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After spending more than a decade absorbed in intractable conflicts across the Islamic world, the United States will finally start to catch its breath in 2014. As U.S. troops draw down their presence in Afghanistan, Washington will go to great lengths to develop an understanding with Tehran. Negotiations will face major hurdles, and a final settlement that lifts the economic embargo on Iran will be a bridge too far for 2014. However, our longtime readers probably will not be surprised by the underlying depth and sincerity shared by Tehran and Washington that will sustain this detente over the course of the year. The United States has long struggled to resurrect a balance of power in the region that would allow Washington to once again manage and manipulate relationships on both sides of the ethno-sectarian divide without directly entangling itself in every quagmire that arises. Iran, for its part, knows it has a limited time to negotiate the bounds of its sphere of influence with an interested party in Washington while Tehran still has a regional sphere of influence to claim. No party -- including Israel, Saudi Arabia and Iran's own Islamic Revolutionary Guard Corps -- will have enough leverage to block this dialogue. The foundation for the negotiation has already been laid, but the construction of a settlement that buries 34 years of hostile relations will necessarily be a loud and trying process.
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Related Links 2013's Forecasting Report Card Stratfor's Annual Forecast 2013 Stratfor's Second Quarter Forecast 2013 Stratfor's Third Quarter Forecast 2013
Even as the United States takes care to avoid a confrontation with Moscow while negotiating with Iran, Russian President Stratfor's Fourth Quarter Vladimir Putin knows it will only be a matter of time before a Forecast 2013 much freer Washington returns its gaze to the Russian periphery. Russia will spend 2014 reinforcing the gains it has made over the past decade in neutralizing and reorienting peripheral states toward Moscow. Germany will quietly moderate Russia's steps in Central and Eastern Europe, preferring a bargain with Moscow when it comes to thorny issues like EU energy policy toward Russia. Germany's far more consuming task this year will be the ongoing challenge of holding the European Union together. The eurozone will likely survive another year without a widespread banking or sovereign debt crisis, but a virulent combination of stubbornly high unemployment rates, low domestic consumption and growing consumer and corporate debt will have a sobering effect on the politics of the current crisis. This year will see nationalist and Euroskeptical parties gain popularity and thus build on their ability to obstruct
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EDITOR'S CHOICE
China's Uighur Militants Make a Strategic Shift
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structural reforms already laden with controversy at both the national and EU levels. China will experience similar frustration in trying to balance deep reforms against growing social and political constraints. Whereas the European Union will continue to grapple in negotiations across 28 incredibly diverse member states, China will gradually shift away from the Party's slower, consensus-based decision-making to a more decisive model under President Xi Jinping. Even so, China's underlying structural weaknesses mean Beijing will have to pursue an incremental and cautious approach, both in applying reforms at home and in trying to define a sphere of influence in its near abroad.
By and large, 2014 will be a year of careful deliberation and preparation by the world's great powers, in which accommodation will likely prevail over confrontation in their interactions. By contrast, the countries between these great powers will grow restive as they try to adapt to their shifting geopolitical environment, lacking the influence to play a decisive role in the very issues redefining their neighborhoods.
Middle East
U.S.-Iranian Talks Take Center Stage
The U.S. attempt to resurrect a balance of power in the Middle East through a strategic detente with Iran will be the driving issue for the Middle East in 2014. Between U.S. President Barack Obama's growing struggle with Click to Enlarge Congress ahead of November midterm elections and Iranian President Hassan Rouhani's ongoing challenge of trying to garner support from hardliners at home, there are sure to be hurdles in the U.S.-Iranian negotiations that could at times make the talks appear to be on the verge of collapse. Despite the unavoidable obstacles, the U.S.-Iranian detente will endure this year. However, a comprehensive settlement between Washington and Tehran -- and thus an end to the Iranian sanctions -- will take more than 12 months to develop. Obama will rely on his executive powers to skirt or override congressional resistance on sanctions relief when needed. Both the U.S. and Iranian governments will also be able to use domestic resistance to the deal as leverage in the negotiation. Iran's Islamic Revolutionary Guard Corps, which stands to lose the most economically and politically from a U.S.-Iranian deal, will be the most assertive challenger to the negotiation from Iran's side, but it will ultimately lack the institutional backing and public support to overturn the process.
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Saudi Arabia, though deeply unnerved at the prospect of its Sub-Saharan Africa primary patron developing a relationship with its main regional adversary, will lack the power and influence to derail the negotiation. The Saudi government will attempt to tighten and strengthen an Arab coalition against Iran (this time without U.S. backing), but this effort will be mostly hollow, especially since the Gulf Cooperation Council states will remain divided over how far they are willing to go in maintaining an antagonistic relationship with their Persian neighbor. Despite the obvious strain between Washington and Riyadh, the United States will maintain its relationship with the Saudi royals and other Gulf states through military and energy deals. As the U.S.-Iranian deal progresses, the Saudi government might consider quietly opening up a back channel with Tehran to directly negotiate a truce with its adversary. Most of Saudi Arabia's focus this year, however, will be on trying to maintain influence in still-active sectarian battlegrounds.
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cuts amid a protest-prone populace. Egypt's continued dependence on aid from Gulf patrons keen on suppressing the Muslim Brotherhood and like-minded political forces will help Cairo manage its economic challenges. On the security front, Egypt will face a persistent jihadist threat in the Sinai Peninsula that will spill increasingly into Egypt's core urban areas. Egypt's preoccupation in managing its political, economic and security challenges means Cairo will be unable to play a decisive role in Arab affairs beyond its borders in 2014. Hamas, blocked in by Egypt and Israel, will maintain a close relationship with Iran in the meantime.
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Instability in Libya will continue benefiting regional jihadists in search of a haven and staging ground for attacks. Neighboring Algeria and Tunisia in particular will not be immune to such attacks, but Algiers will maintain its security cooperation with Tunis and, to a lesser degree, Tripoli as it tries to insulate itself in the coming year. Algeria will try to expand its political, security and economic inroads into Tunisia as the latter continues through its difficult political transition. Algiers will also maintain security coordination with the Sahel states to the south and continue low-level political provocations with Morocco to ensure Rabat remains too distracted by domestic political and economic challenges to interfere with Algeria's regional policies. Algerian President Abdel Aziz Bouteflika and his faction will work toward securing a victory in the upcoming presidential election -- whether Bouteflika or an ally runs for the office -- and overseeing changes to the constitution while balancing competing military, political and economic interests. The success of Bouteflika's internal political management will determine how far Algiers goes in its attempts to revive foreign investment in the energy sector later in the year.
Europe
Eurozone Sluggishness Continues
Europe will be able to muddle through another year of stagnant economic growth and high unemployment, but the political and social pressures developing on the Continent will hobble the very structural reforms needed to manage the crisis in the long run.
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Although some eurozone countries will see marginal reductions in unemployment and the periphery will see decent export levels, negligible economic growth and high unemployment rates (in the periphery, as well as core countries like France and the Netherlands) will persist. Under these circumstances, credit conditions for households and companies will remain tight, undermining domestic consumption as well as hopes for a strong economic recovery. Efforts made by the European Central Bank to provide easier access to credit for small and medium-sized businesses will have limited success, as the bank still lacks an effective mechanism to impose monetary policy on member states and banks that will remain hesitant to lend. The combination of high unemployment and tight credit conditions will carry a number of consequences for the year.
More national governments will thus be forced to seriously consider the demands of antiestablishment parties in shaping policy. At the same time, Brussels will continue pushing for further
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government austerity measures and more centralized control at the EU level. These contradicting interests will create more friction between national governments and EU institutions as member states fail to meet their deficit targets under growing pressure from unions, protest groups and nationalist parties to maintain spending levels -- and thus safety nets -- for their populaces.
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with the Russians on a tactical level, but neither Berlin nor Moscow will risk a rupture in their bilateral relationship. Germany will engage in a complex balancing act with Russia, particularly when it comes to the thorny issue of energy policy. On the one hand, the completion of liquefied natural gas import terminals in Poland and Lithuania in 2014 will demonstrate a continued commitment from the European Commission to weaken Russia's energy leverage over Europe. Germany can be expected to demonstrate its close relationship with Poland in other aspects as it balances against Moscow. On the other hand, Germany likely will play a critical role in facilitating a compromise between the European Commission and Russian state-owned energy firm Gazprom on the European Union's ongoing antitrust probe. Hungary and Bulgaria will also push for a compromise between the European Union and Russia on energy policy, since they are among the European countries that hope to profit from Russia's South Stream natural gas pipeline project. Hungary will maintain an antagonistic relationship with Brussels, and Hungarian Prime Minister Viktor Orban's government will run a heavily anti-EU and populist campaign ahead of elections in the first half of the year. Budapest's attempts to expand its control over the Hungarian economy will continue, with utility companies and banks some of its main targets.
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The Kremlin will also engage in policy changes in 2014 to bolster non-energy sectors of the economy, including the mining, metals, construction, food and auto industries. This initiative will make limited progress in the short term, but the Kremlin will loosen up restrictive investment policies in an attempt to make these sectors more attractive to potential investors. A restructuring of the economy will necessarily create more competition among the Kremlin clans and could lead to a large government reshuffle as Putin attempts to manage various factions while trying to tame a frustrated populace. With a full domestic agenda, Russia will carefully weigh where it can afford to be more assertive and where it will have to be more conciliatory in managing its foreign affairs.
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Russia is nervous about the prospect of a U.S.-Iranian Latin America rapprochement but likely will not be able to stop it. Moscow will try to make the most of the situation by arguing that the Sub-Saharan Africa U.S.-Iranian negotiation has removed the Iranian military threat and thus has rendered U.S. ballistic missile defense plans for Europe obsolete. Russia will rely on its relationship with Germany to try and build a coalition of NATO members willing to delay U.S. ballistic missile defense plans or renegotiate the contracts to integrate Russia into an expanded defense system. The United States will try to avoid a confrontation with Russia as it focuses on securing a deal with Iran, but Washington is unlikely to compromise substantially on its ballistic missile defense plans, designed in large part to balance against Russia and reinforce a U.S. military commitment to allies in Europe. Russia will continue its commercial acquisition strategy in Central Europe, but Berlin will be more assertive on occasion in an effort to set some boundaries with Russia in Central Europe while focusing on the much bigger issue of holding the eurozone together. Berlin and Moscow will take care to maintain their bilateral relationship, but the two countries will engage in substantial bargaining over Central Europe, Ukraine and the EU energy strategy. Moscow's relationship with Berlin will be critical in managing the two major European energy issues of 2014: the European Commission's antitrust probe into Russian energy monopoly Gazprom and the legality of Gazprom's South Stream pipeline project connecting Russia and South-Central Europe. With the upcoming turnover of European Commission members in 2014 and the array of compromises Gazprom can offer the European Union -- including giving further price cuts to European customers and allowing third-party suppliers to access South Stream -- the standoff between the European Union and Russia will move toward an eventual accommodation.
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obstruct Moldova's and Georgia's plans as well. The Baltic states will continue to make progress in their energy diversification from Russia, with Lithuania's liquefied natural gas import terminal coming online in late 2014. However, the Baltics will continue to struggle to get the security commitment they seek from NATO and the United States in the face of Russia's more aggressive military posturing in the region. Russia will maintain a strong position in all three Caucasus states this year, though the U.S.-Iranian talks will open the door for both Iran and Turkey to gradually become more active in the region. Iran will seek to increase its social and political influence in Azerbaijan, while Turkey will try to mediate talks between Armenia and Azerbaijan over Nagorno-Karabakh in an attempt to reopen relations with Armenia. However, both Turkey and Iran face too many constraints this year to make much headway in these efforts, allowing Russia to retain its predominant role in the region. Armenia, Kyrgyzstan and Tajikistan will strengthen economic and security ties with Russia as they progress with plans to join the Customs Union, which is set to become the Eurasian Union by 2015.
East Asia
China's Changes Reverberate in the Region
Three trends will shape East Asia and the Pacific region in 2014. First, China will struggle to implement reforms amid an economic slowdown, consolidate the new administration's power and assert its Click to Enlarge influence in the region. Second, major powers will respond to China's growing influence, including the United States updating its engagements in the region and Japan reviving its international status. Third, a range of Asian states will experience greater volatility as a result of China's slowdown, U.S. monetary policy and internal political dynamics. China's central government enters 2014 buoyed by optimism abroad and at home over a host of ambitious social, economic and political reforms outlined during November's Third Plenary
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Session. Now the real work begins for President Xi Jinping and his administration as they attempt to implement these reforms while managing all the inherited pressures of China's economic slowdown. The cautious, incremental implementation of reforms in China over the next 12 months is defined by the need to streamline government bureaucracy, address widening regional and ruralurban economic imbalances and allow market forces to play a more significant role in the allocation of resources. Two structural reform areas will be key in 2014. First, Beijing will accelerate market-oriented pricing for resources like natural gas and water to improve efficiency. Second, it will adjust the fiscal relationship between central and local governments, widening taxes on property and coal, changing existing taxes on resources and consumption, and expanding local bond issuance programs, largely to stabilize local government financing. The central government also will further relax controls on interest rates, the exchange market and the capital account to promote financial liberalization, which is already underway in the Shanghai special economic zone. However, while the central government plans to restructure ineffective state-owned enterprises and monopolized sectors, this process will likely fall short within the year because of resistance from the enterprises and leaders' concerns about unemployment.
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Latin America In line with its broader goal to shift toward an economic model less reliant on coastal export manufacturing, the central government will extend reforms of residential registration and Sub-Saharan Africa rural land sales. Likewise, it will support further inland and western development through new special economic zones and infrastructure investment. However, restructuring the economy is a multiyear process -- one that China's leaders will seek to balance against the need to maintain socio-economic stability, resulting in gradual and partial execution. Severe risks to social and economic stability will persist, mainly from recent credit accumulation, threats to employment from slower growth and rising public anxiety over corruption and environmental degradation. While the new leadership has signaled it will tolerate a moderate economic slowdown and some increase in unemployment for the sake of reform, it will struggle to balance these goals against rising public expectations and growing concerns over local government debt. Localized instability in property markets is likely this year, potentially exacerbating local government debt woes. However, despite the risk of systemic financial crisis, the central government has the resources to manage these concerns throughout 2014.
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intensify as different groups oppose what they view as either excessive gradualism or radicalism in the central government's reform agenda.
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South Asia
India Gears Up for a Dynamic Year
Domestically, the looming national elections in May 2014 will consume India's attention. The incumbent Congress/United Progressive Alliance government will be in a lame-duck position for the first half of the year as the Click to Enlarge domestic economy struggles with an overall slowdown. Some sectors may see better-thanexpected growth, but overall the opposition Bharatiya Janata Party will position itself as the force capable of lifting the Indian economy out of the doldrums facing many emerging economies. As the Congress and the Bharatiya Janata Party square off in their decadeslong rivalry, the national elections are likely to illustrate the rising clout and popularity of local parties on the national level, reflecting growing frustration with the traditional duopoly of India's national politics. The large numbers of people mobilized as part of the political process will create several avenues for conflict: local communities pushing back against state and national authority, competing ethnic and sectarian interests, and the ever-present jihadist and militant threat as those groups seek to take advantage of a distracted central authority and large gatherings of people to stage attacks. India's domestic political battle will take place at a time of near-unprecedented upheaval in the Indian periphery. New Delhi will attempt to pursue its strategic interests in the broader Indo-Pacific basin, including Nepal, Sri Lanka and Myanmar, as well as other Association of Southeast Asian
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Nations, while trying to limit the risks of instability in Pakistan and Bangladesh and of an Afghan state preparing for the 2014 NATO withdrawal. As New Delhi continues moving toward a more stable working accord with Beijing, it will also try to leverage its traditional relationships with the United States, Australia and Japan into increasing foreign investment and infrastructure development. Any major foreign policy shifts are unlikely ahead of the national vote, but India's inherent risks and interests in its periphery will remain largely unchanged no matter who wins the election. The U.S.-Iranian negotiations will create opportunities for India to expand its ties with Iran and potentially cooperate in areas like Afghanistan. However, a slow removal of sanctions will threaten India's favorable payment arrangements for Iranian oil, and Tehran's demand for euro-denominated payments will continue exacerbating the economic challenges that India's rising energy import bill poses.
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Dhaka will face the daunting task of trying to hold a national election that is free and fair enough to satisfy both international observers and internal constituents, including the military. Bangladesh will attempt to hold elections without a military-backed neutral caretaker government in place for the first time since the country's return to civilian rule in 1990. While the outgoing Awami League-led coalition will attempt to bring the opposition Bangladesh Nationalist Party, its Islamist allies and the military into negotiations on its own terms ahead of any election, the party's attempts to retain power will face significant resistance. Violence, public unrest and protests will take their toll on overall security and stability. The country's critical textiles and clothing manufacturing sector will suffer from continued, disruptive strikes for higher wages. The government will grant concessions to labor, but strikers' awareness of the government's weak position will spur further demands. New Delhi will seek to limit the outflow of Bangladeshi immigrants seeking refuge within its borders, especially during its own electionsrelated upheaval, but it will encounter limitations in trying to shape the outcome of Bangladesh's political process to suit its own strategic imperatives.
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agree to a continued U.S. military presence, despite elaborate outward waffling on behalf of President Hamid Karzai's outgoing government aimed at limiting negative blowback from announcing a decision publicly. This military presence will be too small to meaningfully affect Washington's fitful negotiations with the Taliban, but the drawdown will also effectively remove Afghanistan as a strategic priority for the United States. Afghanistan will undergo a critical transition after a presidential election slated for April produces a successor to Karzai, the country's only president since the fall of the Taliban government. It is bound to be a rocky transition as the new president seeks to consolidate his position -- a matter complicated by both Karzai's efforts to retain influence after leaving office and an anticipated increase in Taliban attacks against Afghan and Western forces beginning in March or April.
Latin America
Political Tumult Returns in Mexico
If 2013 was the year of unprecedented political dynamism and cooperation in Mexico, 2014 will be the year of a return to political infighting. Having passed a raft of deep political, economic and social reforms in 2013, Mexico Click to Enlarge will now be faced with perhaps an even harder task: implementation. With no constitutional reforms on the agenda, alliances among the country's three major parties will be less imperative, and interparty cooperation will likely stagnate. Implementation of the aforementioned reforms will be replete with bureaucratic and political hurdles. Secondary legislation for several of the country's major reforms -- including those on telecommunications and energy -- will be negotiated throughout 2014, and the effects will not begin to be felt until late 2014 if not 2015. Both reforms will address the key issue of introducing competition into two sectors that have long been monopolized. For energy reform specifically, secondary legislation likely will clarify the types of contracting models that will be applied to certain energy activities. On the security front, Mexican President Enrique Pena Nieto will struggle throughout 2014 to implement his long-term strategy -- namely, creating a new national gendarmerie and consolidating public security under a single, centralized command structure in each state. With few alternatives, he will continue his predecessor's approach of using the military to target the leadership of organized crime groups and to maintain order where needed. Even though nationwide homicide rates may decline throughout the year due to security improvements in the cities that most heavily contribute to these figures, high levels of violence and insecurity will continue in most of the country -particularly the northeast and southwest. The expansion of
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citizen-organized militias -- commonly referred to as community police or self-defense groups -- in Michoacan and Guerrero states has added another challenge for Mexico's military to manage in 2014.
Introduction Middle East Europe Former Soviet Union East Asia South Asia Latin America Sub-Saharan Africa
Even if the FARC reaches a peace agreement with the government in 2014, the deal's implementation will be complicated, and any agreement likely will take months or years to fully enact. With the FARC talks approaching a conclusion, the Colombian government will continue exploring the possibility of starting formal peace talks with the National Liberation Army, the country's second-largest guerrilla group. With legislative elections in March and a presidential election in May, the Santos administration will work assiduously to appease disgruntled farmers and struggling manufacturers by crafting new economic policy that is more supportive of local production. The government will also auction off overdue transportation infrastructure projects in 2014.
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monetary expansion program and the end of a credit-driven growth spurt, Brasilia will need to adapt to new economic realities and carefully balance inflation and growth in 2014, much as it did in 2013. Although major economic crises are not likely to develop, 2014 will be a year of higher-thandesired inflation and slower-than-desired growth. In June and July, the world's attention will be on Brazil as it hosts the 2014 World Cup. The government will be wholly focused during the first half of the year on preparing for the games by both finishing up major infrastructure projects and readying its law enforcement bodies to manage associated social unrest and prevent violence. The political opposition will try to leverage any popular protests as a means of gaining popularity ahead of elections. In October, Brazilians will elect a new president. Incumbent President Dilma Rousseff and the leftist Workers' Party comfortably lead in the polls and stand a good chance of winning four more years in the executive branch. Most of the year will be spent campaigning, courting social movements and building electoral coalitions. The Rousseff administration will continue to auction off long-delayed infrastructure projects, with mixed success, and will continue to push for new trade deals but will meet resistance from Buenos Aires.
Sub-Saharan Africa
Militancy Escalates Ahead of Nigeria's Elections
This will be an especially violent year in Nigeria ahead of political party leadership elections in December and national elections in April 2015. The biggest issue at stake this year is whether Click to Enlarge the southern Niger Delta region upholds a political arrangement to rotate the presidency back to the north. Nigerian President Goodluck Jonathan will face significant pressure to decline nomination for re-election, but he will likely hold on to his eligibility through most of the year so his support base can reap the financial benefits of his position before finally declining the nomination. Jonathan can then be expected to angle for a party elder position to retain influence beyond his presidency. The uncertainty over Jonathan's ultimate decision will facilitate militant activity against civilians and government officials in the north by Boko Haram. Niger Delta militants will also be active, but their attacks will not result in substantial disruptions to energy production. Oil production is more likely to be sporadically affected by damage to equipment during criminal thefts. The political constraints
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facing Jonathan's administration will prevent the government from passing a comprehensive Petroleum Industry Bill designed to reform and diversify Nigeria's energy sector.
South Africa will hold national elections in April. Opposition Latin America parties will not attract meaningful numbers of voters beyond narrow factional supporters, resulting in a comfortable win for Sub-Saharan Africa the ruling African National Congress and its president, Jacob Zuma. Collective bargaining over wage agreements in the mining sector will reopen midyear. The bargaining process is already underway in the platinum sector, as wage agreements reached in 2012 come up for renewal in 2014. The resolution of wage disputes will largely be informed by market conditions for the commodity. If demand and pricing for the commodity remain weak, the predominant unions -- the National Union of Mineworkers and the Association of Mineworkers and Construction Union -- will be pragmatic in making wage agreements. Once the national election is over, political alliances angling to win the 2017 African National Congress leadership primaries will begin loosely forming.
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