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Q2 2011 Geostrategy Note: The Scent of Jasmine, Japan's Mega-Crisis and Other Global Drama
By Michael Moran
Political risk lived up to potential in Q1 2011, and Q2 shows no sign that old stabilities will return. In the Middle East, in particular, old certainties and assumptions have fallen away following the “Jasmine Revolution” in Tunisia and the waves of social-media-accelerated risings that followed. Egypt’s revolution shatters decades of calculations for the United States, Israel and the West, as well as Iran, al Qaeda and other regimes that prefer instability to stability. It may take years, and more bloodshed like that raging now in Libya, before a “new normal” sets in. Japan’s triple-tragedy—earthquake, tsunami and nuclear disaster—has far-reaching implications across global asset classes and is likely to bring a change of government in Tokyo before the year is out. Eurozone (EZ) attempts to wish away a massive sovereign debt crisis have again failed, and Spain, Italy and others look newly vulnerable after Portugal’s surrender to bond market realities. The U.S. is in better shape, but the onset of a presidential election cycle will retard potential solutions to U.S. fiscal woes and exacerbate the risk that Washington will mishandle the most important political and economic relationship on the planet: the G2 ties that bind it to Beijing.
1. THE SCENT OF JASMINE
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|Oil Price Spike Risk||Deteriorating ↓||While only one major oil producer disrupted (Libya), contagion in play and Gulf producers not entirely immune.|
|MENA's Political Contagion||Deteriorating ↓||As Libya's conflict dominates news, deeper risk stalks major MENA regimes, including Iran and Saudi, with Israel looking on warily.|
|Algeria Domestic Stability||Stressed ↓||New subsidies, policy moves quell early protests; spillover risk if Libya unrest, refugee flow ignites local al Qaeda wing.|
|Bahrain Domestic Stability||Deteriorating ↓ ↓||Saudi/GCC intervention indicates desperation, inflexibility; regime change unlikely, though Iran's influence bolstered in Gulf.|
|Libya: Civil Conflict||Deteriorating ↓||Full-blown civil war raging, with int'l intervention raising prospect of long stalemate; OPEC capacity takes slack for now.|
|Egyptian Stability||Stressed ↔||Post-Mubarak politics still coalescing, army firmly in command; dashed reform expectations could prompt renewed unrest.|
|Iran Domestic Stability||Deteriorating ↓||'Jasmine' risings initially undercut Iran though Saudi move in Bahrain bolster Tehran's narrative; oil prices boost Ahmadinejad.|
|Jordan Domestic Stability||Stressed ↓||Quick concessions (subsidies, cabinet reshuffle) and promise of deeper electoral reforms so far keeping lid on unrest.|
|Kuwait Domestic Stability||Managed ↔||Kuwait's modicum of democracy has helped ward off serious unrest; its ability to dole out subsidies likely staves off trouble.|
|Lebanon Domestic Stability||Stressed ↔||Hezbollah will form government this spring, raising tensions with Israel; 'Jasmine' passions blunted by local eccentricities.|
|Saudi Stability/Succession||Stressed ↓||Jasmine unrest spooking Saudi monarchy, though protests confined to Shia minority in eastern provinces. Royals likely to hold.|
|Tunisia's Domestic Unrest||Stressed ↓||Peaceful ouster of Ben Ali has left a vacuum; new direction remains uncertain, Libya violence, refugees pose contagion risk.|
|Yemen State Stability||Deteriorating ↔||Rebellion against Saleh imperils Saudi-U.S. bulwark v. al Qaeda; regime appears doomed, risk to Saudi stability/shipping lanes.|
|Israeli-Palestinian Conflict||Stressed ↑||No progress on peace, but success of non-violence in Egypt and Tunisia has all sides in this conflict reassessing.|
|Gaza/Fatah-Hamas||Deteriorating ↓||Hamas a net loser so far, its lashing out risks heavy Israeli response; success of 'non-violence' a slap at terrorist tactics.|
|Israel-Hezbollah||Deteriorating ↓||Syria/Iran/Israel interests shifting, Israel on edge, Assad, Ahmadinejad alert to dissent; trip wire for new war tighter still|
|Turkish Realignment||Stressed ↔||Turkish dissent over Libya, warming with Iran/rift with Israel; lingering resentment over EU membership delays.|
The Middle East has entered a period of profound change that has affected regimes nearly irrespective of the economy’s relationship to oil or their posture toward Israel, tolerance of dissent and secular or clerical nature. Libya, the region’s most erratic regime, slid quickly into civil war, prompting international intervention which likely will result in stalemate and possibly persistent disruption to Libyan oil production—crucial for southern Europe in particular.
Perhaps the one true generalization so far is this: The higher the per capita GDP, the less likely a majority of the country’s citizens or elements of its most important institutions have been to follow the example of Tunisia’s “Jasmine Revolution.”
The Gulf in Western Standards
So far, that is. The oil-producing monarchies of the Gulf have not been immune to trouble—evidenced by unrest among Saudi Arabia’s Shiite minority and subsidies directed by the Saudis and other regimes to buy off dissenters. Important, too, has been Washington’s decision, with assent from most other Western powers, to tolerate a transparent double standard for the sake of economic (read: energy price) stability.
While a resort to violence by the Egyptian, Tunisian and even the relatively small oil-producing Libyan regime was judged intolerable by the U.S., it remains to be seen how far toward Tiananmen a Gulf emirate or the House of Saud’s security forces might go before the White House might contemplate anything resembling its call for President Hosni Mubarak’s resignation, issued in late February.
The political lesson for Gulf potentates is clear but hardly new: Oil buys them room to maneuver and moral relativism in the halls of Western power. Yet it has led to rash actions, too. Saudi Arabia and the UAE took a fateful step—one opposed by Washington—by dispatching troops into Bahrain to help its Sunni monarchy ride out protests by the 80% Shia majority. In the short term, this may buy time for Sheikh Hamad bin Isa Al Khalifa to introduce democratic reforms that save his regime. Yet, it also has put the Saudis—and the U.S., by extension—on the side of the repressive Sunni monarchy, conversely thrusting Iran into a role it had been unable to claim since the MENA uprisings began: champion of the people.
The Iranian-Saudi rivalry, boiling under the surface for years, now takes on a more dangerous complexion. Iran can be expected to step up efforts to radicalize the Shiite minorities in Saudi Arabia’s eastern provinces and in neighboring Yemen, where another pro-Saudi Sunni government is on the ropes. The risk of outright war remains slight (10% in our estimation) as each side has other options. The Saudis could pressure Iran by ensuring oil prices return to precrisis levels (below US$90), making Iran’s fields inadequate to meet national expenses (and pleasing Washington, too). Saudi money could find its way to Iran’s Green Movement, and the kingdom also could cultivate Israeli fears of Iran’s nuclear designs, a wildcard that had receded but could reemerge if Iranian-Saudi tensions worsen.
Iran, in turn, could threaten Gulf shipping lanes, deploy its own intelligence services against Saudi interests abroad and infiltrate agents into the eastern provinces to sabotage oil facilities and stir unrest. By intervening overtly in Bahrain, Saudi Arabia has added a centuries-old schism inside Islam to the complexities of oil market volatility.
Outcomes and Percentages (for 2011, unless otherwise specified)
- UN-patrolled stalemate in Libya (65%); anti-Qadhafi coup (45%);
- Regime change in Yemen (95%); Yemen civil war (35%);
- Regime change in Bahrain (30%); protracted civil strife in Bahrain (70%);
- Significant democratic reform in Egypt (85%) and Tunisia (80%);
- Moderate democratic reforms in Jordan (80%), Kuwait (80%), Morocco (70%) and Algeria (50%);
- Major new repression in Iran (70%) and Syria (90%);
- Covert warfare between Iran and Saudi Arabia (90%);
- Sustained U.S. pressure for democratic reforms in Gulf monarchies (60%);
- Strategic rethink in Israel, pressed by Washington, with Likud ousted before the end of 2012 in favor of a revived Labor-Kadima “peace” government (65%).
Unlikely but Possible: Saudi-Iran war (10%); Iran regime change (20%); Saudi regime change (10%); Muslim Brotherhood-led government in Egypt by 2012 (30%); New Israel-Hezbollah war in 2011 (20%); Hamas victory over Fatah in Palestinian territories (30%); Israeli strike on Iran (15%).
2. JAPAN'S MEGA-CRISIS
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|Japan - Government Stability||Deteriorating ↓ ↓||Quake/tsunami/nuclear crisis has jarred economy, damaged Kan gov't, raises questions over energy policy, food safety.|
|Japan - Nuclear Crisis Implications||Deteriorating ↓ ↓||Fukushima Daiichi crisis rattles global nuclear industry, possibly scuttling nuke power renaissance in US, Germany, elsewhere.|
|China - Japan Tensions||Stressed ↔||Naval/fisheries and gas claim incidents continue; rare earths ban spark reorientation of Japan navy, mending of U.S. ties.|
The triple tragedy of earthquake, tsunami and nuclear plant disaster has compounded a more familiar problem in the world’s third-largest economy: weak, indecisive government. The economic implications of these cruelties—laid bare in our latest Japan Outlook—remind us that “lost decades” are not the worst fate after all. But the torpor Japan has brought upon itself since its economy crashed to earth in the early 1990s makes the 2011 crisis far more acute—including a double-dip tumble back into recession.
The costs of the March 11 earthquake so far have included ancillary problems with Japan’s currency (RGE regarded as unwise the central bank’s recent intervention to slow the yen’s rise), contamination of the food chain and disruption to Japan’s energy grid, not to mention the enormous expenses of cleanup and reconstruction. Further afield, the global nuclear industry has taken a major hit, with permit and construction freezes (real or de facto) in the U.S., Germany, China and elsewhere. Japan’s plight now could play havoc across a range of global asset classes, altering the supply-demand balance and energy source preferences, with consequent effects on commodity prices and risk appetite (see “Asset Implications of the Japanese Earthquake,” by the RGE Market Strategy Team).
Domestic Politics: Secondary as political risk seems mid-crisis, it is substantial. Prime Minister Naoto Kan’s Democratic Party of Japan (DPJ), leading an unpopular, scandal-plagued government before the earthquake, has floated the idea of a grand coalition with the rival Liberal Democrats (LDP) and other parties in order to share the difficult decisions ahead. The government may not win the LDP’s consent on this, but the effort indicates that Kan is likely nearing the end of his tenure, which may be extended temporarily only out of fear of “changing horses in midstream.” As Tobias Harris, a Japan scholar at MIT, writes: “The country is in no condition to hold the snap election that the LDP had hoped to force the government to call” before the crisis.
The LDP, which controls the upper house of parliament, ruled Japan for most of its post-war history until the DPJ’s 2009 election victory. The opposition leadership has been careful not to pile on smaller parties’ criticism of Japan’s shoddy nuclear regulations (given the LDP’s authorship of most). However, the lack of transparency with regard to radiation leaks has drawn widespread criticism from LDP deputies, and the LDP may prefer to keep an arm’s length from Kan rather than bolster his government, hoping to topple the DPJ in new elections once the crisis is contained.
The crisis has added to the urgency of passing a heavily augmented budget through the divided parliament but also likely will shelve LDP efforts at opening up Japan’s domestic market for the foreseeable future. Japanese analysts suggest that as the shift from containment to reconstruction mode takes place later this year, the LDP could kick-start the reform effort by insisting any “stimulus” pumped into the economy be open for international bidding.
Foreign Policy: Recently strained relations with China may calm a bit as Beijing seeks to avoid the appearance of adding to Japan’s problems. Meanwhile, though, the incongruous presence of 38,000 U.S. troops (and 43,000 dependents) in the country was underscored when American military commanders announced a much greater “exclusion zone” from the Fukushima Daiichi disaster than Japan’s own government had called for, an embarrassing moment for Kan. Whether this translates into new tensions—the DPJ came to power arguing for a diminished U.S. military presence—may, conversely, depend on just how well China can keep its own navy and fisheries fleet from stoking disputes in the East China Sea—precisely what mended DPJ ties with its U.S. ally.
3. NO EZ WAY OUT
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|Eurozone Breakup?||Deteriorating ↔||'Muddle Through' continues to store up medium-term trouble - 45% breakup probability by 2020; gov'ts in P, ESP, IT, Bel at risk.|
|Belgium Separatism||Deteriorating ↔||Flemish-Walloon feud continues as Belgium sets record for post-election standoff; markets have driven up Belgium spreads.|
|FranceÂ Gov't Stability||Deteriorating ↓||Polls show Sarkozy and Strauss-Kahn losing to far-right's Marine Le Pen; French EZ policy led from Berlin as G20 summit nears.|
|Germany Gov't Stability||Managed ↔||Merkel's unpopular FDP partners drag on coalition; 'harmonization' plan may tilt periphery into recession, long-term breakup EZ.|
|Greece Gov't Stability||Stressed ↔||PASOK, which won new mandate in November, continues to miss IMF/EZ targets; harmonization plan would further hurt growth.|
|Ireland Gov't Stability||Deteriorating ↔||New Fine Gael/Labour gov't fighting EZ harmonization plan, fear loss of FDI and int'l corporates (jobs) as result.|
|Italy Gov't Stability||Deteriorating ↓||Berlusconi to stand trial in April over private scandals; bond vigilantes on hold, early elections (not due till 2013) likely.|
|Portugal Gov't Stability||Deteriorating ↔||Opposition delivers govt coup d'gras to Socialist govt; EZ bailout now looks inevitable, contagion looming.|
|Spain Gov't Stability||Stressed ↑||Large EZ bailout fund provides relief, but Portugal crisis re-engages bond market troubles in spite of successful Zapatero reforms.|
Portugal’s minority Socialist government on March 24 became the second political victim of the eurozone’s sovereign debt crisis, following Ireland into the dust bin of Euro-history after months of insisting that austerity budgets could stave off bond market disaster. As in Eire, it was not to be: In spite of deep spending cuts in the face of fierce public resistance, RGE has long said that both countries ultimately need an EU/IMF-funded bailout. And, in our estimation, Spain and potentially Italy and Belgium face similar pressures.
More importantly, the handling of the crisis by eurozone governments continues to be marked by denial (as to the depth of the crisis), shortsightedness (in EZ governments’ unwillingness to restructure debts or force “haircuts” on bondholders) and political self-interest (on the part of Germany and smaller northern-tier governments loath to tell voters more tax revenue will flow south to the peripheral PIIGS. RGE’s most recent analysis shows that public debts remain unsustainable across the EZ, and a March 11 EZ summit did little more than kick the can down the road.
Politically, outside the collapse of the Irish and Portuguese governments, pressures set forth late last year continue to mount on the Spanish, Belgian, French and Italian governments (the last of which, led by scandal-ridden Prime Minister Silvio Berlusconi, may have recently graduated to a new political category—the “undead”).
Nonetheless, the political risk has moved beyond sovereigns to threaten the unity of the EZ—indeed, of the EU itself. Recent moves led by Germany and France to exclude non-EZ members of the EU from certain summits—the so-called “Pact for the Euro”—brought severe reactions from the UK, Poland and Sweden, raising a real possibility that the divisions that began with Greece’s near-default last year will ultimately unravel the European Project on two separate levels.
EU/EZ: The first issue involves non-euro EU members. Since the “Pact for the Euro” was inked, Sweden and Poland have issued strong statements decrying the EZ for acting, in Polish Prime Minister Donald Tusk’s words, like “an exclusive elite.” Britain took a more radical step, tabling a bill that would require a national referendum for any future transfers of sovereignty to Brussels.
“Competitiveness Pact”: The second issue centers on Germany’s insistence that, in exchange for financing the EU’s bailout fund, governments in the EZ’s troubled periphery must stick to deep austerity programs and accept moves toward a fiscal union. This grates against local cultural and ideological sensitivities, including Ireland’s low 12.55% corporate tax rate (Germany wants it raised to the EZ average of 20%) and Greek and Spanish resentment about demands for wage indexing and the focus on productivity rather than fiscal balance.
A full year after RGE posited a 45% chance of an EZ breakup by 2020, EZ policy makers have done very little to change our mind—Germany’s, in fact, have strengthened our resolve. Meanwhile, more governments will tumble.
4. U.S. DEFICIT DISORDER
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|U.S. Deficits and Nat'l Debt||Stressed ↓||Obama, congressional leaders dodging issue so far with 2012 vote looming; but real talks among backbenchers productive.|
|U.S. Election Cycle||Stressed ↔||Obama likely to prevail in 2012, though GOP will take Senate; politics will blunt near-term prospects for serious deficit reform.|
|U.S. Defense Cuts||Stressed ↑||Deficit concerns, Iraq drawdown have defense in budget cutters' sites; China v. counterterror debate heating up.|
|Financial Reform Stalls||Stressed ↑||Dodd-Frank under attack in House; moves on Freddie/Fannie could further undermine housing market.|
|Trade Policy Debate||Stressed ↔||U.S. recovery could boost dollar, reverse temporary export boom; U.S. consumer, election year regnites anti-China rhetoric.|
After a two-year battle over health-care reforms, Wall Street bailouts and whether tax cuts or stimulus spending would better jump-start the economy, the U.S. political debate has at last honed in on the great long-term threat to growth: the country’s titanic debt accumulation. Individuals in the U.S.—beset with declining housing values, depleted 401K portfolios, heightened market volatility and persistent job insecurity—continue to deleverage. But the 2012 budget plans put forth by President Barack Obama and the Republican House speak to a lack of urgency to clean up balance sheets on a national level.
Some of this reflects the looming 2012 election: Republicans have little chance (15% at RGE’s reckoning) at this point of unseating Obama, who for all the rockiness of his first term remains relatively popular and is the acknowledged master on the campaign trail. But the odds are reversed when it comes to the GOP capturing the Senate (85% chance), where Democrats barely held off the GOP onslaught in 2010. With so much at stake and the prospect of a divided government looming in either outcome, the long view—notoriously absent from the U.S. political system even in the best of times—is driven underground in these circumstances. The fact is, real reductions in U.S. deficit spending mean cuts to three popular entitlements—Social Security, Medicare and Medicaid—plus sensitive defense programs, none of which fits the plans of GOP or Democratic political consultants at the moment.
But underground, work has progressed. A group of senior lawmakers from both parties, taking its cue from the November 2010 report of the president’s deficit reduction panel, has made some progress toward changes in these huge programs that would produce meaningful debt reduction. In mid-March, a group of 64 senators—32 from each party—wrote Obama asking him to join the talks, which are not endorsed by either House GOP leaders or the Senate’s Democratic leader, Harry Reid. As in the earlier contentious health-care debate, the president has allowed Congress to “horse-trade,” hoping to jump in at a strategic moment and broker final compromises that will seal a deal. Whether this effort gets the gap narrow enough for anyone to bridge, however, remains very uncertain.
A consensus, however, appears to be emerging that the problem demands compromise. The Congressional Budget Office’s gloomy numbers project the national debt held by the public to rise to nearly US$13.6 trillion by 2015 and increase to nearly 76% of GDP by 2020 and remain at that level thereafter. The process of education reform seems to be underway, but the compromise solutions remain more of a hope than a reality. Absent a visit to the U.S. Treasury from bond market vigilantes, that’s likely to remain true until after November 2012.
5. G2 TRANSITION PAINS
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|China-U.S. Strategic Rivalry||Deteriorating ↓||No rash moves yet, but trade/currency friction during 2012 cycle; MENA unrest, regional disputes put China on defensive.|
|China Leadership Challenges||Stressed ↔||MENA unrest, inflation providing dual challenge as fifth generation Xi Jinping groomed for CCP top post in 2012.|
|China Perceived Military Threat||Deteriorating ↓||Double-digit growth defense growth, stealth fighter/carrier programs; assertiveness in SEA/East China Sea irking neighbors.|
|U.S. Defense Spending||Stressed ↔||Defense no longer a sacred cow as Congress seeks ways to tackle deficits and national debt; Libya "on cheap" a harbinger.|
|U.S. Gridlock/Election Cycle||Deteriorating ↔||Trade deficit, low RMB value, U.S. joblessness and China's rise in general will heighten rhetoric in 2012 campaign season.|
|Trade Policy Debate||Deteriorating ↓||Trade likely to re-emerge as major U.S.-China irritant as U.S. consumer re-engages, recovery continues and 2012 vote approaches.|
The world’s most important relationship arguably improved a bit in 2011 following a cheery if insubstantial summit between the U.S. and Chinese leaders in January. The previous year had seen tensions rise on China’s alleged currency manipulation, saber rattling in the South and East China Seas, passive response to North Korean attacks on the South and refusal to allow a jailed dissident to collect the Nobel Peace Prize. The January summit appeared intended to set relations back on track and to remind both sides of the mutual benefit of trade and geopolitical cooperation in Asia. Outside rhetoric and the sale of some Boeing airliners, not much else transpired.
Given the potential areas of conflict, though, that may count as a success. Most important in the short term is the approach of a U.S. election season during a time of continuing difficulties in the U.S. labor market, with jobless rates still hovering near double digits, while China’s economy (and, admittedly, inflation) boom.
Trends this year likely will exacerbate the problem as the temporary narrowing of the trade deficit brought by U.S. consumer deleveraging begins to reverse. Calls for China to be branded a “currency manipulator,” though never absent, will heat up along with House, Senate and White House races. Making things even more complicated, China’s Communist Party is engaged in a long process, due to culminate in 2012, to choose a successor to Hu Jintao. His likely successor, Vice President Xi Jinping, who was elevated to a key post on the Central Military Commission last year, is unlikely to want to “bend to America” during the sensitive selection period. Nor are any of the candidates for the 7 other open seats on the Politboro’s standing committee.
The U.S. and China continue to spar in the WTO over a variety of products and punitive tariffs—this month, the U.S. lost an “anti-dumping” case over tariffs it imposed on Chinese steel and rubber goods in 2008. Pressure may mount again next February when the Treasury has to recertify that China is not a “currency manipulator,” and U.S. and other foreign firms of late have complained that China appears bent on singling them out for higher workplace standards, fees and other harassment. Still, “trade war” seems unlikely, even if political passions in the U.S. can be unpredictable.
A more likely source of sudden change would be geopolitical—renewed trouble in the Korean peninsula, where the U.S. has recently reinforced its presence at Seoul’s request; a maritime mishap between China and a U.S. ally, possibly China or the Philippines; or even a direct miscalculation by U.S. or Chinese forces like the mishap that downed a Chinese fighter and a U.S. surveillance plane in early 2001. Larger disputes could also exacerbate tensions. For instance, divisions could deepen over the new international intervention in Libya, or China could belatedly experience “Jasmine”-style unrest (though RGE regards this as unlikely) or flare-ups of ethnic dissent in Tibet or Xinjiang. An exacerbation of China’s tensions with India or Vietnam—both courted by Washington—would also strain the bilateral relationship.
Efforts to forge more open U.S.-China “military-to-military” ties have been blunted by recent snubs, including the first flight of a Chinese “stealth fighter” (outfitted suspiciously like one built a few decades ago by Lockheed) during a visit by U.S. Defense Secretary Bill Gates. China’s navy, as expressed by military academy writings and op-eds, increasingly views the American Seventh Fleet as an enemy bent on containing China to the “first-island chain,” China’s term for the coastal waters including the East and South China Sea. China regards this as its territory, while the U.S. insists (as do most nations and international law) that international waters extend to within 200 miles of any shoreline. The scope for trouble is obvious, and the stakes as large as any on the planet.
|Themes||Q2 2011 Rating||Upside/Downside Notes|
|Long-Running Major Conflicts|
|Al Qaeda/Franchise Terrorism||Deteriorating ↓||Difficulties in Yemen, continued trouble in Pakistan tribal areas, Somalia bode ill; Libya possibly rejoins the party.|
|Afghanistan War||Stressed ↔||Mild Kandahar, Marjah progress; Kabul corruption endemic; GOP gains bolster Obama policy flexibility.|
|NATO/ISAF Fissures||Managed ↔||NATO handover to Afghans in 2014; Canada out mid-2011 as U.S. reverses 'surge'; UK political will wavering.|
|China-Taiwan||Managed ↑||Free trade deal accelerates integration but anti-Beijing DPP gains in polls, China unhappy with new Taiwan missile, arms deals.|
|India-Pakistan/Kashmir||Stressed ↔||New talks scheduled for summer; Impetus uncertain as Pakistan remains unstable and India's scandals distract Congress Party.|
|Iraq-Stability-U.S. Drawdown||Stressed ↔||U.S. drawdown continues, government facing both 'Jasmine' and sectarian dissent; AQI so far quiet, al-Sadr diplomatic.|
|Israel-Iran Proliferation||Stressed ↔||Iran's own troubles, Israel's recalibrated realities cool hot heads; Stuxnet hack, other covert action suggest more subtle steps.|
|Koreas North-South Tensions||Managed ↑||Manufactured crisis to introduce new Kim on the block over, SNAFU resumes; China's cynicism usefully demonstrated.|
|China-Tibet||Stressed ↔||Continunig Han-Tibetan tensions, resentment from '08 crackdown; disputed succession of Panchen Lama.|
|China-Xinjiang||Stressed ↔||Death sentences for 2010 dissenters breeds Uighur-Han tensions; no sign of 'Jasmine' contagion.|
|Cuba/Regime Collapse||Managed ↔||U.S. lifts travel ban, layoffs start economic liberalizations on 5-year timetable; Castro succession remains uncertain.|
|India-Naxalite Insurgency||Stressed ↔||'Red' threat to coal production in West Bengal state persists, contagion in Orissa; army-state gov'ts bear costs of security.|
|Ivory Coast - Civil Strife||Deteriorating ↔||Gbagbo refusal to relinquish power ignites civil conflict, AU mediation fruitless; cocoa price spike risks remain.|
|Kyrgyz Unrest||Stressed ↔||New gov't and new consitution calm Kyrgyz-Uzbek tensions.|
|Mexicoâ€”Narco-Violence||Deteriorating ↔||Security concerns remain signficant and signs of success difficult to quantify; costs in fiscal and FDI terms mounting.|
|Myanmar Stability||Stressed ↔||November election won by junta; Suu Kyi released, some repression lifted; ethnic Karens rise in north.|
|Nigeria Stabilty/Niger Delta||Stressed ↔||Rising risk of violence (religious/ethnic) ahead of April 2011 election; Delta rebels stirring again, FDI stunted by corruption, risk.|
|Northern Ireland||Dormant||Power-sharing government holding up; province buffeted by UK austerity, Irish banking risis: Sinn Fein gains in south.|
|Pakistan Internal Stability||Deteriorating ↔||Civil peace deteriorating as Islamists challenge secular rights; army/ISI tirng of Zardari and U.S. as insurgent enclaves remain.|
|Sri Lanka - Civil Unrest||Managed ↔||Rajapaksa's autocractic streak stoking opposition, including lingering Tamil resentment.|
|Spain/Basques||Managed ↔||Trending toward "DORMANT" as ETA declares cease-fire 'permanent'; Batasuna renounces violence amid arrests of dissenters.|
|Sudan - Southern Succession||Stressed ↔||Loss of South in poll leaves oil rich border enclave unsettled; July 9 'independence' date could be flashpoint.|
|Turkey - Turkish Kurds||Managed ↔||PKK cease-fire extended; Turkish army discontent; erosion in Iraq could spark Iraqi Kurd separatist moves.|
|Venezuelaâ€”Internal Dissent||Stressed ↔||Chavez ruling by decree in response to opposition gains in Sept. parliament vote; submits to re-election 2012.|
|Zimbabwe - Civil Strife||Deteriorating ↓||Upcoming constitutional referendum; threats to seize UK, U.S. assets; dysfunctional power-sharing gov't.|
|Argentina/UK - Falklands||Dormant ↔||Demarches continue, oil exploration begins; UK defense cuts, mediation make conflict unlikely.|
|Arunachal Pradesh (India-China)||Stressed ↔||Ugliness persists, though locally; water resources, national price, influence in Nepal/Tibet at issue.|
|Colombia-Venezuela Tensions||Managed ↔||Colombia-Ecuador-Venezuela talks progress; trade taking precedence now over ideological/U.S. alignment clashes.|
|Cyprus-Aegean (Greece-Turkey)||Dormant ↔||Ongoing UN/EU Cyprus talks; incidents in Aegean; Muslim minority in Thrace.|
|Hungary-Slovakia||Managed ↑||Calmed ethnic Slovak-Hungarian tensions; minority, Roma groups.|
|Russia-Ukraine Disputes||Managed ↑||Gas deal with Moscow lightens EU/CEE supply risks. New IMF deal also bolsters Kiev.|
|Thai-Cambodia Dispute||Stressed ↓||Ceasefire holding though no progress in ASEAN diplomacy; ousted Thai leader Thaksin may use temple as stalking horse.|