An alternative perspective

11 March 2015

Top Global Risks for 2015: Which Political Threats are Likely to be an Issue This Year?

In 2015, geopolitical risk is on the rise. US relations with Russia are now completely broken. Islamic extremism is reverberating well beyond the Middle East. Conflict among the world’s great powers is in play more than at any time since the end of the Cold War.

Yet even so, the outlook for political stability in the world’s two largest economies is comparatively upbeat. Chinese President Xi Jinping has a firm grasp on power and, at least for the coming year, plenty of room to manoeuvre as he pushes forward with much-needed changes to the Chinese economy. The US’s strengthening recovery is a bright spot in a bleak global environment and Washington is relatively insulated from the repercussions of the most acute geopolitical conflicts.

However, this very fact will generate deeper tensions beyond America’s borders. The costs to the US of risk aversion will remain low, and global markets must brace for a US economy at a very different stage of recovery and a Federal Reserve that may behave accordingly. The biggest destabiliser is Washington’s growing propensity for engaging unilaterally and unpredictably overseas. The US is projecting power through various mechanisms that allow it to act alone with less direct impact at home. The approach includes the widespread use of drones, surveillance and even economic tools in lieu of conventional warfare. Against this backdrop, the top risks of 2015 take shape.

The Politics of Europe

Europe is the developed market that is most susceptible to two of the biggest geopolitical risks: a combative, increasingly anti-Western Russia and an Islamist extremist ideology with growing appeal beyond Iraq and Syria.

These exogenous pressures are just a piece of Europe’s 2015 challenge. The economic picture on the continent has improved since the 2012 Eurozone crisis, but with severe unemployment and anaemic growth, the outlook remains troubling. And the political dynamic is much more worrying. In the depths of the sovereign debt episode, the politics remained good enough to force a collaborative response to stave off crisis. Today, it is no longer clear whether that would be possible – and the politics will continue to deteriorate on many levels. Friction is worsening among European states, as peripheral governments increasingly come to resent the influence of a strong Germany unchecked by a weak France or an absent Britain. Within key countries such as France, Greece and Spain, populist Eurosceptic political parties are gaining popularity, undermining the ability of authorities to deliver painful yet crucial reforms. This perfect storm of challenges, already on display in 2015 with a terrorist attack in France, a shocking policy shift from the Swiss Central Bank and a Syriza victory in Greek elections – combined with the sheer size of the European marketplace – make the politics of Europe the top risk of 2015.


Sanctions and lower oil prices have weakened Russia enough to anger President Vladimir Putin, but not enough to impede him from retaliating. Moscow will continue to put pressure on Ukraine and, as a result, US and European sanctions will tighten. As Russia’s economy sags, Putin’s approval ratings will depend increasingly on his willingness to confront the West. Western companies and investors are likely targets, on the ground and in cyberspace. Conflict could extend further afield. Moldova is particularly at risk. Russia will attempt to undermine aspects of the US-led global security and financial orders.

The Effects of the Chinese Slowdown

China’s economic growth will continue to taper, but it is a product of Xi’s managed economic transition away from overdependence on resource intensive state stimulus. Beijing’s tolerance for slowing growth is a show of confidence on the part of the leadership; they believe they have the political capital to undertake reforms. But slowing growth will generate instability beyond China. A cooling Chinese economy will have damaging effects on countries that have grown accustomed to relentless Chinese appetite for their commodities – places such as Brazil, sub-Saharan Africa and Australia. Thailand in particular will face rising instability as a consequence.

The Weaponisation of Finance

To achieve its goals without military might, Washington is weaponising finance on a new scale; it is the key prong of an increasingly unilateralist foreign policy. The US is using carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy. But this strategy will damage relations with allies, particularly in Europe, and US companies will find themselves caught in the crossfire between Washington and sanctioned states.

ISIS, Beyond Iraq and Syria

In 2015, even as ISIS faces military setbacks in Iraq and Syria, the group’s influence will continue to expand. It has become the most powerful terrorist group in the world, overtaking al-Qaeda, with funds and fresh recruits surging. As a regional menace, as a terrorist organisation, and as an ideology, ISIS is on the rise; the Charlie Hebdo attackers asserting their affiliation made this all too clear, as well as Europe’s particular susceptibility.

Weak Incumbents

A host of leaders in major emerging markets had just enough political capital to retake office, but will now struggle to implement constructive policy. Many incumbents who won re-election – leaders such as Brazil’s

Dilma Rousseff, Colombia’s Juan Manuel Santos, South Africa’s Jacob Zuma and Turkey’s Recep Tayyip Erdogan – will each face determined opposition and formidable obstacles as they try to enact their political agendas amid dwindling approval.

The Rise of Strategic Sectors

Success and failure for business in 2015 will depend increasingly on governments that are focused more on political stability than on economic growth, benefiting companies that operate in harmony with their political goals and punishing those that do not. In emerging markets, the state already plays a more substantial role in the economy. This trend will manifest itself in rogue states that want to fight back against more powerful governments. Even in the US, national security priorities have expanded the military industrial complex to include technology, telecommunications and financial companies.

Saudi Arabia vs Iran

Tensions between Riyadh and Tehran will drive conflict this year. Given the growing reluctance of Washington and other outside powers to intervene in the region, complex domestic politics that are further strained by King Abdullah’s death and rising anxiety about the ongoing Iran nuclear talks, expect Tehran and Riyadh to stoke tension and violence through proxies across the Middle East.


Domestic political turmoil in Taiwan will ensure that relations with the mainland deteriorate sharply this year. If Beijing determines that engagement with Taipei has failed to bring progress toward reunification, Beijing could back away from trade and investment deals and significantly toughen its rhetoric, provoking considerable public hostility in Taiwan. Any US comment on this controversy will quickly harm relations between the world’s two largest economies.


President Erdogan will continue to attack political opponents and tighten his hold on power to try to remake Turkey’s political system. But he is unlikely to win the new powers he wants this year, forcing more political infighting, less policy coherence and more political unpredictability. Refugees from Syria and Iraq will inject more radicalism into the country’s politics and add to its economic troubles.

Red Herrings

The Widely Anticipated Risks that are Less Likely to Happen in 2015

The Islamic State

Even though ISIS’s growing influence is the number five risk of 2015, the group’s attempt to turn its sovereign territory into a Sunni caliphate will not make similar gains. Between the US, Kurdish Peshmerga forces, Shia militias, the Iraqi army, and Iran’s engagement with its neighbour, ISIS’s territorial ambitions will be contained in 2015; in fact, the group could even cede ground in Iraq and Syria.

Asian Nationalism

At least for 2015, pragmatic restraint should prevail among Asia’s strong, nationalistic leaders like China’s Xi

Jinping, India’s Narendra Modi, Japan’s Shinzo Abe and even Indonesia’s new President Joko Widodo. With their focus on economic reforms at home, they have good reason to avoid foreign distractions, improve their regional economic ties, keep security relations in balance and contain any flare-ups. There will be scuffles, but soaring tensions between the economic powerhouses of Asia are unlikely.


Despite the collapse in oil prices, it is unlikely that the geopolitical weight or internal stability of authoritarian petrostates will be severely compromised in 2015. A modest recovery in prices is likely, but even if it does not occur, massive cash reserves give countries like Saudi Arabia room for manoeuvre. Nor will their foreign policies shift very much: Russia will not change course in Ukraine and Iran will not accept worse terms in nuclear negotiations. The notable exception is Venezuela, which may very well default if oil prices remain low.


Mexican President Enrique Peña Nieto is dealing with multiple scandals in a context of waning approval and weak economic growth. Yet, it should be a reasonably positive year for Mexico, as Peña Nieto pushes forward with economic reforms in the telecommunications and energy sectors, with an opposition that generally supports his agenda. Reforms will have a huge impact on Mexico’s productivity, competitiveness and attractiveness for foreign investment – all of this taking place in a context of a strengthening US economy that will help Mexico.

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