Monday, May 05, 2008

Political Risk

Dr. Ian Bremmer, President, Eurasia Group

Uzi asked me if I could discuss the political risk in the Middle East, so what I would like to do is speak about some global trends in the Middle East and in Israel in particular in 2007.
There are two global trends that I see have a very specific impact on the Middle East. First, we are moving away from a U.S. lead system to support common goods globally. The US is increasingly less capable and less willing to carry the burden. Now it is important to realize just how fast China is becoming a global player strategically as well as economically. In a recent conversation that I had with Past Secretary of State, Madeline Albright, she expressed her appreciation for Secretary of State Condoleezza Rice’s willingness to visit and pay the proper attention to the Middle Eastern region. The Middle East will be increasingly important in the future, and in the longer term specifically Iraq. As we look to the 2008 elections we see a danger that the neo-conservative trend will be increasingly replaced by conservative-isolationism. The US is beginning to feel the brunt of its entanglements, and there is a definite possibility that the US will decide to focus on Homeland security and US labor issues
The second global driver is the increase in rogue states and their ability to procure weapons of mass destruction that will inevitably disrupt the global economy.
This is a concern for Israel and a long tern concern for the world. The fact that Hezbollah now has the capability of hitting Haifa with missiles and that Palestinians are saying that they have technologically advanced missiles to attack Israel, is a serious concern.
There is a problem broadly in the Middle East. Countries which have mobile populations are a hotbed for growing dissidence. For example, in Armenia it’s obvious that economic opportunities are becoming less and less, because of this Armenia’s great economic contacts and people with educational know-how are emigrating. There is no physical threat to Armenia, but the dynamism is gone and the upper to middle classes have left. They have gone to the U.S. and to Europe. This is a potential problem in Lebanon as well. The upper to middle classes want to leave to make money. This is an issue, especially for a country which needs to rebuild itself after a war. Lebanon will still of course exist, but it will not receive foreign direct investment, and the lack of funds could create a ripe situation for militant groups to take over. I am concerned that in the long-term this could happen to Israel. There has been a surge in Israelis applying for dual passports and we should be concerned that much of the productive parts of the Israeli economy are going to leave forever.
When looking at global issues, peace is the biggest issue, and Iran is the biggest political risk. Oil today is $50 a barrel whereas before it was $78. There is significant risk around Iran. Firstly, American strategy around Iraq has changed. Even with regard to what the troops are actually doing. The American’s are realizing that Hezbollah forces need to be stopped from growing in Iraq. They realize that it could create a proxy war with the Iranians as they continue direct contact with Shiite Iranian dissidents.
The concern is not that Iran will raise prices of oil, because their economy can’t afford that, rather the issue is that they could limit the oil being produced in the south of Iraq. The 1 million barrels being produced from Southern Iraq in one day could go down to zero, but sources say that this will not occur until bombs fly.
Another issue is that Dubai might be recognized as being part of the Middle East. They have proven that they can grow their economy and that the normal Middle East risks do not apply to them. We know that the security process visa vi Iran is on its last legs. The next step must be to freeze Iranian accounts in Dubai. There are 40,000 Iranian companies registered in Dubai. The Bush administration sees Dubai’s involvement as critical.
Bahrain is another country to focus on. The growth in Shiite power raises concern. The Shiite movement did well in the 2006 elections, but the populace is not happy. This could lead to greater conflict, and Saudi worry. The good news is that the Saudis look stable. There is a lot of pressure from the U.S. and Abdullah has support locally, maintaining control with economic stability.