Eurasia Group | Eurasia Group President Ian Bremmer announces top risks and red herrings for 2008 

Eurasia Group President Ian Bremmer announces top risks and red herrings for 2008 

07 January 2008

Eurasia Group President Ian Bremmer announced the firm's annual Top Risks in a note to clients today. Top Risks identifies the year's key geopolitical areas for global investors and market participants to watch. According to Dr. Bremmer, "Overall, 2008 will be an increasingly turbulent year for political risk." Topping the list is the trend of US anti-globalization, in which economic and political concerns at home are encouraging greater protectionism. "For the first time in my career as a political scientist, the United States is a serious (indeed, the serious) macro risk factor," says Bremmer.

The following are Eurasia Group's 2008 Top Risks:

1 - US anti-globalization: "This coming year is going to be one in which the United States is increasingly inwardly focused. This trend creates political risks that give rise to meaningful market inefficiencies globally," writes Bremmer. Eurasia Group sees a 70-30 likelihood that the US will "muddle through" along this trajectory, but should the US face a serious recession, domestic terrorism or a sharp deterioration in Iraq, these events could steer the US toward neo-isolationism.

2 - Iran: Increased tensions between Iran and the international community will arise in 2008, accompanied by a host of "second order implications," according to Bremmer. Examples of these include "tensions in Dubai, caught in the middle as Iranian capital is tracked and frozen in accounts; an arms race in the region; greater conflict in Iraq between Sunni and Shia; and Hamas and Hizbullah bolstered by Iran in their efforts to derail moderates in both Palestine and Lebanon."

3 - Iraq: "In 2008, Iraq will show that the US has for the second time gotten the military decisions right, but the politics wrong," writes Bremmer. Despite military achievements from the recent troop surge, Baghdad's political process is deadlocked and increasingly influenced by Iran. Should the US embark on an early and swift troop withdrawal due to domestic pressure, insurgents will intensify their campaign, and could precipitate an all-out Sunni-Shia civil war, in which neighboring countries such as Saudi Arabia and Iran would clash through proxies.

4 - Terrorism: The US campaign in Iraq continues to fuel anti-American radicalism around the world. Al Qaeda has regrouped in Afghanistan and Pakistan, and its affiliates are operating in various other regions of the world. Other groups, including Hizbullah, could also pose serious threats. Israel, the US, Europe, and Russia remain at high risk of attack.

5 -Pakistan/Afghanistan: President Pervez Musharraf will survive through February elections, but his longer-term position is increasingly untenable. February elections will restore a modicum of democracy, but not stability. Security along the Afghan/Pakistan border is poor and the fight against the Taliban is suffering.

6 - Russian foreign policy: "After Iran, Russia is probably the single country in the world most willing to challenge the existing geopolitical order," says Bremmer. Its relations with the US have not been as bad as they currently are since the Cold War; and its relations with Europe are worse. Major risks in 2008 will include Russia's policies on providing gas supply to Europe, its claims to the North Pole, and polonium assassinations.

7 - South Africa: Intraparty tension will persist within the ruling African National Congress (ANC)-between President Thabo Mbeki and new party leader (former deputy president) Jacob Zuma. This conflict could damage the ANC and paralyze government at a critical moment in South Africa's reform process.

8 - Turkey: Tension will remain high between the ruling Justice and Development Party (AKP) and Turkey's secularist forces, particularly the military. Prime Minister Recep Tayyip Erdogan's plan to overhaul the constitution could intensify confrontation.

9 - Energy Bottlenecks in Latin America: Insufficient investments in upstream oil and gas production and power generation capacity will increase risks of declining production and revenues as well as power shortages across the region. Risks will weigh more heavily in countries that have pursued policies of resource nationalism and economic populism, particularly Argentina, Ecuador, and Venezuela.

In addition to Top Risks, Bremmer identifies Red Herrings: countries the research team believes will remain stable or improve over the course of 2008; they will not be sources of geopolitical instability. Northeast Asia has three red herrings: China, Taiwan, and North Korea; the list also includes Saudi Arabia and Nigeria. Additionally, although Russia's foreign policy is a major risk, Russia's domestic politics will be a red herring issue in 2008.

From 7 - 18 January, Eurasia Group will release a series of in-depth outlooks focusing on each of the Top Risks and the Red Herrings. For more information, please contact Ms. Alex Lloyd at [email protected] or 646-291-4036.

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Eurasia Group is a research and consulting firm that focuses on global political risk and emerging market country analysis, serving major financial institutions, multinational corporations, and governments. Founded in 1998, Eurasia Group has a full-time staff of 85, a global network of more than 480 in-country experts, and partners covering more than 65 countries. Eurasia Group is headquartered in New York, with offices in Washington, DC, and London.