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Previsões da Stratfor para 2º trimestre destacam ressurgimento da Rússia



“Há quinze anos, quando um funcionário burocrático russo desconhecido chamado Vladimir Putine subiu ao poder, a Stratfor começou a traçar o ressurgimento da Rússia. O ex-oficial do KGB neutralizou uma insurgência chechena, freou poderosos oligarcas da Rússia e transformou as empresas de recursos naturais do país em campeões do Estado. A Rússia de Putine, em seguida, aproveitou-se das distrações dos Estados Unidos para re-criar uma zona de influência em toda a antiga periferia soviética, enquanto estabelecia uma relação estratégica com a Alemanha em toda a planície da Europa do Norte. Era só uma questão de tempo até os Estados Unidos sentirem a necessidade de responder à redefinição pela Rússia das suas fronteiras com a Europa”…

Stratfor’s Second Quarter Forecast 2014


STRATFOR
| April 14, 2014

 

Fifteen years ago, when an unknown Russian bureaucratic functionary named Vladimir Putin rose to power, Stratfor began charting the resurgence of Russia. The former KGB officer neutralized a Chechen insurgency, reined in Russia’s powerful oligarchs and transformed the country’s natural resource firms into state champions. Putin’s Russia then took advantage of the United States’ distractions to re-create a zone of influence throughout the former Soviet periphery while crafting a strategic relationship with Germany across the North European Plain. It was just a matter of time before the United States would feel the need to respond to Russia’s redefinition of its borderlands with Europe.

The Cold War deja vu that settled over Eurasia in the past quarter was by no means the beginning — nor the end — of the U.S.-Russia standoff. Stratfor has chronicled the push and pull of the struggle, including the 2004-2005 Orange Revolution, in which American and European nongovernmental organizations tried and eventually failed to anchor Ukraine to the West, and the 2008 Russian invasion of Georgia, which Putin designed to underscore the limits of Western support to any country on the edge of Russia. Each time the United States tried to set boundaries for Moscow, as it did in 2011 when U.S. nongovernmental organizations encouraged anti-government protests in Russia, Putin had a response prepared.

At the end of 2013, when Russia first outmaneuvered the United States on Syria and then showcased Edward Snowden’s National Security Agency leaks with a deliberate intent to undermine the United States’ relations with its allies, the United States was also timing its response. It was at this point that Stratfor miscalculated just how hard Washington would push against Moscow while trying to balance other foreign policy priorities, such as the delicate negotiations with Iran. Our 2014 annual forecast assessed that Russia would succeed in neutralizing Ukraine following then-Ukrainian President Viktor Yanukovich’s decision to back away from signing an EU association agreement. While we expected demonstrations, we did not anticipate that the United States and the Europeans would latch onto the protests and use the opportunity to hit Russia in the most sensitive spot in its periphery.

But certain fundamentals that framed our forecast remain. Germany is not prepared to rupture its relationship with Russia over Ukraine, certainly not while trying to manage an increasingly fragmented eurozone. And the United States, while happy to remind Russia of its covert reach, is not yet in a position to sustain a high level of confrontation with Moscow.

Looking ahead, we expect the flare-up of the first quarter to settle back into a framework that defined much of the Cold War. The United States and Russia are abandoning the fiction of coordinating policies with a divided Europe. Both sides will, of course, discuss matters with the Europeans, but the limits of this confrontation will be defined in negotiations between the United States and Russia.

This is not to say that the United States and Russia are prepared to reach a comprehensive deal this year that draws a line between the West and Russia in the European borderlands. This is a long conflict in which both sides will carefully highlight their levers of influence throughout Eurasia and beyond while staying below a certain threshold of conflict.

Ukraine remains fundamental to this dynamic. For Russia, the need to sway, or at least neutralize, Ukraine is a critical national security interest. For the United States, Ukraine is a tool that can be used in efforts to keep Moscow in check while Russia still enjoys disproportionate power on the continent. Russia therefore will be playing the long game in Ukraine. The revolutionary euphoria in Ukraine will fade quickly as austerity measures set in and reinvigorate the natural divisiveness in Kiev’s political scene. Just as it did following the Orange Revolution, Moscow will spend the rest of the year playing off Ukrainian divisions and exploiting the country’s inescapable economic dependence on Russia to slowly and steadily rebuild its influence.

The Baltic states, Moldova and Georgia will also come into play. Russia will rely on its traditional message of defending ethnic Russian minorities abroad to telegraph threats in the Baltic states while accentuating its influence in Georgian and Moldovan breakaway territories. Even as tensions persist, Russia will be mindful of its constraints and avoid predatory military moves in its near abroad. The Crimea annexation was designed to demonstrate Russia’s willingness to resort to military measures to defend its interests. An invasion of eastern Ukraine, much less a foray across the Dnieper toward Moldova, would be overkill and would be costly for the Russians — something Putin knows well.

The United States likewise will demonstrate restraint toward Russia. Washington cannot count on a coherent European response to reinforce a line against Moscow. While the question of Moldova and Georgia’s economic integration with the European Union will be subject to negotiation, the United States will refrain from pushing the much more fundamental issue of Ukraine and Georgia’s integration with NATO. There will still be room for more limited U.S. and NATO military assistance to countries along the eastern European rim as the Nordic states and the Visegrad quartet — Poland, the Czech Republic, Slovakia and Hungary — debate with each other and with the United States on how to develop a more unified military stance against Russia. But this is a lengthy process, and if the U.S.-Russia standoff stays within certain limits, there will not be enough momentum to move from debates over military integration into meaningful action this year. 

The second quarter of the quasi-Cold War deadlock between the United States and Russia may not be as eventful as the first, but there will still be plenty of action on the sidelines. We remain optimistic about the U.S.-Iranian negotiating track, even though Moscow can be expected to attempt to create distractions for the United States in the Middle East. An assertive Russia is just one of several critical issues confounding Europe as nationalist parties continue to gain popularity. And with no substantial economic relief in sight, China will have to continue postponing structural reforms as it attempts to manage steadily growing financial issues. 

Former Soviet Union

Ukraine Remains Crucial to Moscow

Russia’s position in the former Soviet periphery, and to a large extent its broader relationship with the West, will be tied tightly to the situation in Ukraine. As the revolutionary fervor dissipates, Ukraine will enter a familiar state of paralysis. The current coalition is already fraught with divisions among EU-oriented factions, nationalist parties and right-wing ultranationalist movements. The government, which is still serving in an interim capacity following Yanukovich’s ouster, is first and foremost concerned about maintaining the country’s solvency and avoiding a default. To this end, an International Monetary Fund loan was approved at the end of the first quarter. However, the political costs attached to implementing the reforms required for the bailout, including raising household natural gas prices and employing a flexible exchange rate, will exacerbate splits among political factions and could threaten the government altogether.

The bumpy road to presidential elections, currently slated for May 25, will revive unrest in Ukraine. Russia can be expected to question the legitimacy of the vote and support protests and unofficial armed groups in the south and east, where a significant number of pro-Russian Ukrainians are already wary of political decisions being made in Kiev. Even if the election timetable falters this quarter as a result of the unrest, a push toward decentralizing power in Ukraine will give Russia more leverage in these regions to counter pro-Western tendencies in the long run.

Russia also will use economic means to undermine the Ukrainian government, such as restricting imports from Ukraine. Moscow can also maintain high natural gas prices, refusing to give an energy discount to what Russia regards as a fractured and still untrustworthy government in Kiev.

Pro-Western politicians in Kiev naturally will look to the European Union and United States to insulate Ukraine from Russian economic pressure. For the second quarter, at least, Western support will be enough to keep Ukraine from defaulting and buckling under Russian pressure. However, in the longer term, as it becomes clear that Ukraine is not going to be able to fulfill its debt obligations, the European Union — coping with its own economic crisis — will limit its assistance to the crippled country.

In spite of its military posturing, Russia is unlikely to intervene militarily in mainland Ukraine. However, Russia will use its forces along the Russian border and in Crimea, Transdniestria and Belarus to maintain military pressure on Ukraine. Russia and NATO will continue matching each other’s measured defense maneuvers. NATO most likely will bolster its eastern position with more forward positioning of troops and equipment in the Russian borderlands, such as the Baltic states. Such deployments will be accomplished through long-term training missions in which forces can be rotated on a temporary basis. Critically, the United States will refrain from permanent basing on Russia’s border and will avoid the discussion of NATO integration for Ukraine and Georgia. Russia will in turn bolster its military position in Belarus and in western Russia, but will not invade mainland Ukraine.

Former Soviet Countries Seek Alignment

Beyond Ukraine, several states also will engage in a tug-of-war for influence between Russia and the West in the second quarter. Moldova and Georgia have been moving toward EU integration and are scheduled to sign key association and free trade agreements with the bloc in June. Western agencies could promote demonstrations in Chisinau and Tbilisi in support of this policy direction. But Russia has a number of levers to employ against Moldova to undermine such integration efforts, including trade restrictions, political ties with opposition groups and its military presence in Transdniestria. Russia can apply political and military pressure on Tbilisi via the breakaway territories of Abkhazia and South Ossetia, but the suspension of trade in the 2008 Russo-Georgian war has blunted Russia’s economic tools against the state. The follow-through on Moldova and Georgia’s EU integration agreements will be subject to a broader negotiation between Russia and the United States. From Russia’s point of view, however, these states are of secondary importance compared to the political evolution in Ukraine.

The Baltic states — Estonia, Latvia and Lithuania — will also look for greater Western support, as Russia can be expected to increase pressure on the Baltics via military buildups in Kaliningrad, the Baltic Sea and western Russia. While the Baltic states are already members of the European Union and NATO, they will seek a stronger military presence and more energy assistance from the West, particularly the United States. With U.S. liquefied natural gas exports still years away, the most the United States can do in terms of energy assistance is provide technology and investment for long-term (and costly) diversification projects. A fundamental restructuring of NATO and regional military forces also will take considerable time. As the United States proceeds with caution in dealing with Russia, more assertive states such as Poland will make it a point to air their disappointment in the level of U.S. commitment. More prudent states such as Romania will be content to keep such matters quiet and under debate.

While Georgia, Moldova and the Baltic states will strengthen integration with the West, other states in the former Soviet periphery will instead seek greater collaboration with Russia. Belarus, a close Russian ally, will increase security ties with Russia, including stationing more Russian fighter jets within its territory. Western nongovernmental organizations could attempt to influence Belarusian opposition groups and protests, especially through Poland and Lithuania, though such attempts will be very limited in their effectiveness.

In the meantime, Russia will continue strengthening integration within its economic and security blocs. Russia, Belarus and Kazakhstan are scheduled to formally sign the transition of the Customs Union economic grouping into the Eurasian Economic Union on May 1. Armenia will also sign the treaty in May and will join the bloc at the beginning of 2015, when the Eurasian Union is set to formally launch. Russia also will strengthen integration within its Collective Security Treaty Organization — which includes Belarus, Armenia, Kazakhstan, Kyrgyzstan and Tajikistan — via weapons buildups and military exercises.

Russia’s Domestic Concerns

The Russian economy will continue to slow in the second quarter and weigh on the Russian government. Tensions over Ukraine have spurred massive capital flight from Russia; roughly $70 billion left the country in the first quarter. Though we do not believe the United States and the European Union are likely to enact crippling trade sanctions against Russia in the second quarter, significant capital flight will continue, similar to that seen after the Russo-Georgian war in 2008. The economic impact in 2008 was far more devastating to Russia, as much of the world slid into recession and oil prices bottomed out at $40 per barrel. However, with oil prices likely to remain above $100 per barrel, the Kremlin will be able to manage the short-term economic consequences of its standoff with the West. That said, Russia will have to contend with the longer-term issue of attracting investment and technology, making it all the more imperative for Moscow to avoid military actions that would alienate a strategic economic partner such as Germany.

The Ukraine crisis is again raising concerns within the Kremlin that such Western-sponsored unrest could penetrate Russia. Foreign support for opposition groups inside Russia facilitated mass demonstrations in 2011-2012. While we do not expect the United States to push this far in the second quarter, the Kremlin will continue to restrict the opposition in Russia by cracking down on opposition leaders and protests and curbing media dissent. Putin is in a more secure position at home, thanks in large part to the upswing in popularity he experienced from the annexation of Crimea. Even as the Kremlin quietly bargains with the United States and limits Russia’s military moves abroad, special care will be taken to choreograph events in a way that emphasizes Putin’s defiance of perceived Western meddling.

Tensions Rise in Central Asia

Financial and economic pressure will remain high in Central Asia as Kazakhstan begins restructuring its troubled banking sector and as a number of state-owned companies and banks remain in deep debt. Economic technocrat and former Kazakh Prime Minister Karim Massimov has been reinstated to oversee the implementation of difficult economic reforms after the government was forced to devalue the tenge in the first quarter. The government will proceed with reforms, including wage increases, to prevent a social backlash against further financial tightening. The restructuring of the banking sector will first focus on three of the country’s largest banks on the brink of default. The government will count on revenue from high oil prices to manage the crisis in the short-term. With Massimov back in play, Kazakhstan also is likely to hear more rumblings about the ambiguous succession plan for Kazakh President Nursultan Nazarbayev.

As economic problems in Russia and Kazakhstan persist beyond the second quarter, other Central Asian states will come under stress — particularly those who rely heavily on remittances from migrant workers in Kazakhstan and Russia. Workers from Uzbekistan, Tajikistan and Kyrgyzstan are all feeling the effects of the decreased value of their remittances, though there are few options for these workers to go elsewhere. Leery of social instability stemming from the economic troubles, Central Asian governments are likely to tighten policies on banks and currency exchanges in trying to prevent liquidity crises.

Europe

Discord Characterizes Europe’s Stance on Russia

Russia’s activities in the European periphery might seem to be the antidote to European fragmentation as countries band together with the United States against a common and familiar threat. However, divisions in Europe are likely to grow — not only because of the rise of nationalist parties amid stagnant economic conditions, but also because of the European Union’s inability to form a coherent view on how to deal with Russia amid significant political and economic stresses at home.

We wrote in the annual forecast that Germany would check Russian advances in Eastern Europe but would take care not to disrupt its strategic relationship with Moscow. The European Union and its members will officially back the interim government in Kiev, but Germany and others will prioritize their economic relations with Russia, make quiet overtures to Moscow and ensure that the European Union stays below the threshold of issuing trade sanctions against Russia. Ambiguity in the European position toward Russia will constrain U.S. policy toward the country, keeping frictions at a manageable level overall.

Moscow will apply strategic pressure on Europe while maintaining working relationships with Berlin, London and Paris. Russia will target Ukraine, Moldova and Georgia in particular through economic restrictions, sponsored protests and military buildups. The Baltic states and Poland could also see restrictions on cross-border trade, waves of military posturing by Russia, and provocations and rallies by pro-Russian groups.

This dynamic will drive countries across Europe to consider increasing their defense budgets after years of cuts. The debate over foreign and military policy will be particularly intense in Nordic and Baltic Europe. For Sweden and Finland, the issue means questioning their neutrality and debating NATO membership and deeper defense cooperation in the region. In the Baltics and Poland, the call for deeper regional collaboration and greater U.S. participation will be high on the political agenda. As the United States tries to measure its response, however, such issues will remain under discussion. Meanwhile, NATO will try to demonstrate its commitment to the region with largely symbolic measures such as air patrolling missions and pledges to send additional forces and military equipment to the eastern front.

Countries in Central and Eastern Europe share a deep, underlying fear of Russia but disagree on how and when to deal with Moscow. Poland will be frustrated by its more risk-averse neighbors and by what it perceives as a slow and insufficient U.S. response to Russian aggression. Even though Hungary, the Czech Republic, Bulgaria and Slovakia will criticize Moscow’s actions in the former Soviet periphery in the short term, they will remain interested in developing commercial and energy ties with Russia. This will blunt any Western efforts to escalate sanctions against Russia significantly or complicate Russian plans for the construction of the South Stream pipeline, which will bypass Ukraine and service Central Europe. Across Europe, countries will debate how to establish energy independence from Russia, but we do not anticipate a shift in policy in the second quarter as each country prioritizes keeping energy prices at a politically tolerable level. Meanwhile, Germany will reform its energy policy in the second quarter to reduce the cost of the transition to renewable energy sources (a process that began years before the Ukraine crisis.)

The Rise of the Nationalists

One of the main trends that Stratfor described in its annual forecast for 2014 is the rise of nationalist and Euroskeptical parties in Europe. This trend will become particularly visible in the second quarter, as these parties will perform strongly in the EU Parliament elections in May. In countries such as France, the Netherlands, the United Kingdom, Italy, Finland and, to a lesser extent, Germany, anti-establishment parties will capitalize on social discontent with national governments and the European Union. The elections will also be marked by low turnouts due to the growing number of people disenchanted with the European Union.

These elections will be significant domestically and internationally. In EU member states such as the United Kingdom, France and Germany, the rise of nationalist parties will force mainstream parties to adopt issues from nationalist agendas. This will result in stricter stances on immigration and calls for limits on Brussels’ influence on national policies. The elections probably will generate frictions within national governments, most notably in France, where a new Cabinet will struggle to overcome internal divisions to craft a coherent policy. The more national governments grapple with the rise of nationalist elements, the more difficult it will be for them to coordinate policies at the EU level.

Even as nationalist groups continue to gain popularity at home, they will struggle to form a coherent alliance in the EU Parliament. Minor parties (such as Greece’s Golden Dawn and Hungary’s Jobbik) will be excluded from this alliance, while others (such as the U.K. Independence Party) will decide not to join. For now, the divisions among the nationalist groups will prevent them from challenging the supremacy of the two largest parties (the European People’s Party and the Party of European Socialists). That said, the mainstream parties will face pressure to reach compromises with each other on certain issues in order to limit the nationalists’ influence. This could lead to more constrained EU policy in the long term on issues that cut into national sovereignty.

Limits on Brussels’ influence will be seen in Hungary, where Prime Minister Viktor Orban’s right-wing Fidesz party will use its electoral strength to continue bucking EU norms by implementing policies that are costly to foreign banks and by tightening state control over the energy sector. Budapest also will be able to cut back on public spending this quarter after the elections. Hungary, like many of its Central European neighbors, will also maintain a cooperative relationship with Russia in commercial dealings.

Fiscal Reforms and Progress in the Banking Union

During the second quarter, the EU Parliament and member states will approve the creation of a so-called single resolution mechanism and bailout fund, the final stage of the banking union. This agreement will establish joint responsibilities in dealing with troubled banks, with the European Union and member states sharing responsibilities in decision-making. The European Central Bank will have the primary role in triggering the closure of a bank, but national governments probably will be given tools to challenge the central bank’s decision. A cross-border fund to aid troubled banks will be built during an eight-year period during which politics in Europe are likely to turn more nationalist and skeptical of such structural reforms that limit national sovereignty. Even as we see political progress in establishing the banking union this quarter, deep concerns about the stability of Europe’s financial sector will remain.

The rise of anti-establishment forces across Europe and the lack of optimism about Europe’s growth trajectory will drive a debate within Germany over how to prepare itself for greater difficulties in managing the eurozone crisis. A quiet discussion within the government about how to tame the German Constitutional Court will be one important manifestation of this trend.

The second quarter will also be marked by a debate over fiscal reforms in southern Europe, as several governments will draft modifications in their tax systems to try to boost job creation. These countries will miss deficit targets, and the reforms will have limited effect over the next three months.

France, Italy and Spain will present fiscal reforms, in some cases reducing taxes on personal income and in others reducing taxes for companies. Tax hikes in other areas and modest spending cuts will make up for the impact the tax cuts will have on state revenues. EU warnings to not violate deficit limits largely will be ignored. The reforms will be approved by national parliaments late in the second quarter or early in the third quarter, before the summer recess. Their effect will not be felt in the short term, and only marginal reductions in unemployment can be expected during the rest of the year.

Portugal will end its bailout program in May. The Portuguese government will be under strong pressure from the opposition and the Portuguese public to not ask the European Union and the International Monetary Fund for a precautionary credit line, which would be linked to further economic reforms. Following Ireland’s steps, Lisbon will decide not to request that assistance in order to avoid a political crisis at home. However, the offer from the International Monetary Fund and the European Union will still be available should Lisbon decide to accept it later.

After reaching an agreement with its lenders in late March, Greece will spend the quarter approving some of the measures discussed with the European Union and the International Monetary Fund. Athens will seek a balance between approving additional spending cuts in the public sector and relaxing taxes paid by employers and employees. While some of these measures will lead to protests and generate frictions within the fragile ruling coalition, we do not expect the Greek government to fall during the quarter. Athens also will continue negotiations with its lenders about further aid. It is unlikely that an agreement will be finalized in the next three months, but Greece is likely to receive further help (in the form of additional loans or better repayment terms) later in the year.

Middle East and North Africa

U.S.-Iranian Negotiations Will Continue

The U.S.-Russia standoff in Europe will ripple through the Middle East in the second quarter as Moscow searches for opportunities to keep the United States tied down, or at least open to compromise with Moscow. Iran is the first place to watch for Russian attempts to needle the United States, as Washington will be particularly sensitive to any attempts at sabotaging the nuclear negotiations. Russia can propose deals to supply Iran with nuclear reactors and advanced weaponry, as well as barter deals to help Iran circumvent sanctions. While some offers may be tempting for Iran and can be used as leverage in bargaining with the United States, we expect Tehran to keep some distance from Moscow and prioritize its negotiation with Washington instead.

The U.S.-Iranian negotiation is bound to hit some hurdles in the second quarter, but nothing significant enough to derail the talks altogether. As both sides negotiate the details of a nuclear framework in the lead-up to a July deadline, opposition will rise within the U.S. Congress over concessions on Iran’s right to uranium enrichment. In Washington, opponents of the negotiation will drive a campaign emphasizing Iran’s terrorism links and human rights abuses to justify sustaining sanctions. At the same time, Iran will be struggling with growing domestic pressure as Iranian President Hassan Rouhani tries to satisfy both the regime’s hardliners and the economic concerns of his more reform-minded support base. Rouhani likely will be cautious in implementing subsidy reforms this quarter, but will use the specter of serious political turmoil in Iran to demonstrate the need for greater sanctions relief from the United States when the two sides meet. As we articulated in the annual forecast, in spite of the expected complications, the U.S. administration will retain enough executive power to continue moving negotiations toward a more comprehensive framework.

Linked Interests in Syrian and Lebanese Elections

U.S.-Iranian bargaining, as well as Saudi and Russian interference with that negotiation, will tie into Syrian and Lebanese elections in the second quarter. The term for Lebanon’s president expires in May, and Syria is supposed to hold a presidential election in June. Syrian President Bashar al Assad can capitalize on the regime’s growing confidence on the battlefield (thanks in large part to Russian and Iranian assistance) as well as selective turnout from his supporters to secure another term. The Lebanese presidential election, on the other hand, is sure to be a long, drawn-out affair as the Saudi-backed March 14 coalition and the Iranian and Syrian-backed March 8 coalition led by Hezbollah spar over the post. Hezbollah, Syria and Iran will demand a neutral presidential candidate who will avoid the touchy issue of disarming Hezbollah’s militia and recognize the need to work with Damascus. The contentious bargaining process over the presidency could upset the election timetable.

In Syria, regime forces will benefit from ongoing rebel infighting as they steadily regain areas around Damascus and continue pushing northward in and around Aleppo. Hezbollah will maintain a strong presence along the Syrian-Lebanese border but will be able to use the progress on the Syrian battlefield to devote more attention to securing its positions in Lebanon. Gulf Arab states will channel aid to Free Syrian Army rebels and certain Salafist-jihadist factions in the southern region near the border with Jordan, preventing the regime from securing a decisive victory. Russia, meanwhile, will use its ongoing support for the Syrian regime and ongoing concerns over the chemical weapons threat to try to maintain some leverage against the United States in this theater.

The Limits of Saudi Influence

Saudi Arabia, still deeply unnerved by the prospect of its Persian archrival making peace with its main security guarantor, will try — and fail — to form a more unified stance against Iran through the Gulf Cooperation Council. The council is fraught with internal divisions and some members, including Oman, Qatar and Kuwait, do not consider a pragmatic accommodation with Tehran as anathema to their strategic interests. Bahrain and the United Arab Emirates will adhere most closely to the Saudi position on resisting Iran through proxy battles in Syria, Lebanon and Iraq, though Iran will retain the upper hand in all these contests. This Saudi-led subgroup within the Gulf Cooperation Council also will sustain an aggressive campaign to weaken the Muslim Brotherhood across the region. Kuwait will try to mediate among its Gulf neighbors, but Qatar will maintain its support for groups like the Brotherhood and shape its foreign policy independent of Saudi interests. The more divided the Gulf Cooperation Council becomes in responding to external pressures in the region, the more opportunity Iran will have to exploit these differences as it tries to cultivate a working relationship with at least some of its Arab neighbors.

Elections and Paralysis in Iraq

Iraq’s militant troubles, regional tensions and political infighting will intersect in the second quarter as the country moves toward parliamentary elections on April 30. A pro-Iranian, Shiite-led government will maintain centralized control in Baghdad, though the Shia will have to reach out to Sunni Arabs and Kurds to form a government.

As in previous election cycles, post-election proposals and compromises are likely to delay the formation of a government, potentially for months. Iraqi Kurds, attempting to leverage their potential support for a future Iraqi government, likely will see their attempts frustrated by Baghdad’s outreach to Sunni Arab populations, itself a move to help quell sectarian divisions. Baghdad’s outreach to its Sunni Arab citizens also will be motivated by a desire to lessen regional support and assistance to militant groups such as the Islamic State in Iraq and the Levant, which still control pockets of territory in Ramadi and Fallujah. A final deal on oil exports between Arbil and Baghdad will remain elusive as Baghdad wields its budget authority and as the Kurds try to strengthen their position during the fractious process of government formation.

Turkey’s Busy Political Agenda

Turkish Prime Minister Recep Tayyip Erdogan will interpret his comfortable victory in local elections as a mandate to pursue the presidency in Turkey’s first direct presidential elections in August. Some political finessing will be required to enable Erdogan to run for the presidency while still holding membership in the ruling Justice and Development Party. Erdogan will also ensure that whoever takes his place as prime minister (Turkish President Abdullah Gul is still a viable candidate) will work with him rather than with his political rivals. The Hizmet movement of Fethullah Gulen was instrumental in Erdogan’s early political rise and the neutering of the military, but Erdogan will turn against his former allies, using his renewed confidence to try to purge Gulenist influence in institutions within Turkey and abroad. The political fight will be messy and could continue to unnerve foreign investors, but retaliatory corruption probes and leaks will have relatively little impact on the electorate.

Erdogan will seek out Azerbaijan’s cooperation in pursuing his political adversaries, as Baku has long shared Ankara’s distrust of the Hizmet movement. Turkey also will prioritize its relationship with Azerbaijan in the second quarter to show Russia that it intends to hold the line in the Caucasus and insulate southern corridor energy projects from Russian meddling as it battles for influence in Europe. Turkey will express its alarm at Russia’s moves in the Eurasian borderlands through NATO forums but will not be able to go beyond rhetoric in challenging Russia.

While Iraq remains mired in political haggling over a new government, Turkey will remain on the sidelines, providing limited and piecemeal financial support to the Kurdistan Regional Government while avoiding a confrontation with Baghdad. As we highlighted in the annual forecast, Turkey is also likely to move forward with normalizing ties with Israel in order to edge its way into eastern Mediterranean energy negotiations, but it still faces major obstacles in negotiating a similar peace with Cyprus.

Egypt’s Domestic Challenges

Field Marshal Abdel Fattah al-Sisi is likely to win the presidential election in May. Afterwards, he will further entrench the military in Egypt’s political system but face growing challenges.

Sluggish economic growth and looming energy shortages will present a significant challenge to the future permanent government in Cairo. Rising temperatures will tax an already strained power sector, potentially leading to social unrest. Egypt will use Russian offers of defense and trade deals during this difficult time to try to coax the United States back into a strong strategic partnership. That strategy will face limits, as Washington will remain confident that many of these Egyptian-Russian deals will not come to fruition, and it will continue to protest excessive political crackdowns.

At the same time, the election of a new government in Cairo, even with a former military commander at the helm, could give the U.S. administration some political cover to ease back into a working, albeit still tense, relationship with Cairo. Combating militancy will also remain a focus for the military-backed government as it seeks to contain militant Islamist threats surrounding the presidential election, especially in the Egyptian mainland.

Algeria Faces Security Concerns

Protests and demonstrations are likely to precede Algeria’s April 17 presidential election. Various segments of the opposition (Islamists, former regime elements sidelined from the political transition process and some ethnic minorities) will voice their displeasure with the possibility of a fourth term for President Abdelaziz Bouteflika. The opposition is likely to remain divided, however, and Algerian political and security forces should remain capable of containing any unrest.

Domestic security will remain Algiers’ focus for this quarter. Meaningful economic and political reform will be put on hold as the presidential election opens the door for more fractious, behind-the-scenes political wrangling over the country’s post-Bouteflika transition. For now, the government will prioritize expanding energy production from current projects while keeping constitutional amendments, including the creation of a vice presidential post and some economic reforms, under debate over the next three months.

Libya Remains Unstable

The embattled General National Congress, embodying the weak national authority in Tripoli, will see its authority erode further this quarter in the face of opposition to its extended mandate. Though the body has agreed on a framework to oversee elections for a replacement legislature, the lack of consensus within the country’s political elite will complicate and likely delay fresh elections. Meanwhile, probable cutoffs in water and power production from southern Libyan regions could spark unrest in the country’s coastal population centers, especially as summer temperatures rise, against the backdrop of behind-the-scenes competition for influence over the composition of a future political body. Expect false starts associated with the country’s divisive constitutional process and ongoing protest movements involving various urban populations, ethnic minorities, and regional militias and political councils.

We remain deeply skeptical about the prospect for a durable settlement between a weak Tripoli and various militias, regional elements and tribal entities that will allow for steady oil production. Temporary truces will be difficult to enforce on both sides, which means oil production and exports from Libya will remain far below capacity.

East Asia

China’s Economic Troubles Worsen

China has undertaken months of private and public debate over prospective economic, social and political reforms — a process bookended by the November 2013 Third Plenary Session and the March 2014 National People’s Congress meetings. Now, China’s leaders must take up the more difficult and prosaic task of implementing recently ratified reforms while assuaging the economic and financial problems that have spread to some of China’s largest and most politically sensitive industries, such as coal, steel and housing construction. The government’s struggle to manage the manifold risks posed by high debt and slowing economic growth, a growing horde of insolvent coal and building materials companies, and stagnant or falling housing prices in many smaller cities will be the dominant theme in China this quarter. As in the past, implementing tough reforms likely will take a backseat to efforts to maintain economic stability.

Between April and June, nearly 200 billion yuan (roughly $32 billion) of trust products (a prominent shadow lending and investment device) will mature, several billion of which are tied to loans to heavily indebted businesses in industries such as coal, steel and cement. Already, 2014 has seen several technical defaults and near-misses by debt-laden resource companies caught between rising production costs, government-driven industrial consolidation and falling prices. With demand growth and prices for coal and other raw materials set to fall even further in the coming months, this trend is likely to intensify.

Defaults by mining, steel and related businesses on loans tied to shadow lending products could lead to credit crunches, heightened insolvency risks and even bankruptcies by small and medium-sized banks in regions heavily reliant on these sectors. Local government debt crises stemming from troubled resource and financial sectors in regions like Shanxi and Hebei cannot be ruled out in the second quarter. Beijing could allow some defaults and bankruptcies in order to impose discipline on troubled sectors. However, if local crises threaten to spread across sectors and regions or to affect general trust in the financial system, Beijing will step in with credit infusions and partial or full bailouts, whether through state-owned companies or direct government action.

Risks stemming from struggling resource industries, small and medium-sized banks and indebted local governments are inseparable from mounting problems in the country’s property sector. China faces a crisis in property markets in third- and fourth-tier cities nationwide. This, combined with turmoil in other sectors, suggests the economic situation will worsen considerably in the second quarter. Barring a total collapse of confidence in property markets — an event that would send China’s economy into a free fall — a major stimulus package is unlikely in the coming months, especially considering Beijing’s need to maintain faith in its commitment to reform. Instead, authorities will seek to prevent local crises from spreading through targeted bailouts, infrastructure spending and other tools.

Concurrently, the Xi administration will intensify efforts to clear Party and government ranks of obstacles to its policy agenda by expanding the ongoing anti-corruption drive to more parts of the state sector and to the military. Amid rising economic volatility, intensifying political purges and widespread public fear over domestic terrorism in the wake of the March attack in Kunming, China’s security apparatus will be intensely occupied this quarter.

Russia’s Impact on East Asia

Fortunately for China, the United States has turned its attention to Russia and its periphery in the aftermath of the Ukrainian crisis. Beijing is not entirely comfortable with a more assertive Russia that is both improving relations with Japan and able to counteract Chinese influence in Central Asia. China thus stands to benefit greatly from the United States’ directing attention to areas in Europe or the Middle East where Russia is most capable of retaliating for the loss of influence over Ukraine’s government.

The United States will continue pursuing its trade and security initiatives in Asia. However, its preoccupation with Russia, along with U.S. domestic issues, will encourage the impression in Asia that Washington is not currently willing or able to pursue its interests more boldly. Thus China will maintain a moderate and ambiguous role, keeping good relations with Russia without unduly provoking the United States. As Russia seeks to seal long-term energy agreements, Beijing’s bargaining power will rise. Though it may use time to its advantage, China will not back away from such deals on account of any U.S. pressure.

Japan also has a balancing act to perform in relation to the United States and Russia. While Tokyo and Moscow are traditional rivals, Japan has recently made progress toward opening up trade and investment opportunities with Russia that could help alleviate its energy and resource insecurities. Moreover, Japan believes that smoothing over longstanding grievances with Russia would enable Tokyo to focus more on threats from China. Since Russia also sees reason to balance China’s growing clout and diversify its export markets and security partners in Asia, Tokyo and Moscow have a rare opportunity to continue thawing relations. Though Japan needs to demonstrate its commitment to the U.S. security alliance, it will not miss this chance to make headway with Russia. Domestically, progress on nuclear power restarts — though of slight consequence in itself — will help put Japan on a path toward eventually easing its trade deficits. Wage hikes and stimulus policies will counter the immediate effects of higher consumer taxes and help to maintain a temporary, if not sustainable, economic revival.

Though Beijing could allow some tentative options for improving its sour relations with Tokyo, overall China will seek to undermine Japan’s momentum. Its strategy involves keeping Russia close, attempting to improve economic relations with partners in the region like South Korea and Australia, and trying to manage frictions with North Korea that have emerged over Kim Jong Un’s consolidation of power. Pyongyang will continue its diplomatic outreach to the United States, Japan and Russia, likely while also taking actions to highlight its military capabilities.

Southeast Asia’s Challenges

Southeast Asia faces a number of difficulties in the second quarter. China’s economic slowdown and financial turmoil, even with Beijing’s signals of preserving stability, will continue to darken the regional outlook and spur the search for alternate sources of growth. Ongoing tensions, such as maritime territorial disputes, have the potential to flare, especially as the Philippines pursues its legal case against China and closer relations with the United States and as Malaysia becomes more attuned to China’s territorial competition. The perception of U.S. distraction could encourage the various interested parties to express their concerns through a combination of symbolic moves and limited force in trying to attract U.S. attention.

Beijing will also show increasing assertiveness with its neighbors over regional security issues in the aftermath of the Kunming attacks. As internal pressures drive more Uighurs to flee China, Beijing will seek better intelligence, security and diplomatic cooperation from Myanmar, Laos, Thailand, Malaysia and Vietnam (as well as South Asian and Central Asian states) in handling Uighur refugees and militants. This focus will obstruct Beijing’s earlier efforts to expand border trade and low-level connectivity with its neighbors, though China will not discontinue large infrastructure projects.

In Thailand, pro- and anti-government factions are likely to remain in deadlock while power players negotiate behind the scenes as to whether the ruling party will remain in power. If the ruling party is removed, a new cycle will begin in which its supporters prepare to retake power in the future. If the ruling party is not removed, the current limbo will continue. Military intervention is unlikely unless widespread violence begins to spread between factions or the ruling party attempts extraordinary actions to seize back power it has lost.

In Indonesia, the focus will be on presidential elections in July, following April’s parliamentary elections. Regional political groups will try to attract attention through campaign tactics and stunts. Militant attacks are also possible. Domestic politics and nationalism will stifle any expectations for the government to settle differences with foreign investors over controversial trade and industrial policies.

South Asia

Unrest Expected in India

India’s general election will run through May 12 and will then give way to an intense period of coalition building. Foreign investors are hoping for a victory for the Bharatiya Janata Party and the rise of pro-business candidate Narendra Modi. However, any initiative by India’s next government, regardless of which party prevails, will face hard political, social and economic constraints. Both the Bharatiya Janata Party and the Congress Party will be dealing with increasingly powerful local interests, especially as local parties gain more of a presence on a regional and national scale and as a prolonged economic slowdown raises the risk of public opposition to social reforms. With the central government entering a largely lame-duck period in this quarter’s political transition, no significant shifts in India’s foreign relations should be expected. 

With a possible El Nino effect already dampening expectations for this year’s harvest, erratic weather throughout April and early May in the traditional monsoon season could spark unrest as rural populations demand government support. Rising temperatures beginning in the second quarter historically trigger increased electricity demand, and if monsoon rains are delayed or less robust than expected, thermal coal imports — primarily from Indonesia — could rise in an attempt to offset the loss in hydropower production.

Large rallies and protests are to be expected throughout India in April, but places like Hyderabad and Andhra Pradesh, Uttar Pradesh, New Delhi and Mumbai are particularly susceptible. Local elections scheduled throughout April and May in Andhra Pradesh ahead of Telanganan statehood will increase the risk of social unrest in that region. The central government will remain alert for sectarian and communal violence in Uttar Pradesh and a potential uptick in Naxalite and Islamist militant attacks.

Sri Lankan-Indian relations could be strained temporarily as New Delhi finds itself needing to accommodate the rising political clout of governments in India’s regions, such as Tamil Nadu. However, low-level economic, military and political channels will remain open between New Delhi and Colombo.

India will continue security cooperation with its neighbors, especially Nepal and Bangladesh, to manage the threat of regional Islamist militants. Competing with China along their shared Himalayan border, India also will attempt to shape Nepal’s slow-forming national coalition government to ensure that Kathmandu remains a reliable partner for India’s security and hydropower initiatives in the region. New Delhi will maintain its support of the Awami League government in Bangladesh even as Prime Minister Sheikh Hasina proceeds with controversial moves to contain her political opposition.

Afghanistan’s New Government Faces Instability

The second quarter will bring a new Afghan president — the first since Hamid Karzai became interim leader shortly after the fall of the Taliban regime in late 2001. Karzai’s successor will take time to settle into the new job and establish a rapport with Karzai, who is likely to remain influential even after leaving the presidency. The new president will have to handle the Taliban insurgency, the need to finalize the bilateral security agreement with the United States and what will remain a tense relationship with neighboring Pakistan.

With the political transition under way and NATO drawing down forces, the Taliban will use Afghanistan’s spring season as an opportunity to undermine the newly elected Afghan government. Insurgent attacks are likely to increase more sharply than in previous years as the negotiations with the Afghan jihadist group falter. Kabul will be rattled and remain highly dependent on the United States in trying to absorb these attacks, but the state will hold out against Taliban threats.

Violence Increases in Pakistan

Islamabad’s ongoing effort to negotiate with the main jihadist rebel alliance will run its course and could prove futile in the second quarter. By the third quarter, the Pakistani government likely will engage in a military offensive against the last major Taliban redoubt in the northwestern tribal belt of North Waziristan. An escalation of violence should be expected as a result. In addition, the country’s power and energy crisis is likely to worsen when summer arrives.

Latin America

Venezuela Faces Continuing Unrest

During the first quarter, a wave of protests led by Venezuela’s political opposition swept across the country. The main grievances fueling the protests were high inflation, shortages of food and basic goods, and soaring crime. Inflation will remain a persistent problem in the second quarter and, although shortages may be alleviated during lulls in the unrest, they will not end. Because the government cannot easily address — much less fix — the underlying problems driving the political unrest, further protests will occur in the next three months. President Nicolas Maduro will also face difficult economic choices, such as raising the price of gasoline or increasing electricity costs, in the second quarter. However, he will be cautious in implementing these changes in an attempt to avoid losing support from his political base.

The Maduro administration will continue using its security forces to clear the opposition from the streets, but it cannot rely solely on this strategy. Maduro will continue negotiations with the opposition to try to widen the rifts between opposition factions and mitigate unrest. The issues that will be discussed include liberalizing foreign exchange mechanisms, reducing government social spending and easing price controls. However, the divisions in both the government and the opposition camps over the terms and the constraints on the government to deliver on concessions will prevent a meaningful settlement. Unilateral action by members of the ruling United Socialist Party of Venezuela or the military to sideline Maduro remains possible in the second quarter, although not likely. Maduro has not yet lost support among the party’s voter base to the point where his opponents within the regime could feel the need to oust him.

Venezuela’s major foreign relationships probably will remain unchanged in the second quarter. China will continue acting as a financier for Venezuela despite the unrest. Russia also will maintain its ties to Venezuela and could undertake symbolic moves there, such as military visits, to highlight its presence in the United States’ near abroad.

Colombia Continues Talks With Rebels Amid Domestic Unrest

The Colombian government will be focused on the ongoing talks with the Revolutionary Armed Forces of Colombia (also known as the FARC) and on the presidential election slated for May 25. A conclusive peace deal with the FARC remains likely in 2014, as discussions appear to be progressing on the third of the five original points of negotiations. In the presidential vote, President Juan Manuel Santos will face more serious competition than he did in 2010, as the Social Party of National Unity has fragmented over the past four years between members loyal to former President Alvaro Uribe and those aligned with Santos.

A major challenge for Santos this quarter will be unrest from Colombia’s agricultural sector and from political activist groups, such as the leftist party Patriotic March. The country’s farmers have threatened to hold nationwide protests to pressure the government for funds promised after the last round of protests in August and September 2013. The government will try to negotiate with the farmers to stave off demonstrations ahead of the presidential election.

Mexico Focuses on Reforms

Negotiations over the nature of Mexico’s energy reform will continue in the country’s legislature in the second quarter. Congress is likely to push for approval of the secondary legislation for the energy and telecommunications reforms by April 30, when the current legislative session is scheduled to end. Despite ongoing disagreements between the Institutional Revolutionary Party and the opposition National Action Party concerning details of the final reform drafts, a deal on both laws remains likely in the second quarter, either in regular sessions or in an extra session that would be scheduled for early May.

Brazil Focuses on Security

Preparations for the World Cup soccer tournament will dominate Brazil’s attention in the second quarter. The tournament begins in June and will be hosted in 12 cities around the country. The games will present security challenges for Brazil’s police forces and will spur social unrest. A range of groups is likely to stage protests throughout the country ahead of and during the World Cup. These include opposition parties such as the Brazilian Social Democracy Party and the Brazilian Socialist Party, as well as less formally organized interest groups such as the Free Fare Movement. The government is prepared for the upcoming demonstrations — unlike the protests in mid-2013 — and is actively engaged with some of these groups. Government involvement will prevent the protests from escalating to levels seen in 2013.

Meanwhile, Brasilia will continue intervening carefully and consistently in the economy to prevent any instability ahead of the Oct. 5 general elections. The approaching elections can be expected to generate controversy as opposition politicians attempt to undermine the strong support for Brazilian President Dilma Rousseff.

Argentina’s Economic Woes Continue

The second quarter will be important for Argentina’s efforts to reconcile with international investors as the country attempts to find a way out of its financial troubles. In line with our annual forecast, Argentina will begin negotiations with the Paris Club debtor nations in May. Having taken steps to reconcile its national inflation statistics with the demands of the International Monetary Fund in the first quarter, Argentina is demonstrating a new willingness to address the key issues that have kept the country out of the international capital market. However, a complete resolution of Argentina’s standing with international creditors is unlikely in the second quarter.

Argentina will see widespread protests, particularly in April, as labor negotiations spark political wrangling. The seasonal export of soybeans and other agricultural products will give the country some financial leeway, as the exports bring in much-needed foreign exchange. Further disputes between the agricultural sector and the government can be expected but will not significantly affect the flow of exports.

Sub-Saharan Africa

South Africa Holds Elections Amid Labor Disputes

South Africa will hold national elections on May 7. The ruling African National Congress is likely to win a comfortable majority, which means incumbent President Jacob Zuma will return for a second term. The African National Congress will govern as a party of no strong ideological bent despite some popular rhetoric. Ahead of the election, the African National Congress will position itself as the reliable party in terms of the interests of the majority black South Africans, with the Democratic Alliance to its right and the Economic Freedom Fighters to its left.

Tensions in the South African platinum sector likely will continue in the second quarter. Negotiations to resolve the ongoing strike will not end to the satisfaction of the Association of Mineworkers and Construction Union or the platinum mining companies. While the strike likely will end following the May election (if not before), when the African National Congress has a more stable political base from which to compel a conclusion, the workers’ full wage demands will not be met. However, the mining companies probably will end up paying more in wages than they would prefer. This means a repeat strike is likely when economic conditions improve. Outside of the platinum and the general mining sector, service sector labor agreements probably will be negotiated during the second quarter.

Nigerian Political Activity Picks Up

Nigeria’s opposition All Progressives Congress will hold local and state leadership primaries in April and will aim to hold a national leadership primary election around May 24. The All Progressives Congress will try to balance the ethnic and regional composition of its emerging leadership to present a credible counterbalance to President Goodluck Jonathan’s People’s Democratic Party. These parties will try to undermine each other by including members of each other’s voter base in their leadership coalitions. For instance, Jonathan — a southerner — will include northern Hausa-Fulani leaders in his campaign, while the opposition will include southerners in an attempt to fracture Jonathan’s Niger Delta political base. Both parties will campaign extensively throughout the rest of the year.

Concurrently, Jonathan and the People’s Democratic Party will continue a national dialogue through the first half of the second quarter in an attempt to address some of the regional grievances that led to a split within the party last August. As both the ruling party and the opposition party continue building their patronage networks this quarter, Niger Delta militancy will be limited; militants and their political patrons are not yet in a position where they need to increase attacks to influence a political outcome.

With campaign season under way, the government will have limited success in countering Islamist militant group Boko Haram. The group will be active in its northeastern base of operations and focus its attacks on civilian and government personnel.

South Sudanese Tensions Simmer

In South Sudan, there will be sporadic attempts at a political negotiation between the government and rebels fighting for former Vice President Riek Machar. Neither side will possess enough of a military advantage to impose a decisive victory. The conflict is unlikely to significantly affect crude oil production. Foreign political mediation, mostly by East African states, will continue, but will have less urgency now that the dispute has settled into a low-level conflict.

France Continues Its Security Involvement

For now, France will continue defending its colonial legacy in African conflict zones, even if it has to act alone. French forces will maintain continuous counterinsurgency operations to interdict al Qaeda in the Islamic Maghreb cells and movements within Mali and between Mali, Niger, Chad and southern Libya. As France is left to shoulder the burden of security operations in the Central African Republic, its military policy toward Africa will come under greater scrutiny at home.


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