David Kessler and Peter Kouretsos – Happy New Year, everybody! Big things happened in 2013: Dave and I graduated in May and we’re all still here, which means that the world didn’t blow itself up. And to us here at the Brooklyn Diplomat, that’s a reassuring sign that we’re doing ok and that it could always be worse. Not great, but ok. It helps us put things into perspective. But we digress. We’ve been reading lots of articles lately about what to expect in 2014, and while we’ve found some of the trends, forecasts and “predictions” out there to be agreeable and insightful, the overall impression we got can only be described by one of our favorite movies (because Brooklyn, that’s why)
Ok, maybe not exactly BS, but lots of this stuff seemed pretty obvious. It’s not very Brooklyn at all. And as the official trendsetter of the modern world, the gentlemen and scholars of Brooklyn ought to have a say in what to expect in a post 2013 world. Main takeaway from all of what you’re about to read right now: Foreign policy. Start caring about it. While last year’s headlines were dominated by economics, just one look at any of the headlines this past month shows that 2014 will be a “Foreign Policy” year. This is what Dave and I are thinking about now as we begin 2014. At the end, we’ll also share with you our New Year’s resolutions.
First Up: PETER KOURETSOS
#5) MENA unrest expands:
2014 is going to be a record year for violence in Iraq (a great primer can be found here). Runner ups in terms of unrest and instability are going to be obvious, Egypt and Libya, where the money is running out and the governments being propped up at the moment simply are not working. There are also serious concerns of a security vacuum in Afghanistan with talks of a U.S. 2014 pullout if a Bilateral Security Agreement doesn’t get hammered out; failure here would mean Afghanistan spirals back to the way it was before the 2001 invasion and we’re back to square one.
Adding fuel to the fire in Egypt, the interim government backed by Sisi (who may very well run for President soon) and the SCAF recently declared the Muslim Brotherhood a terrorist organization. Both the Brotherhood and the government have reached a point of no return. By labeling the Brotherhood a terrorist organization and denying them any political voice, they’ve committed themselves to stamping them out for good; or risk them returning to power and destroying them. The Brotherhood, now backed into a corner, doesn’t have much to lose. And when one group has everything to lose while another has nothing to lose, it rarely ends well. It’s a very desperate situation. It’s a very…Syria(ous) situation…
2014 will be a “good” year for al Qaeda. We will see a proliferation of small, local al Qaeda “units” that will take the jihad locally. This is not to say that some groups won’t target the U.S. directly anymore, but the emphasis will be local, where they can take advantage of economic hardship, weak, ineffective and unresponsive governance, and social unrest. They have, for example, used Western Syria as a haven to launch operations into Iraq’s Anbar province, most notably in Fallujah.
Violence will grow and al Qaeda and its affiliates will grow. The willingness of the U.S. and the Allies to devote significant resources to deal with these threats is not what it used to be (as opposed to right after 9/11). To make matters more troublesome, the capacity for local governments and “partners” to pick up the slack simply isn’t there. Turkey, Lebanon, and Jordan are bursting at the seams and risk becoming more unstable as they take in more refugees from the Syrian war, which is not ending any time soon. If you want to know whether this new decentralized and fragmented al Qaeda is weaker or stronger than it was before Osama bin Laden’s death, you’re asking the wrong question. It is certainly not what it used to be, but that does not necessarily make it weaker or stronger; it just makes it different. In the environment described above, the so-called “al Qaeda 2.0” after 2011 becomes “al Qaeda 3.0” in 2014.
#4) Consequences of an Iran deal:
As per the accord hammered out last November, Iran has halted its 20% enrichment and just began blending down its stockpile of 20% enriched uranium this January. The West has made good on their end of the bargain by lifting some sanctions.
We will find very soon whether a nuclear deal with Iran is going to happen, maybe even by the end of the first quarter. If it does, oil prices could take a hit when Iranian crude enters the market and the Saudis, Venezuelans and Russians will find themselves in a very difficult position. Petroleum exports account for a disproportionate amount of their national revenues because they have chosen not to diversify, mainly because they just never saw the need to. Will they decrease production (and lower exports) to keep prices where they’re at now, or do they continue at current production levels and watch prices fall?
Either way, if a deal with Iran happens this year, the funds used to grease the wheels of these petro-states could begin to dry up. But if a deal does not occur, oil prices could spike, the potential for an Israeli strike will go up, the risk of other MENA states going nuclear goes up and the Iranians move much more quickly to a nuclear “breakout” capability.
3) Elections happening just about everywhere:
I know people are talking about U.S. Midterm Elections and are also on the lookout for anyone announcing a 2016 Presidential run, but I’ll let Dave take that one. Pretty much any emerging market most investors have been talking about that can have elections this year is having elections. China is the exception here since they don’t have elections. I am also not counting Russia in this either.
When I’m talking emerging markets I’m talking Brazil, Nigeria, Indonesia, India, South Africa, Columbia, Turkey (a full list here). Many of these large economies have one thing in common: most of the parties in power now have been in power for more than a decade. And for at least the past 10 years, the effectiveness of their governance has been questionable. These countries are at a crossroads; a case in point is Turkey. PM Erdogan must step down due to term limits but he can still win and hold the ceremonial office of President this year; we could see a Prime Minister-President seat-holding scenario similar to Putin’s Russia with Dmitry Medvedev. But Erdogan’s AKP will still need to win local elections, and though they are still generally popular, recent discontent with the AKP’s strongarm tactics and a political crisis sparked by the Gezi Park protests could lose them some seats.
Brazil is another notable country with major elections to watch, and the World Cup (plus with the Olympics two years away) will add more to its complexity. President Dilma Rousseff’s party will likely stay in 2014, but only because Latin American politics as a whole is uniquely more populist and often lacks strong opposition parties. Economic growth has also plummeted while public funds have been used to prepare the country for the World Cup and the Olympics. Extravagant stadiums next to run-down favelas will present the world with a Latin American version of Charles Dickens’ “A Tale of Two Cities.”
And as for the most populous Muslim country in the world in the ever-growing and important Southeast Asian region, Indonesia undergoes both Presidential and Parliamentary elections; it would do the United States some good if they re-engaged and reaffirmed their commitment to an Asia-Pacific “pivot.” And although the popular topic right now is Ukraine, all eyes will be on Thailand as it navigates a political crisis between rival factions; it’s unlikely that an election will solve anything without an agreement between the clashing parties, and the risk of a military coup is always there.
#2 )Reforming China:
The Peoples Republic of China’s (PRC) Third Plenum launched significant and unprecedented political reforms that will fundamentally alter how China is governed. In 2014 we will see the beginning of those, and consequently, the beginning of a new China. I’m still optimistic about China in 2014; the PRC’s resilience amid the decades of challenges it’s faced has been far too consistent to bet against.
In Xi Jinping’s first year of governance, he’s engaged in more reform than in the PRC’s past 20 years. This means real economic reform, a free-trade zone in Shanghai, anti-corruption moves, things that will get China on track for a serious restructuring. But reform in China will make lots of people who have an interest in the status quo very unhappy. The Plenum was meant for Xi to consolidate as much power for himself to strong-arm these things through. The core issues and problems have never been external for China. They have always been about, well…China. China’s core interests have always been domestic security and national unity. In fact, the new National Security body that was established after the Plenum, unlike ours, is focused on cracking down on internal matters like corruption, protests and unrest in the countryside.
China has greatly benefited from globalization, but they also have a long history of getting hurt when they expose themselves too much to the whims of other nations and foreign-based corporations that want to do business there. The Opium Wars and the Unequal Treaty system during the 19th and early 20th centuries are the most popular examples of this. This is why China has and will always be wary of any “comprehensive” and “binding” trade agreements and other multilateral treaties. China would much rather negotiate bilaterally, with one nation at a time, and on its own terms. So although the Bali talks and Doha give me hope for comprehensive international trade agreements, I’m not expecting China to commit to anything like it in 2014.
And if things get uneasy internally for China, with discontent and nationalism coming to a head, count on Xi and the Party to release some steam from the tea kettle and deflect those energies towards Japan and its neighbors who are suspicious of a more aggressive China. And in this kind of pressure-cooker environment, with all of their history and provoking the risk for a showdown with the Japanese as the Chinese reform process beings is real.
#1) The U.S. walks alone
Ok, Geopolitics 101 stipulates that there are exceptions to this: the British, the Canadians, the Mexicans and the Israelis. These relationships are maintained because of strategic choice and necessity, although there have been discussions about Israel’s discomfort with their U.S. relationship as of late.
Those exceptions aside, I am seeing signs that we’re beginning to live in a world where U.S. Foreign Policy has become less clear and less certain and decisive. Our cuts in Defense and foreign aid make the rest of the world uneasy, and question our commitments. We’re also beginning to taper, and the money that used to float around and find its way to other nations’ markets isn’t going to be there anymore. All other countries tied to the U.S. are concerned and are questioning the traditional terms of their relationship: South Korea, Indonesia, the Philippines, Brazil, Turkey, Saudi Arabia, UAE, Germany and France come to mind. This includes trying to move away from U.S. standards in the global economy and changing the way they think about security, especially in light of the NSA revelations. There is a level of uncertainty in the world that we have not seen in decades from the world’s only superpower, and I will be closely watching to see how this plays out in 2014.
Am I saying that the U.S. is in decline? No. I won’t go that far and jump on the bandwagon that started picking up steam during the 2008 financial crisis. The dollar is still strong. The Chinese still want their kids to come to American universities. Any internationals who want to move their money out of the country brings it here. We are still a safe bet. The legal system works and we are politically stable. In terms of U.S. innovation in energy, agriculture, biotechnology, nanotechnology, etc; the U.S. still dominates. The “dysfunctional Congress” even passed a $1.1 trillion bill that funds the government through 2014. So no, America is not in decline. Its foreign policy is in decline. It is losing its ability to get what it wants abroad.
The same applies with Obama and Congress. 2014 will be the President’s last best chance to push an agenda for the rest of his term; after 2014 everyone gets so caught up in the election season that it’ll be difficult for his Administration to get any attention or support after this year.
As President Obama goes live in his State of the Union Address on Tuesday, his focus will likely be on the economy, the issues of growing inequality, a partisan Congress and a stagnant middle class, all important concerns. But after all that’s happened in the last 6 months on the international front, pay close attention to which issues the President will emphasize besides the domestic ones. I can’t say what he will choose as foreign policy priorities, but a comprehensive agreement with Iran on curbing their nuclear program, wrapping up Afghanistan and repairing the strained friendships with our allies would be a good start. President Obama still has 3 more years in office, and second-term Presidents in their last couple of years in office often try and leave their mark on foreign policy. And with the Obamacare rollout leaving a black mark on the President’s legacy, foreign policy can help save what’s left of it. And I think he knows this. And with all the talk about “national interests” in foreign policy discussions on the news, most Americans see the only “national interest” as nation building here at home. The polls speak for themselves: A majority of Americans are more disillusioned with the U.S.’s role abroad than ever before. They just don’t see the point anymore. And after Iraq and Afghanistan, “fughettaboutit” isn’t just a Brooklyn word anymore. Let’s just hope that Obama doesn’t fughettabout foreign policy in 2014.
Last but not least: DAVID KESSLER
#5) Pope Francis and the Catholic Church:
If I had to point to any one trend that I was most excited about or which I thought would be the most profound in 2014, it would be the current direction of the Catholic Church. After emerging from the College of Cardinals as Pontifex Maximus only a year ago, Pope Francis (Formerly Bishop of Argentina Jorge Bergoglio) has already rocked the boat with his humble demeanor, his progressive tone when making remarks on various “hot topics,” and his focus on social justice for the World’s poor. Furthermore, Francis was the first Pope to be elected from the Americas and is the first Jesuit Pope. As of late, Pope Francis has even been named Person of the Year by Time for 2013. And as two young, Jesuit-educated, Christian gentlemen (Pete’s Orthodox and he’s excited for more Ecumenical dialogue between East and West now), we’re pleased with Pope Frank.
I see this pivot in the Church marking a major shift in how it will conduct itself in the 21st century. While recent Popes have made significant strides toward modernizing the Church, namely Pope John XXIII and Pope John-Paul II, Pope Francis seems to be someone who can strike a balance of fully mobilizing the global youth who have been unable to identify with the Church as of late, while still maintaining the more “traditional” Catholic following. From what I gather from Pope Francis’ various remarks, the Church will certainly be much more aggressive in the fight to combat poverty in the so-called, “developing,” world. Furthermore, to conclude endless discourses on questions such as homosexuality, abortion, and other social flashpoints for the Church, the Pope will likely brush those questions aside in favor of addressing what he feels are the most pressing issues: poverty, faith, and community. These are issues that he can unite the most people around and bring them closer to the Church, regardless of their views on the contentious topics.
The prolonged civil war in Syria seems to encapsulate many different global struggles, both direct and proxy. There seems to be no immediate end to the fighting, and one can only hope that 2014 is the year that the bloodshed is concluded. More broadly the Assad regime in Syria, assisted by both Hezbollah and Iran, is struggling to remain in power as an Alawite-led regime in the predominately Sunni state of Syria. Meanwhile, the Sunni Arab States and al-Qaeda continue to push back against the regime and support the revolution.
Though I foresee a prolonged conflict in the Levant for a while longer, any victor in Syria (if there ever is one) would probably be Assad. Although the international community has called for him to step down and/or negotiate a settlement, Assad and his regime have shown resilience and an incredible tolerance for pain; thus far this is evidence that he still commands substantial legitimacy among his supporters, and the state is robust enough to survive in 2014 and beyond. In particular, the military seems to be generally supportive of his leadership, in contrast to what we saw in Egyptian in 2011, where the Egyptian SCAF refused to continue backing then-President Hosni Mubarak. There have been some defections, but as long as the military remains with Assad, I do not believe he will be defeated unless a greater outside force (al-Qaeda or a foreign power) is able to bolster the rebels to overpower the Syrian military or dissuade them from supporting Assad.
#3) A Strained US – Russia Relationship:
Presidential Candidate Mitt Romney memorably stated in 2012 that Russia is, “without question our [the United States’] number-one geopolitical foe.” For the record, the jury is still out on whether this remark is true. But as of late there have been many events to suggest that this Cold War mentality may be relevant. Perhaps the most talked about man involving a deteriorating U.S. –Russian relationship, Edward Snowden, will continue to test US-Russia relations into the coming year. The slight against the U.S. when Russia agreed to give him asylum against cries for “justice” in the U.S. is ever present. Furthermore, we still don’t know the true extent of the damage he’s done or what it is he took with him. Granting him amnesty is probably off the table at this point, since he’s been to two countries that are two of the U.S.’s greatest cyber-security threats (China and Russia). Continuing points from the previous stated trend, the Syrian Civil War is also an indirect struggle between Russia and the United States. The United States has traditionally backed the most powerful Sunni nation in the region, Saudi Arabia, while Russia has traditionally backed the most powerful Shia nation, Iran, and consequently, Syria. Thus, the war in Syria looks ever more like the Cold War-era proxy conflicts. As a positive, the recent deal for Syria to voluntarily give up its chemical weapons for destruction was jointly agreed upon between Secretary of State John Kerry and Russia’s Foreign Minister Sergey Lavrov has shown that we can find some common ground on some issues.
During the upcoming 2014 Winter Olympic Games in Sochi, Russia may also display the status of relations between the two nations. To prepare for Russia’s gig on the global stage, President Putin has granted amnesty to thousands of prisoners, including his biggest rival, oil-tycoon Mikhail Khodorkovsky. This is an attempt to show that Russia has not receded to its harsh Soviet ways. It should be noted, however, that these acts of “good will” may only temporarily improve Russia’s image rather than act as precedent for real reform within Putin’s Russia. The US-Russian relationship will certainly make headlines over the upcoming year, but if the past is a judge for things to come, it looks like only headlines we’ll be reading will be about a stagnant or deteriorating relationship. Let’s hope at least for the former.
#2) A key year for the U.S. in 2014:
On the U.S. domestic front, another exciting year of political gridlock and debacle is on the horizon. As President Obama enters the New Year with his lowest approval ratings since his inauguration, he will be quarterbacking the salvation effort for his signature legislation, the Affordable Healthcare Act (ACA, aka “Obamacare.”) The website setbacks we’ve been reading about will be corrected in the coming weeks and Obamacare will receive its real test: whether the nation is willing to choose to enter healthcare exchanges or pay the penalty of not acquiring healthcare. From my point of view, the ACA is here to stay and Americans will likely warm up to it if, and only if, enough people choose to enroll in Health Insurance rather than pay the penalty. Whether the new system will work as efficiently or as cost effectively as legislators suggested is to be seen in the coming years. However, the Democrats have been running on the ACA (or at least the idea of it) for nearly 50 years. They cannot afford for this to fall through. And it’s unlikely that Republicans will repeal it; it’s much easier to give out a social good than to take it away. Thus, I would say that Obamacare is here to stay at least for the next 8-10 years.
On the flip side of American politics, the Republican Party will look to maximize the Obamacare confusion and win support to its cause while overcoming internal discord. Within the party, two very distinct groups have emerged that are going to butt heads: the traditional “establishment” Republicans and the Tea Party Republicans. Outspoken members of the Tea Party faction include Senators Ted Cruz, Rand Paul and Congresswoman Michele Bachmann. Notable establishment GOP members include Senator John McCain and Governor Chris Christie. While the traditional Republicans hold the majority of high ranking Republican positions, the Tea Partiers have secured some significant grassroots support. The Tea Party’s most notable contribution (or lack thereof) to politics was their integral part in triggering the Federal Government Shutdown of 2013. During this episode, the Tea Party legislators did exactly what they said they would do when running for their seats in government: attack the ACA by any means. Unfortunately for both the nation and the Republican Party, this “noble stand” was a decisive defeat that cost the country weeks of Federal Government impotence.
From where I stand, the division and subsequent struggle for the Republican Party, ought to happen as soon as possible. Political infighting followed by consolidation is nothing new, even internationally: Remember how Tony Blair led an internal movement within his Labour Party, moving it from the far-left/left to the center-left. And in 1997 the Labour Party achieved its first election victory since 1979. Likewise, a strong leader from the center-right in the U.S. can assume a similar Tony Blair-like role over the party before the Presidential election of 2016 and move it in a more moderate direction. The sooner and more decisive the struggle, the better. A good barometer of this internal struggle will certainly be the upcoming 2014 congressional elections.
#1) Have No Fear, the Global Economy is Here!:
Finally, in regards to the global economy, I predict a very fruitful year. [The majority of] Europe will return to greater prosperity and competitiveness than before the European debt crisis began. The U.S will continue to grow its economy but it too must find solutions to reducing its public deficit so as to achieve sustainable economic growth. The Chinese will continue to power forward with after a year of robust growth in 2013, although we’re beginning to see signs that they’re beginning to pump the brakes . Japan will continue to be mired in its incredible public debt (which it will attempt to solve by printing more money) and oncoming demographic collapse (which can be mended by immigration reform, but probably little will be done to address that). Russia and Brazil will get their time in the sun during the 2014 Winter Olympics in Russia and the 2014 World Cup in Brazil. Both events will be great opportunities to show off the economic advantages for foreign investment in their respective countries. Russia ought to seek continued growth, which has been strong since President Putin came to power. Brazil, on the other hand, has seen rather sluggish economic growth as of late and will certainly try to reverse that trend. As for the smaller economies of the world, they ought to perform positively if history is any judge of future trends. Overall, the coming year will continue to see a dramatic reduction in Global Poverty and the world economy will grow substantially.