2018: A YEAR OF TENUOS STABILITY / GEOPOLITICAL FUTURES

2018: A Year of Tenuous Stability
 

The year ahead promises to be a lively one, full of discrete conflicts and crises. Or so it would seem. Sure, the world is complex, and when we analyze it we tend to do so by breaking it down into its constituent parts – North America, South America, Europe, and so on. But studying these regions in isolation can obscure the bigger picture.
 
The world is interconnected, so our understanding of it must involve the bigger themes that bind its countries together. In identifying these themes, we can lay out the compulsions and constraints that shape the global system and drive major events. In other words, we can predict what will happen next.
 
The world is too rich to be reduced to a single theme, but if it could, the theme would be disintegration. In every major region, the systems that have been in place either since the end of World War II or since the collapse of the Soviet Union are beginning to fall apart. Faith in these systems was badly shaken by the global financial crisis in 2008 and, to a lesser extent, the collapse of oil prices in 2014. For nearly a decade, the leaders of these regions have tried to manage the political and economic fallout from these crises.
 
In 2017, a year of only tenuous stability, some of the symptoms of the recent crises began to subside while others grew worse. New symptoms emerged. 2017 was not a year in which the global system broke down, but neither was it a year in which leaders were able to solve the problems that called into question the systems that govern the global order. These problems continue to shape some of the most important geopolitical issues in 2018 – namely, the future of Europe, China’s rise and the new configuration of the Middle East.

Europe’s Fragmentation

To say Europe, as a whole, is disintegrating is somewhat misleading. The integrity of the European Union, though, has been under duress since 2008, as has the rationale behind its creation – that monetary, regulatory and legislative integration could bridge the deep-seated differences that have historically divided the Continent. The global economic crisis of 2008 revealed structural divides within the bloc, and as its wealthier members refused to rescue its poorer members, the economic crisis morphed into a political crisis.
 
 
The financial crisis also aggravated the divide between the elites and the lower classes within EU member states, galvanizing domestic political forces that rejected the right of Brussels to govern. Since then, Britain has voted to leave the bloc, and euroskeptic parties have gained prominence on the mainland. Meanwhile, the EU has lost credibility with non-member states, particularly those of Central and Eastern Europe, which increasingly took advantage of being on the outside looking in, free as they were to float their own currencies and tailor their own regulatory environments toward competitiveness. In other words, Europe entered an era in which sovereign states began once again to reassert their sovereignty.
 
These trends largely continued through 2017 as Europe’s economy largely stagnated and as anti-EU forces on the right continued to rise. Technocrats in Brussels, meanwhile, were unable to reconcile the bloc’s inherent internal contradictions.
 
And so it is that after nine years the EU still cannot function as it did pre-crisis. It is unable to make core decisions collectively, and now its defining features are regional and social tensions fueled by economic issues and different cultural values.
 
In 2018, we do not expect these trends to accelerate dramatically, nor do we expect to see anything as profound as the Brexit. But neither will the trends reverse. Europe will instead focus on coping with its new reality. And if it cannot spark more economic growth, the status quo will be further tested.

China’s Wary Rise

In China, disintegration has been a threat throughout history. But as in Europe, the threat has intensified since 2008, when it became clear that China’s economic rise was not unstoppable. The government is trapped between conflicting economic and political realities. It cannot sustain breakneck growth on a foundation of low-wage exports, but it does not yet have the middle class needed to boost domestic consumption to levels that would insulate it from downturns in distant consumer markets. The reforms required to put the economy on sound footing would be extremely painful, risking major job losses that would threaten the political standing of the Communist Party. China’s leaders have tried to split the difference by keeping the economy humming with credit-driven growth while implementing only modest reform. But this has merely left the country with enormous debt bubbles and a looming housing crisis, and only slightly closer to addressing its underlying problems.

The risks of instability remain.

Thus, in 2017, the Communist Party consolidated its grip over society under President Xi Jinping, who spent much of the year purging rivals, reining in wayward economic sectors and warning that China had entered a "new era" marked by slower growth. He has become China’s most powerful leader perhaps since Mao Zedong – and the underlying driver of his power consolidation was the threat of disintegration.

There was a sufficiently widespread belief among Chinese elites that reconciling the country’s deep internal contradictions required a strongman at the helm. If political repercussions from China's post-2008 economic path are inevitable, then the only option is to try to contain the political fallout through authoritarian means, or so the thinking in Beijing goes.

The shortcomings of Xi’s authoritarianism are inevitable, and signs of a backlash will begin to emerge in 2018. Xi is already seeking to take advantage of the new political environment and the window of stable growth to double down on painful reforms. But the reforms themselves, particularly reducing industry capacity and introducing measures to cool real estate markets, will slow China’s growth, leading to job losses and discontent. Beijing will also attempt to streamline bloated industries by picking winners and losers. Some of the losers will have political clout and an axe to grind. Xi and his allies will respond forcefully to any signs of dissent. Xi is too powerful to be taken down in the near future, but the near future will be tumultuous anyway.
 
The Middle East

The Middle East has never been a picture of consistently strong and coherent political structures, but its recent woes are less a result of the 2008 financial crisis than others’. Still, economic problems, such as those stemming from the brief crash in oil prices after 2008 and the structural shift in oil markets in 2014, have accentuated its political problems. Hence the Arab Spring, which helped to create the Islamic State and the vacuum of authority in Syria, Iraq and Yemen. Political pressure within such pivotal Middle Eastern states as Saudi Arabia, moreover, has aggravated regional rivalries – all while the U.S. tries to divest itself somewhat from the region.

In 2017, disintegration laid the groundwork for major changes in the region. The Islamic State’s territorial ambitions in Syria and Iraq have been quashed, reopening a vast vacuum of authority in the region. Saudi Arabia succumbed to a generational political crisis. The main beneficiary of both of these developments has been Iran.

With its unmatched influence in Syria, Iraq and Lebanon, Iran is uniquely positioned to fill the vacuum left by the Islamic State. And Tehran’s historical rival, Saudi Arabia, is too weak and too internally occupied to decisively counter Iran – or to even maintain solidarity in the Gulf Cooperation Council. This will embolden Turkey and Israel to play a bigger part in shaping the coming geopolitical order.

 Conclusión   Disintegration, of course, is not the only defining characteristic of 2018. Other, small themes will mark the world’s regions too. In East Asia, for example, events will be driven increasingly by the emerging competition between China and Japan and by efforts of the region’s heavyweights to adapt to a less pronounced U.S. presence — a dynamic that will become manifest no matter how the crisis on the Korean Peninsula unfolds.


In Europe, divisions between the eastern and western parts of the Continent will become more pronounced, as illustrated by growing competition between Germany and Poland.
In the Middle East, attention will be overwhelmingly focused on Iran, which sees a rare opportunity to cement an arc of influence spanning all the way to the Mediterranean. But each of these, in their own way, attest to much broader if more subtle processes underway. It’s in these larger themes that we’ll find the changes on the horizon.