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Global Risk Insights

Global Risk Insights

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Five Geopolitical Predictions for 2015

Five Geopolitical Predictions for 2015

Vladimir Putin

One year ago today, the world mulled over the global ramifications of Turkish anti-government protests, Chinese escalation in the East China Sea, and the imminent US military withdrawal from the Middle East. With the global economy finally on the mend, the post-shutdown US government abstained from military engagement in Iraq and Syria, instead seeking reconciliation through diplomacy with Russia and nuclear negotiations with Iran.

A year later, however, the tables have turned. Russian aggression in Ukraine has exposed rifts in NATO alliances as Western sanctions bring the Russian economy to its knees. The US-led campaign against Islamic State has erased any memory of US military disengagement from the Middle East, dragging regional and global players into ongoing civil wars in Iraq and Syria. And yet, as global oil prices continue their fall, promises of reform in India, Mexico, and Indonesia beg investor confidence.

2015 will be defined by the past year’s surprises, though bright spots remain. Here’s what to expect in political risk over the coming year.

Falling oil prices expose a weakened OPEC

Oil prices are down over 40 percent since mid-2014 as weakened demand from Europe and China meets a glut of supply from Canadian and US crude production. The fracking boom in the United States, along with the development of Canada’s Alberta tar sands, has put extra pressure on OPEC members to cut oil production to help stabilize the market.

The Organization of Petroleum Exporting Countries’ biggest producer, Saudi Arabia, has refused to cut production in the hopes that lower prices will help Gulf States retain market share amid increased global competition. Lower prices could also put budgetary pressures on US energy firms, who rely on expensive shale technology for oil extraction.

Related: If Prices Keep Falling, OPEC Must Act To Restore ‘Fair’ Rate Of $70-$80

True damage to US competitors, however, would require oil prices to fall as low as $50 a barrel for a sustained period of time. Not even the Saudis have the financial reserves to withstand such low prices in the medium term. And with the price of oil still at $60 a barrel, OPEC producers will have to find a new strategy to deal with competition from the US, Mexico, and Brazil.

Russia slides into recession

As Russia presses ahead with its annexation of Crimea and support of separatists in eastern Ukraine, low oil prices and Western sanctions have begun to take their toll on the Russian economy. Even if the severity of sanctions remains unchanged, Finance Minister Anton Siluanov indicated the Russian economy is not expected to grow faster than 1 percent in 2015.

Tumbling oil prices have put extra pressure on Russia’s government. Over two-thirds of Moscow’s state budgets come from taxes on Russian oil and gas firms. Weakened oil revenues have caused the ruble to fall 41 percent against the dollar over the past year, creating fear that the economy could fall into a recession in 2015. The World Bank sees a recession as likely, indicating it expects the Russian economy to shrink by .7 percent next year.

Fears over Russia’s economic vitality have caused mass capital outflow, totaling to some $85 billion in 2014. And with lucrative energy projects like the South Stream pipeline on hold, President Vladimir Putin will have to find ways to lessen his country’s exposure to turbulent oil markets. How Russia navigates between an economic free-fall and a brewing war with Ukraine will certainly define its fortune in 2015.

US, Middle East states divided over response to IS

Despite a months-long military campaign aimed at slowing the advance of Islamic State (IS), militant fighters have tightened their grip over large swaths of territory in Iraq and Syria. The US-led campaign, which includes air and ground power from Turkey, Saudi Arabia, UAE, and Bahrain, hopes increased military force can keep IS from establishing new fronts in Egypt and Libya.

Although the US initially limited its campaign to airstrikes, direct engagement of US ground forces in Iraq is becoming more likely by the day. The US strategy has drawn criticism from allies in the region, such as Turkey, who have been reluctant to intervene militarily in Syria. Tensions between the US and Turkey increased when the US airdropped weapons to the Democratic Union Party in Iraq, considered by Turkey a “terrorist organization.”

These disagreements underscore the division between the US and its Middle East allies over how to respond to the threat posed by IS. Turkey, Jordan, and Egypt worry that military intervention will drag them into an increasingly sectarian civil war in Syria, while Saudi Arabia fears a faulty strategy will give rise and legitimacy to neighboring Iran.

The US, whose nuclear negotiations with Iran are likely to continue throughout 2015, is unlikely to find a strategy in Iraq and Syria that appeals to the varying interests of its allies.

NATO alliances are tested, threatening Eurozone recovery

The crisis in Ukraine has highlighted divisions within NATO, raising questions about the future of the transatlantic military relationship. Disagreement over financial sanctions against Russia has further complicated ties between Germany and the US, whose relations hit a new low last year following revelations of US government surveillance programs that targeted German Chancellor Angela Merkel.

European NATO members, many of which rely on Russia for the majority of their energy input, have much to lose in the face of a growing Ukrainian conflict and weakening Russian economy. NATO’s strength will rely heavily on German leadership, whose status as the diplomatic and economic backbone of the EU will help to stabilize a tepid European economic recovery.

Germany’s leadership in NATO and the EU will set the stage for both the Ukrainian conflict and the Eurozone recovery throughout 2015.

Promise of emerging market reform begs investor confidence

With the new year comes the promise of great reform in three key emerging markets: Indonesia, Mexico, and India.

In Indonesia, recently elected President Joko Widodo increased the price of fuel subsidies by roughly a third, which investors are taking as a sign of his government’s commitment to economic reform. Fuel subsidies have accounted for up to 25 percent of annual Indonesian government outlays since 2010. Widodo has also committed to resolving legal problems for investors, which would help to bring more foreign capital investment into the state.

Related: Mexico Proceeds With Oil Auction Despite Low Oil Prices

Mexico unveiled the first phase of its historic opening of its oil sector to foreign investors in December 2014, allowing foreign companies to drill for oil for the first time since 1938. While this is good news for investors, drug cartels and security concerns have undermined confidence in the stability of a potential Mexican energy market. President Enrique Peña Nieto will have to make ensuring security for locals and foreign companies alike a main priority if he wants energy reforms to bear fruit.

The election of President Narendra Modi has encouraged renewed confidence in India’s economic future. Reforms on the table include a goods-and-services tax that would allow India to have a single internal market for the first time in its history, and new laws that would permit commercial mining in the state. Modi has made foreign investment a top priority, forging new economic partnerships with China and the United States. Should the recently elected President make good on his promises, 2015 in India looks bright.

By Rami Ayyub

Source - http://globalriskinsights.com/ 

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  • Ike on January 05 2015 said:
    You lost me at "Russian aggression in Ukraine" The Ukrainian crisis was fomented by the USA. Look at where the Ukraine is. On the other side of the world from America but right in Russia's backyard, yet you accuse the Russians of aggression. The USA broke previous agreements between themselves and Russia that NATO would not expand eastwards. Russia moves have been defensive. The US narrative does not fit the facts and this has caused the dissension in Europe between those who feel pressure from Washington to act with them and those who would do what is in Europe's best interests. We can discount the opinions of empire building NATO officials.
  • Daniel G on January 05 2015 said:
    Ike, last time I looked the US hadn't annexed anyone in the east of Europe nor had NATO.
    But keep up the Russian Times rhetoric, we love it.
  • Hotrod on January 05 2015 said:
    Russian aggression in the Ukraine?????????? We fomented a coup and installed a friendly neo-Nazi regime and the Russians are to blame. What planet are you from?
  • kushal kumar on January 05 2015 said:
    Downward trend in world economy is likely to be in mild form during
    November, 2014 to April, 2015, to grow somewhat intense during May, 2015
    to October, 2015, becomes harsh during November, 2015 to July, 2016.
    Such areas of life as minerals and metals, foodcrops, energy resources , defence and security of nations are likely to bear the brunt of these trends.
    Collective wisdom in decision making, communication systems, aviation industry, and the cinema , music and TV industries are also , in addition, likely to be touched by these trends.
    Countries or regions whose names begin with the letters B , E , EU, N, O, P, U or V may need to implement multilevel approach to challenges during this period". The list is just an artist's view , could be applicable where appropriate.

    This is the substance or salient feature of my article - " Stressful times ahead for world economy in 2015 and 2016"- published online on 2 June, 2014 at Astrologyweekly.com. It may however be observed here that these predictions of likely trends are indicative and not deterministic suggesting that , in human scheme of things to happen, there is always room for reform, salvaging or improvement through a renewed but sufficient and appropriate strategy. Further, these predictions are in the nature of entertainment.
  • Marco on January 05 2015 said:
    Most Europeans in spite of the 1%'s ownership of much of the world's media know who removed the democratically-elected president of Ukraine and replaced him with a Junta composed of "Mrs Nuland's friends" as some wags are calling the Junta.

    One happy result of the American action and subsequent sanctions is that the idiotic European politicians who succumbed to American pressure on sanctions are taking dramatic knockouts at the hands of new penniless but populist parties dubbed either extreme leftists or extreme rightists by the 1% in every country in Europe. They are especially vulnerable in those countries where national elections are to be held this year.
  • Knave Dave on January 06 2015 said:
    I think you are right about oil prices hitting a new equilibrium that will be higher than the current abnormally low price. My own 2015 economic predictions regarding oil were:

    Oil won’t go much lower because it can’t. It is priced now at a point where a lot of production is already going offline because it is no longer profitable. That will decrease the oversupply and cause prices to rise later in 2015. The potential for production to pick back up is easily there as the price goes back up; so the market will find a new equilibrium that balances supply and demand. Given the costs of extraction of oil and gas by tracking, which is the biggest driver in the current over-supply, oil will likely find its most stable price area somewhere between $60 and $80 per barrel with a price around $80 being most likely, but definitely not lower than $60 after the first quarter.

  • Joshua on January 06 2015 said:
    For those who talk about Russian aggression here is some facts to feed your hunger for conflict.

    Russia agreed to a bilateral agreement between Ukraine, EU and Russia, when shit hit the fan. Ukraine in the EU association has to lose more than 30% of its economy because its products are a) uncompetitive on EU markets, b) there is no need for them, whilst on the other hand, most of the GDP of Ukraine stood on Russia. This two countries are blood brothers to the retard who thinks Russia started it.

    I didn't comment long enough but enough of this shit!

    More than a million Ukrainians passed into Russia because of the conflict. Russia with open hands took them, along with some trapped Ukrainian soldiers who where fed and escorted back to Ukraine.... and much more facts like these exist, not your satellite scans with boxes... full of crap....

    PS: The government in Ukraine (at present) supports armed mercenaries, right sector (neo-nazis) and just plain stupid young kids who have nothing better to do.

    My family left Ukraine in 1992 because it was dangerous: banditism, shootings, robbery - plain come to your house and rob you in day light.

    Guess what, its happening all over again. And those friendly Ukrainian faces you see on TV are little kids paid to do bullshit, guess who acknowledge the financing of the revolution, the US did, so stop your bullshit and start living in the real world.

    I like America as a concept, but its external politics are just crap (wars, geopolitics and world power) ofcourse they want it because they are printing the dollar non-stop so they need consumers to use it. Guess what! The Asian markets, along with some Latin American markets are getting ready to shove the dollar down the toilet, and you know what happens next. The Divided States of America.

    Welcome to the real world.
  • Archie on February 02 2015 said:
    Daniel G
    The last time you looked were US Department of State brifing? No wonder you didnt see anything bad about US foreign policy))
    For your information, while still being a part of Ukraine, Crimea conducted a referendum where 97% of population voted for returning to Russia (Crimea was Russian and was given to Ukraine in soviet times)

    Last year it was very interesting to follow how western media cultivated phrase "Russian aggression " or "annexation" till everybody beleived in it!))

    but keep up the western rhetoric, we love it
  • h0cus on September 26 2015 said:
    Oil's historical inflation adjusted median is exactly where we are at now. Historically oil has spent more time below the inflation adjusted median than above it. I have to wonder why you think $70-$80 is a "fair" price. Without significant upswings in emerging markets, I'd be we settle between $30-$45 for a good 5-10 year period if not longer.

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