Ian Bremmer http://blogs.reuters.com/ian-bremmer Tue, 11 Nov 2014 16:26:13 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Oil price plummet won’t help U.S. with Iran or Russia http://blogs.reuters.com/ian-bremmer/2014/11/11/oil-price-plummet-wont-help-u-s-with-iran-or-russia/ http://blogs.reuters.com/ian-bremmer/2014/11/11/oil-price-plummet-wont-help-u-s-with-iran-or-russia/#comments Tue, 11 Nov 2014 16:26:13 +0000 http://blogs.reuters.com/ian-bremmer/?p=1570 A motorist holds a fuel pump at a Gulf petrol station in London

Plummeting oil prices — down more than 25 percent since June to three-year lows — should relieve pressure on consumers at the pump. But is it pushing oil-exporting regimes past the breaking point?

The answer is no. Despite their reliance on oil revenue, the governments of Russia, Iran, Saudi Arabia, and Venezuela are not teetering. This is no “oil Arab Spring,” where cratering prices topple governments, spreading like wildfire from one dependent authoritarian state to another. In fact, the price drop won’t even change their stances on the geopolitical issues Washington cares most about.

Cheaper oil won’t shift Iran’s posture in nuclear negotiations. Despite the looming deadline, there is still a huge gulf between the two sides. Iran refuses to eliminate most of its existing stockpile of enriched uranium and centrifuges; Washington insists that any proposal without those concessions would be stillborn. Yet, Iran doesn’t feel pressured to cede ground, particularly when Moscow has offered support to Iran if there is no sanctions relief. And Iran’s economy has stabilized somewhat: since President Hassan Rouhani took office last year, inflation has dropped from 40 percent to 21 percent. A deal could still happen, but it would be the result of creative diplomacy and deeper compromise on both sides — not oil forcing Iran to capitulate.

Nothing will deter Vladimir Putin in his bid to destabilize and maintain influence over Ukraine. Russia can stomach the economic consequences inflicted by Western sanctions and cheaper oil for the foreseeable future. Despite massive capital flight and a battered ruble, Putin still has the will, the foreign reserves, and the popular support — his approval ratings are near historic highs — to continue his offensive. 

For the time being, Saudi Arabia remains the oil supplier of last resort. It can cut and expand production to alter global supply-demand dynamics. Riyadh has amassed an enormous rainy day fund to weather storms such as this. Saudi Arabia will participate in Washington’s anti-Islamic State campaign only insofar as it aligns with its own aims. A sectarian anti-Shi’ite stance is the guiding force in Saudi Arabia’s foreign policy; cheaper oil will have no bearing on that.

Lower oil prices are an additional strain on Venezuela’s ailing economy. But $75-80 oil won’t send the country into default. President Nicolas Maduro is committed to servicing Venezuela’s external debt and he has room to maneuver: Venezuela will likely implement a managed devaluation of its currency and unlock additional liquidity from things like asset sales and changing the terms of its loans with China. Caracas can handle the economic pain for now, without ushering in social dislocation or political upheaval that would make the military withdraw its support for Maduro.

Longer term, it’s very clear that these regimes’ overdependence on oil revenue could threaten their survival. But each regime faces unique stresses, and the breaking points, should they come at all, are neither imminent nor interconnected. When it comes to regime stability, don’t read much into this price drop just yet.

But there is an overarching trend affecting all of these petrostates: a shifting energy landscape will make them dramatically more dependent on China.

It’s already on display in Russia and Venezuela. Venezuela relies on loans from China that it repays in future oil exports; pushing for more lenient terms of these loans is part of Caracas’ strategy for dealing with the recent oil price drop. Moscow has hedged against its cratering relations with the West by sidling up to Beijing. In May, the two countries completed a 30-year, $400 billion gas deal after Russia dropped its asking price; they inked additions to that agreement over the weekend.

Two structural changes will accelerate Russia’s tack to China in the years to come. First, as Russia continues to wield its energy as a political weapon, it will alienate European consumers who will actively seek out new supplies of natural gas that don’t carry such a hefty geopolitical price tag. Second, the North American unconventional energy revolution will help provide that source—and undermine Russia’s pricing power by offering alternatives and boosting global supply.

The North American unconventional energy revolution (from fracking, tar sands and other sources) will rattle geopolitics in the Middle East above anywhere else. The U.S. Energy Information Administration predicts that by 2020, more than four-fifths of the oil the United States consumes will come from the Western hemisphere. By that point, America could be the world’s largest oil producer, and energy self-sufficient by 2035 (according to the International Energy Agency). A reduced reliance on energy from the Middle East will make the US less dependent on the world’s most volatile region—and less interested in getting involved in its geopolitical flare-ups. Meanwhile, to feed its expanding economy and growing middle class, China will become increasingly attached to Middle Eastern energy producers—and vice versa.

Petrostates’ tectonic shift away from the United States towards China will have far-reaching ramifications for these governments, their neighborhoods, and the global energy picture. A risk-averse Chinese leadership will not address the geostrategic issues and security concerns that go hand in hand with energy production in volatile Eurasia and the Middle East. While Washington doesn’t have a formal strategy to intervene on behalf of American energy companies, U.S. engagement does coincide with these linkages. For example, robust energy ties between the United States and Saudi Arabia have underpinned the strategic alliance. That will not be the case with China as it increasingly inherits the United States’ role as the world’s principal energy importer. China will work to engage commercially with no strings attached: it will gladly ink sweetheart energy deals with Russian leadership, but that doesn’t commit Beijing to any deeper geostrategic engagement. That is a very different style of “partner” indeed.

China will likely choose to maintain this more transactional approach to diplomacy, contributing to an expanding power vacuum in these regions. Interventionist diplomacy beyond the Asia Pacific region is new for the Chinese, and meddling in distant countries is particularly troublesome for a leadership that so adamantly believes sovereignty is sacrosanct as it safeguards its own internal affairs against outside intervention. The only thing more problematic than an absence of leadership could be an inconsistent and opaque Chinese presence.

Don’t overestimate the near-term impact of oil prices in free fall. Yet, even if cheaper oil doesn’t upend these regimes — or align them with Washington — it will accelerate their deepening dependence on China. That is a recipe for greater instability and a more volatile global energy landscape.

PHOTO: A motorist holds a fuel pump at a Gulf petrol station in London April 18, 2006. REUTERS/Luke MacGregor

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Chinese leader’s reforms are bad news for Hong Kong protesters http://blogs.reuters.com/ian-bremmer/2014/09/08/chinese-leaders-reforms-are-bad-news-for-hong-kong/ http://blogs.reuters.com/ian-bremmer/2014/09/08/chinese-leaders-reforms-are-bad-news-for-hong-kong/#comments Mon, 08 Sep 2014 13:56:42 +0000 http://blogs.reuters.com/ian-bremmer/?p=1562 RTR45877.jpg

In 1997, Britain returned Hong Kong to China after some 150 years of colonial rule. In exchange, China agreed to a set of principles: Hong Kong would maintain its capitalist system for half a century, by which point its chief executive and members of the legislature would be elected by universal suffrage. As the thinking went, “one country, two systems” would suffice in the interim; Hong Kong and the Mainland would surely converge on democracy in the half-century to come.

Not so fast. Recently, Beijing has been systematically moving in the other direction. The decision on August 31 to rule out democratic elections for Hong Kong in 2017 was just the latest example. Chinese leader Xi Jinping’s transformational reform agenda is driving this shift — and it does not bode well for Hong Kong.

Xi’s reform agenda has two parts: the first is economic liberalization. The Chinese leadership recognizes that it cannot rely on state-driven investment and cheap labor to provide growth indefinitely. Xi wants to make China’s economy more sophisticated and competitive. He is overhauling inefficient state-owned enterprises and focusing on changes in the financial sector in particular. It’s a top priority of the new leadership, and a requirement for a sustainable and dynamic Chinese economy going forward.

But a prosperous economy is simply a means to an end-goal. Xi is opening up the economy because, above all else, he wants to ensure the long-term survival and stability of the Communist Party leadership. He thinks economic reforms are a good bet despite the risks they will usher in. Over time, reform will require an enormous transfer of wealth from large domestic companies to demanding citizens and it will threaten the vested interests of many powerful elites who have prospered off the status quo. It will inject necessary competition into the economy, which could put jobs, companies, and sectors at risk.

So as Xi opens the economy and the Pandora’s Box that comes along with it, he is simultaneously clamping down on political dissent and consolidating power. Some Chinese citizens may think (or hope) that economic reform will usher in moves toward democracy. Make no mistake: Xi is engaged in political reform…it just doesn’t resemble our Western notion of what that entails. Xi has absolutely no interest in domestic political competition; in a time of economic change, political unity needs to be at its absolute strongest. This is the basis for his anti-corruption campaign, which has already led to some 40 powerful officials with the rank of vice minister or above being detained or investigated. Xi wants to scare China’s political and commercial elite into falling in line with his economic reforms, all while building popular support for his initiatives by attacking perceived corruption.

Hong Kong finds itself on the wrong end of Xi’s reform plan: Hong Kong used to matter to Beijing economically, now it matters politically. That’s absolutely the wrong way around. To the extent that economic liberalization bears fruit, Hong Kong will no longer serve such a useful role as the Western face and gateway into China. As China pushes forward with a Free Trade Zone in Shanghai, it will cannibalize many of Hong Kong’s unique offerings for foreigners looking to do business. And Hong Kong is no longer as integral to the Chinese economy: in 1997, it accounted for 15.6 percent of China’s national GDP. Last year, it fell below 3 percent.

Of even greater importance, Hong Kong matters more to Beijing politically—for all the wrong reasons. In the context of Xi’s sweeping reforms where he needs all hands on the same deck politically, dissent in Hong Kong is more salient, dangerous, and intolerable. Xi will push back against a pro-democratic movement in Hong Kong for two main reasons.

First, Hong Kong’s Westernized nature makes it a threat. Xi is very concerned with the dangers of Western values and mores undermining his country’s political system, something he shares in common — and regularly discusses — with Vladimir Putin. Hong Kong’s citizens are globally connected, politically savvy, and have the ability to mobilize. They are geared for diversity of political opinion. Beijing will clamp down on that, with a willingness to use its surveillance capacities (and even the legal system or force as necessary).

Second, taking a hard line on Hong Kong meshes with both of Xi’s political consolidation goals. Like the politicians he has targeted in his anti-corruption campaign, Xi can make an example out of Hong Kong, demonstrating the consequences for voicing opposing views. And that hard line will be largely popular: Many Chinese mainlanders view Hong Kong citizens as widely discriminatory against them and actively campaigning to keep them out of Hong Kong. Xi has support for teaching Hong Kong a lesson.

What we are witnessing in Hong Kong will prove problematic for China as Xi’s reforms really begin to shake up the system. The risk is not as much that protests in Hong Kong could be contagious and spread to the Mainland (given the mainlanders’ general dislike for the citizens of Hong Kong). Rather, Beijing’s heavy-handed response is significant because it reveals just how far the leadership will go to root out any domestic instability that arises on the Mainland.

In the context of Britain’s 50-year bet on Chinese democracy, this is precisely the wrong moment for a pro-democracy movement in Hong Kong to flourish. The 50-year dream for “one country, one system” has not been entirely shattered, but it feels awfully remote. If reforms succeed over the long run, it will put all of China — Hong Kong included — in a great position. It would bring newfound prosperity and economic sustainability to China. But only then might the Chinese leadership even consider opening up the political system.

As with so many things in China, the situation will get worse before it could get better.

PHOTO: Pro-democracy activists brace themselves during a drill to simulate the scenario of being sprayed with a water cannon at the upcoming “Occupy Central” movement rally in Hong Kong September 7, 2014. REUTERS/Tyrone Siu 

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Putin’s Ukraine invasion threat is more than a bluff — but not his preference http://blogs.reuters.com/great-debate/2014/08/06/putins-ukraine-invasion-threat-is-more-than-a-bluff-but-not-his-preference/ http://blogs.reuters.com/great-debate/2014/08/06/putins-ukraine-invasion-threat-is-more-than-a-bluff-but-not-his-preference/#comments Thu, 07 Aug 2014 00:47:51 +0000 http://blogs.reuters.com/great-debate/?p=33474 A Ukrainian serviceman uses a pair of binoculars as he guards a checkpoint near the eastern Ukrainian town of Debaltseve

Ukrainian troops have made huge headway routing the separatists in the east. They are in the process of choking off the cities of Luhansk and Donetsk, to which many of the separatists have retreated. The Ukrainian military appears primed to besiege the cities. As Ukraine has gained, Putin has prepared Russia for invasion: as of Monday, Ukraine says there are 45,000 combat-ready troops are amassed at the border. The chance that Russia invades is certainly going up.

But it’s still Russian President Vladimir Putin’s Plan B. Here’s why that’s the case … and what could change his mind.

At all costs, Vladimir Putin wants to keep Ukraine in Russia’s orbit. That requires two guarantees: 1) that Russian influence over southeast Ukraine will remain intact, and 2) that Russia has a de facto veto over Ukrainian NATO membership. The way he gets these guarantees is through deep federalization, where Ukraine’s eastern regions can set their own foreign economic policy and veto approaches to NATO. Of course, Ukrainian President Petro Poroshenko is completely unwilling and unable to concede this. So Putin can get it the hard way (intervention), or the harder way (invasion).

Sustained intervention is Putin’s current and preferred approach, where he can foment enough instability through the separatists that a unified Ukraine cannot pull away from Russia. The “long game” is more Russian arms provisions and economic pressure until Kiev is forced to accept a deeply Russia-influenced federal system.

Direct invasion would come with a much more staggering price tag. First and foremost, the Russian people are opposed. While the vast majority of Russians agree with Putin’s current Ukraine policy, a recent Levada poll revealed that 51 percent of Russians oppose an invasion and only 29 percent are in favor. Taking and holding the territory would come at tremendous economic cost, and once Slav-on-Slav bloodshed gets broadcast back in Russia, Putin’s popularity would plummet. Also, overt invasion would elicit a move towards much more acute, Iran-like sanctions from the United States, with Europe more willing to get into lockstep with them.

But even though Putin still prefers the intervention route, it makes sense for him to brace for invasion. The mere threat has strategic benefits: it’s primarily a deterrent against Ukrainian President Petro Poroshenko, demonstrating the consequences for a siege of Donetsk and Luhansk. In addition, it makes the West focus on the question of ‘Will Russia invade or not invade?,’ drawing attention away from the blurrier forms of intervention that Putin is already engaging in.

Make no mistake: Putin’s preparations are not just a bluff to deter and obfuscate—it’s also his backup plan. If Ukraine backs down on a siege of the rebel stronghold cities — or fails — we are still in the long game of intervention. That seems most likely, given the difficulties of the Ukrainian military engaging in street-to-street urban warfare. But if the Ukrainian military does rout the separatists, invasion may be the only card Putin has left.

How would he go about invading? He has already laid the groundwork: it will be under the guise of a peacekeeping mission, responding to the rebels’ calls for humanitarian assistance. There are reports of Russian vehicles retrofitted with peacekeeping insignias already present on the border. Putin did “respect” the Donetsk and Luhansk referenda declaring their independence from Ukraine: he could conceivably invade and still make the incredible claim that it is not truly Ukrainian territory. The peacekeeping pretext would not soften the harsh American response. But perhaps it could keep some European countries dragging their feet—and other BRICS countries firmly on the sidelines.

For now, Putin’s best option is still intervention over invasion. But Ukrainian military gains could shift his calculus. Invasion is more than just a bluff and a bargaining chip -- the risk is very real.

PHOTO: A Ukrainian serviceman uses a pair of binoculars as he guards a checkpoint near the eastern Ukrainian town of Debaltseve, Donetsk Region August 6, 2014. REUTERS/Valentyn Ogirenko

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Political risk must-reads http://blogs.reuters.com/ian-bremmer/2014/08/01/political-risk-must-reads-49/ http://blogs.reuters.com/ian-bremmer/2014/08/01/political-risk-must-reads-49/#comments Fri, 01 Aug 2014 15:50:02 +0000 http://blogs.reuters.com/ian-bremmer/?p=1551 Political risk must-reads

By Ian Bremmer

Eurasia Group’s selection of essential reading for the political risk junkie — presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @ianbremmer.

Must-reads

Flirting with default, Argentina enjoys oil drilling boom — John Kemp, Reuters

In its comprehensive assessment of global shale resources, published in 2013, the U.S. Energy Information Administration estimated that Argentina has the world’s second-largest resources of shale gas (after China) and fourth-largest shale oil (after Russia, the United States and China).

Argentina’s technically recoverable shale gas and oil resources amount to just over and just under 10 percent of the world total respectively, according to the EIA (“Technically recoverable shale oil and shale gas resources” June 2013).

In Need of Investment, Peru Rolls Back Environmental Standards — Paul Shortell, World Politics Review

The production of key metals accounts for more than a fifth of Peru’s inward investment and 60 percent of its exports. As demand for these metals has cooled, along with economic growth rates and President Humala’s approval ratings — his 25 percent rating is his lowest since he took office in 2011 — Humala is relaxing regulations on the mining industry. Is it an economic boon or an environmental cause for concern?

The U.K. is Already Leaving Europe — Leinid Bershidsky, Bloomberg

While a Brexit from the E.U. is still years away — if it happens at all — there is already a noticeable pullback in British representation in the European Commission’s staff. The proportion of British bureaucrats in the organization above the assistant level has dropped to just 5.3 percent in 2014 — down nearly 50 percent since a decade ago.

Immigration Reform Is Actually Happening — Just Not On Capitol Hill — Colin Campbell, Business Insider

Even if immigration reform has stalled at the federal level, the states are pushing through with immigration measures. Last year 184 state immigration laws and 253 resolutions were adopted — a 64 percent increase over 2012. But they may not all be pushing in the same direction: these figures include both pro-immigration and anti-immigration measures.

Jordan’s Quiet Emergency — Alice Su, The Atlantic

One out of ten people in Jordan is a recent refugee. Since 2011, Jordan’s 6.3 million people have taken on 600,000 Syrians, and 29,000 Iraqis. Can Jordan cope with this humanitarian crisis?

One-child proclivity — The Economist

It appears the Chinese governments’ easing of the one-child policy is falling short of expectations. A government official estimated late last year the policy reversal would yield 1 million to 2 million extra births. But a year later, only 240,000 family applications for a second child have been approved.

Africans Open Fuller Wallets to the Future — Nicholas Kulish, The New York Times

Exports from sub-Saharan Africa rose from $68 billion in 1995 to more than $400 billion in 2012. What does this mean for Africa’s growing middle class?

 

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Political risk must-reads http://blogs.reuters.com/ian-bremmer/2014/07/22/political-risk-must-reads-48/ http://blogs.reuters.com/ian-bremmer/2014/07/22/political-risk-must-reads-48/#comments Tue, 22 Jul 2014 17:16:21 +0000 http://blogs.reuters.com/ian-bremmer/?p=1544 Political risk must-reads

By Ian Bremmer

Eurasia Group’s selection of essential reading for the political risk junkie — presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @ianbremmer.

Russia Writes Off 90% of Cuba Debt as Putin Meets Castros” — Olga Tanas and Anna Andrianova, Bloomberg

Putin’s charity act has just saved the Cuban economy almost $32 billion… but Russia has its eye on lucrative energy contracts.

Kazakhstan: Astana Entices Kazakhs From Abroad Amid Ukraine Crisis” — Joanna Lillis, Eurasianet

In light of the recent Ukrainian Crisis, Kazakhstan is reviving a migration policy in order to increase the native Kazakh population in Russian-dominated regions of the former Soviet satellite. Formally labeled an economic necessity rather than a demographic scheme, the Oralmann program offers a one-year fast track to citizenship. Astana hopes the policy will attract some of the 3.5-4.5 million Kazakhs living abroad back to Central Asia.

North Korean Farmers under pressure to feed hungry nation” — Eric Talmadge, Associated Press via The Guardian

Crop production in North Korea is expected to increase 5 percent over the previous two seasons. Even so, in order to provide for the 16 million North Koreans who still rely on government-provided grains, Kim Jong-un may have to consider agricultural market reforms.

Your Almond Habit is Sucking California Dry” — Tom Philpott, Mother Jones

California farmers expect to reap a record 2.1 billion pounds of almonds this year, thanks to Asian demand that has more than doubled the price of the nut since 2009. With 1.1 gallons of water needed to produce a single almond, is almond farming worsening California’s prolonged drought?

Is Turkmenistan the Next Central Asian Tiger?” — Nicola Contessi, The Diplomat

Turkmenistan is home to the world’s fourth largest proven natural gas reserves. Demand from Chinese, Russian and Iranian markets could usher in a wave of development for the country. Can Turkmenistan become a regional energy hub?

Spotlight: India

Poor Sanitation in India May Afflict Well-Fed Children With Malnutrition” — Gardiner Harris, New York Times

The persistence of malnutrition amongst Indian youth has puzzled policymakers for years. New research suggests sanitation, rather than food scarcity or socio-economic status, is a big part of the problem.

This Indian Meal Service May Be the Most Efficient Delivery Service in the World” — Sumi Somaskanda and Mandakini Gahlot, GlobalPost

Despite the technological advancements of the city around them, dabbawalas continue to deliver meals the same way they did 125 years ago — but in much higher volumes. Their delivery system — which has garnered international recognition for efficiency — distributes 200,000 home-cooked meals per day with extreme accuracy.

India is on course to miss most of the UN’s Millennium Development Goals by 2015” — Diksha Madhok, Quartz

While India is on track to reach 100 percent youth literacy by next year, many more development indicators seem far out of reach — even if the goals that the UN established in 2000 are very lofty.

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What MH17 means for Russia-Ukraine http://blogs.reuters.com/ian-bremmer/2014/07/18/what-mh17-means-for-russia-ukraine/ http://blogs.reuters.com/ian-bremmer/2014/07/18/what-mh17-means-for-russia-ukraine/#comments Fri, 18 Jul 2014 20:52:59 +0000 http://blogs.reuters.com/ian-bremmer/?p=1535 Armed pro-Russian separatist stands on part of the wreckage of the Malaysia Airlines Boeing 777 plane after it crashed near the settlement of Grabovo in the Donetsk region

MH17 is an alarming escalation of the Ukraine conflict.

In the wake of a surface-to-air missile taking down a Malaysian airliner over Eastern Ukraine, everyone is pointing fingers. Kiev blames the pro-Russian “terrorists,” with Moscow responsible for providing them with intelligence and weapons. The separatists deny involvement and accuse Kiev of planning the attack, citing the Ukrainian military’s accidental shooting of a Siberian Airlines flight in 2001. Moscow blames the Ukrainian government for pushing the rebels into this violent situation — even if Russian President Vladimir Putin stopped short of pinning the airliner attack on Kiev. Despite the confusion, it’s clear what MH17 means: dramatic escalation and an even more combustible conflict.

Some analysts and pundits are viewing the downed flight as an opportunity to force Putin into tempering his support for the separatists. While clearer proof of pro-Russian separatist guilt does, in principle, provide the Russians with a reason to do so, it’s highly unlikely that Russia will seize the chance. The underlying fissures have not gone away — in fact, MH17 makes them even more pronounced.

Putin continues to view his country’s influence over Ukraine and the power to keep it from joining NATO as a national security interest of the highest order — the same way Israel wants to deter Iran from obtaining a nuclear weapon. Recent events haven’t shifted Putin’s interests in the slightest. In fact, the three biggest changes coming out of the MH17 crash point to more escalation.

Armed pro-Russian separatist stands at a site of a Malaysia Airlines Boeing 777 plane crash in the settlement of Grabovo in the Donetsk regionFirst, Putin’s statements blaming the Ukrainians will be exceedingly difficult to back away from. It’s not yet clear whether Russia will accept that separatists shot down the plane or instead deny, obfuscate and even refute the evidence. But either way, Moscow will maintain its claim that the Ukrainian government is responsible for driving the violence and destabilizing the region where the plane crashed. Moscow will leverage its state media to promote this message.

Second, with proof that pro-Russian separatists are to blame, we will see a material ramp-up in sanctions from both Europe and the United States — and on an accelerated schedule. German Chancellor Angela Merkel is out in front of the story, declaring early Friday that “Russia is responsible for what is happening in Ukraine at the moment.” Meanwhile, the United States would forge ahead, broadening financial, energy and possibly other sector sanctions against Russia. These increases will amount to an escalation, rather than a redirection, of the conflict. The sanctions would have a real impact on Russia’s economy and investor sentiment — existing sanctions already do — but it’s highly unlikely that they would shift Putin’s calculus in Ukraine.

Lastly, MH17 gives Ukrainian President Petro Poroshenko more robust international support and more sympathy for his military campaign against the separatists, which has been moderately successful over the past few weeks. Now that he’s claimed that the “terrorists” are behind the attack, he has a responsibility to crack down on them further. He’ll likely make a more concerted push into rebel strongholds Donetsk and Luhansk. But this is going to be a bloody and uphill struggle — MH17 won’t change much on the battlefield, where urban house-to-house fighting will not proceed as cleanly as Poroshenko’s previous operations. We’re most likely heading to a stand-off, amidst prolonged violence and shorter tempers on all sides.

The downing of MH17 is not as much a sharp turn in the Ukraine conflict as it is an acceleration — shining an international spotlight on this deepening crisis.

PHOTOS: An armed pro-Russian separatist stands on part of the wreckage of the Malaysia Airlines Boeing 777 plane after it crashed near the settlement of Grabovo in the Donetsk region, July 17, 2014. REUTERS/Maxim Zmeyev

An armed pro-Russian separatist stands at a site of a Malaysia Airlines Boeing 777 plane crash in the settlement of Grabovo in the Donetsk region, July 17, 2014. REUTERS/Maxim Zmeyev

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World Cup chants reveal true state of U.S.-German relations http://blogs.reuters.com/ian-bremmer/2014/07/17/world-cup-chants-reveal-true-state-of-u-s-german-relations/ http://blogs.reuters.com/ian-bremmer/2014/07/17/world-cup-chants-reveal-true-state-of-u-s-german-relations/#comments Thu, 17 Jul 2014 14:53:25 +0000 http://blogs.reuters.com/ian-bremmer/?p=1523  Germany's national soccer players acknowledge their fans after their win over the U.S. at the end of their 2014 World Cup Group G soccer match at the Pernambuco arena in Recife

As Germany basks in its World Cup victory, it’s easy to forget that one of the most telling geopolitical moments of the tournament came during the Germany-U.S. game. As American fans chanted “U-S-A! U-S-A! U-S-A!” the Germans countered with, “N-S-A! N-S-A! N-S-A!”

In the weeks since, relations have crumbled. After it learned that a German intelligence officer allegedly spied for the United States, Germany expelled the CIA station chief in Berlin — a rare move by a close American ally.

This isn’t a sudden reversal in relations. The fallout from surveillance scandals has been sharp and steady over the past year. In 2013, Germans grew wary about the extent of U.S. espionage after Edward Snowden leaked documents showing that the United States had been monitoring German Chancellor Angela Merkel’s cell phone since 2002. A German parliamentary committee asked Snowden to provide testimony for an inquiry on foreign intelligence activities. The request, which Snowden rejected, was sure to rankle the United States, but Germany pushed forward anyway: One country’s traitor was another’s key witness.

It’s no surprise that of all foreign countries, President Barack Obama’s approval rating has fallen the most in Brazil and Germany, two countries with leaders monitored by the National Security Agency.

But all the “friendly spying” scandals are just one piece of the puzzle. There are even deeper fissures causing a lot of the bad blood — and suggesting more of it to come.

Russian President Putin speaks to German Chancellor Merkel and FIFA President Blatter during the 2014 World Cup final between Germany and Argentina at the Maracana stadium in Rio de JaneiroA poorly defined, more risk-averse U.S. role in the world has Germany and other allies confused and frustrated about Washington’s commitments and preferences. They are questioning U.S. security guarantees, as well as Washington’s willingness to spend military, economic and diplomatic capital on foreign policy — called into question by deep gridlock in Washington, vacillation in Syria and a questionable commitment to the “Asia pivot.

The Obama administration’s weaker second-term foreign-policy team and its reactive, ineffectual decision-making have made matters worse. While many U.S. alliances have suffered from this foreign policy decline, America’s relationship with Germany has taken the biggest hit.

Germany is also unnerved by the potential for economic conflict between the United States and a German-led Europe. The global reach of the U.S. dollar as the world’s reserve currency gives the United States an extraterritorial privilege. America’s sanctions regime, which extends far beyond its borders, further empowers the United States. Sanctions can apply when there are no American citizens involved. They can target non-American branches of foreign institutions that simply have a U.S. presence, such as French bank BNP Paribas, which recently pleaded guilty to criminal charges and paid an $8.9 billion fine. With more than $15 billion in fines now levied against more than 20 international banks — mostly European — Germany is alarmed by the United States’ tendency to use its economic clout as an extension of its foreign policy, one that the Germans see as increasingly fickle, opaque and misaligned from their own.

In terms of their values and preferences — including human rights, liberal free markets and rule of law — Germany and America see eye to eye. But in an environment in which American foreign policy is eroding even as America’s reach extends deeper into the global economy and communication network, Germany is worried about how the United States will wield its power. That’s especially true when only 38 percent of Germans still consider America “a trustworthy partner,” according to a survey that predates the most recent intelligence scandal. In anticipation of its growing resentment and resistance to American overreach, Germany is already ramping up relations with other countries to hedge its bets.

China-Germany is one of the most important relationships to watch in a world of declining American foreign policy. Last week, Merkel traveled to Beijing — her seventh trip to China as chancellor — inking lucrative economic deals, and finding common ground with the Chinese over U.S. surveillance overreach. During the visit, Chinese Prime Minister Li Keqiang commiserated: “China and Germany, it can be said, are both victims of hacking attacks.”

Both countries prioritize commerce over philosophical differences. China is the top foreign investment destination for German companies; in a recent survey, 90 percent of German enterprises in China expressed interest in expanding their business there. Meanwhile, China’s investment in Germany grew by 28.4 percent from 2010 to 2013.

A visit from Secretary of State John Kerry may keep tensions with Germany from boiling over for now, but it won’t get Washington out of hot water. Washington needs to understand how deep the tensions go, and treat a reset with Germany as a top priority at the head-of-state level. It needs to make Berlin feel like a true partner. Unfortunately, that strategy is looking unlikely.

PHOTOS: Germany’s national soccer players acknowledge their fans after their win over the U.S. at the end of their 2014 World Cup Group G soccer match at the Pernambuco arena in Recife June 26, 2014. REUTERS/Yves Herman

Russian President Vladimir Putin (L) speaks to German Chancellor Angela Merkel and FIFA President Sepp Blatter (C) during the 2014 World Cup final between Germany and Argentina at the Maracana stadium in Rio de Janeiro July 13, 2014. REUTERS/Alexey Nikolsky/RIA Novosti/Kremlin

 

 

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Political risk must-reads http://blogs.reuters.com/ian-bremmer/2014/07/11/political-risk-must-reads-47/ http://blogs.reuters.com/ian-bremmer/2014/07/11/political-risk-must-reads-47/#comments Fri, 11 Jul 2014 20:34:11 +0000 http://blogs.reuters.com/ian-bremmer/?p=1516 Political risk must-reads

By Ian Bremmer

Eurasia Group’s selection of essential reading for the political risk junkie — presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @ianbremmer.

The economics of people on the move

Immigration Is Changing Much More Than the Immigration Debate” — Ben Casselman, FiveThirtyEight

As the U.S. deals with the recent spike in child migrants, immigration from Asia has surpassed immigration from Latin America in recent years. How can we explain the disconnect between perception and reality in the country’s immigration debate?

The real reasons U.S. banks are getting out of the remittances business” — Tim Fernholz, Quartz

Banks are retreating from the remittance-transfer business, in part due to increased risk and regulation. But the biggest reason? Shrinking profit margins. Non-banking competition has pushed the cost of transferring funds from 7.21 percent of sum five years ago, to 5.78 percent this year.

Out of Africa: Mobile phone banking surges in EM” — Irene Madongo, Financial Times

In an effort to reach the estimated 2.5 billion “unbanked” people living throughout the developing world, the amount of live mobile-money services increased 22 percent from 2012 to 2013. In at least nine African countries, there are more mobile-money account holders than traditional bank customers. But this is no longer just a Sub-Saharan story: services are rapidly expanding into Latin America as well.

Immigrants From Latin America and Africa Squeezed as Banks Curtail International Money Transfers” — Michael Corkery, New York Times

In 2012 alone, Mexico received $51.1 billion in remittances from the United States. But a U.S. crackdown on the financing of terrorist and drug trafficking activities has been driving banks to scrap their low-cost money transfer services. How will this affect the future of remittance payments to Latin America and Africa?

The High Stakes of Putin’s New Passport Policy” — Artem Nikitin, Kommersant via Worldcrunch

The economies of Tajikistan and Kyrgyzstan rely on remittances from Russia for over 30 percent of their GDP. Meanwhile, 3.3 million Ukrainians visited Russia last year, most of them for work. How will Russia’s push for new passport requirements affect its neighbors?

China as a heavyweight

Why China Will Reclaim Siberia” — Frank Jacobs, New York Times

Along the Sino-Siberian border, 6 million Russians face nearly 90 million Chinese. Despite Moscow’s claim that “The earth along the Amur was, is and always will be Russian,” it’s not inconceivable to imagine China reclaiming a territory it lost only a century and a half ago. For socioeconomic reasons, Siberians might even be more at home under Beijing’s sphere of influence.

There’s No Partnership in Pivot” — Stephen M. Walt, Foreign Policy

If the U.S. truly pivots to Asia, it may have to do so without its biggest ally: Europe. China is now the EU’s second largest trading partner, a large source of FDI, and a loyal arms customer. What does a rising China mean for the traditional Trans-Atlantic partnership?

China Rethinks the Death Penalty” — Mara Hvistendahl, New York Times

It is widely believed that China legally executes more people annually than the rest of the world combined. The Supreme People’s Court’s recent decision to overturn the death sentence of a woman who murdered her husband signifies a change in the communist regime’s policy. Is the state becoming more merciful, or simply evolving to reflect popular Chinese opinion of capital punishment?

Bonus read

Isis mobile wallet changes name to end confusion with Islamic State” — Middle East Eye

Islamic State of Iraq and the Levant (ISIS) has made headlines by declaring a caliphate and simplifying its name to “Islamic State.” Isis Mobile Wallet, a mobile payments app backed by AT&T, T-Mobile, and Verizon, will follow suit with their own rebranding strategy.

 

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Obama isn’t the only one with a passive-aggressive foreign policy http://blogs.reuters.com/ian-bremmer/2014/06/19/obama-isnt-the-only-one-with-a-passive-aggressive-foreign-policy/ http://blogs.reuters.com/ian-bremmer/2014/06/19/obama-isnt-the-only-one-with-a-passive-aggressive-foreign-policy/#comments Thu, 19 Jun 2014 14:36:22 +0000 http://blogs.reuters.com/ian-bremmer/?p=1343  China's President Xi speaks during his meeting with U.S. President Obama, on the sidelines of a nuclear security summit, in The Hague

America and China are the world’s two major powers, with the largest economies and militaries. The stakes are high for them to practice what they preach on foreign policy: their words and actions influence the global economy, as well as the behavior of allies and enemies.

The problem: Xi Jinping and Barack Obama want to have their foreign policy cake and eat it, too. For both leaders, international engagement isn’t top of mind: they want to downplay their global leadership roles in order to focus on more pressing concerns at home.

But at the same time, they have certain priorities that they’re willing to pursue unilaterally and aggressively abroad. This inconsistency gets them both in hot water. It leaves other countries guessing, it undermines global collaboration, and it allows crises like Ukraine and Iraq to burn hotter, for longer, more often.

The closest thing that Obama has to a foreign policy doctrine is the consistent lack thereof. In his recent speech at West Point, he argued against engaging in conflicts that are not core interests. He emphasized buy-in from a coalition of other partners and the use of the military option only as a last resort. “Just because we have the best hammer does not mean that every problem is a nail,” he said.

A soldier carries an anti-U.S. drone booklet as people chant slogans against U.S. drone strikes outside the Yemeni House of Representatives in SanaaBut when it comes to unconventional engagement, Obama hasn’t hesitated to wield the hammer; in fact, he’s been more assertive than his predecessor by a long shot. It’s estimated that thousands of people have died at the hands of drone strikes on his watch; these strikes have consistently breached the territorial sovereignty of other countries.

This Jekyll and Hyde foreign policy may actually be two sides of the same coin. It’s because Obama is so risk averse with conventional military engagement that he’s willing to resort to unconventional alternatives. Obama justifies this unilateral engagement by claiming that we can “take direct action when necessary to protect ourselves.” But how direct must the threat be before he can engage?

In response to Islamic extremist militants taking the Iraqi city of Mosul, Obama declared: “I don’t rule out anything” in terms of the U.S. response. But he also announced that he “will not be sending U.S. troops back into combat in Iraq.” Iraq exposes Obama’s contradiction best: the conflict is a true threat to American interests — and the last entanglement that Obama wants to take on. He has touted his winding down of the wars in Afghanistan and Iraq as his signature foreign policy achievement. This makes it that much more politically costly to engage in Iraq as opposed to Yemen, even if doing so might be as or more necessary for American security. Obama’s risk-aversion and contradictory policy undermines American interests in the long run.

China’s Xi Jinping has his hands full with an ambitious set of reforms intended to shift China’s economic model. It’s an unprecedented experiment, and a big part of why China remains unwilling and unable to become a “responsible stakeholder” on the global stage. Xi would prefer to undersell China’s global strength until it is actually much stronger.

This hesitancy to engage internationally is why China has clung to a policy of non-interference in other countries’ affairs for decades. After Sunni militants sacked Iraq’s second-largest city, China didn‘t even make an official statement condemning the attacks. It abstained from the U.N. vote on the legality of Russia’s annexation of Crimea, and it stayed on the sidelines of the Ukraine crisis, not over-committing to Russia or the West.

An aerial view shows Japan Coast Guard patrol ship spraying water at fishing boats from Taiwan as Taiwan's Coast Guard vessel sails near the disputed islands in the East China SeaBut when it comes to core interests beyond China’s borders, Xi is willing to throw these tenets out the window, and go it alone aggressively. Last year, China established an Air Defense Identification Zone in the East China Sea, requiring aircraft that passed through contested territory to report to Chinese authorities. Not surprisingly, the move ratcheted up tensions with Japan.

China lays claim to 90 percent of the South China Sea, stoking tension with every country in that neighborhood. But Beijing took it to a whole new level when it sent an oil exploration rig deep into contested waters — and very close to the Vietnamese shore — accompanied by a flotilla of fishing boats. We’ve since seen a violent spike in anti-Chinese sentiment in Vietnam, and a huge hit to the economic relationship.

Xi wants to keep his undivided attention on China’s growing pains at home. But his foreign policy outbursts are a dangerous divergence — and they undermine China’s long-term economic interests.

Barack Obama and Xi Jinping have fundamental inconsistencies at the heart of their foreign policies. They are undermining their countries’ long-term health. For allies and neighbors, it’s the worst of both worlds. They can’t rely on the world’s two most powerful countries for global leadership, and yet they still need to account for them engaging unpredictably and unilaterally overseas. The countries that are caught directly in the crosshairs, on the wrong end of a Chinese or American core interest, have it worst of all.

For Xi and Obama, their focus on domestic priorities is understandable. Smoothing out the contradictions in their foreign policies would help their cause at home.

 

PHOTOS: China’s President Xi Jinping speaks during his meeting with U.S. President Barack Obama (R), on the sidelines of a nuclear security summit, in The Hague March 24 2014. REUTERS/Kevin Lamarque

A soldier carries an anti-U.S. drone booklet as people chant slogans against U.S. drone strikes outside the Yemeni House of Representatives in Sanaa April 24, 2014. REUTERS/Mohamed al-Sayaghi
An aerial view shows Japan Coast Guard patrol ship (bottom L) spraying water at fishing boats from Taiwan as Taiwan’s Coast Guard vessel (top L) sails near the disputed islands in the East China Sea, known as Senkaku in Japan, Diaoyu in China and Tiaoyutai in Taiwan, in this photo taken by Kyodo September 25, 2012. REUTERS/Kyodo

 

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How far can Modi take India — and how fast? http://blogs.reuters.com/ian-bremmer/2014/05/20/how-far-can-modi-take-india-and-how-fast/ http://blogs.reuters.com/ian-bremmer/2014/05/20/how-far-can-modi-take-india-and-how-fast/#comments Tue, 20 May 2014 22:38:59 +0000 http://blogs.reuters.com/ian-bremmer/?p=1333 modi77

As a result of last week’s parliamentary election in India, three of the world’s strongest and most transformational leaders are now in Asia: Japan’s Shinzo Abe, China’s Xi Jinping, and India’s Narendra Modi. They control a fifth of the global economy and govern two-fifths of its citizens. All have active plans to shake up their societies.

The expectations and the stakes are sky-high for each of these leaders, but none more so than Modi. Last week, Modi won the world’s largest-ever democratic election in a decisive fashion, with his party converting 31 percent of the national vote into 52 percent of the seats in parliament — the first absolute majority in the lower house of parliament since 1984. Meanwhile, the reigning National Congress Party — which has ruled India nearly without a break since its independence from Britain — turned in its worst-ever performance, losing three-quarters of its seats.

Why do Indian voters find Modi so appealing — or, depending on your outlook, Congress’ leadership so repulsive? As chief minister of Gujarat, his state of 60 million people, Modi unlocked economic gains reminiscent of China. During his 12-year tenure, Gujarat’s per capita income outpaced the national average, rising almost fourfold. Modi put his money where his mottos were — “less government and more governance” and “no red tape, only red carpet” —  paring back suffocating state inefficiencies to unlock business potential and competitiveness. This is precisely what the Congress party has been unable to solve at a national level, with high inflation, lagging economic growth (at least by historical standards), and legislative gridlock that makes America’s Congress look like a well-oiled machine.

Indian voters want Modi to implement the Gujarat model on a national scale. The question is whether Modi can do so as quickly and dramatically as Indians demand. Unlike China and Japan, power in India remains woefully decentralized, and a sweeping win won’t change that. We won’t see a quick recovery in India’s legislative output, which last year was at its least productive levels in history. That’s because the houses of parliament remain split, with the Congress party and its allies maintaining a plurality of seats in India’s upper house, the Rajya Sabha. Congress holds 12 of India’s 28 (soon to be 29) states, which in turn elect the upper house members; Modi’s BJP has only five.

The next round of elections, where only a third of the chamber’s seats will be in play, doesn’t happen until 2016. And just as the BJP has derailed the Congress party agenda in an opposition role over the last decade, now we’ll see a role reversal, with Congress engaging in rabid obstructionism. Modi will struggle to cut enough red tape to match voters’ lofty expectations. When it comes to politically sensitive issues like labor, energy and agriculture, structural reforms that require legislative fixes will be hard to implement any time soon.

modi88But even if Modi’s opponents stymie his national legislative agenda, Modi will have an immediate impact in three key areas. First, he will focus his efforts on national action he can take without parliament’s assistance. He can use the power of executive decision to liberalize foreign direct investment and permit the streamlining of infrastructure and industrial projects.

Second, India’s decentralized system cuts both ways: even if it makes the national agenda harder, it presents opportunities for change at the state level, where many of the most dramatic structural changes will occur. Modi’s premiership can enable a Gujarat model of development to spread to some other states, including many in India’s poorer north. Infrastructure development and active efforts to speed foreign direct investment should pick up.

Lastly, Modi will push for his country to play a more significant role internationally. Modi will promote a revitalized India on the world stage, welcoming a second look from multinational corporations and major powers alike. Optimism from foreign investors in anticipation of a stronger, more accommodative Modi government has helped push the rupee to a 10-month high against the dollar and stock markets to all-time records. Modi will welcome closer relations with everyone from the U.S., Europe and Japan to China and Russia.

In a G-Zero world, with no single dominant voice and a lack of global coordination, India now stands out as a rare oasis of leadership and a prime opportunity for bilateral engagement. Take India’s direct relationship with Washington, where high-profile visa issues, including the arrest of an Indian diplomat in New York, have strained relations. The United States denied Modi a visa in 2005 based on his role in Gujarat riots in 2002. But sometimes winning really does solve everything: after Modi’s election victory, Obama called to congratulate him and invite him to the United States. For his part, Modi is looking to put points on the board, not settle scores. Expect him to pursue an invigorated, pragmatic approach to international relations.

With a resounding mandate, Modi isn’t only focused on a 10-week plan, but also a 10-year blueprint to transform India. Let’s hope India can wait that long.

PHOTOS: Hindu nationalist Narendra Modi, the prime ministerial candidate for India’s Bharatiya Janata Party (BJP), gestures towards his supporters from his car during a road show upon his arrival at the airport in New Delhi May 17, 2014. REUTERS/Adnan Abidi

Hindu nationalist Narendra Modi, the prime ministerial candidate for India’s main opposition Bharatiya Janata Party (BJP), greets his supporters after addressing a public meeting in Vadodara, in the western Indian state of Gujarat, May 16, 2014. REUTERS/Amit Dave

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