Global Issues to Watch - April 2012 by ISA - International Strategic Analysis

April 01, 2012 4:15 PM | Deleted user
International Security Risks in the Sahel (2012-03-28)
One area of the world that is posing an ever-increasing threat to global security is the Sahel, the long belt of arid land in Africa south of the Sahara Desert that stretches from the Atlantic Ocean in the west to the Red Sea in the east. Due to a variety of factors, this vast territory has proven to be largely ungovernable and this has given separatist movements and international terrorist organizations the chance to establish remote bases in this region. Furthermore, environmental and demographic changes are raising the potential for even more unrest in the Sahel in the years ahead.

For most of its history, the Sahel has known little political stability and the situation today across this vast region remains highly volatile. In recent months, a number of serious security issues have arisen in the Sahel as arms have flooded into the region following the collapse of the Gaddafi regime in Libya. Internationally, groups affiliated with al-Qaeda have set up bases in many areas of the Sahel, allowing them to plot attacks against targets in the region and around the world. Locally, unrest in the Sahel has increased in recent months, highlighted by the Tuareg rebellion underway in Mali, the ongoing unrest in Sudan and the emergence of Islamist extremist groups in northern Nigeria.

Unfortunately, environmental and demographic trends suggest that the potential for even more security challenges to emerge from the Sahel in the coming years will continue to rise. As desertification continues to spread southwards into more areas of the Sahel, water and food supplies are being stretched to the breaking point and this has been the catalyst for many of the conflicts in the region. At the same time, the Sahel is home to some of the highest birth rates in the world, leading to massive population growth in a region that can barely sustain the current population living there. With more people and fewer resources, the potential for massive unrest across much of the Sahel will rise and this will have a major impact on the countries bordering the Sahel, something that is already happening in countries such as Nigeria and Sudan.

Spain's Dreary Economic Outlook (2012-03-27)
In recent weeks, concerns have mounted over the health of the Spanish economy and whether or not Spain would need an international bailout to meet its debt obligations. These concerns are the result of both the inability of the Spanish government to adequately reduce its budget deficit as well as the dire state of the Spanish economy as a whole. Regardless if Spain needs a bailout or not, it is highly likely the Spain is entering a prolonged period of economic stagnation, with little hope for growth over the next few years.

Spain’s borrowing costs have increased in recent weeks and are now higher than those of Italy, the large Eurozone economy that most experts believed was in greater danger of defaulting on its debts. Investors have become increasingly concerned with the inability of the Spanish government to both reduce its budget deficit and to bring spending by Spain’s regions under control. Moreover, Spain’s domestic market remains very weak, with Spain once again falling into a recession in the fourth quarter of last year. With Spain’s unemployment rate above 23% and continuing to rise, there is little chance that the country’s domestic market will rebound over the near-term.

Unfortunately for Spain, the longer-term economic outlook for that country is also far from positive. First, the Spanish domestic market will continue to weaken as a result of long-term high unemployment coupled with a rapidly aging population with one of the world’s lowest birth rates. Second, Spain’s export competitiveness has continued to fall when compared with northern European economies (not to mention more dynamic non-European economies), so Spain will struggle to export its way out of this crisis. Finally, the sectors that brought Spain its high rates of economic growth in the 1990s and early 2000s, most notably the construction sector, have little hope for recovery in the coming years, and Spain is struggling to expand into new, faster-growing industries.

Will Libya Split Apart? (2012-03-21)
When Libya’s civil war broke out in early 2011, one of the potential outcomes that was deemed most likely to come to fruition was the division of that country into western and eastern states. This was seen as a likely outcome as the rebellion against Muammar Gaddafi had begun in the east, a region that traditionally had very loose ties with Tripoli in the west and resented the favoritism shown towards the west by Gaddafi. Now, almost six months after the conclusion of Libya’s civil war, the potential for an East-West split in Libya has re-emerged as Libya’s new government struggles to exert its control over the country.

In recent weeks, major protests have erupted in the city of Benghazi and other areas of eastern Libya, demanding more autonomy for the region known historically as Cyrenaica. So far, political leaders in eastern Libya that support autonomy for that region are demanding the creation of a regional parliament and control over the region’s police, but have not gone so far as to call for a split with Tripoli. Nevertheless, these calls for autonomy have led to major clashes between protestors and armed groups associated with the Libyan government in recent days, a development that could lead to greater tensions in an already volatile country.

For its first 12 years as an independent country (1951 to 1963), Libya consisted of three largely autonomous regions (Tripoli in the northwest, Fezzan in the southwest and Cyrenaica in the east). During the 42 years of rule by Muammar Gaddafi, the once influential eastern part of the country was marginalized in favor of the groups that backed the dictator in the western part of the country. These grievances played a major role in sparking the uprising in eastern Libya that led to the eventual ouster of Gaddafi last year, as regional leaders hoped that the removal of Gaddafi would allow the east to once again enjoy more political power. If the new government in Tripoli attempts to once again marginalize the east, it could find itself with another uprising on its hands, one that could lead to the permanent division of Libya.

The Threat of Another Oil Shock (2012-03-20)
Back in 2008, soaring oil prices combined with the global financial crisis to lead to the world’s worst economic downturn in modern times. In 2012, oil prices have risen sharply once again and, when combined with the debt crisis in Europe, have the potential to lead to another serious global economic slowdown. Moreover, the potential for yet more increases in oil prices is in place and should oil prices soar to levels in excess of those in 2008, this year’s economic downturn could prove to be much more serious than most economists are predicting.

Oil prices have risen to nearly $110 a barrel ($127 a barrel in Brent Crude terms) in recent weeks despite the economic slowdown that has dampened oil demand growth in Europe and Asia. Moreover, with the threat of a new conflict at the heart of the Middle East’s main oil producing region remaining in place, oil prices could be set to soar in the months ahead. A worst-case scenario would involve an attack on Iran’s nuclear facilities that would prompt Iranian attacks on Arab oil installations and such a scenario would likely raise oil prices to near $200 a barrel. Even if an attack on Iran’s nuclear facilities does not take place, the threat of lower oil output will remain in key oil producing countries such as Nigeria and Venezuela, keeping prices from falling in the months ahead.

If oil prices were to rise by 20% or more in the coming months, the impact on the global economy would be significant. First, inflationary pressures that have receded in most key economies around the world would resurface, resulting in stagflation in areas such as Europe and in soaring inflation rates in key emerging markets. Second, with governments in many areas of the world enacting austerity measures designed to deal with the ongoing debt crisis, there will be little room for governments to subsidize oil prices, placing the burden squarely on struggling consumers and businesses. This will have a massive impact on poorer countries and could lead to more political unrest such as that which has occurred in the Middle East and North Africa over the past 15 months. Finally, another oil shock would have a massive impact on consumer and business confidence at a time when these measurements are finally beginning to recover from the economic woes of the past four years. If consumer and business confidence collapses, another downturn such as the one that took place in 2008 cannot be ruled out.

The Ungovernable Country (2012-03-14)
With public support for continuing military operations in Afghanistan dropping sharply in the United States, Britain and other countries with military forces in that country, it is increasingly likely that the bulk of foreign forces in Afghanistan will be withdrawn from that country over the next two years. In the meantime, it appears increasingly unlikely that the security forces under the control of the Afghan government in Kabul will be able to maintain control over many areas of their own country once these foreign forces are withdrawn. As a result, Afghanistan is likely to once again be a highly decentralized country facing a myriad of internal conflicts, much as it was when the Taliban seized power in the 1990s.

The recent scandals involving the burning of Korans and the killing of Afghan civilians by a rogue US soldier have led to soaring tensions between the Afghan population and the large contingents of foreign troops, contractors and aid workers currently in Afghanistan. As these tensions rise, foreign governments, most importantly the one in Washington, are more determined than ever to withdraw most of their military and civilian personnel from Afghanistan sooner rather than later. In fact, there is a growing possibility that a majority of US and other forces could be withdrawn from Afghanistan as soon as mid-2013, well ahead of schedule.

Unfortunately, there is little chance that the Afghan government in Kabul will be able to maintain control over many areas of Afghanistan once the US and its partners have withdrawn from the country. Despite years of training, the nominally large Afghan security forces will struggle to defeat the Taliban and other regional groups that are likely to re-emerge in the wake of the US withdrawal. As a result, Afghanistan will likely once again be divided into various fiefdoms, with an emboldened Taliban holding sway in many areas of eastern and southern Afghanistan. While the US is unlikely to allow the Afghan government to fall, it is also unlikely to re-commit the forces needed to force the Taliban from their strongholds in these areas, effectively dividing the country.

Can the US be an Engine of Economic Growth in 2012? (2012-03-13)
With the economies of giant emerging markets such as China and India slowing down, and with much of Europe in the midst of a recession, the onus is once again on the United States to be the leading engine of economic growth for the world. With an improving economy and a strong position in many high-growth industries, the US should be able to prevent global economic growth from falling too far this year. However, a battered domestic market will continue to prevent the US economy from reaching its potential levels of growth, causing more problems for the world economy.

Over the past few months, most of the positive news from the world’s largest economies has been generated in the United States, where GDP growth rose to 3.0% last quarter on an annualized basis. This is in stark contrast to the situation in most other developed economies, most notably Europe, where the region’s debt crisis is threatening to usher in a long period of stagnation. Moreover, the engines of world economic growth over the past four years, the world’s giant emerging markets, have all experienced a sharp slowdown in growth in recent months. As a result, exporters around the world are again looking to the United States to provide them with the best opportunities for growth over the near-term.

While the United States economy is forecast to outperform most other developed economies in the years ahead, it is unlikely to achieve typical post-recession levels of growth anytime soon. This is due largely to the fact that the US’ domestic market remains weak as its recovery is being hindered by the continued weakness of the US housing market and an ongoing reduction in debt levels by US households. Moreover, US exporters are being impacted by these slowdowns in key export markets, removing another potential avenue of growth for the US economy. As such, the US alone will struggle to return to its role as the world’s pre-eminent engine of economic growth in the coming years.

Australia's Economy Slows, But Will Rebound (2012-03-07)
Australia’s economy ended 2011 with a worse-than-expected performance in the final three months of the year. With key export markets such as China and India slowing in the latter part of last year, demand for Australian natural resource exports weakened, reducing Australia’s economic growth rates. Despite this slowdown, Australia continues to have much better prospects for longer-term economic growth than most other developed economies and should realize higher rates of economic growth by the second half of this year.

Australia’s GDP growth rate fell to 2.3% on an annualized basis in the fourth quarter of 2011 (0.4% GDP growth on a quarterly basis), a much worse result than had been expected. This was due to a sharp downturn in export growth in the final quarter of 2011, which had a major impact on Australia’s mining sector that has been the engine of Australia’s strong economic performance in recent years. With Asia’s leading economies realizing lower rates of economic growth in late 2011, demand for Australian natural resources fell markedly in recent months, reducing the overall level of growth for the country’s economy.

While growth is likely to remain near current levels in the first half of 2012 due to the continued slowdown in key export markets in Asia, the longer-term outlook for the Australian economy remains very positive. First, export demand in Asia is forecast to recover by the second half of this year and to remain strong in the years ahead. Second, massive new investments in Australia’s mining sector will boost natural resource output in the years ahead, further boosting growth. Finally, Australia’s domestic market will continue to expand as Australia records higher rates of population growth than almost any other developed economy, allowing the domestic market to grow at a healthy pace.

Putin Returns (2012-03-05)
As expected, Prime Minister Vladimir Putin won this weekend’s presidential election in Russia, allowing him to return to the position that he held from 2000 until 2008. While it is no surprise that Putin was able to win the election outright in the first round of voting, widespread reports of voting irregularities make it all but certain that he received far fewer votes than he was credited with in the election. Meanwhile, it remains to be seen if opponents of President-elect Putin will take to the streets of Russia’s main cities as they did in the wake of December 2011’s controversial parliamentary elections.

As soon as Prime Minister Vladimir Putin announced that he would effectively swap places with current Russian President Dmitry Medvedev, there was no doubt that he would win this year’s presidential election in Russia. According to official results, Putin won 63.8% of the vote, enabling him to avoid having to take part in a second round of voting. His nearest rival was long-time Communist leader Gennady Zyuganov, who won just 17.2% of the vote. However, independent election observers noted numerous cases of electoral fraud and estimated that the real share of the vote won by President-elect Putin was close to 50%.

Russia’s presidential election was important not for the election results itself, as they were a foregone conclusion, but the reaction of the Russian people to the election. After December 2011’s parliamentary elections which saw Putin’s United Russia party suffer major losses despite rampant electoral fraud, hundreds of thousands opponents of Putin and his allies took to the freezing streets of Moscow and other Russian cities to protest against the irregular nature of these elections. With more cases of electoral fraud being reported this time around, there is a strong possibility that more anti-Putin protests could erupt in Russia’s larger cities, where the long-time Russian leader has lost much of his support. If these protests grow much larger and are sustained for a prolonged period of time, the Putin government might feel threatened and could launch a massive crackdown on the protestors, or face being overwhelmed by the opposition, much like a number of strongmen in the Middle East and North Africa over the past 15 months.

Reprinted from ISA Report published April 1, 2012, International Strategic Analysis, 
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