Terra Firma

Iran

The US and Israeli governments find themselves in a tough spot over Iran. The recently released US National Intelligence Estimate, which asserted with “moderate confidence” that Iran suspended its nuclear weapons programme in 2003, has undermined international support for both sanctions on Iran and air strikes on its nuclear facilities. US and Israeli officials fear that, now that international pressure on Tehran has eased, it can restart that programme at any time. Markets underestimate the likelihood of an Israeli attack on Iran this year. It isn’t likely, but it’s not a risk we should discount, because some Israelis fear the Bush administration may no longer have the political will to face down what Israel considers an existential threat to its security.

Another source of risk: Iran will hold parliamentary elections in March and the outcome will be crucial for President Mahmoud Ahmadinejad’s political future. If he wants a co-operative legislature – and to boost his own re-election chances next year – he needs his political allies to win. With elections looming, Ahmadinejad would much rather talk about US and Israeli aggression than Iran’s 19 per cent inflation and gasoline rationing, both symbols of his government’s economic mismanagement. Thus, Ahmadinejad has a clear political incentive to stoke trouble beyond Iran’s borders.

Iraq

Despite the military successes of the US troop surge strategy, Iraqi Prime Minister Nouri al-Maliki’s government has made virtually no progress in forging the tough political compromises on which Iraq’s long-term political stability will depend. Sunnis want greater leverage within the central government and a larger guaranteed share of Iraq’s oil revenue. Shia want an autonomous region in the south. The Kurds want autonomy in the north and control of the oil-rich northern city of Kirkuk. If each group fails to get most of what it wants over the course of 2008, scheduled US troop reductions could leave Iraq much less stable than it is today.

Adding to Washington’s problems, the Bush administration has lost much of its leverage with Maliki’s government. The refusal of Iraqi leaders to participate in the US-hosted Annapolis conference on peace between Israel and the Palestinians in December was stunning, since President Bush and Secretary of State Condoleezza Rice had worked hard to bring Iraqis to the table. Syria came to Maryland, but Iraq stayed away. On the other hand, no one should be surprised that the Shia-dominated central government in Baghdad has refused to be part of Washington’s security alliance with Sunni tribal leaders in central and northern Iraq. The Shia leaders are probably right to worry that when Washington finally begins to withdraw significant numbers of troops, the Sunnis will use the American weapons and cash they’ve been stockpiling to attack their Shia rivals. Finally, to avoid a potentially violent showdown, Kurdish leaders agreed to postpone a referendum on Kirkuk’s status until June. There is no guarantee they will postpone it again.

Pakistan

Pakistan is in an even more serious political mess than usual. President Pervez Musharraf will likely honour his pledge to hold parliamentary elections on February 18, despite continued risk of terrorist attacks and political assassinations by Islamic militants operating with unprecedented freedom of movement within the country. If the vote is genuinely free and fair, the two main opposition parties can expect to do very well. But the vote probably won’t be free and fair, and we’re likely to see more opposition anger in the streets.

But 2008 may be the year that Pakistan finally moves beyond Musharraf. The Pakistani military, now under the command of General Ashfaq Kiani, may decide that it can no longer afford its association with the increasingly unpopular Musharraf and might move to sideline him. Without the backing of the military, Musharraf is finished. In the interim, we can expect more militant attacks inside Pakistan and an opposition government that emerges post-election with no interest in making Musharraf’s political life any easier.

Russian foreign policy

US-Russian relations are at their lowest point since the Brezhnev era. European-Russian relations aren’t much better. With few opportunities for constructive engagement and plenty of antagonistic election year rhetoric in both Russia and the United States, there’s little likelihood that relations will improve. Russia’s domestic politics are highly unlikely to produce any unpleasant surprises. Putin’s handpicked successor Dmitry Medvedev will be elected president in March, though Putin will remain the senior partner in their political alliance for at least another year. Rules of the road for foreign investors have become clearer over the past year; that progress will continue in 2008.

But Russia’s foreign policy is another story, generating plenty of risk for the countries on Russia’s periphery. There are a number of potential flashpoints. In the Balkans, Russia will support Serbia in trying to block international efforts to help Kosovo peacefully establish its independence. In the Caucasus, the Kremlin may work to undermine Georgia’s government via support for the secessionist-minded province of Abkhazia. In Ukraine, Belarus, the Baltics, and perhaps some Central Asian states, Russia will use economic pressure to maintain political and strategic influence within them.

Latin America

Emerging markets in Latin America, like those elsewhere, have benefited from high commodity prices, strong global growth, and abundant liquidity in international financial markets. Governments across the region have for the most part achieved record current account surpluses and reduced their debt burdens.

But policy responses over the next year to bottlenecks in energy supply and declining oil and gas production will prove critical for the region’s economic growth over the next several years. Insufficient investment in power generation has already begun to affect Argentina and shortfalls in installed power capacity and oil and gas production may have increasingly significant economic and policy repercussions in Brazil, Mexico, Venezuela, Bolivia, Ecuador, and Peru. Only Argentina faces the risk of a serious energy crisis in 2008, but a number of incumbents across the region could be at risk in the next few years if they don’t begin, this year, to bolster investment in power generation or upstream oil and gas production. Given the political resistance in countries like Venezuela, Ecuador, and Argentina to work with the private sector, potential risks to incumbents in these countries are greater than in Brazil, Mexico, and Peru.


Ian Bremmer, President, Eurasia Group

Ian Bremmer is president of Eurasia Group, the world’s largest political risk consultancy. He is also a columnist for Slate, a contributing editor at The National Interest, and a political commentator on CNN, Fox News and CNBC