Unhappy New Year – 1 Geopolitical Risks in 2016

Unhappy New Year – 1 Geopolitical Risks in 2016

The world is staring at turbulence in 2016. Rising populism, great-power revanchism, the continued specter of terrorism, disputes over "cyber-sovereignty," intensified regional turmoil, and dramatic shifts in the global economy presage unsettled times. Against this uncertain backdrop, here are 10 of the most notable geopolitical risks in the year ahead:

     1) The combination of the middle-class economic squeeze and Islamic extremism at home risks fueling the populist politics of xenophobia and anger surging across Europe and the United States. This could continue to weaken establishment politicians and empower those on the far left and far right, making both American and European foreign policies more unpredictable and diverting leaders from engagement abroad in favor of damage-control domestically. It could encourage greater insularity that would allow regional crises to fester.

     2) A major terrorist attack on the U.S., along the lines of 9/11, could scramble the presidential race and force the government to reverse its current round of retrenchment to attack the danger abroad. This could transform the dynamic of international politics after seven years in which President Barack Obama has appeared content to lead from behind, or not to lead at all. Should Donald Trump or another outsider candidate in the Republican race for the nomination prevail in 2016, it will be partly a result of widespread anger and fear over the Obama administration's perceived inability to keep America safe. Whether a Democrat or a Republican wins the contest in November 2016, U.S. foreign policy is likely to return to its traditionally more hawkish, expeditionary orientation. 

     3) A series of Paris-style attacks across Europe could fracture the European Union, as individual countries close their borders and pursue different national approaches to the threat of Islamic extremism at home and abroad. The Syrian refugee crisis has already placed enormous strains on European unity. If jihadists motivated by the successes of the Islamic State group abroad succeed in terrorizing the major capitals of Europe in a systematic way, existing trans national institutions may simply buckle. The EU would likely remain as a shell institution, but decades of integration could be reversed.

     4) Global inequality could spread as the developed world resumes its traditional position as the driver of economic growth. Meanwhile, emerging economies that have powered the past 15 years of worldwide growth are slowing down or even contracting. The narrative of the past decade has been one of a "great convergence," as poor nations from the global south narrowed the economic gap with the industrialized West through rapid economic expansion. After years in which conventional wisdom assumed the future belonged to Brazil, Russia, India, China and South Africa, commonly referred to as the BRICS, the balance of economic power is now being redressed. This is a function of dynamic technological change, collapsing commodity prices and the end of easy money that led emerging powers to rack up debts, rising labor costs in China and its slowdown into the middle-income trap, and America's normalization of monetary policy following the Federal Reserve's decision to raise interest rates for the first time since 2006. Emerging markets that binged on debt and commodity riches during the boom now face a reckoning as the U.S. dollar strengthens and weak Chinese demand hollows out their primary export market.

     5) Changing energy dynamics will continue to tip the balance between net energy exporters and importers, placing intense pressure on the former. India and the U.S. are among the lead beneficiaries, although cheap oil and desperate efforts by the Organization of Petroleum Exporting Countries to protect market share risk undercutting U.S. shale producers, even as the U.S. returns to the global market by liberalizing oil exports. Top energy exporters like Saudi Arabia, Iran and Russia, as well as commodity superpowers like Brazil, are the losers, not only in terms of profit but from the risk of rising unrest among disaffected constituencies at home as the money runs out. China is in the middle -- as an energy importer it benefits from low prices, but its slowdown is harming its trading partners in Latin America, Africa and the Middle East, diminishing its leverage abroad and putting pressure on China's big state-owned oil producers at home.

     6) Russia's decline will make Vladimir Putin more dangerous, not less. The Russian president is a gambler and a risk-taker; these propensities may grow, not diminish, even as his foreign adventures do not bear fruit for Russian interests. Domestic pressure on Putin will mount as the economy contracts, the plummeting oil price requires severe cuts to government programs, including military spending, and Moscow secures no quick victories in either Ukraine or Syria. Should Putin be ousted through elite factionalism, his successor is likely to be no more liberal and to be equally anti-Western in orientation.

     7) China's growth slowdown, potentially to below 5%, could increase President Xi Jinping's propensity to fan the flames of nationalism and assert China's interests more forcefully abroad. A crisis over Taiwan, the Senkaku Islands, or maritime disputes in the South China Sea could help restore the Chinese Communist Party's legitimacy should it come under challenge from socioeconomic discontent. But this is also a risky proposition for China as the U.S. is likely to stand firm, and a loss of face abroad, much less a loss through conflict, could do untold damage to the party's continued rule. Whether China's "go west" strategy of infrastructure exports through the One Belt, One Road initiative spurs reform at home or only postpones the necessary transition away from heavy industry remains a wild card.

     8) Fueled by China's demand for "cyber-sovereignty" and the failure or fragility of democratic institutions in Eurasia and the Middle East, the Balkanization of the Internet could gather pace, signaling the close of an era that promised a truly worldwide web of free information flows. China has more Internet users than any country, so the online norms it advocates have potency. Beijing's illiberal alliance with Moscow in favor of state control over its virtual territory, echoing state control over its geographic domain, could find additional support from conservative, undemocratic regimes in the Middle East, including Iran and Saudi Arabia, as well as from strongmen in democracies like Turkey who seek to tilt the political playing field in their favor. Pressures on the liberal order in cyberspace increase the stakes for trans-Atlantic leadership on this issue, and for new alliances to protect the open Internet with democracies like India.

     9) Jealous of the great powers' focus on Islamic State group terrorists in the Middle East and their deal-making on Syria, North Korea's Kim Jong Un may seek to rattle the cage through provocative missile or nuclear tests. North Korea recently failed in an attempt to test a submarine-fired ballistic missile; as 2015 closed Pyongyang was threatening to test a hydrogen bomb and warning the U.S. of "unimaginable consequences" if it failed to agree to a peace treaty. Although strategists and journalists more recently have focused on other potential military contingencies in Asia, U.S. military officers continue to see the Korean theater as the most likely venue for regional conflict, with pressure growing on Pyongyang as Beijing distances itself from Kim's antics and the economic gap between North Korea and its more prosperous neighbors grows ever wider.

2016

The world is staring at turbulence in 2016. Rising populism, great-power revanchism, the continued specter of terrorism, disputes over "cyber-sovereignty," intensified regional turmoil, and dramatic shifts in the global economy presage unsettled times. Against this uncertain backdrop, here are 10 of the most notable geopolitical risks in the year ahead:

     1) The combination of the middle-class economic squeeze and Islamic extremism at home risks fueling the populist politics of xenophobia and anger surging across Europe and the United States. This could continue to weaken establishment politicians and empower those on the far left and far right, making both American and European foreign policies more unpredictable and diverting leaders from engagement abroad in favor of damage-control domestically. It could encourage greater insularity that would allow regional crises to fester.

     2) A major terrorist attack on the U.S., along the lines of 9/11, could scramble the presidential race and force the government to reverse its current round of retrenchment to attack the danger abroad. This could transform the dynamic of international politics after seven years in which President Barack Obama has appeared content to lead from behind, or not to lead at all. Should Donald Trump or another outsider candidate in the Republican race for the nomination prevail in 2016, it will be partly a result of widespread anger and fear over the Obama administration's perceived inability to keep America safe. Whether a Democrat or a Republican wins the contest in November 2016, U.S. foreign policy is likely to return to its traditionally more hawkish, expeditionary orientation.

     3) A series of Paris-style attacks across Europe could fracture the European Union, as individual countries close their borders and pursue different national approaches to the threat of Islamic extremism at home and abroad. The Syrian refugee crisis has already placed enormous strains on European unity. If jihadists motivated by the successes of the Islamic State group abroad succeed in terrorizing the major capitals of Europe in a systematic way, existing trans national institutions may simply buckle. The EU would likely remain as a shell institution, but decades of integration could be reversed.

     4) Global inequality could spread as the developed world resumes its traditional position as the driver of economic growth. Meanwhile, emerging economies that have powered the past 15 years of worldwide growth are slowing down or even contracting. The narrative of the past decade has been one of a "great convergence," as poor nations from the global south narrowed the economic gap with the industrialized West through rapid economic expansion. After years in which conventional wisdom assumed the future belonged to Brazil, Russia, India, China and South Africa, commonly referred to as the BRICS, the balance of economic power is now being redressed. This is a function of dynamic technological change, collapsing commodity prices and the end of easy money that led emerging powers to rack up debts, rising labor costs in China and its slowdown into the middle-income trap, and America's normalization of monetary policy following the Federal Reserve's decision to raise interest rates for the first time since 2006. Emerging markets that binged on debt and commodity riches during the boom now face a reckoning as the U.S. dollar strengthens and weak Chinese demand hollows out their primary export market.

     5) Changing energy dynamics will continue to tip the balance between net energy exporters and importers, placing intense pressure on the former. India and the U.S. are among the lead beneficiaries, although cheap oil and desperate efforts by the Organization of Petroleum Exporting Countries to protect market share risk undercutting U.S. shale producers, even as the U.S. returns to the global market by liberalizing oil exports. Top energy exporters like Saudi Arabia, Iran and Russia, as well as commodity superpowers like Brazil, are the losers, not only in terms of profit but from the risk of rising unrest among disaffected constituencies at home as the money runs out. China is in the middle -- as an energy importer it benefits from low prices, but its slowdown is harming its trading partners in Latin America, Africa and the Middle East, diminishing its leverage abroad and putting pressure on China's big state-owned oil producers at home.

     6) Russia's decline will make Vladimir Putin more dangerous, not less. The Russian president is a gambler and a risk-taker; these propensities may grow, not diminish, even as his foreign adventures do not bear fruit for Russian interests. Domestic pressure on Putin will mount as the economy contracts, the plummeting oil price requires severe cuts to government programs, including military spending, and Moscow secures no quick victories in either Ukraine or Syria. Should Putin be ousted through elite factionalism, his successor is likely to be no more liberal and to be equally anti-Western in orientation.

     7) China's growth slowdown, potentially to below 5%, could increase President Xi Jinping's propensity to fan the flames of nationalism and assert China's interests more forcefully abroad. A crisis over Taiwan, the Senkaku Islands, or maritime disputes in the South China Sea could help restore the Chinese Communist Party's legitimacy should it come under challenge from socioeconomic discontent. But this is also a risky proposition for China as the U.S. is likely to stand firm, and a loss of face abroad, much less a loss through conflict, could do untold damage to the party's continued rule. Whether China's "go west" strategy of infrastructure exports through the One Belt, One Road initiative spurs reform at home or only postpones the necessary transition away from heavy industry remains a wild card.

     8) Fueled by China's demand for "cyber-sovereignty" and the failure or fragility of democratic institutions in Eurasia and the Middle East, the Balkanization of the Internet could gather pace, signaling the close of an era that promised a truly worldwide web of free information flows. China has more Internet users than any country, so the online norms it advocates have potency. Beijing's illiberal alliance with Moscow in favor of state control over its virtual territory, echoing state control over its geographic domain, could find additional support from conservative, undemocratic regimes in the Middle East, including Iran and Saudi Arabia, as well as from strongmen in democracies like Turkey who seek to tilt the political playing field in their favor. Pressures on the liberal order in cyberspace increase the stakes for trans-Atlantic leadership on this issue, and for new alliances to protect the open Internet with democracies like India.

     9) Jealous of the great powers' focus on Islamic State group terrorists in the Middle East and their deal-making on Syria, North Korea's Kim Jong Un may seek to rattle the cage through provocative missile or nuclear tests. North Korea recently failed in an attempt to test a submarine-fired ballistic missile; as 2015 closed Pyongyang was threatening to test a hydrogen bomb and warning the U.S. of "unimaginable consequences" if it failed to agree to a peace treaty. Although strategists and journalists more recently have focused on other potential military contingencies in Asia, U.S. military officers continue to see the Korean theater as the most likely venue for regional conflict, with pressure growing on Pyongyang as Beijing distances itself from Kim's antics and the economic gap between North Korea and its more prosperous neighbors grows ever wider.

     10) As U.S. leadership in the Middle East remains inadequate, the risk of heightened regional conflict increases. This reality inverts Obama's belief that regional powers should settle regional disputes; the evidence over the past few years suggests that localized wars intensify in the absence of robust U.S. engagement and coalition-building. The risk of conflict between Turkey and Russia could intensify over Syria, building on a centuries-long history in which their imperial predecessors sparred for influence from the Balkans to the Caucasus. Iran's behavior could also become more destabilizing as hardliners seek to offset charges of appeasement over the nuclear deal struck with the great powers in 2015 by stepping up support for Shia insurgents in Yemen, Iraq and Syria, intensifying hostilities with Saudi Arabia and Turkey in particular.

     On that note, happy new year. 

Daniel Twining is senior fellow for Asia at the German Marshall Fund and a former member of the U.S. secretary of state's policy planning staff (2007-09).