– Dr. Suzanne Maloney is a senior fellow for foreign policy at the Saban Center for Middle East Policy. Maloney, a former U.S. state department policy advisor, recently  published the book “Iran’s long reach: Iran as pivotal state in the Muslim world.” The views expressed are her own. —

Iranians go to the polls on June 12 in what is shaping up to be the most contentious ballot in the thirty years since the overthrow of the Pahlavi monarchy and the establishment of the world’s first modern theocracy. The ballot will determine the political fate of Iran’s provocative president, Mahmoud Ahmadinejad, and more broadly will signal the future of the country’s volatile political course and the prospects for improvement in its long-troubled relationship with Washington.

Iranian politics have become intensely personalized, focused for better and for worse around Ahmadinejad, a remarkable development considering his prior inexperience in national politics and the relatively limited authority of Iran’s presidency. By inserting himself in all of Iran’s most contentious debates and by asserting himself both on the domestic and international stage, Ahmadinejad has emerged as the focal point of Iran’s contemporary political landscape. As a result, the vote will serve as a referendum on Ahmadinejad’s notorious personality and policies – a reality underscored by the thinly-veiled vitriol directed at the incumbent in recent weeks.

Coming on the heels of a change in American administrations and a shift in U.S. policy, Iran’s presidential campaign has also featured a remarkably frank discourse about engagement. While no election outcome will single-handedly transform Iran’s relationship with Washington – in part because Iran’s presidency is not its ultimate authority in any case – the conclusion of this week’s election will shape the outlook for diplomacy in ways that are unlikely to be straightforward. A change in leadership would strengthen the Obama Administration’s case for engagement, but could also revive the factional infighting that paralyzed Tehran during the reformist heyday. Conversely, a second Ahmadinejad term might bolster Tehran’s recalcitrance but also intensify the international community’s urgency for dealing with Iran.

What to Watch For

Turnout: Iranians actually participate in their electoral process in numbers that are more than respectable by American standards, with at least two-thirds of the eligible electorate turning up to vote in most of the past contests. Historically, Iran’s inchoate opposition has been unable to rally around mass boycotts, but some disaffected voters have stayed away from the polls. The real wild card is turnout in the major cities, where reformists typically have an advantage.

Vote-Splitting and Run-Off: Iran’s political factions are diverse, contentious, and often overlapping. There is little certainty on either side that Iran’s factions will hold together and preclude defections from crucial constituencies. Ahmadinejad’s radicalism may well drive traditional conservatives to embrace former Prime Minister Mirhossein Mousavi, whose long association with the revolution and its founder, Ayatollah Khomeini, give him impeccable revolutionary credentials. Equally possible is the prospect that Mehdi Karoubi, a former parliamentary speaker, could siphon crucial votes and dilute the prospect for a reformist victory. The uncertainties are likely to mean that no candidate wins a plurality of the vote, paving the way for only the second presidential run-off in post-revolutionary history. If however any candidate wins on the first round, it will suggest an unexpectedly strong popular mandate that the next president can use to considerable advantage.

The Future of Reform: Win or lose Iran’s reformists have a lot to prove and a lot to gain in this ballot. Their marginalization in the 2005 election appeared to firmly close the door on the reformists’ particular political strategy, which endeavored to rehabilitate the Islamic Republic by strengthening its representative institutions and guarantees. Today, Iran’s erstwhile reformists see this election as a golden chance to recapture a pivotal political office and revive their public mandate to press more directly for incremental openings in the system. Still, even if Mousavi or Karoubi prevails, it is unclear how they expect to advance their objectives more successfully than former President Mohammad Khatami did.

American Response: Calibrating an appropriate U.S. response requires walking a fine line between criticism of the immense constraints placed on political competition within the country and acknowledgment of the genuine political achievement that the elections – and more importantly, popular participation in them – represent. This challenge is even more acute today, with the Obama Administration seeking to jumpstart direct negotiations with Tehran. In 2005, the Bush Administration botched its bid for moral superiority by denouncing the elections as flawed even before they took place, and official American statements may have actually bolstered popular participation. Equally problematic, however, is an overly effusive response, particularly if Ahmadinejad loses; an embrace of any individual Iranian politician would likely taint him and limit his room for maneuver. The Clinton Administration’s concerted outreach after the March 2000 victory of reformist parliamentary candidates intensified the conservative backlash and helped doom that movement. The Obama Administration would be wise to maintain a strategic silence while monitoring the fall-out within Iran for openings on the diplomatic front.

– Bernd Debusmann is a Reuters columnist. The opinions expressed are his own –

So what’s so difficult in getting Iran to drop its nuclear program? All it needs is a great American leader who uses sanctions to break the Iranian economy so badly that popular discontent sweeps away the leadership. It is replaced without a shot being fired.

That simplistic solution to one of the most complex problems of the Middle East was part of a keynote speech greeted with thunderous applause by 6,000 delegates to the annual policy conference of the American Israel Public Affairs Committee (AIPAC). The speaker: Newt Gingrich, a former speaker of the U.S. House of Representatives and a likely Republican presidential candidate in 2012.

In the fourth month of the administration of President Barack Obama, who favors talking to America’s adversaries rather than ousting them, the Gingrich prescription sounded like a throwback to the days when neo-conservatives predicted that the U.S. troops invading Iraq would be pelted with flowers and sweets. Wishful thinking at its finest.

But in panel discussions and forums at AIPAC, one of the most powerful lobby groups in the United States, the idea of sharply tightened sanctions had plenty of proponents. The preferred lever: cutting off gasoline supplies to Iran, which relies on imports for around 40% of its domestic consumption.

On the final day of the conference this week, several thousand AIPAC activists converged on Congress to press their representatives for passage of pending legislation to sanction companies that sell, ship, finance or insure gasoline exports to Iran. Firms that continued dealing with Iran would be banned from doing business with the U.S.

Would an additional layer to a stack of sanctions imposed since 1995 get the Iranians to drop what the West insists is work toward a nuclear bomb? There is no reason to believe it would. There is every reason to believe more sanctions would inflict hardship on the Iranian people.

“With all the economic pain sanctions have imposed on the Iranian economy, there has not been a single instance in which that pain has translated into a desirable change in the Iranian government’s policies,” Trita Parsi, the president of the Washington-based National Iranian American Council, told a congressional hearing last month. “The Iranian people have suffered the brunt of the economic pressures.”

A MATTER OF NATIONAL PRIDE

That tends to be the case with most sanctions that seek to change a government’s behavior or its ouster. A case in point closer to Washington than Tehran — Cuba. Almost five decades of U.S. economic sanctions have failed to bring down Fidel Castro or the brother who succeeded him.

Iran introduced gasoline rationing in June, 2007, a move that sparked riots in Tehran, with angry citizens setting ablaze gasoline stations. It was one of the most visible demonstrations of anger against the Iranian government since President Mahmoud Ahmedinejad took office in 2005.

But by and large, say Trita and other Iran experts, a good deal of the people’s anger over economic duress is directed against the United States, more so because the nuclear program has become a matter of national pride. It enjoys such broad public support that no politician running for office would risk advocating its termination.

So it would be naïve to expect public Iranian concessions on the nuclear front before the June 12 presidential elections. Registration for candidates opened this week and Ahmedinejad is expected to run for another four-year term. His most serious challenger to have announced his candidacy so far is a moderate, Mirhossein Mousavi, who was prime minister during the Iran-Iraq war from 1980 to 1988.

When he campaigned for the presidency and announced he was prepared to open a dialogue with Iran, Barack Obama said he would do so without “self-defeating preconditions.” But he also spoke in favor of sanctions, including the idea of throttling gasoline supplies. Overall strategy is still a work in progress.

As far as “self-defeating preconditions” go, setting an August deadline for Iran to curb its nuclear program, as did Israeli Foreign Minister Avigdor Lieberman this week, must surely rank at the top of the list. It’s an either-or proposition which makes a mockery of the word diplomacy.

It remains to be seen whether Israeli Prime Minister Benjamin Netanyahu insists on that timeline when he meets Obama in Washington on May 18. So far, they don’t seem to be of one mind on Iran, an absolute priority for Netanyahu, part of intertwined Middle East problems (including the Israeli-Palestinian conflict) for Obama and his team.

Robert Satloff, head of the Washington Institute for Near East Policy, a pro-Israeli think tank, put it in stark terms at an AIPAC panel discussion when speakers were asked to predict the state of U.S.-Israeli relations in a year’s time: “I fear that if we and the Israelis are not totally on the same page from A to Z on this issue…next year we may be dealing with the most serious face-to-face disagreement in the 61 years of this relationship.”

Next year, if not before.

– Michael O’Hanlon is a senior fellow at the Brookings Institution. The views expressed are his own. –

It’s no great surprise in American politics these days, but already a great partisan debate has broken out about President Obama’s foreign policy effectiveness to date. For his enthusiasts, the United States has hit the “reset” button and is reclaiming its place as not only a strong country, but a respected leader among nations. For his detractors, Obama is making the world dangerous by apologizing for America’s alleged misdeeds of the past, naively talking with dictators, and cutting the defense budget.

And as usual, the truth is neither of these polar positions. But as a past critic of Obama, especially during his days of promising a rapid and unconditional exit from Iraq during the presidential campaign, I would nonetheless argue that he has done a good job overall, and that his supporters have the stronger case to date. Still, making too much of provisionally good decisions in the first 100 days verges on playing a silly game of Potomac Jeopardy that only the evening talk shows and political junkies really care about. The bottom line is that Obama is just getting started. But he is off to a more solid start than almost any of his recent predecessors.

Consider the policy towards five key nations. And start with the wars. These are Category A problems. Obama has inherited a more difficult hand than any president since Nixon in terms of active, ongoing conflicts. Already we have lost almost as many American troops in our two wars on Obama’s watch as died in the first year of all of Obama’s predecessors going back to Carter combined.

But that is not a slight on the president, only a reminder of the difficult world that confronts him. And in dealing with these challenges, to date Obama has wisely listened to the counsel of his commanders and other experts on Iraq and Afghanistan. Our drawdown in the former place, while still rapid, will retain up to 50,000 U.S. troops even after it’s over. That is a lot of combat capability, and as such a departure from what Obama promised last year, and a relief to those of us still nervous about Iraq.

In Afghanistan, Obama will roughly double the American troop presence there in his first year in office. That will finally give commanders the wherewithal (or at least most of the wherewithal) to carry out a proper counterinsurgency strategy–with its twin goals of protecting the civilian population and building up Afghan institutions so they can increasingly do the job on their own.

The other crucial set of problems might be described as the nuclear hot spots–Iran, North Korea, Pakistan. On these, Obama’s record is less impressive to date. That is not, however, because he has done anything particularly wrong. Rather, the problems are extremely nettlesome. If Obama deserves any criticism, it is simply that his campaign rhetoric implied these would be far easier problems once George Bush was out of the White House and a new president was ensconced on Pennsylvania Avenue. In fact, the main reason these problems are hard is because of who we are dealing with in each case, and not because of George Bush or any other American leader. Since Obama is the one who raised expectations, he deserves to take a bit of a hit perhaps for not quickly fulfilling them–but otherwise his hand seems rather steady on the tiller.

Indeed, President Obama’s Pakistan policy is already an improvement over Bush’s in its emphasis on more military and economic aid, the naming of a special envoy, and related efforts. These steps finally begin to recognize our stakes in this crucial part of the world. Still, to call anybody’s policy towards Pakistan a solid one at a time when that country is practically crumbling before our eyes would go too far. Again, his policy is more “incomplete” than anything else. Which is exactly what you’d expect after 100 days.

– Willis Sparks is a Global Macro analyst at the political risk consulting firm Eurasia Group. The views expressed are his own. –

Few things in life amused my dad more than a good karate movie. I once asked what he found so funny about Bruce Lee’s jaw-dropping display of poise and power. “Nice of the bad guys to attack him one at a time,” he said. In the real world, threats don’t arrive single-file, like jets lining up for takeoff.

President Barack Obama’s toughest foreign-policy challenge will be in managing the sheer number of complex problems he’s inherited and their refusal to arrive in orderly fashion. In addition, the still-metastasizing global financial crisis will exacerbate several of these problems, by depriving a number of governments of the funding they need to maintain social stability and to meet internal and external threats to their security.

AFGHANISTAN AND PAKISTAN

There is clearly a risk of collision at the intersection of Afghanistan and Pakistan, both of them plagued with floundering elected governments and deteriorating security environments. In Afghanistan, once Obama keeps his promise to provide thousands more U.S. troops, he must decide whether his team can afford to work around President Hamid Karzai (who may win reelection in August) and more directly engage tribal leaders and willing members of the Taliban to restore stability.

But Afghanistan’s security continues to depend on the ability of U.S. forces to stem the flow of militants and supplies into the country from tribal areas in Pakistan. Aware that Pakistan’s armed forces are neither reliably willing nor able to help, the Obama team must find a way to neutralize Pakistani militants without arousing broad public anger across the country and destabilizing its cash-strapped government.

IRAN

The new president also inherits a central role in the international conflict over Iran’s nuclear program. Publicly committed to warnings that a nuclear Iran is “unacceptable,” some within the Obama team say the steep recent drop in oil prices fueled by the financial crisis will further hobble Iran’s already unsteady economy, adding bite to U.S. sanctions and raising hopes that direct engagement might bear fruit.

But however sharp the sticks or sweet the carrots, a broad consensus has developed within Iran in favor of the nuclear program, one that has so far proven immune to external pressure. Obama will eventually face a tough choice: He can accept the need for military action against Iranian nuclear sites or tacitly accept that no one can prevent Iran from becoming a nuclear power.

IRAQ

Across the border in Iraq, recent local election results generally bolstered moderates at the expense of radicals. But the inability of Iraqi lawmakers to forge durable compromises on the equitable distribution of political power and oil revenue, on the disputed status of energy-rich Kirkuk, and on the balance of power between federal and provincial governments leave Obama in a tough spot. He can hold to campaign promises of a near-term withdrawal of all U.S. combat troops or accept the political fallout that comes with approving Pentagon requests for a go-slow approach meant to protect recent security gains.

RUSSIA

There are plenty more potential flashpoints, but the most important international relationships Obama must cultivate are those with newly insecure Russia and increasingly self-confident China. Some within the Kremlin fear that U.S. influence in Russia’s neighborhood threatens the country’s long-term security, even as the global recession thins its (still considerable) financial reserves. A series of recent confrontations—over Kosovo, U.S. missile defense systems in Central Europe, Russia’s war with Georgia—have allowed Russian officials to capitalize on domestic anti-American sentiment and have pushed U.S. policymakers in search of a new approach.

But willingness to “press the reset button,” as Vice President Biden recently suggested, might breed misunderstanding. If Russians believe this signals that Obama will turn a blind eye toward Kremlin bullying at home or abroad, a luxury the new U.S. president cannot afford, his administration may have to reboot again—and sooner rather than later.

CHINA

The Bush administration’s first international test came in April 2001, when a U.S. spy plane collided with a Chinese fighter jet, killing the Chinese pilot and provoking a diplomatic standoff over detention of the U.S. flight crew. But China has become a status-quo power in recent years, as the leadership’s reliance on strong growth to bolster its domestic political capital has given Beijing a growing stake in global stability. Over time, the Bush team helped cultivate steady and predictable bilateral ties with China by focusing negotiations on subjects its leaders are willing to talk about—currency conflicts rather than human rights.

Obama says he means to broaden the conversation—a shift that will require plenty of patience on both sides. The stakes are high, particularly as the global financial crisis provokes anxiety in both capitals. This is the world’s most important bilateral relationship. Investing it with predictability and mutual trust will take considerable time and care.

So far, the new president has been lucky. He’s been able to devote time and energy to the stimulus package and financial rescue plan that he hopes will help refloat the U.S. economy. But the administration should recognize that this same financial crisis will add to the complexity of the foreign-policy challenges it faces—challenges that won’t come one at a time.

— Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Arms control is back and will thaw icy relations between the United States and Russia this year, but how far the new detente goes depends on the truculent mood in Moscow.

The potential exists for a grand bargain encompassing cooperation on the global financial crisis, Iran, Afghanistan, nuclear disarmament, missile defense, conventional armed forces and NATO enlargement.

But there are plenty of landmines on the road. Differences over the future of Georgia and Ukraine, two former Soviet republics on Russia’s borders, are the most obvious obstacles.

After eight years of disdain for arms treaties under George W. Bush, U.S. President Barack Obama is set to propose a radical negotiated reduction in nuclear missiles and warheads.

Expect an initiative before Obama’s first visit to Europe in April for a pact to replace the U.S.-Soviet Start-1 strategic arms reduction treaty, which expires at the end of this year.

Vice President Joe Biden may give a foretaste of U.S. ideas at the Munich Security Conference next weekend.

“The prospects for forward movement are reasonably good because we now have an administration in Washington which actually believes in arms control,” says Strobe Talbott, president of the Brookings Institution think-tank.

Talbott, the leading U.S. government official on relations with Russia in the 1990s, expects Obama to postpone deployment of a planned missile shield in Poland and the Czech Republic, which has infuriated Russia.

But he is skeptical of a broader rapprochement because of what he calls Moscow’s “sour geopolitical mood”.

DISARMAMENT

Russian President Dmitry Medvedev and Prime Minister Vladimir Putin have fiercely opposed the missile shield, as well as U.S.-led efforts to bring Georgia and Ukraine into NATO. They see both moves as attempts to encircle and marginalize Russia.

Obama cannot abandon either policy without alienating key constituencies at home and in eastern Europe, but he has good grounds to put both on hold while he explores the prospects for cooperation with Moscow and for direct talks with Iran on its nuclear program.

Russia would be expected in return to allow a tightening of U.N. sanctions on Iran and to suspend deliveries of S300 air defense missiles to the Islamic Republic, which could make any U.S. or Israeli air strike more difficult.

This is important in a year when the major powers will be focused on trying to persuade Iran to halt uranium enrichment, which the West is convinced is aimed at developing a bomb.

One of Tehran’s arguments is that the nuclear powers have failed to fulfill their pledge in the 1968 Non-Proliferation Treaty to work towards general nuclear disarmament.

Almost 20 years after the Cold War ended, the United States and Russia still have arsenals of more than 10,000 warheads each that are costly to maintain and make no military sense since modern wars mostly involve precision air power, highly mobile strike forces and paramilitary police.

They can afford to scrap at least 90 percent of their stockpiles while maintaining a credible nuclear deterrent.

They should seek to abolish short-range missiles which are the most destabilizing because they leave the shortest warning time and require split-second “use-them-or-lose-them” decisions by military commanders.

A bold nuclear disarmament initiative would have bipartisan support in the United States, where a quartet of elder statesmen including former Republican Secretaries of State Henry Kissinger and George Shultz has advocated such a step.

Their goal is to try to halt the spread of nuclear weapons to states such as Iran and to terrorist organizations by having major atomic powers set the example while tightening global controls on technology and fissile materials.

INSUFFICIENT?

Whether such an initiative will launch a new era of U.S.-Russian detente is uncertain.
Oksana Antonenko, senior fellow on Russia and the former Soviet countries at the International Institute for Strategic Studies, says arms control alone cannot be the engine of a better relationship because suspicion on both sides is so deep.

“It is hard to see who in the Obama team will advocate a strategic rapprochement with Russia. Russia isn’t on their radar screen at all,” she said.

Moscow is more concerned about stabilizing its economy and ensuring its place in the new world order arising from the financial crisis, in which the big emerging economies will have more sway at the expense of the Group of Eight including Russia.

Oil prices have fallen from $147 to $40 a barrel since last July, the Russian stock market has lost 75 percent of its value and the Kremlin faces street protests over its economic policy.

This could make Russia’s leaders more inclined to seek accommodation with the West, to reassure investors including Russian businessmen, or it could prompt them to play the nationalist card.
Putin’s speech in Davos raised hopes of the former but his tone and behavior at home, including plans for a big increase in military spending, point towards the latter.

Obama cannot make that choice for Russia, but he can give its leaders reasons to choose the former over the latter.

For previous columns by Paul Taylor, click here.

- Bernd Debusmann is a Reuters columnist. The opinions expressed are his own -

Here is a piece of advice for Barack Obama for dealing with Iran, one of the countries that will loom large in his presidency. Forget the way five of your predecessors dealt with the place. Take your cue from Richard Nixon and his 1972 breakthrough with China.

Just as Nixon and his secretary of state, Henry Kissinger, realized that a quarter of a century of isolating and weakening China had not served America’s interests, so Obama should acknowledge that 30 years of U.S. policy since the 1979 Iranian revolution has failed and that what is needed is a grand bargain, a shift as fundamental as the one Nixon achieved with China.

Those suggestions come from Flynt Leverett and Hillary Mann Leverett, a husband-and-wife team of independent experts who worked on Middle East policy on the National Security Council during George W. Bush’s first term in the White House.

A grand bargain would involve putting all the differences between the two countries on the table at the same time and resolve them as a package.

The list of differences is long. At the top of it is Iran’s nuclear program, which the U.S. suspects is geared to make nuclear weapons. (Iran denies this). Then there is Iranian support for Hamas in Gaza and Hezbollah in Lebanon, two groups classified as “terrorist” by the United States. Under the Bush administration, Washington threatened military strikes, talked of regime change and imposed economic sanctions.

How likely is it that Obama will make a dramatic Nixon-in-China overture? Not very. For one, his secretary of state, Hillary Clinton, is no Kissinger. And while Obama ran on a platform of change in the presidential election campaign, the man tipped to take charge of dealings with Iran, Dennis Ross, is an old-established Clinton-era Middle East negotiator with a widespread reputation in the area as a man with a pronounced pro-Israeli bias.

Fears about the Iranian nuclear program are rooted not so much in the belief  that Iran, once it had the bomb, would use it against Israel — a suicidal move, given Israel’s nuclear arsenal and second-strike capability — but that it will kick off a nuclear arms race. Or that Iranian nuclear weapons would fall into the hands of Hamas or Hezbollah.

In the view of Trita Parsi, an Iran scholar and author of “Treacherous Alliance, the Secret Dealings of Israel, Iran and the U.S.”, this prospect is remote. “Israel has signaled that it would retaliate against any nuclear attack by hitting Iran — regardless of who attacked Israel - … if any of Iran’s proxies attacked Israel with a nuclear warhead, Israel would destroy Iran.”

Parsi believes, as do other Iran watchers, that Iran does not actually need — and says it doesn’t want — to build a nuclear bomb. Having the know-how to make a nuclear warhead is enough to act as a deterrent, shift the balance of power and whet the nuclear appetites of Arab states fearful of Iranian encroachment.

NUCLEAR RACE

Their interest in acquiring nuclear capabilities was highlighted by a nuclear cooperation agreement signed on the last working day of the Bush administration by Secretary of State Condoleezza Rice and the foreign minister of the United Arab Emirates, Sheikh Abdallah bin Zayed al Nahayan. The deal, similar to a U.S. agreement with India, has to be approved by Congress. If it is, can Saudi Arabia be far behind. Or Egypt?

And the question often asked about the Iranian program — why does a country rich in oil and gas need nuclear energy? — can be asked of these countries, too. Unlike Iran, the UAE will not enrich its own uranium and have its program monitored by the International Atomic Energy Agency (IAEA). Still, mastering civilian nuclear know-how can be a first step to getting a bomb.

Being against nuclear non-proliferation is like being against motherhood but there are those who view the long-running debate over Iran’s nuclear program with a dash of skepticism. Take Immanuel Wallerstein, a senior researcher at Yale University who has written extensively about nuclear proliferation.

“Why should we consider it to be catastrophic if tomorrow Iran has nuclear weapons?” he said in an interview. “Today, there are nine countries known to possess nuclear weapons — the U.S., Britain, Russia, France, China, Israel, India, Pakistan, North Korea. What would change if Iran became the tenth? Whom would they bomb?”

Why would the fear of mutual destruction that kept the U.S. and the Soviet Union from going to war against each other not work equally well in the Middle East?

On Obama’s first working day, the White House reissued his campaign pledge of “tough and direct diplomacy without preconditions” — a break from the Bush administration’s insistence that there could be no talks unless Iran first suspended its uranium enrichment program.

But according to a brief policy outline on the White House website, Washington will push the same carrot-and-stick package Iran has rejected for the past four years. Old wine in new bottles?

You can contact the author at Debusmann@Reuters.com. For previous columns, click here.

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

An American president vowing to cooperate with the rest of the world would barely be news if it did not follow eight years’ of George W. Bush’s tenure in the White House.

Barack Obama’s inauguration address was thin on foreign policy specifics, but his pledge to work with allies and adversaries on global problems from nuclear weapons to climate change was a message many have waited impatiently to hear.

In a few phrases, Obama sought to close the chapter on the U.S.-led invasion of Iraq, the Guantanamo Bay prisoner camp and the use of torture, denial of global warming and heavy-handed attempts to promote democracy across the Middle East.

His affirmation that “we are ready to lead once more” was tempered by commitments to the rule of law, human rights, military restraint and diplomatic alliances.

In one sentence, he set himself apart from Bush’s muscular unilateralism without renouncing force. “Our power alone cannot protect us, nor does it entitle us to do as we please.”

Obama enunciated modest objectives for extricating the United States from the two wars he inherits from Bush — leaving Iraq responsibly to its people, and forging a hard-earned peace in Afghanistan. No talk of victory or of “mission accomplished”.

His vow to defeat terrorism was coupled with a promise to seek a new way forward with the Muslim world, where Washington’s image suffered the most damage during the Bush years.

Where Bush made the “global war on terrorism” the central paradigm of his national security strategy, Obama set a broader and more inclusive agenda including areas disdained by his predecessor such as arms control and green energy.

Where Bush, right up to his final address, divided the world into good and evil, the new president offered to work with non-democracies and what used to be called “rogue states”.

“To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist,” he said.

Obama did not mention the flashpoints of recent weeks — the Israeli-Palestinian conflict, Russia’s use of its energy resources, or tension between India and Pakistan.

The guns fell silent in Gaza and the gas taps reopened at the Russia-Ukraine border just before he took office. No one wanted to be the first international problem for a president who warned that leaders would be judged by “what you can build, not what you destroy”.

Obama omitted any mention of free trade, amid rising protectionist pressure among his own electorate heightened by the global economic crisis.

Nor did he commit the United States in his first address to a reform of global governance to give more say to emerging powers such as China, India, Brazil or South Africa.

French President Nicolas Sarkozy used the U.S. leadership vacuum during Bush’s lame-duck period to press for expanding the Group of Eight industrialized powers and reforming the IMF, the World Bank and the U.N. Security Council.

Obama acknowledged that globalization and new threats such as nuclear proliferation and global warming would require “even greater cooperation and understanding between nations”.

His administration will have to turn that philosophy into practical policy before the G20 summit of nations representing 90 percent of global economic output meet in London in April.

Obama faces some other tough early choices.

He must arbitrate between those who argue that resolving the Israeli-Palestinian and Israeli-Syrian conflicts holds the key to Middle East stability, and those who say conditions are not ripe for peace and he should focus on Iran’s nuclear program.

He will have to choose between seeking Russia’s cooperation to reduce nuclear arsenals and combat the spread of nuclear weapons and continuing Bush’s divisive drive to bring former Soviet republics Georgia and Ukraine into NATO.

And he must decide whether to pursue a deal in world trade talks that could avert beggar-thy-neighbor protectionism in the economic crisis, or to assuage his voters by embracing “buy
American” measures and taking a tougher line on imports from low-cost producers such as China.

– Preston Keat is director of research at Eurasia Group, a global political risk consultancy, and author of the forthcoming book “The Fat Tail: The Power of Political Knowledge for Strategic Investors” (with Ian Bremmer). Any views expressed are his own. For the related story, click here.

There are a number of macro risks that will continue to grab headlines in 2009, including the conflicts in Afghanistan and Iraq, cross-border tensions and state instability in Pakistan, and Iran’s 
ongoing quest to develop advanced nuclear technologies.

These risks are real, and will not be resolved easily or quickly. But there are two other general groups of political risks that could be defining both for investors and policy makers: first, the prospect of a number of interrelated market risks in developed and emerging Europe, and second, the challenges faced by the United States regarding multilateral leadership (particularly in the area of financial regulatory reform).

Political risks have historically mattered much more in emerging markets, but political risk in the developed, industrial democracies is rising more quickly than anyone would have predicted a year ago.

Europe

Political-market risk in emerging Europe is significantly higher now than any time in the past decade. Russia and Ukraine, and even recent star “emerging Europe” performers such as Turkey, Hungary, and Romania face serious vulnerabilities in the coming 
year. In addition, western financial institutions based in countries
 like Germany, Italy and Austria are particularly vulnerable to a credit 
crisis in Eastern Europe, where they have large loan exposures. Russia’s growing anti-westernism, its state intervention in strategic
 economic sectors, and its assertive posture regarding Georgia have been widely discussed, and will remain concerns in
 2009.

This also plays into one of the most problematic country risk 
stories right now: Ukraine. Its steel-centric economy is in free
 fall due to dramatically reduced global demand, many of its companies
 have large foreign debt financing needs that they will struggle to meet, 
 and its domestic politics are gridlocked and bordering on 
dysfunctional.

Add serious ongoing tensions with Russia to the list, and 
the situation looks bad from almost every angle. The year has
 already started badly, with Gazprom cutting gas supplies 
to Ukraine, and the
 standoff highlights the growing animosity between Moscow and Kiev.

The global financial and credit crises, combined with recession in
 Western Europe, have exposed several other countries in emerging Europe 
to serious financial market risks. In Hungary, the IMF and the 
EU needed to step in with a dramatic aid package in order to head off a potential currency and bond market collapse. And in Romania, there are
 growing concerns about a real estate bubble, rapidly declining economic
 growth, and the evaporation of repatriation cash flows from Romanians 
living in Italy and Spain.

Both the Hungary and Romania stories highlight the increasing 
interconnectedness of political and market risk in the EU. The newer
 member states can no longer be considered in relative isolation from the
 core, Western European countries.

The most notable example is the 
exposure of Western banks to credit risk in Eastern Europe. In recent
 years western banks have made substantial home mortgage, consumer, and
 business loans to eastern Europeans that were denominated in western 
currencies. The borrowers were
 exposed to local currency risks that the often did not fully understand
.

Italy, 
 Austria, and Germany had the largest exposures. Now these western
 governments may need to step in to assist with the solution. In fact, if
 the EU and European Central Bank had not intervened in dramatic fashion 
in Hungary, a number of western-European banks and pension funds would
 have been in very serious trouble. The problem is that this may only be 
the beginning of a crisis that could involve dozens of countries in both 
the East and the West.

The U.S. and Multilateralism

In the past several years the dynamics of “multilateralism” have evolved 
fairly dramatically. Two central developments this year:

1.  A number of
 additional players such as India, China, and Brazil are actively
 seeking to play a larger role in multilateral negotiations and 
institutions.

2.  The U.S. is in the process of a presidential 
leadership transition, with an expectation that the new administration
 will address these issues differently than its predecessor.

This new environment presents both challenges and opportunities. A 
larger number of “key” players at the table means that policy 
coordination could be much more difficult - a classic collective action
 problem. At the same time, engaging newer, emerging-market countries may 
make sustainable “breakthrough” outcomes more plausible, as these 
countries will be central to tackling complex issues such as climate 
change and global trade.

Prior to September of 2008, the central challenges of 
multilateral cooperation were in areas such as energy/climate change, 
 trade, and security. Then the global financial and credit crisis offered 
an almost perfect experiment. How would the world’s leading 
countries, along with those who aspired to positions of greater 
leadership (e.g. China, India, Brazil) manage this systemic crisis?

When it comes to a new financial regulatory architecture, the U.S. is 
likely to find support for its agenda in the UK and China, who will
 share the its general aversion to giving meaningful regulatory authority 
to multilateral institutions such as the IMF. As long as these three key
 players can agree on general principles for market regulation, power 
will remain in the hands of national governments rather than any
 multilateral organization.

But this 
is where a key, lurking political risk comes into play - can the U.S.
 actually take the lead in developing a coherent approach to new 
regulation of capital markets?

Congress will probably feel that it needs to act in a dramatic
 fashion and enact new legislation. The Treasury and the Federal Reserve 
will also have serious, and potentially conflicting agendas. So even if
 the multilateral dimension looks manageable, the domestic and
 bureaucratic politics of new regulation present a substantial new risk.

Will Israel and India -- the first the United States' closest ally and the second fast becoming one of the closest -- emerge as the trickiest adversaries in any attempt by the United States to seek a regional solution to Afghanistan?

The Washington Post reported earlier this week that the incoming administration of President-elect Barack Obama plans to explore a more regional strategy to the war in Afghanistan — including possible talks with Iran.

The idea has been fashionable among foreign policy analysts for a while, as I have discussed in previous posts here and here. The aim would be to capitalise on Shi'ite Iran's traditional hostility to the hardline brand of Sunni Islam espoused by the Taliban and al Qaeda to seek its help in neighbouring Afghanistan. At the same time India would be encouraged to make peace with Pakistan over Kashmir to end a cause of tension that has underpinned the rise of Islamist militancy in Pakistan and left both countries vying for influence in Afghanistan.

But Israel has already cautioned Obama against talking to Iran, which it said would be a seen as a sign of weakness in efforts to persuade Tehran to curb its nuclear programme. And Obama's suggestion that the United States should try to help resolve the Kashmir dispute has raised hackles in India, which resents any outside interference in what it sees as a bilateral dispute. That could make the two countries important allies in combating -- or at least reshaping -- any attempt to remould U.S. strategy. 

India and Israel have already built close defence ties, as underlined by this Times of India article.  And according to this Asia Times article by former Indian diplomat M K Bhadrakumar, India's growing relationship with Israel, combined with U.S. pressure, is pushing Delhi to break off what was once a strategic partnership with Tehran. "At the root of it lies unprecedented US-Israeli interference in India's Iran policy," he writes.

Are we going to see more signs of Israel and India working together -- if necessary to resist rather than support U.S. policy? And in an increasingly multi-polar world, will Obama discover that he needs to watch the United States' friends as closely as its enemies to drive through his plans for change?