The (Ex) Washington Realist

Attending an all-day conference at Georgetown University, Key Strategic Issues in U.S.-Russia Bilateral Relations, one of these "informal" gatherings where experts and government folk can exchange thoughts. Unfortunately such formats are off the record so I can't report on proceedings but while the talk is frank I can't say I am going to leave feeling encouraged.

An online debate sponsored by the Council on Foreign Relations and featuring yours truly and Sarah Mendelson. It will be an ongoing event all this week--the first round is now up.

One of the threads of discussion from Monday's post was on Russo-Indian cooperation. And of course while so much attention here was focused this week on the U.S. State of the Union and on developments in Iraq, many were not paying attention to the seventh Indo-Russian summit.

Rajiv Sharma noted:

The UPA government took care to give signals about its clever diplomatic balancing vis a vis the USA and Russia and treated the Putin visit on a par with the March 2006 visit to India by President George W. Bush. This was demonstrated by the fact that the Prime Minister received Mr Putin at the airport. This is only the fourth time during his two and a half-year-long tenure that Prime Minister Manmohan Singh has cast aside the protocol to receive a foreign dignitary at the airport.

As expected the summit talks threw up a substantive outcome in such diverse fields as civilian, nuclear energy, space, defence, science, advanced technology, energy, trade and culture. The two sides today signed nine bilateral documents and adopted two more. This is over and above the two arms deals India and Russia had signed yesterday (i) for licensed production of Russian aircraft engines in India, and (ii) the joint development of a new transport plane.

An important highlight in the bilateral documents signed between the two countries was India’s inclusion to GLONASS, the Russian Global Navigation Satellite System. Now, India will have access to signals and radio frequency of GLONASS, which is an effective alternative to the American Global Positioning Satellite System (GPS) and the embryonic Galileo system of the European Union.


Also found this to be of interest:

On military-technical cooperation, India and Russia noted that now they had progressed from a buyer-seller format to also include joint research and development, manufacturing and marketing, regular service to service interaction and joint exercises. This is corroborated by the India-Russia joint venture to manufacture Brahmos missile, which is expanding in scope, and has led the way to further such joint projects.

New Delhi and Moscow also called for expansion of cooperation within the China-Russia-India trilateral format. They noted that the first trilateral summit-level meeting, which took place in July 2006 in the outreach format of the G8 events in St. Petersburg, gave a fresh impetus to enhancing multifaceted interaction among the three states.

National Interest online has my extended analysis as well as comments received, so far, from Steve Clemons, Alexis Debat, Paul Saunders and Ali Allawi; more expected on the way!

Kathryn Jean Lopez over at National Review honored me with an invitation to provide post-speech commentary for their symposium. Joined Roger Bate, Peter Brookes, Michael Cannon, John Fonte, Joseph Loconte, and Clifford D. May in offering commentary.

Guy Dinmore of the Financial Times. was kind enough to include my initial reaction to tonight's State of the Union in his analysis. I had observed,

Mr Bush lacked the political capital to move his agenda forward in Congress.

“The president still operates from the assumption that America can set the agenda in Iraq and throughout the greater Middle East without significant new investments of US blood and treasure,” he commented.

He also asked how the US would hold together international coalitions to maintain significant pressure on Iran and North Korea without being prepared to make compromises in other areas.



Of course, there are a number of different opinions expressed in the piece, which the above-noted link will take you to in full.

Just some short comments--

The Merkel-Putin summit over the weekend appears to have put the Russia-Germany relationship back on track. Germany certainly doesn't appear interested in carrying US water for promoting alternatives to Russia as the primary energy supplier from the Eurasian space and instead is committed to making Germany Russia's energy base--which in a decade means that Germany will no longer have its energy held hostage by states further east who have problems with Russia.

Serbian elections: Radicals take the largest share of seats but are in the minority--will the parties that favor closer ties with Europe heed President Tadic's call to quickly form a viable coalition, or could Serbia face the same thing as Ukraine did with the meltdown of its Orange coalition?

America may still be the world's leading power but other countries are closing the gaps, as China's anti-sat missile test demonstrates.

Shalva Natelashvili, chairman of the Georgian Labor Party, spoke at the Nixon Center earlier this week. (No need for me to reinvent the wheel, as Marisa Morrison has written on the event.)

Several things struck me when listening to him.

The first is how across the board, in both "pro-Russian" and "pro-American" countries in the Eurasian space, we are witnessing the emergence of strong presidential systems of governance and instead of having clear distinctions the Eurasian space appears to be headed toward some sort of democratic-authoritarian convergence.

Second was a real sense of how realpolitik governs the world. Several years ago we had Natelashvili's Azeri counterparts speaking at the Center, with a similar message about how public space for the opposition was being squeezed away and why the United States should care--but the reality in Georgia, as it appears to be in places like Azerbaijan, Kazakhstan and Russia, is that support for the opposition remains limited because the vast majority of people prefer stability--and when a government is then pro-American, there is little incentive for wanting to encourage the opposition in thinking that they will gain support for their political efforts.

But a third point that I think should resonate--for Washington never to overpersonalize the relationship. Natelashvili said that the overall orientation of Georgia is toward the West and the United States in particular, so there is no need to engage in a policy that sees the political survival of any particular politician as a vital interest. He also related anecdotes as to how, when his party was in opposition to Eduard Shevardnadze, key figures in the West constantly stressed the need to support Shevardnadze--until the time of the Rose Revolution, when then Shevardnadze became a symbol of the bad old order and Saakashvili was elevated to power. His point was that in the past he was criticized for his criticisms of Shevardnadze--until they became part of the accepted narrative here in Washington.

It raises the question--will at some point Saakashvili share the fate of Shevardnadze-lionized and praised in the West for years but then, at the end, the story will change? That was my final thought when I left the luncheon.

TWR is working hard on getting the next issue of TNI ready -- three basic tracks for this coming issue. America Standing Alone, Democrats Advising the Democratic Congress on Foreign Policy, and Revisiting Iran. Will post some excerpts in the coming weeks.

This is something just posted at National Interest online.

Responding to Critics
by Nikolas K. Gvosdev

01.12.2007


EMAIL ARTICLE | PRINTER FRIENDLY


Ray Takeyh and I have a habit of writing provocative pieces that are usually vociferously denounced and attacked at the time they are published but often are (although not always) vindicated by developments over time. I feel (and I write in the single person here, as I have not coordinated this response with my co-author) that our latest endeavor which just appeared in the International Herald Tribune, “Mr. President, this war is over”, will also stand the test of time.

In an article written in spring 2003 (and published in the summer 2003 issue of Orbis), we laid out the case why spreading democracy in the Middle East would not advance U.S. strategic objectives, since even a casual perusal of opinion polling showed that any government in the region dependent on the ballot box for power would be under greater pressure to distance itself from the American agenda. In an op-ed for the Los Angeles Times on September 7, 2003, we warned: “In a country lacking a strong national identity, a country in which ethnic and regional loyalties are paramount, democracy could well result in another Lebanon—an unstable patchwork of local ethnic fiefdoms perilously perched at the brink of civil war.” We went on to say:

This sort of liberal autocracy should be America’s model for political reconstruction in Iraq. Instead of quixotic democratic schemes, Washington should create a strong central government in Baghdad, one that is responsive to its citizens but also capable of regulating local rivalries and is insulated from popular pressure.
America's goal should be to transfer power to an indigenous regime as soon as possible, not to use Iraq as some sort of social-science laboratory for nation-building. The United States should select an efficient new leadership capable of initiating market and other reforms while also managing popular discontent with American policies. There is a great deal of talent in the midlevel ranks of the military and civil service that can be tapped for such a purpose.
Empowering pragmatic local administrators (as opposed to exiled politicians) would ensure that the leadership is in touch with the needs of the Iraqi people, and that it would have a good chance of surviving even after the U.S. withdraws.
The continuing unrest in Iraq today demonstrates that its citizens crave services, not abstract notions of pluralism. If a new regime improves the quality of life for Iraqi citizens, it will gain popular support -- even if it was backed initially by the U.S.
The United States is at a crossroads. It can either face the very real risks of democratization or dispense with its Wilsonian pieties and craft a durable new order for the Middle East. It cannot do both.
Criticism of the latest piece takes a number of forms. Dispensing with the ad homimen attacks (America-haters, enemies of freedom, foreign agents and so on), there are three principal responses or comments that have been made.

The first has to do with stylistic concerns about tone. Why are we so pessimistic? Why are we undermining national morale by talking about defeat and loss?

I, for one, want to wake people up and break us out of our habit of always assuming that, when faced with a plethora of bad choices and imperfect outcomes, we wait for the deus ex machina to arrive and save the day. Too many here in Washington continue to assume that we can leisurely set the timetable for events. We can’t. We keep hearing that the only outcome we can have in Iraq is “victory”; we need to start thinking long and hard now about what we do and how we preserve our position and our interests if Iraqis don’t do the things we expect of them. This isn’t defeatism, by the way; it’s called common sense. You hope for the best, you prepare for the worst. We aren’t doing that.

And solutions that could have worked in 2003 or 2004 may not, and probably will not, work in 2007. You can’t suddenly decide that General Petraeus’ approach can just be re-started and will produce effective results years later.

The second response is to use what I think are inappropriate comparisons with the Civil War or World War II; what would have happened if Lincoln or FDR were forced by discontent about the sacrifices of war to make peace instead of achieving full victory? For one thing, both those conflicts were conventional wars with clear parameters for defining progress. If nothing else, compare a map of the lines in 1862 with 1864; or 1942 with 1944. In both there were clear and definitive signs of progress. And remember, Lincoln’s re-election was ensured when Sherman completed his “march to the sea”, which signaled the Confederacy’s impending doom as a viable entity.

Do we have a clear record of progress in Iraq? Michael O’Hanlon’s “Iraq Index” doesn’t support a convincing affirmative answer to that question. Certainly we see no Malaysia-style dynamics where, over time, effective counter-insurgency techniques combined with material progress have begun to reduce the fighting and contain it to limited corners.

I think those who think that “victory is around the corner” are now the ones who have to present the evidence that supports that conclusion.

The final response is some variant of “leaving Iraq means the terrorists have won” or that Ahmed from Anbar province will be in Des Moines the weekend after the Marines leave to wreak havoc at the shopping mall. The attempt here is to say that we are jeopardizing U.S. national security. Well, I have news for you. While we’re bogged down in Iraq, North Korea crossed the nuclear finish line and Iran’s progress toward its own nuclear device and regional hegemony continues. Other major powers are taking advantage of our distraction in Iraq to strengthen their own positions, and, by the way, Al-Qaeda seems to be reconstituting itself just fine outside of Iraq.

Good strategists know that you have to pick and choose battles. FDR came under tremendous pressure to alter his strategy during World War II of concentrating on defeating Nazi Germany instead of focusing most of America’s attention on Imperial Japan—even though Japan had struck Pearl Harbor and even successfully occupied a few pieces of U.S. territory in North America. Dwight D. Eisenhower accepted a cease-fire that left North Korea intact and did not use the revolts against Soviet power in East Germany and Hungary as opportunities to launch a war against the USSR. If Iraq was the only problem on the U.S. agenda, then making it the central front in the war on terror might be justifiable. But it is not.

Senator Chuck Hagel had it right when he said, in reaction to the president’s speech:

“This is a dangerously wrong-headed strategy that will drive America deeper into an unwinnable swamp at a great cost. We cannot escape the reality that there will be no military solution in Iraq.”

Ending a campaign to save the republic is no defeat.


Nikolas K. Gvosdev is editor of The National Interest

International Herald Tribune



Mr. President, this war is over
Nikolas Gvosdev and Ray Takeyh
Thursday, January 11, 2007


In a final attempt to salvage his presidency and secure his legacy, President George W. Bush has announced yet another "strategy for victory" which calls for introducing 21,000 additional troops into the killing fields of Iraq. The point that the president and much of the Washington establishment refuses to concede is that the Iraq war is already over.

Saddam Hussein is dead and any remnants of his WMD program are utterly dismantled. But the United States has proven incapable of achieving any of its other lofty objectives.

For nearly four years, America has tried to reconstitute a kinder, gentler Iraq, ignoring the fact that Iraq has always been an artificial entity — an incongruous collection of sectarian groups cobbled together by the British empire and then sustained by Sunni terror.

The American invasion has irrevocably unraveled that arrangement, as the empowered Shiites, embittered Sunnis and secessionist Kurds have little desire to concede power to their sectarian foes.

Yes, a loosely partitioned Iraq with a degree of wealth sharing among its provinces may come into existence. But such an arrangement will likely follow only after a protracted and bloody civil war, and it is this civil war that American forces — augmented or not — can no longer prevent.

Nor can one find justification for the president's claim that the battle of Iraq will "determine the direction of the global war on terror."

The sad reality is that Iraq is already the epicenter for anti-Western terrorism. Iraq is the only place in the world where prospective jihadists can engage in live-fire exercises with the U.S. military and hone their skills in battle. It is not accidental that techniques pioneered in Iraq, like "improvised explosive devices" (IEDs), have been exported to other battlefields, like Afghanistan.

There seems to be a fundamental misconception that there is a finite number of potential terrorists in the world and that the use of Iraq as "bait" will lure them for destruction at the hands of U.S. forces.

The emotive picture of Arab suffering at the hands of Occidental powers has already generated countless volunteers and recruits for Al Qaeda. The American occupation has provoked a narrative of struggle and sacrifice that will radicalize Arab youth for decades to come.

President George W. Bush should take a page from Ronald Reagan's playbook. Initially, Reagan authorized the deployment of U.S. forces to Lebanon in 1983 under many of the same justifications bandied about today for why the United States must remain in Iraq — to combat terrorists, to check Syrian and Iranian influence, to prevent an escalation of sectarian conflict that could lead to a general war in the Middle East.

Pundits warned of dire consequences to American credibility if troops were withdrawn, particularly after the bombing of the Marine barracks. To his credit, however, the 40th president realized that a limited American force could not achieve any of these objectives and pulled the troops out.

With U.S. ground forces no longer held hostage to the shifting fortunes of the fighting in Lebanon, Washington was free to pursue more effective strategies to combat terrorism and to stem the impacts of Lebanon's internal tragedies on the rest of the region.

Americans have no interest in either paying the costs of becoming Iraq's new imperial warden or in waging the brutal campaign necessary to pacify the country.

Instead of giving speeches on new strategies for victory, and sending off another contingent of hapless Americans into the fires of Iraq, the president would have been wiser to declare the American mission is over, and presented a plan for the gradual withdrawal of U.S. forces.

The future of Iraq is in the hands of the Iraqis. And whether through violence, negotiations or accommodation, they will be the ones that will have to determine the prospects of their country. So far, they are making choices the United States abhors — just as the Lebanese did in 1975 and the Bosnians in 1992 — and Washington has no real leverage to alter these decisions.

For the second time in its postwar history, the United States has been defeated in a war — not in military terms, but in its inability to shape political outcomes. The challenge before American leaders now is not to devise plans for prolonging the war, but to find ways for America to regain its power and to realize its interests in light of this setback.

(Nikolas Gvosdev is editor of the National Interest. Ray Takeyh is a senior fellow at the Council on Foreign Relations and the author of "Hidden Iran: Paradox and Power in the Islamic Republic.")

Listening to the president, the Democratic response, and various politicians all talking about what to do in Iraq, I thought, What would General George S. Patton recommend?

He had one principle that doesn't seem to be applied here: not paying for the same real estate twice. The challenge we haven't gotten right in Iraq is, once territority has been taken, is how not to lose it. How many times have we "taken" Baghdad already?

Russia, the New Enemy?

Roundtable
Wednesday, January 10, 2007
1706 New Hampshire Avenue NW
Washington, D.C.
Drinks at 6:30 PM & Discussion begins at 7:00 PM
Panelists: Nick Gvosdev of the National Interest, Igor Khrestin of the American Enterprise Institute, Ivan Eland of the Independent Institute, and Washington Times Editorial Writer Russ McCracken. James Poulos will moderate.
A prominent Russian journalist shot dead outside her home. A Russian dissident and writer poisoned in London. An American company building pipelines off Russia's Pacific coast threatened with fines and sanctions. The former CEO of oil and gas giant Yukos still behind bars. And proponents of Iran's nuclear program find an unlikely ally in the formerly communist power. Despite a rapprochement between President George W. Bush and Russia's Vladimir Putin following the terrorist attacks of September 11, 2001, a chill seems to have settled on relations between the two countries. After Vice President Dick Cheney's strongly-worded speech in Lithuania that all but announced the start of a new Cold War, the world is forced to wonder where Russia is headed next--and whether that direction pits Russia against the West. This is what we'll be discussing at a roundtable this Wednesday, January 10.
The event will take place at the Fund for American Studies, 1706 New Hampshire Avenue, NW. A brief reception will begin at 6:30 pm, followed by the discussion from 7 pm to 8pm. AFF Roundtables are free for members and $5 for non-members.
AFF is a non-profit organization dedicated to identifying and developing the future leaders of the libertarian and conservative political movement. AFF also produces the quarterly print journal Doublethink and the weekly online magazine Brainwash. Both feature articles by young conservative and libertarian writers. Podcasts of AFF's monthly roundtable discussions are also available for download at www.americasfuture.org .
Contact:
David Kirby
Executive Director
America’s Future Foundation
1001 Connecticut Avenue NW, Suite 1250
Washington, DC 20036
202-255-2503 (c)
202-331-2261 (o)

Dov Zakheim and DImitri Simes both have updated and expanded arguments on the Iraq war that they initially presented in the pages of TNI.

On January 4 (and apologies for delay), Dov Zakheim wrote in the Financial Times about why America should operate from Iraq's borders rather than be based in the central cities.

On January 9, Dimitri Simes explained in the Los Angeles Times why he thinks
sending more brigades to pursue the same crusade is unlikely to bring success — at least not on an American political timetable. The problem is not just the incompetent management of the war's aftermath. The problem is that the crusade to reshape the Middle East that led to the U.S. invasion of Iraq precludes anything that could be legitimately called victory.

Up to a few months ago, Russia was being loudly condemned by many in the West for its "support" of the Lukashenka government in Belarus', especially through energy subsidies. Now that Russia has cut off crude oil supplies to Belarus' because the Russians charge Belarus' is siphoning away oil meant for Western customers (who are paying cold hard cash for it), the same people are talking about Russia's use of the energy blackmail weapon.

So, has Lukashenka now become a "freedom fighter"? We've seen this before--when the ex-Communists of Moldova went from being targets of a colored revolution to becoming our new best friends once they broke with Moscow. Should we be expecting commentary in the next few days about how Lukashenka is really a good guy (borrowing from the Ilham Aliyev script)? Stay tuned.

An addendum to the earlier post about the Ikle dinner:

Attended also an event to celebrate the signing of the US-India nuclear deal, with luminaries present such as departing House member Henry Hyde, Senator Lugar, Nick Burns, India's ambassador Sen, and others.

The US-India deal is a milestone for relations, but I still have concerns. On the US side, there is an assumption that two liberal democracies cannot have any major divergences in their interests; on the Indian side, I don't see that there is a coherent vision about what it means for India to be a great power and what additional responsibilities for maintenance of the global order New Delhi is prepared to shoulder.

A great deal of political capital was expended to get this deal in place--but it is only the beginning, not the end, of a process.

We have just finished up a dinner at the magazine featuring Fred Charles Iklé, author of Annihilation from Within: the Ultimate Threat to Nations. Very matter of fact in discussing how a major mass-casualty/mass-destruction incident would wreak havoc and how we are not prepared, even thinking beyond immediate emergency response. On a separate note, it makes me a bit more interested in the recent CBS series "Jericho" for whether or not it is touching the same issues.

It is not often that Nancy Pelosi and Charles Krauthammer would seem to be in agreement, but is there a meeting of the minds on Iraq?

From the Democratic leadership's letter to the president:

Rather than deploy additional forces to Iraq, we believe the way forward is to begin the phased redeployment of our forces in the next four to six months, while shifting the principal mission of our forces there from combat to training, logistics, force protection and counter-terror. A renewed diplomatic strategy, both within the region and beyond, is also required to help the Iraqis agree to a sustainable political settlement. In short, it is time to begin to move our forces out of Iraq and make the Iraqi political leadership aware that our commitment is not open ended, that we cannot resolve their sectarian problems, and that only they can find the political resolution required to stabilize Iraq.


From Charles Krauthammer's column in today's Washington Post:

We should not be surging American troops in defense of such a government. This governing coalition -- Maliki's Dawa, Abdul Aziz al-Hakim's Supreme Council for the Islamic Revolution in Iraq and Sadr's Mahdi Army -- seems intent on crushing the Sunnis at all costs. Maliki should be made to know that if he insists on having this sectarian war, he can well have it without us.

What is left unsaid, of course, is whether or not we should be prepared for failure--that Iraqis won't end their sectarian conflict.

Today’s Washington Times gleefully reports how Cindy Sheehan and other opponents of the war in Iraq “routed the leaders of the new House Democratic majority from their press conference where they attempted to present their legislative agenda.” Their complaint: no discussion at all of how to end the American involvement in Iraq by the Democratic Congressional leadership.

The Democrats have a problem. The Iraq Study Group (ISG) did not provide an actionable blueprint for conducting a “phased withdrawal” and while its criticisms of how the Bush Administration has prosecuted the war did cause some damage, the president has by no means been neutralized. Don Rumsfeld is long gone from the Pentagon. As I noted in November as part of a National Review symposium,



By accepting Don Rumsfeld’s resignation, President Bush has nullified the first plank of the Democratic agenda on national security …. and forces the Democrats … to move to point number two — outlining their plan for achieving success in Iraq.

This accelerates what I have termed the “Orange Revolution meltdown clock” for the Democrats. In opposition, it was quite easy for Joe Lieberman, Jim Webb, Nancy Pelosi, and Henry Waxman to agree that Rumsfeld should go — but much more difficult, if not outright impossible, for all of them — as the new legislative majority — to coalesce around a common strategy.

Without an ISG plan to rally around, instead of a unified Democratic position, we are likely to return to the status quo that existed in the previous Congress—individual Democrats offering their own competing plans and visions for action, joined together by general criticism of the administration. In response, the administration has already begun to recover its equilibrium and is likely to forge together enough of a bi-partisan coalition to support some sort of “final push to victory” in 2007. But what is not likely to emerge is any sort of consensus that Republicans and Democrats have an obligation to put aside partisan differences with an eye to, as Dimitri Simes advocates in this current issue of TNI, avoid “burdening the next administration with Iraq as a defining issue in American foreign policy.”


Writing before the midterm elections in The National Interest this past fall, Colin Dueck noted:



Democrats may well have success this fall simply by picking up on public dissatisfaction with the war in Iraq, but as long as they give the impression of having no serious or clear alternative on national security they will continue to be at a long-term disadvantage to Republicans on these issues. … American troops will probably still be fighting in Iraq in 2008. If circumstances do not change dramatically on the ground, then opposition to the war and calls for disengagement from within the United States will only grow stronger. Yet this will not change the fundamental paradox of the political situation: Republicans are tied to an increasingly unpopular war, but the very issue of war raises perennial Democratic weaknesses and divisions that tend to redound in favor of Republicans.

Some on the Left are concerned that, as a result, most Democrats are unwilling to seriously change the status quo. The Nation editorialized :

Some early signs are disturbing. One came when Bush casually allowed that US Army troop strength should be permanently expanded by 40,000 to 90,000--not more troops for Iraq but more troops to fight the next war. Many Democrats nodded approvingly. … Forget the facts. Nobody in elite political circles wants to sound "soft" on defense. In other words, Iraq is a disaster, but let's give the Pentagon another $80 billion to beef up for the next one.

And herein lies another danger. During the 1980s, Democrats who opposed sending aid to the Nicaraguan contras, in order not to appear “soft on Communism”, intensified their support for the mujahideen in Afghanistan so as to bolster their national security credentials. Might not Democrats now, particularly those who want to avoid the label of “cut and run” on Iraq, decide that an even more hawkish, bellicose stance vis-à-vis Iran is the best way forward? This could end up complicating (and limiting) U.S. freedom of action to find a creative solution to the Iranian nuclear imbroglio whereby, in the pursuit of securing one’s domestic political base, politicians foreclose maneuvering room on the international arena. After all, once broad bi-partisan Congressional resolutions, in 1998 and 2002, had defined Saddam Hussein as a terrorist with a weapons of mass destruction capability, it became much harder to argue for continuing with containment or to suddenly assign Hussein a much lower threat priority than, say, Iran or North Korea.

Democrats swept the midterms as the party offering alternatives to the status quo. But we don’t seem to be off to a good start.


Nikolas K. Gvosdev is editor of The National Interest. This piece continues

Ian Bremmer, contributing editor for TNI and president of the Eurasia Group, offers some predictions for 2007. [This link will take you back to his 2006 predictions.]

1) Iran -- without any doubt, the prospect of intensified international conflict with Iran is the most significant global political risk for 2007, reflecting both the combination of near-certain escalation on the nuclear issue and--at least as importantly for global markets--Iran’s growing influence in Iraq and the broader Middle East.

Despite the Bush administration’s relative weakness (and its decisive setback in the 2006 mid-term elections), the White House will remain steadfast in its refusal to allow Iran to develop a nuclear weapons program. The president still intends to "punish" Tehran if it continues to enrich uranium. Officials at the highest levels of the US government believe that military action against Iran should be avoided if possible but will continue to urge tougher measures against its government in the face of continued intransigence.

The United States will spend most of 2007 attempting to step up pressure on Iran on three distinct fronts. First, it will work through the Security Council on a multilateral Chapter 7 sanctions process. Second, the US will attempt to create some form of coalition of the willing, attempting to persuade G7 partners, EU members, Gulf allies, and other multilateral groups to cut off all financial transactions with Iran, to stop investing in its energy sector, and to work with the US Treasury Department and CIA to find and freeze key Iranian assets. Third, the United States will work on its own to pressure other states to isolate Iran economically, and, more dramatically, will build a strong military, especially naval, presence in the region over the course of the year. The Security Council process is nearing the end of its track (helped in part by US Ambassador to the UN John Bolton becoming a casualty of US domestic politics; not to mention the Russian government publicly opposing coercive diplomacy on the issue). But as the UN process grinds to a halt, the Bush administration will press ahead on the second and third fronts mentioned above. Though highly unlikely to dissuade Tehran from pursuing its nuclear program, US-led efforts will begin to squeeze the Iranian economy (and, more importantly, Iran’s leaders), and draw a sharp Iranian reaction. The importance for markets of Iran’s oil card will grow over the course of 2007.

As alternatives to direct confrontation prove unsuccessful, prospects of US military action will increase. Some form of military strike is certainly possible in 2007. But given that Iran is unlikely to have the capacity to produce a nuclear weapon until 2009--and that the Bush administration harbors serious reservations about another military commitment in the Middle East--Israeli (not American) strategic concerns are likely to drive pressure for action. For this reason, military action against Iran is more likely to wait until 2008. By the end of 2007, the risk of conflict will again add upward pressure on oil prices.

Within Iran, local demonstrations against President Mahmoud Ahmadinejad and significant losses by hardliners in recent municipal elections and balloting for posts in Iran’s assembly of experts remind us that the Iranian public will not blindly follow the president. The setbacks for conservatives will have no near-term impact on policy--neither municipal councils nor the assembly of experts have real influence on foreign policy or the nuclear issue. But with elections for the Majlis, Iran’s parliament, scheduled for February 2008 (possibly before Iran masters nuclear technology) the conservatives must be concerned. Is there anything promising for markets in this? Possibly, but the main winners in the municipal elections still support an aggressive nuclear policy.

Finally (and, for 2007, most critically), a geopolitically resurgent Iran is driving the growing conflict between Shia and Sunnis in neighboring countries. That has the potential to further destabilize the region--and in the worst case scenario could provoke full-blown proxy wars. Early indicators of this risk are most obvious in Iraq (more on that below). But they are also visible in Iran’s support for Hizbullah in Lebanon and for Hamas in the Palestinian territories, as well as in tensions between Bahrain’s majority Shia and its ruling Sunni minority. As a result, Iran and opposition to its government (particularly from Washington and from Arab states) has become a key driver of the risk of broader conflict in the Middle East. Regional stability will deteriorate over the course of the year. Largely (though not only) as a consequence of the Iran issue, I expect that 2007 will be the most politically unstable year in the Middle East in the past two decades.

2) Nigeria -- President Olusegun Obasanjo, his rivals, and would-be successors appear likely to dig in their heels in the conflicts that have already generated considerable uncertainty and violence in the run-up to April’s national elections. There’s a significant risk that elections will be postponed. Even if they aren’t, the open political warfare they have provoked will continue to generate violence, particularly in the Niger delta, with increased amounts of oil shut in.

The conflict in Nigeria steadily intensified over 2006. First, we saw a spike in kidnappings and the expanded bunkering of oil. Then came the destruction of energy infrastructure. Just two weeks ago, we witnessed the first direct attacks on the government. All of this is likely to escalate as April’s elections near, shaking up the ways in which local elites control energy revenues--and the way in which Nigeria is governed. Given the weakness of the country’s party structure and the unwillingness of the major players to back down, a constitutional crisis appears in the offing. And, ominously, there’s a good chance the military will get involved.

It’s still quite unlikely that Nigeria’s various internal conflicts will produce a coup similar to the one in neighboring Cote d’Ivoire. But the ability of western-based multinationals to conduct business operations in this environment will be significantly affected, at least for the final months leading up to the elections. If there were a coup, the trouble might last longer.

This, along with Iraq (risk #3), constitutes the second major geopolitical risk for energy prices in 2007, which is shaping up to be as tough a year for oil supply risk as 2006. Nigeria’s internal troubles also pose problems for regional stability. Nigeria has acted as peacekeeper, model of moderation, and economic stabilizer for a number of its West African neighbors.

3) Iraq -- there’s a growing risk that the central government will collapse and that Iraq will descend into all-out civil war. The security situation inside the country is indeed "grave and deteriorating," as the final report from the bipartisan Iraq Study Group noted. But the Bush administration is extremely unlikely to withdraw significant numbers of troops from Iraq (or otherwise turn security over to the Iraqi government and/or Iraq’s neighbors) until it has made another attempt to stabilize the country. De facto partition is likely the ultimate outcome in Iraq, though we’re unlikely to reach that point in 2007, because the White House and nearly all the Arab states will take the needed steps to delay that result.

All of this bodes quite badly for the Bush administration, which suffered a decisive defeat in the mid-term elections largely because the effort to stabilize the country has gone so badly. The president’s ability to sell the American public new ideas on Iraq (such as a “troop surge” of 20,000 reservists--the policy the president continues to prefer and which most White House advisors presently expect he will implement) will be sharply limited by a series of congressional investigations into administration policies related to the war effort.

The president will probably approve a military move against Shiite cleric Moqtada al Sadr and the Mahdi Army militia group over which he exercises limited control. The offensive may be dominated by US forces or, less effectively, with support from Iraqi troops. Sadr’s militia is no match for US troops, but a stalemate is the likeliest result of any collision of forces. The Iraqi government is crippled by infighting, the United States cannot maintain a presence in the country indefinitely, and the perceived inability of foreign troops to establish security bolsters Sadr’s popularity.

Still, 2007 should see a significant increase in international investment in northern Iraq (as a mini-boom develops in the Kurdish cities of Irbil and Suleymaniye). while there will be significant uncertainty in the broader investment climate and doubts over increases in oil production even if an effective hydrocarbons law is passed in early 2007 (which looks unlikely), substantial foreign aid and troop presence should ensure that Iraq consistently produces more than 2 million barrels of oil per day.

The main risk to Iraqi oil production would come from a Bush administration decision to target the Mahdi army. Support for Moqtada al Sadr is centered in the Shiite neighborhoods of Baghdad. Attacks on this militia group are likely to spread sympathy for him and the Mahdi army among the Shia of Iraq’s south. An escalation of violence there could impact oil operations by making working conditions unsafe. Attacks against pipelines or oil personnel would constitute a more direct threat. At the same time, any US escalation against Baathist or al Qaeda-affiliated Sunni insurgent groups could further strain US-Saudi relations, given the closeness of the House of Saud to certain Sunni tribes in Iraq. While the overall US-Saudi relationship remains strong, the Saudis have already signaled deep discomfort with any political or military solution in Iraq that puts the Sunni minority at excessive risk.

The more indirect impacts of the war are, of course, broader-ranging--as in the second-order effects on politics in the United States and Britain as 2008 US elections approach and the British choose a successor to Tony Blair.

4) Turkey -- there are significant risks in Turkey for the coming year, probably the highest in the broader emerging market class. They will come from domestic politics, particularly Turkey’s presidential (April/May) and parliamentary elections (November). These will pose a serious test for the political and social stability Turkey has enjoyed since 2002. The risks will be magnified by Turkey’s high current account deficit and external financing requirements; the lira will remain particularly vulnerable to changes in global sentiment. (I don’t believe the recent inflows into Turkey of Gulf Arab funds offset these risks. The volumes are more limited than media attention suggests.)

Presidential elections will increase tensions between Turkey’s most determined secularists and Prime Minister Erdogan’s ruling Justice and Development Party (AKP). The former will intensify demands for early parliamentary elections--hoping to enable a new parliament to choose the new president. Failing to achieve this, the secularists, supported by the military, will likely push the AKP to elect a compromise candidate. The significance of the presidential elections is therefore linked to whether Erdogan runs for the office. He is highly unlikely to announce until mid-April, stoking increased market volatility in the first quarter.

Turkey’s parliamentary elections will also be acrimonious--and are almost certain to be tighter than in 2002. A return to coalition government will likely undermine fiscal discipline, slow progress on reform, and generate political instability. The near complete lack of planning for coalition governance--none of the current opposition parties seem to have a clear idea of how an alliance with the AKP might work--is likely to exacerbate the problem. In the most problematic scenario, smaller parties gaining parliamentary representation could come under intense pressure from the secularist establishment not to sign a coalition agreement with Erdogan and the AKP. This would lead to formation of a government comprised of three or more small parties whose primary aim was to keep the AKP out of power--a serious negative for the Turkish economy.

It should be increasingly obvious to all observers that Turkey isn’t going to join the European Union. But there’s little market risk around EU accession in 2007. The AKP’s likeliest strategy will be to pursue a low-gear engagement with the bloc in 2007. While the EU’s recent decision to suspend a few chapters of Turkey’s accession talks underlines Cyprus’ veto power, the issue’s primary importance is that it reveals that most European governments will do whatever is necessary to postpone tough decisions on Turkey’s accession bid. That won’t continue indefinitely, but it will for 2007.

5) Russia -- 2007 will see America’s (and, to a lesser extent, Europe’s) relations with Russia deteriorate faster than those with any other major state. President Putin presides over a government--and a public--which feel humiliated by a decade and a half of perceived western-imposed economic and political injuries. Economically, the cash-starved Yeltsin government cut sweetheart deals with multinational energy firms like BP, Shell, and ExxonMobil to exploit Russian resources. Politically, US and European-led NATO advances encroached on former Soviet territory-- over furious Russian objections. The creation of the Baku-Ceyhan pipeline, which conspicuously bypasses Russian territory, and a series of revolutions and near-revolutions along Russia’s soft underbelly have upped the ante. With American power stretched thin by the war in Iraq and the proliferation conflicts with Iran and North Korea, and Russian power heightened by both Putin’s consolidation of domestic political power within the Kremlin and high commodities prices, the Russian government has never felt stronger. The Kremlin is in strong position to press its advantage--and knows it.

All this means that 2007 will generate increasing risks as the Russian government asserts ever tighter economic control over strategic sectors (squeezing out foreign companies when desired) and political control of the “near abroad” (especially in Ukraine, Belarus, the Caucasus, and others areas the Russian government considers within the country’s traditional sphere of influence). Also, Russia will aggressively approach energy sales to Europe and elsewhere, demanding acquisition of refining and distribution assets abroad and provoking resistance and recrimination from some countries. Finally, the presidential succession (elections in March 2008) will lead to some market instability this year. Russian oligarchs--both in government and the private sector--will seek to consolidate control of assets before the political landscape changes. Their actions could affect foreign firms.

Keeping Russia from a higher spot on the risk list (say, above Turkey), a growing Russian middle class will create still stronger consumer markets for high-end services, white goods, and a construction boom, making Russia one of the world’s most appealing retail markets (with the important caveat of entrenched corruption). And no internal threats to Putin’s political control mean the run-up to elections should not spark capital flight, irrespective of oligarch consolidation. Fixed income markets should remain strong. But for multinational companies investing in strategic sectors, 2007 will be even less pleasant than last year.

6) China -- 2007 should prove a strong year for China, which will benefit from a favorable international climate and better relations with both Japan and the United States. (China’s problems with these two countries are serious, but are more likely to produce real stresses in 2008.) Still, the enormity of China’s impact on global markets makes any potential downside a serious one. There are two particular concerns worth noting.
The most pressing comes from foreign companies in a variety of sectors (from manufacturing to white goods to finance), which will find policy restrictions to market access are creating a considerably more challenging business environment for foreign direct investment. Again, that’s not likely to lead to significant protectionist impulses until 2008, but it will raise the heat on the US-China strategic economic dialogue (which will likely become a matter of serious congressional contention by the end of the year), and also poses real worries for foreign companies overexposed to China for supply chain and manufacture.

There is also a smaller, but significant, domestic risk related to elite consolidation around the five-yearly Communist Party congress in October. The risk of leadership discord and policy stalemate is likely to rise as the Hu administration attempts to bring about the most far-reaching changes in government policy priorities (and top officials) in over a decade.

Hu wants to make a decisive break from Jiang Zemin and his Shanghai clique, officials who have promoted policies intended to spur growth at all (social and economic) costs. Hu hopes to harmonize policies meant to generate economic growth with development that is more sustainable, reduce income inequalities across regions and classes, promote energy conservation and efficiency, and to lessen the burden of China’s growth on its environment. To accomplish all this, Hu needs a big sweep of top officials--a very difficult undertaking given China’s winner-take-all political system. Hu has moved extremely cautiously to date; the changes he will propose could easily elicit a political backlash.

But the good news for international political stability is that Beijing will pursue a more status-quo policy internationally. It will continue to do everything possible to lock up longer-term access to commodities and develop tighter relations with the governments of many underdeveloped countries (which the United States and Japan in particular will see as a growing threat). But China will also cooperate more with the United States and others on big strategic issues like Iran, North Korea, Sudan, and even Israel’s conflicts with Palestinians and its neighbors, distancing itself politically from Russia and keeping the strategic economic dialogue with Washington open for as long as domestic US political pressures will allow. So while risks to China’s emergence (both domestic and international) are worth watching in 2007, the greatest risks for China’s growth and stability are more likely to come to fruition in 2008.

7) Pakistan/Afghanistan - worries over Pakistan are nothing new. For the past several years, the question "what happens if Musharraf is killed?" has dominated debate over Pakistan’s future. It’s not an academic question--there have been a number of near-miss assassination attempts, at least one of which was clearly an inside job. But the growing stability in the Indian/Pakistani relationship has taken some of the urgency from the debate, and pushed Pakistan off the front page.

A new question is now raising the country’s risk profile--"what happens if Musharraf stays?" His ability to maintain the peace and to balance political forces inside and outside of his country is diminishing. He has increasingly been forced to cede local authority in the provinces along the Afghan border to fundamentalist militants. In part that’s because his government was caught flatfooted last year by a catastrophic earthquake in Kashmir (where local fundamentalists were quick to offer effective aid, just as Hizbullah provided badly needed relief services in Lebanon following the Israeli bombing last summer). But Musharraf’s inability to cripple militancy along the border also poses a growing problem for President Hamid Karzai’s government in Afghanistan. A lack of foreign troops and capital has kept the new Afghan government from asserting its power beyond the confines of Kabul (where violence has grown steadily), and the Taliban have taken back strongholds in some parts of the country.

As the security situation in Afghanistan deteriorates, and as the West no longer sees benefit in old information on nuclear proliferation from the AQ Kahn network, Musharraf’s utility to the international community will begin to erode--and Pakistan’s partnership with the United States will face growing pressure. It’s unlikely Pakistan’s leader will be in a position to respond, especially with respect to the Taliban, which means more scrutiny on security practices, less foreign aid, and a tougher fight for the international community over Afghanistan. 2007 is accordingly likely to bring greater dangers from the region, and a resurgent second pole (after Iraq) for international terrorism.