying more taxes to the government. In past disputes between the two, Siluanov has been able to stand up to Rosneft chief Igor Sechin, though this time Sechin is building a coalition of powerful elites to protect his firm and is also threatening to cut oil production next year if additional taxes are imposed. In addition to battling Siluanov, Rosneft will be maneuvering to elevate regional politicians friendly to Rosneft interests at the expense of rival energy firms such as Lukoil and Gazprom. Momentum is also starting to build against Gazprom's position in Russia, particularly its monopoly over exported natural gas. A decision to break Gazprom's hold will not be made this quarter, but factions are forming in the Kremlin to start curbing Gazprom's power in the future.

The FSU Periphery

This quarter will be a contentious one for the standoff between Armenia and Azerbaijan over the breakaway territory of Nagorno-Karabakh. Azerbaijan will continue to pressure Armenia militarily along the line of contact while it keeps close to Russia politically in hopes of changing the status quo of this long-frozen conflict. Armenia will resist making political concessions to Azerbaijan at this stage of the dispute, focusing instead on holding its position on the frontline. Though Yerevan is becoming more distrustful of Russia's intentions, it also lacks an alternative patron to balance against a more assertive Azerbaijan.

Belarus will hold presidential elections Oct. 11. While the power of long-standing leader Aleksandr Lukashenko will probably not be seriously challenged, the manner in which the elections are conducted will have important ramifications on Minsk's balancing act between Russia and the West. Belarus has improved ties with the European Union and the United States in an effort to convince them to ease the sanctions they put in place after last elections. But Minsk has also been intensifying its security cooperation with Russia, particularly via plans for a new Russian airbase to be opened in the country. Belarus will attempt to maintain this balance, though in this quarter Minsk can be expected to lean more heavily toward Moscow.

Moldova will be particularly volatile this quarter as anti-corruption protests by various groups in the country have generated support from pro-Russian parties. The pro-Russian groups have vowed to expand the protests in the next quarter if the government does not capitulate to their demands to remove oligarchs from power, dismiss President Nicolai Timofti and hold snap parliamentary elections in March 2016. These internal divisions will continue to undermine Moldova's EU integration drive and threaten the rule of the Moldovan government in its current form.

Central Asia will face several challenges in the fourth quarter, challenges stemming from the region's slowing economies. In Kazakhstan, low oil prices will continue to hamper the country's oil industry. The government has plans to cut oil production if prices fall below $40 a barrel. Domestic and foreign oil firms are struggling with the government to allow cuts in jobs and salaries of their workers. But the government knows the oil workers in the western regions of the country will protest if there are changes to labor codes to allow such reductions. The government will try to find a compromise between the executives and the workers, but serious strikes could take place if the negotiations fail. Small strikes will likely continue in other regions of the country, thanks to economic instability and currency volatility. The situation will only aggravate the power struggle among the elite, who will fight over every piece of the economic pie.

In Tajikistan, the fourth quarter will be rife with instability related to the government crackdown on opposition and Islamist groups. The uptick in Taliban and militant activity in Northern Afghanistan is also playing into the fears of Central Asian states, particularly Tajikistan. This and the wave of security incidents that came after the banning of the Islamic Renaissance Party of Tajikistan are likely to continue into the fourth quarter. Supporters of former Deputy Defense Minister Abduhalimov Nazarzoda, accused of orchestrating attacks on the government, are likely to experience more crackdowns by the regime's security forces.

Middle East and North Africa

Regional Map - Forecasts - Middle East and North Africa

Regional Map - Forecasts - Middle East and North Africa

Washington's Syria Dilemma

At the start of 2015, Stratfor forecast that Russia, unnerved by the developing U.S.-Iran rapprochement and locked in a standoff with the United States, would promote itself as a mediator of the Syrian conflict as leverage in its broader negotiation with Washington. Wherever the United States floundered in the Middle East, Russia would position itself as the problem-solver in a bid to rebuild its credibility in the region and make itself indispensable to the United States. That forecast was updated in the third quarter to say that the Russian-led project to cobble together a transitional peace plan for Syria would gain momentum but would ultimately perish on the battlefield as rebel factions and their sponsors lacked both the incentive and the trust to negotiate and uphold a sustainable power-sharing arrangement. These forecasts effectively set the scene for the fourth quarter as multiple interests converge and compete on the future of Syria.

With Russia providing critical reinforcement to loyalist forces in Syria, the regime's primary focus will be on filling out a statelet contoured against the stronghold of the ruling Alawite clan, a region that extends across the Hezbollah-dominated Bekaa Valley through Damascus and up the Homs-Hama corridor before anchoring on the Alawite coast. Under the claimed mandate of combatting terrorism, Russia and Iran will work together to help loyalist forces flush out rebel pockets along this corridor and repel encroaching rebels from Idlib in northeast Syria and Daraa, along the southwestern border with Jordan.

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However, Russia's presence in Syria will be measured. Russia's primary political objectives are to safeguard an Alawite rump state, establish a long-term presence in the eastern Mediterranean, maintain its relationship with Iran and ultimately draw the United States into a strategic dialogue. These objectives can be achieved without committing divisions of Russian forces to large-scale combat. Russia will be well aware of the threat of mission creep and is not under any illusion that it can pacify Syria through its military might, diplomacy or any combination of the two. By establishing a large forward operating base on the Syrian coast, Russia will be able to commit military resources as needed to protect an Alawite statelet and weaken groups opposed to the al Assad government while emphasizing its diplomatic efforts to advance a peace proposal.

That proposal is unlikely to gain much traction this quarter. The rebel factions that constitute the bulk of the insurgency will stay away from the negotiating table, appealing instead for more weapons support and training from a group of external sponsors. These sponsors include Turkey, the United States, Saudi Arabia, Qatar and Jordan, all of which distrust Russia's intentions for Syria and feel compelled to step up their support for the rebels to rebalance the battlefield following Russia's surge of support. The United States, already working to keep a safe distance from the fight in Syria to focus its diplomatic and geopolitical force elsewhere — including the Russian periphery — will not try to match Russia's commitment in Syria. Instead, it will work with coalition partners to ramp up the volume of airstrikes in Syria and the training and arming of rebel factions. This dynamic will give the Sunni regional players more authority in vetting rebel groups, thus raising the long-term threat of blowback from Islamist rebel factions. Enhanced U.S. efforts in the Syria fight will still do little to steer the main rebel focus toward battling the Islamic State as opposed to the Syrian regime.

A Stalled Fight Against the Islamic State

Iraq will rival Syria for attention in the fourth quarter as the fight against the Islamic State stagnates amid a growing political crisis within Baghdad. Iraq is grappling with its new geopolitical reality: Not only has the country broken into sectarian pieces, it is broke financially, making it too weak to conduct policy independently. Competing political factions in Iraq will use this highly vulnerable phase to jockey for influence, using the threat of foreign influence, corruption and socio-economic stress to assert themselves and promote a new order. The emerging political challenges in Baghdad will consume more of Iran's attention as it works to preserve its own agents of influence, but they will not fundamentally change the fact that Iraq's fate is still a product of outside powers. Competing external pressures on a fragile and money-stricken government in Baghdad will only further complicate the slow-moving fight against the Islamic State, providing the jihadist group with additional room to probe the weaknesses of the Iraqi army in search of symbolic wins. Without any good options to manage this threat and unable to develop a reliable local ground force to lead this fight, the United States will remain largely reactive to the situation in Iraq while keeping options open to incrementally expand its military presence should Islamic State make more serious gains. At the invitation of Baghdad, Russia has the potential to carry out largely symbolic airstrikes in Iraq against the Islamic State to complicate the U.S. position in Baghdad, though Moscow will be very restrained when it comes to expanding its operations beyond Syria.

The more incapable Baghdad appears, the more the Kurdistan Regional Government (KRG) will try to assert its claims to energy resources within its region at the expense of the central government and promote itself as a reliable ally of the United States. However, Iraqi Kurdistan will struggle to find buyers for its oil exports, especially when those exports routes are controlled by Turkey at a time when Ankara is militarily pursuing Kurdish rebels hiding out in Iraqi Kurdish territory. The KRG will also be grappling with an internal political crisis of its own. Kurdistan Democratic Party leader Massoud Barzani will likely be able to hold onto the presidency, but not without making concessions to his political rivals in the Kurdish parliament, making for a more divisive political landscape to be exploited by Turkey and Iran.

While working to preserve its influence in Iraq, Iran and its main proxy, Hezbollah, will also be busy committing forces to a ground offensive in Syria with Russian air support. Meanwhile, Iran will proceed apace with the implementation of its nuclear agreement with the West, known as the Joint Comprehensive Plan of Action. The internal Iranian debate over the nuclear agreement with the West will fuel the political jockeying ahead of Iran's parliamentary and Guardian Council elections early next year. Iranian President Hassan Rouhani will try to use the promise of sanctions relief in the wake of the nuclear deal to promote a reformist platform. But he will face resistance from more hardline conservative elements and from the supreme leader, whose goal will be to maintain a balance among competing factions.

Iran Prepares for an Economic Opening

Despite the escalation in political competition within Iran, the nuclear deal will advance this quarter as Iran and the International Atomic Energy Agency set the parameters for inspections to allow for an official Implementation Day. This will take place at the very end of 2015 at the earliest or, more likely, the beginning of 2016, when European sanctions will be lifted and U.S. sanctions eased to enable Iran to offload stored crude and regain market share with a gradual increase in production. During a November conference in Tehran, Iran is expected to unveil details of a new and more competitive petroleum contract in which Iran will likely establish joint ventures between the state-owned National Iranian Oil Co. and foreign partners.

Saudi Royal Stresses

In anticipation of additional Iranian crude coming on the market in the coming months, and with the understanding that U.S. crude producers remain highly adaptive to price fluctuations, Saudi Arabia will maintain OPEC policy of defending market share and competing on prices while avoiding cuts to production. Saudi Arabia will merit close attention in the coming months as internal stresses continue to grow in the kingdom. The country remains vulnerable to terrorist attacks, though the capabilities of jihadists operating in the kingdom remain limited and do not pose a direct threat to energy infrastructure. In the mountainous border areas with Yemen, Saudi Arabia will face a more serious military threat from Houthi rebels. At the same time, the Saudi-led coalition ground offensive on Sanaa will likely get bogged down in the mountains in the north. Meanwhile in Aden, the rift will continue to grow between Southern Resistance fighters and the government of President Abd Rabboh Mansour Hadi, limiting the extent to which Saudi Arabia can rely on Southern Resistance fighters to aid in the Sanaa offensive. Saudi Deputy Crown Prince — and second deputy prime minister and minister of defense — Mohammad bin Salman will absorb much of the blame and attention for Riyadh's challenges, though King Salman will be able to contain potential challenges from within the royal family.

Turkey's Messy Electoral Aftermath

Turkey is heading into another tumultuous quarter following an inconclusive election in June. Stratfor forecast that the Justice and Development Party (AKP) would face a significant challenge in holding onto its majority in parliament, especially as a peace process with the Kurdistan Workers' Party was bound to fall apart. As we said in the third quarter, growing security vulnerabilities and political instability would spell much darker days for Turkey as the year wore on. Going into the Nov. 1 election redo, the AKP is not positioned to regain a majority that could end the political impasse. Reluctant to share power, the ruling party could resort to more extreme measures to try to shape the vote, such as imposing emergency rule in Kurdish-dominated areas in the southeast, where violence can easily escalate. Another hung parliament is likely to result from the Nov. 1 election, further souring the economic climate at the same time the Turkish lira will be facing downward pressure from a strengthening dollar.

The Turkish ruling party will thus face two major dilemmas simultaneously this quarter: inconclusive electoral results and Moscow's challenge to Ankara's geopolitical ambition of carving out a sphere of influence in Syria. Even as Turkey still faces considerable constraints as it bolsters its military presence in northern Syria, it will be able to coordinate with the United States this quarter on a more intensive rebel operation against the Islamic State in Aleppo province west of the Euphrates. Turkey will try to use this operation to push further for a full-fledged "safe zone" and accompanying no-fly zone, which the United States will continue to resist. Turkey will nonetheless need to be watched closely for signs of military preparations toward the end of the quarter and early next year, especially as such an operation could be used as the constitutional basis to put off another election if coalition talks collapse. Turkey can also be expected to leverage European frustration over migrants to lobby support for its plans for a safe zone in Syria where refugee camps can be built. However, the Europeans will be especially wary of getting caught in Russian crossfire in Syria and will instead be more willing to strike a bargain with Turkey on visa liberalization.

Egypt Holds Elections at Last

Egyptians will head to the polls in a three-stage general election beginning in October after months of delays. Egypt's political opposition has struggled to form a cohesive front ahead of elections in the face of strong governmental regulation (some would charge interference) and party infighting. Opinion polls in Egypt are not always reliable, but early polls show strong public support for the National Salvation Front — the coalition of political forces that toppled former president Mohammad Morsi — and the Salafist al-Nour party, which has gained support following the disbanding of the Muslim Brotherhood and smaller opposition parties.

The final outcome will lead to a parliament that will have the authority to review laws passed since Morsi's ouster in July 2013 and reject President Abdel Fattah al-Sisi's Cabinet appointments. Al-Sisi could try to push through constitutional changes that would limit the parliament's authority if opposition figures fare well in elections. Either way, Cairo is likely to undergo a contentious coalition-government formation process in December ahead of an intense debate over reform measures meant to revitalize Egypt's lagging economy.

The Egyptian government still faces an uphill battle against an entrenched jihadist insurgency on the Sinai Peninsula as well as ongoing attacks through the Nile valley and delta. Security will be tight throughout the election season, but the polls will be attractive targets to Islamic State affiliates and to radicalized Muslim Brotherhood supporters.

No Truce Between Israel and Hamas

Rumors over a long-term Hamas-Israel truce continue to circulate, but an actual deal will be a bridge too far. Hamas' attention will instead be focused on trying to maintain authority in Gaza as the group faces growing challenges from Salafist groups at the same time that Iran will be working to bolster its support for Hamas' sometime rival Palestinian Islamic Jihad. Hamas' weakening grip over the security of Gaza could threaten its existing cease-fire with Israel, leading to sporadic acts of violence. Israel will meanwhile stay close to Russia when it comes to intelligence sharing on Hezbollah's weapons acquisitions, taking pre-emptive action as needed.

Algeria Inches Forward With Reform

Managing the domestic economy will be Algiers' primary focus in the fourth quarter as the country continues along a careful but deliberate path toward implementing reforms and preparing for an eventual transition from the leadership of ailing President Abdel Aziz Bouteflika, who is 78. At the heart of proposed changes to offset the fall in global oil prices is a new taxation scheme currently being debated in parliament. It includes modest hikes in power, Internet and diesel taxes and a proposed 9 percent cut in state spending. While all proposed measures may not be adopted into the 2016 finance law, Algeria is likely to push ahead with selective tax increases and spending cuts to maintain the bulk of its extensive social subsidy spending on housing, food items and education. The drop in oil prices may also delay planned offshore exploratory drilling and shale test wells anticipated late in the quarter or in early 2016.

Having secured the backing of mainstream political parties and restructuring leadership within military and intelligence circles earlier in the year, Algiers will continue its work to organize Islamist party support for proposed reforms and the transition process. Additional adjustments to the Cabinet will be made as necessary while the question of who will lead the country after Bouteflika will not be settled before 2016.

Libya's Troubled Transition

The UN-mediated negotiation process will remain the focus of Libya's political transition; rival camps in Tripoli and Tobruk as well as various militia and tribal circles all support the process just enough to keep it moving. Deadlines will be set and missed, but the dialogue will continue to serve as a venue for Western governments to vet local power brokers ahead of an eventual unity government.

Against the backdrop of an ongoing military campaign against Islamic State affiliates based in the central coastal city of Sirte, a brewing conflict between rogue Gen. Khalifa Hifter and his political rivals will only add to Libya's security troubles. Hifter has increasingly found himself at odds with the UN dialogue process, which seeks to create a civilian-led transitional authority with Islamist representation — groups Hifter, with Egyptian and Emirati support, has vowed to destroy. Any potential foreign military action in Libya will be limited this quarter; more robust foreign military involvement is unlikely until after a national unity government is established. In this interim period, Libya's oil production volumes will remain sporadic and exports far below capacity.

East Asia

Regional Map - Forecasts - East Asia

Regional Map - Forecasts - East Asia

China Looks Inward

In the fourth quarter, China will experience continued economic weakness. Chinese stock markets peaked as China was entering the third quarter, forcing the government to engage in aggressive intervention. These interventions will continue throughout the fourth quarter, though likely at a reduced rate as their limitations become apparent. While taking care to ensure that volatility does not affect the currency, the Bank of China is likely to allow the yuan to depreciate further against the dollar as capital outflows continue. The depreciation will be managed and will not result in precipitous drops.

China in the fourth quarter will be inwardly focused, both politically and economically. The Fifth Plenum of the 18th Party Congress will be held during October and will occupy the attention of the Central Committee, the 205 highest-ranking members of the Chinese Communist Party. The focus will be on finalizing the 13th Five Year Plan, which will guide Chinese economic planning from 2016-2020 and is likely to include an expectation of lowered growth. The plenum will also set policy priorities for the next year, which Stratfor expects to include the new reform guidelines for state-owned enterprises. However, implementation of many of these policy priorities will begin in earnest next year.

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China will also continue to experience economic woes in its housing sector. New home prices in cities outside the major conurbations of Beijing and Shanghai have remained stagnant in the face of oversupply. While prices did improve in so-called first and second tier cities, new land purchases are down by a third. Oversupply in housing stocks will mean third quarter measures to stimulate home buying will fall flat in the fourth quarter. The sum of this will stymie China's efforts to build up an inland consumption base during the quarter.

Also during the fourth quarter, China's anti-corruption watchdog is likely to initiate a third (and final) round of inspections for the year. This round of inspections appears to be aimed at addressing the market crash at the end of June and the Tianjin explosion of August. The targets, though not specifically identified, are said to include central government organs (likely with environmental and work safety portfolios), universities and the financial sector, which has already been subject to vigorous investigations from the police, judiciary and securities regulators. Meanwhile, the 26 state-owned enterprises that were investigated in the first quarter, many from the petroleum and electricity sectors, will push through "reforms" such as the divestment of excess vehicles and side businesses — reforms designed to demonstrate a commitment to Party discipline. On top of the Central Commission for Discipline Inspection investigations, the Ministry of Public Security will be carrying out a three-month campaign to crack down on underground banks, which appear to have facilitated the illegal transfer of billions of dollars out of China.

'Abenomics' Continue to Disappoint in Japan

A tough battle pushing security legislation through an extended Diet session in the third quarter has cost Prime Minister Shinzo Abe, pushing down his Cabinet's approval rating to a record low 38.9 percent. Thus, his administration will refocus its attention on its neglected domestic agenda.

Abe's reform drive, dubbed "Abenomics," continues to disappoint, primarily in its failure to achieve any kind of inflation, the first step to recovery. Some of last year's oil price drops coming out of the year on year figures might brighten the picture slightly. Nevertheless, the overall lack of inflation, the sluggishness of exports and the regional economic woes that have seen the yen drift upward will all encourage the Bank of Japan to undertake further monetary easing in the fourth quarter. A drop into negative interest rates cannot be ruled out.

Southeast Asia Adjusts to the Chinese Slowdown

In the fourth quarter, governments throughout Southeast Asia will be focused primarily on managing economic turbulence emanating from China's slowdown and low commodity and energy prices. With currencies plummeting across the region, the uncertainty surrounding a potential U.S. Federal Reserve rate rise will resurface in December. The ASEAN Economic Community will launch, at least formally, on schedule by the end of the year, laying the groundwork for much-needed regional economic and infrastructural integration and a degree of insulation from Chinese and Japanese economic fluctuations. However, divergent interests among regional states and weak enforcement mechanisms will ensure that only a watered down version of the common market comes into effect.

In Thailand, no major challenges to the military government's rule will emerge before the end of the year, allowing the junta to stick to its ever-lengthening roadmap for a return to elections. The opposition's self-exiled leader, former Prime Minister Thaksin Shinawatra, will refrain from calling his supporters onto the streets, though impatience and economic concerns on their part — particularly related to Thailand's historic drought — will likely lead to periodic small-scale protests. Instead, Thaksin will allow the junta to bear the brunt of Thailand's economic woes, which — plagued by contracting exports, limp consumer demand, China's slowdown, and drought — will not abate before the end of the year. Though a sustained trend of violent incidents on par with the Aug. 17 bombing in central Bangkok is unlikely, the fallout from the August blast will further hamper the economy by weakening the annual stimulus that is Thailand's November-January tourist high season. Mounting concerns about the health of long-ailing King Bhumibol Adulyadej will remain a wildcard this quarter, with the possibility of royal succession injecting continued uncertainty into Thailand's current state of uneasy political stasis.

Malaysian Political Turmoil Spooks Investors

The focus in Malaysia will remain centered on embattled Prime Minister Najib Razak's attempt to hold onto power amid a worsening corruption scandal involving a debt-ridden sovereign wealth fund — in addition to stiff economic and security challenges. Despite glaring cracks within the ruling party, however, Najib remains in a relatively strong position to weather either an intra-party rebellion or additional mass anti-government protests.

This restive environment will continue to harm Malaysia's credibility among foreign investors, worsening an economic outlook already beset with capital outflows, low oil prices and an exceptionally weak currency.

The Indonesian Government Agenda Stalls

In Indonesia, President Joko Widodo's economic and reform agenda will continue to be frustrated by his tenuous political standing, bureaucratic resistance and stiff economic headwinds. The past quarter's Cabinet reshuffle and subsequent wide-ranging stimulus and regulatory reform package will help soothe investor concerns about the country's recent trend toward protectionist and nationalistic policymaking and, over the longer term, ease the country's vulnerability to low commodity prices. But success in streamlining regulatory hurdles to investment and getting major infrastructure projects off the ground will remain incremental at best through the end of the year.

Myanmar's Political Rehabilitation Continues

Myanmar's general election on Nov. 8 is likely to be an uneven affair marked by claims of voting irregularities. But it will also be sufficient progress toward civilian governance to earn at least tacit approval from the international community. The military elite are likely too invested in the financial benefits of Myanmar's liberalization to undertake major moves such as a coup, even in the event of an electoral victory by the opposition. Nonetheless, the military will not allow its broader position as Myanmar's ultimate arbiter of power to be threatened and will resist measures, such as a charter change, that challenge its core interests. Meanwhile, Naypyidaw is highly unlikely to strike a comprehensive and lasting peace deal involving all of Myanmar's myriad ethnic rebel groups before the end of the year as it has pledged to do.

Regional Trade and Defense Issues

With little fanfare, the 12 members of the Trans-Pacific Partnership announced an agreement was finally reached Oct. 5. Reaching an agreement is just the first step, however. A text of the agreement is expected to be released some time in November, and after that local parliaments will begin their review and debates. The delay in negotiations places the discussions and ratifications squarely into the election cycles in several countries, likely complicating but not necessarily derailing the agreement. No concrete progress is expected until mid-2016 at the earliest, but countries including South Korea and Taiwan will be carefully reviewing the agreement and enhancing their efforts to gain membership in a future second round.

The passage of new Japanese defense legislation will spur Japan into a greater role in regional security issues and disputes. The Japan Self-Defense Forces will use a possible launch of a North Korean rocket during the quarter as an opportunity to test new procedures for coordinating with South Korea and the United States in regional crisis scenarios.

Japan will continue to increase its air and maritime activity in the South China Sea, which will be welcomed by South China Sea claimants, particularly the Philippines and Vietnam, but increasingly Malaysia as well. Japan will move to hammer out deals to export arms and equipment to regional coast guards, filling the demand generated by China's continued construction of facilities in the Spratly Islands. Although any orders for equipment signed in the quarter are unlikely to immediately go to their recipients, deliveries of patrol ships from a deal signed with Vietnam in 2014 and one signed with the Philippines in June may occur in the fourth quarter. Meanwhile, Japan is likely to continue negotiations with the Philippines on a Visiting Forces Agreement that could allow the Japan Self-Defense Forces to be stationed in the Philippines on a rotational basis. But a deal is unlikely in the fourth quarter given historic sensitivities dating back to World War II.

China, too, will take steps to deepen its international involvement, starting by setting up an 8,000-member peacekeeping force that President Xi Jinping promised at the UN General Assembly, which will further China's goal of building its budding expeditionary capability.

Latin America

Regional Map - Forecasts - Latin America

Regional Map - Forecasts - Latin America

Venezuela's Crises Continue

Venezuela is scheduled to hold legislative elections Dec. 6. This election is an important date for the ruling United Socialist Party: High inflation and persistent food shortages will surely impact some voters' attitudes toward the ruling party. The elections come at a time when the ruling party has no guarantee of maintaining control of the legislature. An outright cancelation of the election is unlikely, but the government could rely on other measures, such as restrictions on political rallies and organization in opposition-leaning border states, to limit opposition votes and thus mitigate the ruling party's electoral losses. But the opposition is unorganized, and voters are fairly apathetic, so a major outbreak of social unrest directed by the opposition is unlikely.

Venezuela will keep several of its border crossings with Colombia closed during the fourth quarter. The Venezuelan and Colombian governments will discuss what they can do to reopen them, but the border closure benefits Caracas by disrupting the flow of smuggled food and fuel to Colombia and by providing propaganda value ahead of the election. The Venezuelan government therefore has reason to keep the border closed for a while longer. States of emergency, which give greater leeway to security forces as they crack down on smuggling operations, will continue in the border states of Tachira, Zulia and Apure.

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Venezuela's public finances will be highly stressed during the fourth quarter — around $5 billion in foreign debt is due for the government and for state-owned energy firm Petroleos de Venezuela. Most of these payments will fall in October and November. A default would devastate the economy by further isolating the country from foreign lenders amid a worsening economic crisis, but notably, a default appears unlikely.

Impeachment Chances Wane in Brazil

Following third quarter negotiations between the ruling Workers' Party and the Democratic Movement Party of Brazil (PMDB), the threat of congressional impeachment against President Dilma Rousseff will wane in the fourth quarter. With the PMDB controlling eight ministries through a recent reshuffle, it is far less likely that the opposition coalition pushing for Rousseff's impeachment will get the votes necessary to even open the impeachment process.

Even with concessions to the PMDB, Rousseff will still struggle with low approval ratings and with declining clout among the Workers' Party leadership and the national government. Congressional discussions to pass legislation to amend the pre-salt oil exploration and production regime will likely continue in the fourth quarter, but will require significant negotiations between Brazilian energy firm Petrobras, the Workers' Party and political opposition parties such as the Social Democratic Party of Brazil (PSDB) to clear both houses of congress in the next few months. The measures, which are favored by segments of the PSDB, would loosen current pre-salt regulations by allowing Petrobras to opt out of operating the blocks and would remove a mandatory 30 percent stake for Petrobras in each pre-salt project.

Criminal investigations resulting from a recent scandal involving Petrobras will continue in the fourth quarter. Further indictments and arrests of current and former government officials or private sector officials are likely.

The Brazilian economy will continue feeling the effects of a strong dollar and low commodity prices, especially as the Brazilian real depreciates and inflation rises. The government will implement public spending cuts to trim the national budget but will likely try to avoid implementing taxes or spending cuts that could spur public discontent and protests.

Energy Reform Continues in Mexico

Mexico will continue to implement reform in its hydrocarbons and electricity sectors. As part of those reforms, Mexico will hold a third round of bidding Dec. 15, this time for onshore hydrocarbons deposits. The second round of bidding was far more successful than the first, thanks in part to modifications that allow companies to keep more of their profits. But the third bidding round may not attract as much interest from major international exploration and production companies. (It is designed to facilitate the development of Mexico's private oil companies.) However, it could be the first time Mexico offers licensing contracts for deep-water bidding. Mexico will move toward cementing the terms of the fourth round of bidding on deep-water offshore assets, but this auction will not be held until 2016.

Electoral Issues in Ecuador and Argentina

The Ecuadorian legislature will vote in December to remove term limits on all elected positions, including the presidency. The move will give President Rafael Correa the ability to run for re-election in 2017. Several organizations, including the Unitary Federation of Labor and the Confederation of Indigenous Nationalities, are going to protest during the fourth quarter to prevent the congressional vote. However, their multiple demands offer the government room to negotiate, and it is likely that the government will offer these organizations concessions to prevent their protests from gaining momentum ahead of the vote.

Argentina will hold the first round of presidential elections Oct. 25, in which Argentine voters will choose between left-wing candidate Daniel Scioli of the ruling Front for Victory and challenger Mauricio Macri of the conservative Republican Proposal alliance. If none of the candidates receives the required 45 percent of the popular vote, a second round will be held Nov. 22. Regardless of which candidate wins, Argentina faces a rough road ahead. With the Brazilian economy contracting, Argentine exports will remain low relative to previous years, and the country faces a potential trade imbalance. The risk of increased imports and further capital flight could make the next president reluctant to significantly loosen controls on repatriating currency or to ease restrictions reducing imports by private firms.

Even if the new president is considered more amenable to foreign investors and markets than the previous government, it is unlikely that negotiations with the holdout bondholders will progress significantly during the fourth quarter.

Peace Continues to Break Out in Colombia

During the fourth quarter, the Colombian government and the Revolutionary Armed Forces of Colombia (FARC) will continue negotiations to reach a peace agreement by 2016. With the signing of a transitional justice agreement in September, a significant step toward signing a peace deal has already been taken. Over the next few months, the national congress will discuss and attempt to pass legislation to implement the peace agreement. Discussions will also continue between FARC negotiators and the government concerning the nature of transitional justice courts, which will mete out non-criminal punishments to FARC members, and concerning the eventual demobilization of the FARC.

With the FARC very near to signing a peace deal, the smaller National Liberation Army (ELN) is likely to accelerate its attempts to open formal negotiations with the Colombian government. If the ELN opens negotiations with the government, the pace of its attacks against energy infrastructure and security forces — particularly in northeastern Colombia — could decline.

Sub-Saharan Africa

Regional Map - Forecasts - Sub-Saharan Africa

Regional Map - Forecasts - Sub-Saharan Africa

Nigeria's Cabinet Takes Shape

In Nigeria, President Muhammadu Buhari has put together a Cabinet that reflects representation drawn from all six regions of the country. This Cabinet reflects Buhari's style of leadership, a methodical approach to governance that maximizes stability. As expected, Buhari will also directly manage the Petroleum Ministry for the time being (with the help of Nigerian National Petroleum Corp. head Emmanuel Kachikwu). Buhari appointed ministers with performance requirements in mind, and has avoided appointing unqualified persons like his predecessor did.

There are, however, remaining challenges within his Cabinet, such as managing political and socio-economic patronage expectations from the Niger Delta region, the area where Buhari's predecessor, Goodluck Jonathan, came from. The region enjoyed extensive patronage under Jonathan, in turn giving Jonathan a strong — and essentially sole — base of support for his failed re-election bid. Buhari has worked with a number of Niger Delta political leaders, but the region will need to see that they have retained a degree of patronage in the new Buhari administration to prevent their decline in power after Jonathan's loss from prompting them to return to militancy. Buhari and his government will work to maintain positive relations with former Niger Delta militants to prevent a resurgence of violence in this critical area of Nigeria.

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Following the announcement of President Buhari's Cabinet, there will now be continuing talks on new energy legislation meant to instill greater performance and value throughout the energy sector and the renegotiation of deep-water oil contracts, but this is unlikely be settled within the fourth quarter of 2015. It will, however, become a priority in 2016. The Nigerian parliament is currently in the process of breaking up the Petroleum Industry Bill, and while Buhari is restructuring the NNPC, the process will extend beyond this quarter. He wants to try to see if his changes thus far are enough to get the NNPC itself under control.

Buhari will also ensure a continuation of military and security operations against Wilayat al Sudan al Gharbi, the group formerly known as Boko Haram, in the northeastern states of Nigeria. Though the group will feel constrained by these operations and by its geography, there is still the risk that it could perform raids and execute suicide bombings in rural areas. The multinational joint task force operating against Wilayat al Sudan al Gharbi will continue to receive political support and the countries taking part in it will conduct operations in their respective territories, aided by intelligence sharing across these boundaries.

Challenging Economic Times in South Africa

In South Africa, the ongoing labor negotiations in the gold mining sector have so far resulted in minimal disruptions, and the current direction of the negotiation process indicates this trend may continue. While the largest union in the gold sector, the National Union of Mineworkers (NUM), has chosen to accept an offer by the mining companies, the Association of Mineworkers and Construction Union (MCU) has rejected the offers. The AMCU will eventually accept a deal, though it will want better terms than the ones given to the NUM considering the two unions are still battling each other for primacy. While some disruptions may come along with this tactic, the fresh memory of wage losses during last year's strikes will likely keep them at bay.

Meanwhile, negotiations in the coal-mining sector also continue, and the possibility of disruptions seems larger there than in the gold sector as talks with coal mining companies had collapsed at the end of the last quarter.

The South African economy is facing a very challenging time. The fourth quarter of 2015 does not bring any single event that could shake up the ruling African National Congress, though the party is trying to figure out how to retain its members' positions as 2016 municipal elections — a preview of sorts for party elections in 2017 and national elections in 2019 — are held. The ANC will try to manage a middling path that ensures stability in the mining and other industrial sectors to preserve jobs and economic activity, while at the same time trying to minimize any bias that seems to be pro-business. Simply put, it wants to avoid electoral losses to other parties, and to this end, it needs to maintain the perception of being a left-leaning government.

Sudan Seeks and End to Sanctions

In Sudan, we are likely to see continued signs of cooperation with the Arab Gulf states, and possibly even continued dialogue with the United States, on the lifting of sanctions. This latter approach will be take some time, however, and only minimal achievements may be made within this quarter as obstacles including President Omar al Bashir's poor human rights record hold up a path toward normalization with the United States. The Arab Gulf states, however, are less concerned with this and will continue to financially support Sudan in return for political and material support within the region.

Internally, Khartoum is planning a national dialogue this quarter, during which a cease-fire and amnesty offer for rebels in South Kordofan, Blue Nile state and Darfur will be valid. So far, the response by rebel forces has been limited — no groundbreaking results are expected to come from the dialogue — but the actions of Khartoum indicate the intent to lower the drain on resources these ongoing conflicts represent and to clean up the human rights record that has been a barrier to normalizing relations with the West.

During this quarter we could also see Khartoum turn its attention toward negotiations with South Sudan since the Sudan-South Sudan oil transit agreement will expire next year. We could see negotiations start to take place even before it expires because low oil prices hurt Sudan's negotiating position. The tone of these negotiations with South Sudan will likely also set the stage for potential Sudanese military movements on the South Sudanese border throughout this period.

South Sudan Struggles

The South Sudanese peace agreement will be a long term effort on the part of South Sudanese political groups and the international community to stabilize the country. The economy will continue to limp along because of poor oil production conditions and the low pricing for oil exports. President Salva Kiir still does not really want to share power, despite the return of Vice President Machar, and this will likely impede government. There will be modest diplomatic pressure to adhere to the peace agreement and to keep up peace talks, and this will prevent the conflict from escalating into a civil war.

Elections in Tanzania, Burkina Faso and Ivory Coast

Tanzania will hold general elections Oct. 25. As long as the ruling Chama Cha Mapinduzi party (CCM) is re-elected, it will continue the policy path it is on, though it may crack down harder on corruption. But if the CCM loses, the Ukawa opposition coalition will probably maintain similar policies since it is similar to the CCM. Despite the CCM's comfortable position in the mainland, elections in the Zanzibar archipelago may favor a different party. This could represent the first time for Zanzibar and Tanzania to have different ruling parties — something that would create even more tension between the two. After the elections, officials would resume work on organizing a constitutional referendum, but that probably will not happen in 2015.

Following the failed coup at the end of the third quarter, elections may be held during the fourth quarter. The former ruling Congress for Democracy and Progress (CDP) party will have taken a big hit through the coup attempt, and it is possible the events in Burkina Faso actually democratize the country. Elements of the former ruling party, together with some remaining dissidents in the military, will still have some indirect influence in the political system, but they will not be able to command power. The removal of their access to physical power by the disbanding of the Regiment of Presidential Security will remove much of the traditional support of certain security forces to the CDP.

With elections scheduled for Oct. 25, the ruling party of Ivorian President Alassane Ouattara feels comfortable. Ouattara is likely to be re-elected, and many of his party members will likely be re-elected to the legislature. Security concerns are also limited, mostly due to the absence of many factors that had led political disputes within Ivory Coast to turn violent in the past. Without regional actors supporting or inciting opposition groups, this year's elections can be expected to take place without armed conflict.

More Militant Attacks in Somalia

In Somalia, militant group al Shabaab will attack AMISOM peacekeeping troops throughout the fourth quarter. The pressure of these attacks will force AMISOM to either act aggressively by conducting large-scale offensives or to add defensive capabilities to the operation. Either way, the added need for resources could start eating away at the resolve of the mission's troop contributors. The inability of AMISOM to secure the areas liberated from al Shabaab will also complicate any attempt to organize elections by 2016 as currently planned. While Somali President Hassan Sheikh Mohamoud seeks to delay elections, both AMISOM and the international community are opposed to such an extension.

South Asia

Regional Map - Forecasts - South Asia

Regional Map - Forecasts - South Asia

India Balances Local Elections and a Region in Flux

At the beginning of the year, Stratfor forecast that Indian Prime Minister Narendra Modi's ambitious plans of reviving and reforming his country's economy would succumb to the inertia of the Indian political system. And, indeed, several attempts at enacting key pieces of legislation — organized labor reform, tax system overhauls and revisions to a controversial land acquisition bill — have been met by staunch opposition in the upper house of parliament and even within his own Bharatiya Janata Party (BJP).

Modi's government is unlikely to pass any major reforms in the fourth quarter. Elected officials instead will focus on upcoming local elections in Bihar state. State legislatures name members to the India's upper house of parliament, and the Bihar elections present the final opportunity for the ruling party to try to weaken the opposition's ability to block legislation. But economic concerns from both a slowing economy and a second year of weak monsoon rains has led many within the BJP parliamentary majority to reconsider serious economic reform plans that could adversely affect India's rural and agricultural voters. The Reserve Bank of India's recent decision to lower bank rates also reflects growing concern over India's economic growth in the quarter. While growth will remain positive, there are indications that the economy may be settling toward a real growth rate of 5 percent to 6 percent, as seen earlier in the year before New Delhi revised its reporting methodology to arrive at a rate of 7 percent to 7.5 percent. A slight slowdown in overall growth probably does not have national political ramifications, but the Bihar elections will discourage officials from avoid promoting policies that could upset the state's large lower-caste and tribal populations.

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Beyond the inner workings of India's domestic political system, New Delhi will work to try and manage change in its immediate periphery. Constitutional reform processes in Nepal and Sri Lanka present opportunities for India to strengthen relationships with key regional states long courted by China. New Delhi will reach out to Hindu populations in both countries but will still struggle to deliver meaningful investment and development aid. In Bangladesh, concerns over rising militant activity will strengthen ongoing security cooperation, but rising militancy in Bangladesh, the Afghanistan-Pakistan region and the potential for protests over the Nepalese Constitution to renew armed clashes between Kathmandu and Maoist rebels will push India to increase monitoring along its borders in the face of a heightened risk of terrorism.

Kabul Braces Against a Resurgent Taliban

Despite the spate of Taliban attacks in Kabul in August, one of which resulted in the highest number of civilian casualties in the city since at least 2009, Afghan President Ashraf Ghani will remain committed to pursuing negotiations with Taliban forces under Mullah Akhtar Mansour. Regional players like Pakistan will support efforts to bring Kabul and the Taliban to the table, but any meaningful talks between the two will remain elusive for at least the fourth quarter. The primary arrestor to peace talks will create disunity within the Taliban movement over negotiations, and continued Taliban attacks could also weaken Ghani's legitimacy in future peace talks.

Kabul's security forces have worn thin since the end of NATO's combat mission in late 2014. As a result, the Taliban have achieved temporary battlefield successes in multiple regions of the country, but most notably in the northern provinces that have been largely spared the insurgency. However, these successes should not be confused with meaningful territorial gains; remaining international forces will support Afghan forces just enough to reclaim areas lost to the Taliban.

Still, Kabul is unable to maintain security without foreign military support. And with security forces increasingly strained, the Taliban will likely take over some areas even though the coming winter months will constrain Taliban logistics through the end of the year. Until then, the Taliban will be a major political and military challenge for the government in Kabul, a challenge they will continue well into 2016.

But the Taliban has its own challenges. Internal divisions over Mansour's succession and over peace talks will hamper the group throughout the fourth quarter.

These divisions will likely create sporadic fights among some Taliban factions, including the small number of Afghan Taliban now operating under the Islamic State banner. Nevertheless, Mansour will remain leader of the largest cohesive camp and key figure in any future peace talks.

Bangladesh Struggles to Contain Islamist Militancy

After two years of political violence and instability, Bangladesh is contending with Islamist militants of its own. Dhaka's attention has shifted from political violence led by the opposition Bangladesh Nationalist Party and its Islamist allies to elements radicalized by the country's extended political crisis and security forces targeting of groups such as Jamaat-e-Islami. Political instability has also created a window for Islamic State sympathizers, and attacks against secular bloggers and foreigners are on the rise. Dhaka will continue to look to New Delhi for counterterrorism assistance and for political cover as the ruling Awami League seeks to use the threat of terrorism to strengthen its position and contain the political opposition. Dhaka has grown accustomed to high levels of violence, so militant attacks are unlikely to unseat the government or substantively degrade economic activity in this quarter. Of course, that could change if militants successfully attack Western political and targets, so Dhaka is enhancing security at key infrastructure and business sites accordingly. Heading into 2016, a rise in militant attacks and ongoing political deadlock could be reason enough for the country's military to re-insert itself into the political process to stabilize the country.

Divisions Over the Nepalese Constitution

Though Nepal's parliament has approved a federal constitution after nine years, the country's southern population in the fertile lowlands of the Terai region continues to protest against a framework they say favors the country's northern populations and the Kathmandu Valley. Despite self-congratulatory messages out of the country's new parliament (and former constitutional drafting committee), Nepal still faces a difficult process of drawing up the official boundaries of its seven future states and a contentious battle for political representation and allocation of funding and resources. India has already proposed seven amendments to the Nepalese Constitution, including inserting a proportional representation system meant to strongly favor the primarily Hindu Madhesi ethnic group. Making up slightly more than half of Nepal's population, the Madhesi reside within less than 20 percent of Nepal's entire geographic area. State-based representation dilutes Madhesi representation, and with it, India's reach into Nepal's politics. April's earthquake has closed many of the country's links to China, increasing an already-heavy dependence on Indian ports and exported goods in the land-locked country. India has slowed the movement of food and subsidized fuel in what it has called a response to local protests, though critics in Nepal accuse New Delhi of attempting to shape Nepalese politics — similar to how it did in Bhutan in 2013. India will be careful not to increase local pressure too much, however, lest it galvanize Maoist rebels who have historic ties to its own Naxal militancy problem.

Sri Lanka's Political Transition

At the beginning of the year, Stratfor believed that the political forces allied against former president Mahindra Rajapaksa would become more incoherent. That proved untrue. Political and ethnic differences were set aside as Tamils, Hindus, Muslims and Sinhalese Buddhists worked together to defeat the former president in January's presidential election and in August's parliamentary elections. The process was not easy, however, and Stratfor continues to believe that their differences could be laid bare when a war crimes tribunal investigates abuses during the country's civil war and when the country begins to draft its constitution. Against the backdrop of what will be lengthy political negotiations, Sri Lanka continues to delay necessary economic reforms meant to boost foreign investment and growth — and meant to manage expensive external debt repayments. China holds much of Sri Lanka's debt, and Beijing and Colombo are unlikely to reach a deal on restructuring repayment terms until a constitution is finally in place — or until the government makes its intentions to China known. Questions over long-term political stability will continue to leave Sri Lanka strongly dependent on Chinese investment and economic activity.


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