Annual Forecast 2016

2016 is shaping up to be an unsettling year for much of

the world. The United States and Russia are still locked
in an intractable standoff. Nationalism is resurfacing in
Europe. The price of oil and other commodities are low.
Chinese consumption is falling. And countries around
the world are more resolved than ever before to
intensify their military campaigns against the Islamic
State. But it is important to remember that all these
trends are connected, and the way they play out this
year could determine how tumultuous the world will be
next year.
With old geopolitical realities resurfacing across Eurasia and commodity prices stuck in a
slump, 2016 is shaping up to be an unsettling year for much of the world.
A logical place to begin is the country that bridges Europe and Asia: Turkey. This is the year
when Turkey, nervous but more politically coherent than it was last year, will likely make a
military move into northern Syria while trying to enlarge its footprint in northern Iraq. Turkey will
not only confront the Islamic State but will also keep Kurdish expansion in check as it raises the
stakes in its confrontations with its old rivals, Russia and Iran.
The last thing Russia wants is a confrontation with Turkey, the gatekeeper to the Black and
Mediterranean seas, but confrontation is something it cannot avoid. Russia risks mission creep
this year as it increases its involvement on the Syrian battlefield. But the Islamic State will be
only part of Moscow's focus in Syria; Russia will try to draw the United States toward a
compromise that would slow a Western push into Russia's former Soviet space. The United
States will be willing to negotiate on tactical issues, but it will deny Moscow the leverage it
seeks by linking counterterrorism cooperation to a broader strategic discussion. The U.S.
administration will work instead to shore up European allies on the front lines with Russia.
Regardless of the participants' secondary motives, an intensified military campaign against the
Islamic State will surely damage the militant group's core. However, the fledgling caliphate will
not be eradicated this year. A lack of reliable ground forces will hamper the anti-Islamic State
campaign. And the more the Islamic State's conventional capabilities weaken, the more actively
the group and its affiliates will try to conduct terrorist attacks outside the Middle East to
maintain its relevance. This in turn will drive competition within the jihadist landscape as al

Qaeda factions in the Arabian Peninsula, the Maghreb, West Africa and South Asia try to keep
pace.
The jihadist threat will fuel Islamophobia in the West and catalyze the fragmentation of Europe.
Border controls and calls for preserving national identity will dilute the EU principle of allowing
free movement of people. Closed borders will create a bottleneck of migrants in the Western
Balkans, a region already rife with ethnic and religious tension. But the main story in Europe for
2016 will center on France and Germany, the two pillars of the European Union. Both will be
preparing for 2017 elections, and both are leaning in a more nationalist and Euroskeptic
direction. Over time, Germany will become more outspoken and much less willing to
compromise on matters of EU integration.
The continuation of quantitative easing and another year of low oil prices will have a palliative
effect on the deeper frictions in Europe as global commodity markets continue to suffer. The
addition of Iranian oil to the market in the first half of the year will offset a drop in U.S.
production. Any change to Saudi Arabia's oil output would come later in the year, after Riyadh
has assessed the price impact from Iran's return as well as the effect on U.S. shale producers.
Any attempt by Riyadh to coordinate a drop in production with Kuwait and the United Arab
Emirates would come only after this assessment. Regardless of Iran's impact, Saudi Arabia will
still be prepared to take on more debt and draw down reserves to cope with low oil prices.
China will not bring about relief in commodity prices, either. Consumption growth will slacken
as Beijing struggles to implement reforms amid growing dissent among the Party elite. Even as
Beijing faces the threat of party factionalization, it will still have enough economic heft to offer
incentives to Southeast Asian states to counterbalance a stronger U.S. security presence in the
region.
Low commodity prices and rising U.S. interest rates, which affect currencies, will also spell
another difficult year for much of Latin America. The threat of impeachment will hang over
Brazilian President Dilma Rousseff and further sour the investment climate in Brazil in the short
term. Argentina may have a new, reform-minded president, but his struggle with high inflation
and foreign currency shortages means any moves to settle debt and to raise protectionist
measures will be limited. In Venezuela, the end of Chavismo is near. An embattled United
Socialist Party of Venezuela will eventually splinter under growing political and economic
pressure, and the country risks defaulting on its foreign debt this year.
The defining events of 2016 will raise apprehension around the world, leading into what will
likely be an even more tumultuous 2017 as an array of developing conflicts comes into sharper
focus. The essential thing to bear in mind is that all these trends are connected. The U.S.Russia standoff, surging nationalism in Europe, Turkey's re-emergence and other geopolitical
currents will tie in to and feed off of one another. We will keep our eyes fixed on the bigger
picture in 2016, for there is a much more complex one developing in 2017.

Europe
Germany and France Move to the Right
This will be a transition year for Germany and France. Both countries have elections in
2017, and politically both are moving in a more nationalist and Euroskeptical direction. The
foundation of the European Union, the Franco-German relationship, will show signs of
cracking as the interests of Paris and Berlin inevitably begin to diverge. Germany will
oppose France's proposals to deepen continental integration (especially among eurozone
countries) and increase spending across the bloc. Berlin and Paris will find it increasingly
difficult to find common ground on measures to protect the European Union.
German Chancellor Angela Merkel will come under pressure as divisions widen between
conservative and progressive members of her coalition. Regional elections in March will
serve as a popularity test for Merkel's Christian Democratic Union. Should her party
perform poorly in the elections, calls for her resignation will grow louder.
Thanks to pressure from the conservatives, border controls will remain frequent, and Berlin
will look for ways to prevent people from arriving in Germany. The conservatives will also
compel Berlin to take a tougher stance on Greece, especially because Athens, in an effort to
avoid social unrest, will drag its feet in enacting economic reforms.

Greece Remains Troubled

In Greece, the government of Prime Minister Alexis Tsipras faces two main problems:
political fragility and social unrest. The Greek economy has another year of negligible
growth and extremely high unemployment ahead of it. This will lead to repeated protests
and frequent conflicts within the government, which in turn will force the administration to
slow the process of reform.
A collapse of the Greek government cannot be ruled out because Tsipras leads only a very
small parliamentary majority. However, the Greek establishment wants to avoid early
elections, so even if the government fell, it would be replaced by a technocratic or coalition
government that would still be able to approve legislation.
In 2016, Greece's main threat will be social unrest, not debt repayments. A repeat of the
2015 crisis seems unlikely because Greece does not face a particularly pressing calendar of
debt maturities. This means that the risk of a Greek default or exit from the eurozone is
lower than in 2015. But Germany's tenacity and Greece's resistance will make every bailout
review tense, and negotiations over potential debt relief will probably be delayed until late
2016. We do not expect Greece to exit the eurozone in 2016, but Greece's problems are far
from resolved. Increasing resistance to reforms, initially among the public but then in the
political sphere as well, set the country up for another inevitable confrontation with its
creditors down the line.

Political Fragility in Southern Europe

In Portugal, a fragile coalition of left-wing parties will struggle to remain in power, and
early elections are likely. Following Dec. 20 elections, Spain will spend the first weeks of
the year trying to form a sustainable government. An agreement will finally be reached, but
Spain's limited experience with coalition governments will make decision-making slow and
cumbersome.
Neither Portugal nor Spain will return to the financial instability that defined the early years
of the European crisis. Most of the main political parties in both countries are pro-market
and defend the membership of their countries in the eurozone, so political frictions will not
lead to a dramatic change of direction in Lisbon or Madrid. In addition, a combination of
low oil prices and the European Central Bank's intervention in debt markets should prevent
an escalation of the economic crisis in the Iberian Peninsula.
However, both countries will probably reverse some of the reforms that were applied by
their predecessors. In the long run, this will re-create the conditions that led to the crisis in
the first place. The behavior of countries in Mediterranean Europe will also make the
European Commission increasingly ineffective.
In Italy, the government of Prime Minister Matteo Renzi will seek a balance between
introducing economic reforms and increasing public spending. One of the main challenges
for Rome will be the introduction of reforms in the pension system to make it more
sustainable. Italy will also hold a referendum in the second half of the year on the
constitutional reforms that were approved in 2015.
Renzi will continue to deal with resistance within his own party, but the prime minister will
probably manage to make his reforms. A key event to watch for in 2016 is the evolution of
the center-right as conservative and Euroskeptical forces try to form a common front to
compete in the next elections (which are technically scheduled for 2018 but will probably
happen before then). Italy's underlying economic situation will continue to deteriorate;
Rome will increase spending while failing to deal with its debt problems, creating problems
for itself (and Europe) in the near future. But although increasingly troublesome indicators
are likely to arise such as rating agency downgrades or intensifying problems in the
Italian banking sector no systemic crisis is expected in 2016, mainly because of the
European Central Bank's ongoing bond-buying program.

The British Question

One of the main issues in 2016 will be the British referendum on EU membership. The vote
is expected in late 2016 or early 2017. Some of London's proposals for EU reform, such as
reducing red tape and increasing competitiveness, are uncontroversial and are likely to
produce an agreement among member states. The United Kingdom will probably also be
promised protection for non-eurozone countries against measures that affect the currency
union, and London will even receive the ability to opt out of the concept of an "ever closer

union." The United Kingdom's push to reduce in-work benefits for immigrants will prove
more troublesome and will require London to compromise.
London's proposals for EU reform will produce different alliances over different issues.
Some countries, including the Netherlands and Poland, will support the demands to give
national parliaments veto power over EU legislation. Other countries, mostly in Northern
Europe, will support the demands to restrict access to welfare for immigrants, but countries
in Central and Eastern Europe will resist them. Countries in Central and Eastern Europe
(specifically Poland, Hungary and Romania) will defend policies to protect non-eurozone
countries from eurozone decisions.
As a result, British Prime Minister David Cameron is likely to make compromises and
present them as a political victory at home. Though opinion polls show very different
results when it comes to British citizens' view of EU membership, London will try to keep
the United Kingdom in the bloc. If there is a referendum on the issue in 2016, the "in" side
will win.

The Migration Crisis Risks Reigniting the Balkans

The immigration crisis will continue its cyclical behavior: During the early months of the
year, cold temperatures and bad weather will probably lead to a reduction in the inflow of
people into Europe. The flow will increase as summer approaches, but asylum seekers will
find a different Europe in 2016. Border controls will become more frequent, and countries
along the so-called Balkan routes will be less tolerant of immigrants crossing their
territories. For the first time since its creation, the Schengen Agreement will not end the
year as it began it; either free movement will be somewhat constrained, or fewer countries
will be members.
As a result, asylum seekers will find it harder to reach Northern Europe. Some of them will
be forced to look for new routes while others will be stuck in the Western Balkans. This
will increase the probability of violence in the region as some people become involuntary
immigrants in countries already experiencing high unemployment, ethnic tension and
fractious politics.

The Eastern Front

2016 will be intense for Poland and Romania, the largest countries on the eastern EU
border. In Poland, the conservative government will push the European Union to maintain a
hard-line stance on Russia and will criticize Germany's handling of EU issues, including
immigration and relations with Moscow. Berlin will argue that the Minsk peace agreement
is not being completely respected and will pressure Southern European countries that have
more flexible relations with Russia to continue the sanctions. At the same time, Berlin will
try to protect its energy ties with Moscow (for example, by defending the Nord Stream 2
project), which will antagonize Germany's eastern neighbors.

Poland will demand a greater NATO presence in Central and Eastern Europe while trying to
develop stronger ties with the Visegrad Group (which also includes Hungary, the Czech
Republic and Slovakia) and Romania. As Poland becomes more distant from Brussels and
Berlin, it will draw closer to the Visegrad countries and occasionally the United Kingdom.
Warsaw will also make controversial moves at home, such as lowering the retirement age
and creating special taxes on sectors such as banks and supermarkets. These policies will
invite criticism from both the European Union and foreign investors.
In Romania, the technocratic government will have an auspicious start but will lose steam
over time. Bucharest will remain committed to its alliance with the United States and its
membership in NATO and the European Union. Romania will also continue to support
Moldova's path to EU accession and maintain a cold relationship with Russia. However,
political support for the government will erode gradually, especially as the parties that
support the technocratic administration begin making their own calculations ahead of the
general elections in December.
Countries along the European Union's eastern border will spend 2016 trying to improve
regional cooperation and to boost NATO's engagement in the area. During a NATO summit
in Warsaw in July, Poland and others will request a permanent NATO presence in Eastern
Europe. Some members of the alliance, most notably Germany, will resist this idea, as will
some Central and Eastern European countries that prefer to stick to troop rotations as they
try to manage relations with Moscow.

Former Soviet Union

A Broad Standoff Endures
The standoff between Russia and the West has been central in shaping the global system for
the past two years. Stratfor expects it to stay in place in 2016, though the levels of conflict
and potential cooperation will wax and wane from issue to issue. The war in eastern
Ukraine is likely to become a long-term frozen conflict, with fighting less intense than that
seen in 2015 but periodic skirmishes continuing between Ukrainian security forces and
Russian-backed separatists. The Minsk Protocol will continue to serve as the backbone of
diplomatic negotiations. However, Russia and the separatists have a different interpretation
of the Minsk agreement's political components than Ukraine and the West do, and these
differences will prevent a broader political and military settlement from being reached in
2016.
Moreover, the United States and the European Union are almost guaranteed to keep
sanctions against Russia in place this year, unless Moscow proves willing to relinquish
access to and control of the border between Russia and the separatist territories and allow
monitors from the Organization for Security and Co-operation in Europe into Donbas.
Moscow is unlikely to give in on either issue.

In the meantime, Russia and the West will continue fast-paced military exercises and
weapons buildups focused on the European borderlands. NATO will add troops to its
rotational deployments in Central and Eastern Europe, and Russia will add air and defense
assets in areas such as Belarus and Kaliningrad. There will be no direct military conflict
between Russian and NATO forces, but both sides will build up deterrence capabilities and
shore up their respective security alliances.
Russia will continue its military involvement in Syria, which will complicate its
relationships with Turkey, the United States and Europe. Russia will coordinate with these
powers to deconflict the battlefield, particularly regarding cooperation against the Islamic
State, although Moscow's reinforcement of Syrian President Bashar al Assad's government
will entail targeting Sunni rebels and runs the risk of mission creep. Russia's role in Syria
will most notably undermine its relationship with Turkey. As Turkey draws closer to its
NATO allies, Moscow will be cautious in how far it takes its confrontation with Ankara.
The two countries will enact tit-for-tat trade restrictions and delay joint energy projects.
Both countries will also compete for influence in the Caucasus particularly in Azerbaijan
and try to shape the talks over the Nagorno-Karabakh dispute.

Russia Focuses on Security and the Economy

The Russian economy will continue to be a major priority for Moscow in 2016. The
Kremlin has taken steps to insulate it from the effects of the Western sanctions, including
seeking investment from Russia's neighbors to the east, using Russian banks for financing
and postponing large projects that require either foreign investment or technology restricted
under the current sanctions. Russia probably can withstand another year of sanctions, but
beyond 2016 they will jeopardize the country's financial stability and ability to maintain
current levels of energy production. Therefore, out of necessity, Moscow will be more
accommodating with its Western energy contracts in 2016 as it works to increase energy
ties with the east by prioritizing regional pipeline integration projects, such as the Eastern
Gas Program and the Eastern Siberia-Pacific Ocean oil pipeline.
Economic growth in Russia will be relatively flat; the Russian Ministry of Economic
Development has forecast growth of 0.7 percent for 2016. The economic decline that sent
Russia into a recession will slow, as will capital flight and drops in industrial production.
Major Russian industrial firms will have fewer international debt payments due in 2016
($16 billion, compared to more than $30 billion in 2015). This will make it easier for these
firms to receive financial assistance from the government or to broker assistance from
major Russian banks to restructure their debts. The ruble is expected to remain volatile; the
Russian Central Bank intends to step in only periodically to support the currency. This
volatility could help Russian industrial and energy firms whose export revenues are in
dollars, but it will put further economic strain on the Russian people, who are already
experiencing high inflation and rising poverty rates. The weak ruble will exacerbate
Russia's socioeconomic issues. Not only will the currency's weakness limit travel
opportunities, but also the price of imported consumables not otherwise included in the
Russian consumer price index calculations will increase. These circumstances could give

rise to social unrest across the income spectrum, including medium- and high-income
earners.
Growing economic pressures will lead to protests across Russia. The Kremlin will allow
minor protests related to economic conditions to take place, but it will attempt to defuse any
large and well-organized protests that take on more of an anti-Kremlin tone.
Moreover, increased anti-Islamic State rhetoric from the government could fuel an uptick in
ultra-nationalist unrest that culminates in protests and vigilantism targeting immigrant
communities, similar to incidents seen in 2013. The Federal Security Services will attempt
to use threats from the Islamic State and other Islamist militant groups to expand its
security and intelligence powers within and outside of Russia. In addition, ahead of
parliamentary elections in September, the Kremlin is likely to crack down on opposition
groups and leaders in an attempt to keep them from organizing a more widespread
movement.
Infighting among members of the Kremlin elite will intensify in 2016. Disputes involving
major energy firms' political backers, the ministers of finance, economy and energy, and
even the security services will erupt over the future of Russia's energy policies. Points of
contention will include financial assistance for big energy firms and projects, whether to
privatize Rosneft, and the possible end of Gazprom's monopoly on natural gas pipelines.
Disagreements will emerge among the various security services and military forces over
who holds the portfolios for handling the ongoing situations in eastern Ukraine, Syria and
other hot spots, and debates will arise over the balance of power, influence and financial
resources among the security and military groups. Russian President Vladimir Putin's
ability to manage these disputes is declining, which will lead him to rely more on ultraloyalists who have some distance from the core areas of contention.

Ukraine's Domestic Troubles

The persistent conflict in eastern Ukraine will be only one of many serious challenges for
Kiev in the next year. Far-right and nationalist groups will continue to undermine the
Ukrainian government and hamper Kiev's ability to follow through with its political
concessions to the separatists. This, in turn, will guarantee that Donetsk and Luhansk will
remain beyond Kiev's political control, though certain economic links could be restored out
of necessity for both sides over the course of the year.
The unpopularity of painful austerity measures and the slow pace of legal and judicial
reform are likely to lead to a significant shake-up in Kiev in 2016, potentially including the
replacement of embattled Ukrainian Prime Minister Arseniy Yatsenyuk. Nevertheless,
Ukrainian President Petro Poroshenko will likely maintain Kiev's pro-West course. Access
to Western financial support and security assistance from NATO and the United States in
particular are key to the survival of the Ukrainian government.
After contracting 10 percent in 2015, Ukraine's economy will begin to slowly rebound in
2016, although high inflation and unemployment will continue to spur protests and
occasional unrest. Kiev's economic links with Moscow will likely weaken as the two

countries debate debt repayments, energy and electricity supplies, and Ukraine's
implementation of a trade deal with the European Union that takes effect Jan. 1. Trade in
resources such as energy supplies and agricultural goods will decline between Ukraine and
Russia as Kiev gradually reorients its economy and broader strategic interests away from
Russia and toward the West.

Political and Security Concerns in the Former Soviet Space

The Ukraine crisis will continue reverberating throughout the former Soviet Union in 2016.
Belarus will gradually strengthen its economic ties with the West, but it will maintain its
military and strategic alignment with Russia. Belarusian President Aleksandr Lukashenko
will work to avoid the establishment of a Russian air base in his country in a bid to keep
from creating more tension between Minsk and the West, but his position could change if
NATO builds up its presence in neighboring Poland and the Baltic states.
In Moldova, a corruption scandal linked to the pro-EU government will create greater
support for the country's pro-Russia parties, but the paralysis in Moldova's political system
will ensure that Chisinau remains deadlocked on the issue of strategic integration with
either Russia or the West. The Baltic states will make further strides toward energy
diversification away from Russia this year as infrastructure and energy links are built up
between the Baltics and Poland. These countries will also make more progress toward
regional security integration; however, a permanent NATO or U.S. military presence there
will not materialize in 2016.
Georgia will receive stronger Western security support in terms of exercises and
involvement in the country's new NATO training center, but actual NATO accession will
remain off the table. Georgia will increase its economic ties with Russia in areas like energy
and trade, even as Tbilisi stays strategically oriented toward the West.
The long-standing frozen conflict between Armenia and Azerbaijan over NagornoKarabakh could see significant change in 2016 as Russia tries to push along a negotiated
deal involving a transfer of territory to Azerbaijan in exchange for economic and security
guarantees for Armenia. Russia's moves in the southern Caucasus will draw greater Turkish
and U.S. attention as both work to counterbalance Moscow's influence. If the talks over
Nagorno-Karabakh collapse, an uptick in military hostilities can be expected. That said, a
Russian-brokered diplomatic shift back to the status quo is more likely than a full-scale
military conflict over the disputed territory.
A range of issues, including ongoing economic troubles, the return of migrant workers from
Russia and the threat of rising Islamist militancy, will make Central Asia prone to
heightened instability in 2016. Economic vulnerabilities will force some countries, such as
Kazakhstan and Uzbekistan, to lobby for major foreign investment through planned
privatization programs. Though this may garner minor interest and investment, neither
country has undergone the kind of regulatory reforms that would inspire foreign investors
to confidently go there.

Given their proximity to northern Afghanistan, Uzbekistan, Turkmenistan and Tajikistan

will be particularly at risk from a security perspective, though the governments in these
countries have an interest in playing up the Islamist militant threat as a reason to crack
down on domestic opposition elements. Russia and the United States will also have an
incentive to emphasize this threat as bothpursue competing border security initiatives in
Central Asia. Military cooperation between Azerbaijan and Kazakhstan, including joint
exercises, will increase in the Caspian Sea as the West continues pursuing alternative
energy projects like the Trans-Caspian Pipeline. At a Caspian Sea summit in Astana in
August, Russia could voice support for working to delimit the seabed, although no major
energy projects are likely to begin in 2016.

Middle East and North Africa

All Eyes on Turkey
Turkey will be the most critical player to watch. Stratfor has long discussed the forces
behind and obstacles to Turkey's regional resurgence. Although Ankara has encountered a
number of hurdles, a more politically secure government under the leadership of President
Recep Tayyip Erdogan will be much more assertive beyond Turkey's borders this year.
Turkey is already preparing for an operation west of the Euphrates River in northern Syria
to flush out Islamic State militants along its border. In addition to countering the Islamic
State, Turkey wants to keep a check on Kurdish expansion in northern Syria and ultimately
wants to create a "safe zone" for Syrian refugees within Syria. Turkey is not interested in
absorbing more of the refugee burden for the sake of easing European concerns, but Ankara
does intend to use European anxiety about migrant flows to reinforce its foothold in Europe
and secure backing for its military actions in Syria. The United States will likely facilitate
Turkey's heavy air campaign in northern Syria while pursuing a second offensive that will
rely on mostly Kurdish rebel proxies east of the Euphrates. Turkey will emphasize its intent
to rely principally on Sunni Turkmen and Arab rebel proxies to clear and hold the Islamic
State-infested territory, but Ankara will also have a contingency plan ready in case it needs
to deploy ground forces. Moreover, Turkey and the United States will work with Saudi
Arabia, the United Arab Emirates, Qatar and possibly other Arab countries such as Egypt
and Jordan to assemble a coalition for anti-Islamic State operations in Syria. This will add
manpower to the current mission while also helping Ankara avoid reviving the historical
resentment inherent in returning Turkish troops to Arab soil.
Russia will be the greatest complicating factor in Turkey's plans. The Russian objective in
Syria is multilayered, and Moscow will not stray from its partnership with the government
of Syrian President Bashar al Assad in trying to weaken the Islamic State. This partnership
means that Russia will need to confront forces trying to weaken the Syrian government,
including the array of rebel forces that the United States, Turkey, Saudi Arabia, Jordan and
Qatar are relying on in their own fight against the Islamic State. Russia's dual targeting of
Islamic State militants and Syrian rebels will prevent a more coherent coalition against the
Islamic State from forming and will widen the divide between Turkey and Russia.

Russia will try to scuttle Turkey's military plans by increasing its presence in Syria. This
will mainly mean further use of air assets over northern Syria. Turkey will not necessarily
stand down in the face of this pressure. Negotiations to deconflict the battlefield are
likely, but they also do not eliminate the potential for skirmishes. As Russia-Turkey
relations visibly deteriorate, Moscow will not want to push Ankara too far. The more
Turkey finds common cause with its NATO partners, the more vulnerable Russia will be in
the former Soviet sphere.
The deterioration of the relationship between Turkey and Russia will give the United States
and its partners in Central and Eastern Europe an opportunity to draw Ankara into a tighter
alliance. Neither Turkey nor Russia can afford a complete break in relations, but trade ties
are bound to suffer while strategic energy projects are likely to experience further delays.
This will give more urgency to Turkey's push to pursue energy projects in Azerbaijan and
the Kurdish regions of Iraq. Turkey will also be more compelled to make progress in
negotiations over the reunification of Cyprus in order to edge its way into eastern
Mediterranean energy projects.
The Syrian battlefield is split between a dizzying array of competitors and interests. This all
but assures that any attempt to implement a cease-fire or forge a final power-sharing
agreement will be extremely limited. The foreign stakeholders are now willing to increase
military support for their proxies. Though this will balance out the battlefield, it will also
further decrease the incentive for either side to compromise to advance negotiations.
As Turkey grows more assertive in the Middle East, its competition with Iran in Syria and
Iraq will intensify. While reinforcing the al Assad government alongside the Russians, Iran
will exploit divisions in the Kurdish regions of Iraq to counter Turkey's efforts to tighten its
economic and energy links in northern Iraq at the expense of Baghdad. Russia could also
revive its ties with Kurdish militant factions as a lever against Ankara. Turkey will commit
a limited number of troops to training operations for Sunni fighters in northern Iraq. Even
as Turkey tries to build on its relationship with Massoud Barzani's Kurdistan Democratic
Party to deepen its foothold in the Kurdish regions of Iraq, Turkish relations with the
Kurdistan Regional Government will inevitably run into complications as Turkey continues
to pursue Kurdish rebels who use Iraq as their refuge.

The Islamic State Persists

The Islamic State core in Syria and Iraq will suffer notable losses this year, though the
aspiring caliphate is unlikely to suffer total defeat. The weakening of the Islamic State as a
conventional force in its core territory will encourage its leadership to call for more terrorist
operations in the West and across the Middle East. As seen in the Paris attacks, hard-todetect grassroots cells will continue to pose a serious threat. Competition within the global
jihadist landscape will also motivate attacks, particularly in the Maghreb, Arabian
Peninsula and West Africa, where al Qaeda nodes are most relevant.

Iran Returns to the Oil Markets

Major Middle Eastern oil producers are entering another stressful year of low oil prices and
expensive foreign policy commitments. The implementation of the Iran nuclear deal at the
beginning of the year will add at least 500,000 barrels per day to the oil market followed by
a slower production increase over several months.
Iranian President Hassan Rouhani will trade on the success of the nuclear deal to campaign
for moderates in February elections for the parliament and Assembly of Experts, which is
the body in charge of appointing and reviewing the performance of Supreme Leader
Ayatollah Ali Khamenei. However, it will take time for Iranians to see the positive
economic benefits of the deal. Khamenei can be expected to use his informal influence over
parliament and the Guardian Council, which vets candidates for the elections, to balance
against the moderates, driving more competition in Iran's conservative political landscape.
This implies greater challenges ahead for the Rouhani government when it comes to
limiting the political and economic influence of the Islamic Revolutionary Guard Corps as
investors move into Iran.
The reintroduction of Iranian oil to the market makes Saudi Arabia unlikely to significantly
scale back production in the first half of 2016 to defend the price of oil. Once Saudi Arabia
has been able to assess the price impact of Iran's return as well as taking into account
declining U.S. production Riyadh could modify its energy output in the second half of
the year. However, the Saudi's will not be able to coordinate a sustainable production cut
with other major OPEC and non-OPEC producers. Mostly because of their smaller
populations, the United Arab Emirates and Kuwait will have an easier time coping with
another year of lower oil prices. Saudi Arabia, on the other hand, will have to finance a
growing budget deficit through debt issuances while making small and incremental
spending cuts.

The Next Phase of the Yemen Conflict

The Saudi-led coalition will continue to push forward on the battlefield in Yemen against
Houthi fighters and forces loyal to former Yemeni President Ali Abdullah Saleh as they
approach a resolution to the current phase of the crisis. Whether this resolution takes the
shape of a military push into Sanaa or a negotiated settlement ahead of a push will depend
on the resolve on the part of both sides to continue the fight. For the Saudi-led coalition and
Yemeni anti-Houthi elements, a drive into the mountainous core of Yemen will mean a slow
in the advance with considerable casualties and loss of equipment. Higher losses could
increase friction between members of the coalition, such as Saudi Arabia and the United
Arab Emirates, over which Yemeni parties to support. As Yemen moves toward resolution
of the conflict, non-state actors will pose greater security threats while the Yemeni security
apparatus is weakened and distracted. The Southern Resistance Movement's growing
autonomy will fuel calls for an independent "South Yemen," moving the country along a
path toward eventual split between north and south.

Israel's Security Dilemma Grows

As the fight in Syria becomes more complex, the Israeli government will work to maintain
a relationship with as many players on the battlefield as possible to be prepared for worstcase scenarios. Israel can be expected to keep close to both the United States and Russia to
keep tabs on the battlefield. The country will also maintain its right to carry out airstrikes
against Hezbollah and Islamic State targets near its border. Turkey's growing role in the
region will compel Israel to try to improve its relationship with Ankara.
The Israeli-Palestinian conflict will be defined by a cycle of persistent, low-level
Palestinian radical attacks in the West Bank and Israel, which will provoke continued local
retaliation and the Israeli security responses. From its base in Gaza, Hamas will try to avoid
another direct confrontation with Israel, but Israel's policy of holding Hamas responsible
for endorsing attacks, along with attempts by a fledgling Islamic State in Gaza to goad
Hamas into conflict, could broaden Israel's intervention in the Palestinian territories.
Hezbollah will welcome these distractions for Israel as the group tries to balance its
commitments in Syria with defending its home turf against pockets of Sunni rebels trying
to undermine Hezbollah's role in the Syrian war. An emerging Saudi-Iranian consensus on
selecting a Lebanese president will also help to defuse a more serious spillover of the
Syrian conflict into Lebanon.

A Difficult but Manageable Year for Cairo

No credible challenge to Egyptian President Abdel Fattah al-Sisi's hold on power will
emerge this year. Taking advantage of lower oil prices, the government will proceed
cautiously with subsidy reform in an effort to shore up its fiscal position and secure
assistance from the International Monetary Fund. The opposition will remain fragmented,
enabling the government to manage potential bouts of social unrest. A persistent jihadist
threat concentrated in the Sinai Peninsula but with the potential to carry out attacks in core
urban areas of the country will drive heavy defense spending and could further undermine
the tourism sector. Russia will be able to leverage the jihadist threat to deepen its security
relationship with Cairo, though the Egyptian government will continue to maintain a
careful balance among its Gulf sponsors, the United States and Russia. Egypt's offshore
natural gas potential in the eastern Mediterranean will spur energy cooperation among
Egypt, Cyprus and Israel.

North Africa Fights Instability

Algeria will be under significant financial stress as it struggles to cope with the fallout from
low oil prices. Spending cuts and selective tax increases are unavoidable, though the
government will manage to dodge major subsidy reform to avoid stoking significant social
unrest. Slow and uneven movement can be expected on other reforms that aim to improve
the country's energy investment climate and ultimately increase energy production to shore
up government revenues. Despite Algeria's precarious economic position, the government
will not sacrifice defense and security spending.
Preparations for Algeria's eventual political transition will occur at a steady pace. Part of
the preparation could entail some progress toward constitutional reforms designed to

rebalance power between the president and prime minister. Algeria will encourage and host
negotiations among competing Libyan factions to try to mitigate instability on Algeria's
eastern border while avoiding direct military engagements beyond its borders.
U.N.-brokered negotiations to form a Libyan unity government between rival camps in
Tripoli and Tobruk will continue dragging under the weight of intractable disputes between
warring parties. Libyan oil production and exports will fluctuate but will remain depressed
overall in 2016. International oil companies will continue to prefer to work with Tripolibased institutions over parallel institutions out of Tobruk. This will push the internationally
recognized Tobruk government toward compromise with its rival. However, sustaining a
power-sharing agreement will be extraordinarily difficult. The inevitable sidelining of more
hard-line factions will feed into ongoing security challenges.
The growing Islamic State presence in Libya, especially given the militant group's
increasing propensity for foreign attacks, will trigger greater foreign involvement in the
country. However, this activity will be limited primarily to air and special operations strikes
and working with local actors to undermine the group. The Islamic State in Libya will focus
on consolidating its power in the city of Sirte but will seek to extend westward toward
Misrata from Abu Grein and eastward toward Ajdabiya from Nawfaliya. As the Islamic
State emerges as a power player in Libya, Misrata militias will direct more of their efforts
against the militant group.

East Asia
Pushback in Beijing
China's reform process has reached a precarious phase. The much-needed transition to an
economy based on domestic consumption has been neither quick nor without cost.
Divisions are already showing among China's regions: the services sector is bolstering the
southern and coastal provinces, while weak housing and heavy industry sectors are
dragging down the northern and inland provinces. The 2016 agenda includes state-owned
enterprise reforms, with a particular focus on consolidating bloated sectors and imposing
additional oversight on assets. This will likely involveissuing more crude oil import
licenses to private refiners and spinning off the pipeline operations of China's national oil
companies.
Government and industry leaders both will push for consolidation, while Beijing will
impose reductions on metals production. This suggests that commodity consumption
growth will remain sluggish in 2016. Rising corporate debt, exacerbated by slowing
domestic economic growth, will generate further risks to the reform process. This does not
mean, however, that Beijing will deliberately slow or reverse reforms, as such a decision
would carry its own risks. Nonetheless, China's leadership is looking at a troubled year as it
manages the economic and social impacts of economic change. The new year will also
likely see further, cautious loosening of currency controls to further the internationalization

of the yuan, as well as domestic fiscal reforms intended to boost the tax revenues of local
governments.
China's policymakers will make it a priority to minimize social and economic disruption
while moving forward with reform plans. As in previous years, resistance to change will
manifest in bureaucratic inertia and political maneuvering. As President Xi Jinping's
political consolidation and anti-corruption campaign intensifies ahead of the 2017 Party
Congress, members of China's elite will band together in small factions to gain protection
from the consolidated center. Competition for positions ahead of 2017 will accelerate this
trend a further sign of the shift away from the system of consensus rule that has been the
status quo since the era of Deng Xiaoping. This transition will mean greater uncertainty in
China over the next few years.
Beijing is also launching a long-awaited and ambitious series of military reforms. These
will significantly alter the structure of the People's Liberation Army, ultimately bringing it
more in line with Western military models. This will involve large cuts in personnel,
reorganization of military regions, and the removal of a significant number of staff officers.
Beijing will carefully match these changes with economic incentives for those who are
demobilized or moved out of powerful positions. Beijing could also reduce the role of
political commissars, at least at the lower levels, to allow for more flexibility in military
operations, particularly at the tactical level.

Southeast Asia's Balancing Act

In Southeast Asia, the expected U.S. interest rate hike will place pressure on some of the
regional economies, particularly Malaysia and Indonesia, both of which rely heavily on
foreign lending. However, the Chinese economic slowdown will continue to be the single
greatest source of economic difficulty in Southeast Asia, though impacted countries will
still be compelled to balance their economic dependence on China with their growing
security reliance on the United States. Even as China's economic growth slows, Beijing will
use its heft to offer incentives to push Southeast Asian nations to cooperate, warning them
of both economic and military consequences should they resist.
Efforts to establish or implement regional trade and economic agreements in Asia will
accelerate in 2016. The U.S.-led Trans-Pacific Partnership will come up for ratification in
several regional countries, while others petition for inclusion in the second round of
membership. Negotiations toward the Regional Comprehensive Economic Partnership will
intensify, as will moves by China, South Korea and Japan to create a trilateral free trade
agreement. Members of the Association of Southeast Asian Nations (ASEAN) will begin
implementing the blueprint for the new ASEAN Economic Community. None of these
developments will radically alter the economic situation in Asia in 2016, but each will
create new challenges and new opportunities for businesses in the Asia-Pacific region.
These deals will also provoke domestic challenges from players trying to defend their
particular interests amid the changing environment. This will contribute to delays in
ratification and implementation of new agreements. At times, this will yield short, but sharp

political disruption, particularly in countries such as Japan, Malaysia, Indonesia and South
Korea, which are already facing internal economic and political stresses.
The desire for economic cooperation may rein in regional security competition. It will not,
however, fully ameliorate political and territorial disputes. The South China Sea in
particular will remain a central focus. China will continue asserting its claims over disputed
territories, and the United States will continue freedom of navigation patrols around
Chinese-occupied islets and expand its military cooperation with several littoral countries.
Maritime tensions could flare up again as the Netherlands-based Permanent Court of
Arbitration makes its initial findings on the Philippines' case against Chinese South China
Sea claims. Although the court decision does not identify sovereignty issues, and though
China is not participating in the case, the rulings nonetheless will add another layer of
complexity to the maritime disputes and questions about whether the disputed islets even
serve as legal bases for determining the extent of territory. The United States has budgeted
for increased defense-related training and sales in Southeast Asia (and Taiwan) in 2016 and
will expand defense cooperation with Japan and Australia.
Japan will continue to debate whether it is politically or militarily ready to join in South
China Sea patrols, but no decision is expected until the second half of the year, after Upper
House elections. Even then, Tokyo is more likely to limit its direct patrols to aerial
reconnaissance rather than anything involving surface vessels. The United States will also
push Australia to take on a more active role in the South China Sea. As with Tokyo,
however, Canberra will find itself carefully weighing the costs and benefits of any
significant action, given its tight economic relationship with China.
Despite continued U.S. activities in the South China Sea and an expected U.S. arms sales
package to Taiwan, China is unlikely to significantly curtail bilateral military ties with
Washington or threaten its standing invitation to join the Rim of the Pacific Exercise
(RIMPAC), one of the world's largest multilateral naval exercises. Meanwhile, to shape
regional perceptions and put the existing U.S.-Japan-South Korean alliance structure under
stress, Beijing could make concessions in 2016 in negotiations on establishing a maritime
boundary with South Korea.

Japan's Regional and Domestic Role

In 2016, Japan's "Abenomics" economic agenda will provoke growing criticism from a
disillusioned public. The government could try to reshape the terms of the program's
successes, shifting attention away from the monetary "arrow" one of the three core
aspects of the strategy and toward structural reforms and the progress being made.
Longer-term plans, such as a 2017 sales tax increase, could be delayed even further as the
economy remains at the edge of recession. Should the Abenomics program officially end,
government bond yields likely will not spiral to disaster, as others are predicting. Instead,
Japan will take a path similar to the one it pursued before Prime Minister Shinzo Abe took
power increasing government spending, raising debt levels, and pushing the problems
further down the road.

Japan's economic, political and security relations throughout Southeast Asia will spread in
2016, despite domestic economic constraints. Although Japan faces economic challenges at
home and "Abenomics" is far from accomplishing its main goals, Tokyo still has a fair
number of financial incentives it can offer Southeast Asia and will more actively pursue
infrastructure contracts throughout the region, often going head-to-head with China.
Southeast Asia will reap the benefits of increasing competition between the two powers as
each seeks to expand regional economic cooperation, loans, infrastructure development and
investment.

Notable Elections in the Region

Though Stratfor does not predict the outcome of elections, and though governments are
constrained by geopolitical realities that limit their ability to radically alter policy
directions, a handful of elections slated for 2016 are worth noting.
In January, Taiwan will elect a new legislature and president, and most polls suggest the
opposition Democratic Progressive Party is poised to take over from the ruling
Kuomintang. China will pay particular attention to this election; the Democratic
Progressive Party traditionally is considered a pro-independence party, though its current
platform asserts that it wants to maintain Taiwan's current relationship with China.
Although we do not expect any radical changes in the first six months of the new
government, there will be plenty of room for political miscalculation.
China will also be closely watching May's elections in the Philippines a country at the
center of the South China Sea dispute. Ahead of the vote, Beijing could make it a point to
appear more cooperative on maritime issues and economically in hopes that a more
conciliatory government will take over in Manila.
In Malaysia, the embattled government of Prime Minister Najib Razak could choose to call
an election in 2016. The ruling United Malays National Organisation and Barisan Nasional
will court the ethnic majority, potentially adding stress to increasingly unstable internal
relations with the ethnic Chinese, a critical component of the Malaysian business
community.
In South Korea, rising labor unrest will contribute to periods of public demonstration and
occasionally violent protests leading up to the April parliamentary elections.
Although not truly a national election, North Korea's Workers' Party congress will mark the
solidification of the rule of Kim Jong Un and could end the frequent leadership shuffles that
have characterized the past few years. Additional nuclear and missile tests, driven more by
technological than political requirements, cannot be ruled out.
And finally, in Myanmar the military will work to retain its place in the new government,
adding uncertainty to the handover of power to the National League for Democracy.

Latin America
Venezuela's Decline Continues
The deterioration of the Venezuelan economy and the loss of the National Assembly to the
opposition will weaken the ruling United Socialist Party of Venezuela's (PSUV) and create
more room for social unrest, financial default and political conflict among the branches of
government. The opposition has won a significant majority in the National Assembly and
can leverage it to undertake substantial economic and political reforms. Under pressure
from this majority, segments of the ruling party could open negotiations with the opposition
with the intent of forming alliances. But the PSUV could also use the court system to keep
a hostile legislature in check.Regardless of the government's strategy, divisions within the
ruling party will likely worsen, and the PSUV elite will probably perceive the Dec. 6
electoral loss as a harbinger of another defeat in the 2019 presidential election.
The strain on Venezuela's public finances will worsen in 2016. During the past
year, Venezuela depleted its foreign reserves and funds to maintain imports and government
spending. Without that cushion, the government will have to carefully prioritize public
spending. Caracas will probably reduce imports further in 2016 to maintain both foreign
debt payments and reinvestment into state-owned energy firm Petroleos de Venezuela
(PDVSA). This is a risky strategy: While it preserves Venezuela's limited access to foreign
credit for the energy sector, the country's primary source of dollar revenues, it will fuel
inflation and exacerbate food shortages. Even with the government attempting to honor its
debt, low revenue from PDVSA and depleted finances make a default a possibility for
2016.
Venezuela's worsening food shortages and rising food prices will spur further isolated
demonstrations, particularly in rural areas and states outside of Caracas. The government
can manage such unrest as long as it does not coalesce into larger demonstrations. Given
the level of public discontent in Venezuela concerning inflation and shortages,
demonstrations could expand into wider unrest capable of worsening the country's political
stability.

Brazil's Economic and Political Challenges

Brazil's government will face the difficult tasks of maintaining employment and limiting
inflation amid a domestic economic downturn and low global prices for its principal
commodity exports. The effects of a 2014 corruption scandal at state-owned energy firm
Petroleo Brasileiro (Petrobras) will linger into 2016. The government will take measures to
address the negative economic effects of the scandal, such as allowing contracting firms
currently banned from doing business with Petrobras to again sign contracts with
it. Petrobras will also try to raise additional capital through asset sales and government
funding, given its heavy debt obligations and need to fund exploration and production
activities.

On the political front, the ruling Workers' Party will encounter persistent challenges to its
authority. Even if Brazilian President Dilma Rousseff survives the threat of impeachment,
the Workers' Party will remain highly dependent on its allies to fend off additional
challenges to its power.
Sluggish demand growth for Brazilian export commodities and a slowing domestic market
will push Brazil to look for additional foreign markets throughout the year. Despite
disagreements with Argentina, Brazil is likely to press ahead with negotiating a free trade
agreement between the Common Market of the South (known by its Spanish acronym,
Mercosur) and the European Union. The divide between Argentina and Brazil concerning
foreign trade strategies will likely deepen in 2016; Argentina will remain reluctant to
subscribe to any trade agreements that weaken its already uncompetitive manufacturing
base or lead to a significant trade imbalance.

Argentina's New Government Addresses Debt Problems

With a new president at the helm, the Argentine government will begin taking steps in 2016
to address the legacy of economic problems from the previous administration. The
government will likely try to begin negotiations with creditors that are demanding the
repayment of debt owed from Argentina's 2001 default; a successful negotiation would
eventually give Argentina renewed access to global capital markets. In the meantime,
additional funding from China or other creditors could give Argentine public finances some
breathing room, but with the country in an economic decline, Buenos Aires will probably
work toward opening talks with holdout creditors. The new government will also begin
reducing public spending and devaluing the currency to close the gap between the official
and parallel exchange rates. Despite the likelihood of some economic adjustments,
structural problems such as high inflation and a persistent shortage of available foreign
currency will continue to hurt Argentina. Consequently, it is unlikely that the new
government will remove all barriers to foreign trade that would allow more imports and
increase capital inflow in 2016.

Colombia Nears a Peace Deal With Rebels

Colombia's export revenue growth will remain slow because of low oil prices. Because of
the state's reliance on oil for revenue, Bogota will have to make up for the shortfall
elsewhere, likely through a tax reform. However, such a reform could be diluted or delayed
if it faces resistance from the private sector.
The Colombian government and the Revolutionary Armed Forces of Colombia
(FARC) will negotiate the militants' demobilization. The government intends to sign a
peace deal by March 2016, although the deadline for signing will likely be extended if the
two sides fail to reach conclusive agreements on the rebels' participation in Colombian
politics, the nature of transitional justice mechanisms and the way in which militants will
surrender their weapons. Any peace agreement signed between the FARC and the
government will be put to a national vote at a date the central government will determine.
Although the Colombian government and the FARC might not stick to the previous

timeline and sign a deal by the end of the first quarter, all the pieces are in place for the two
sides to continue talks, and an agreement could well be reached in 2016.
If the government seals a peace deal with the FARC, insurgent attacks across Colombia will
remain few and largely limited to remote areas of the country in 2016. With the FARC
focused on signing an agreement with the state, the National Liberation Army a much
smaller and less capable group that will pursue a separate peace deal with Bogota in 2016
will be the only force willing and able to conduct militant attacks.
In 2016, the Colombian government will focus its counternarcotics strategy on the
eradication of coca crops by individuals on the ground rather than by aerial spraying. This
is likely to spur more violence against security forces and is more time-consuming than
aerial spraying. Overall, this shift could hamper Bogota's ability to eradicate coca crops in
the country's rural areas.

Mexico's Criminal Groups Fragment

During 2016, Mexico's export-oriented economy will cope with slowing global markets and
a rising trade imbalance. Economic growth will be sluggish relative to other years, although
the country will remain attractive to foreign investors. On the political front, periodic unrest
from anti-government demonstrators and segments of teachers' unions will continue in
Mexico's southwest, albeit at a much lower level than in 2015.
Mexican criminal organizations will continue fragmenting across the country as individual
criminal networks come under government pressure or engage in turf wars against one
another. This process will cause some areas of the country such as the northeastern
region, encompassing parts of Tamaulipas, Nuevo Leon and northern Veracruz states, as
well as the southwestern states of Michoacan and Guerrero to experience high levels of
violence. Turf wars, such as those between the highly fragmented patchwork of criminal
groups operating in Tamaulipas, the ongoing struggle between Tierra Caliente criminal
groups in Michoacan and Jalisco, and the fragmentation of Sinaloa Federation affiliates in
Baja California Sur and other regions of northwestern Mexico, will continue driving
violence. The Mexican government will keep relying on the armed forces and federal police
to spearhead its counternarcotics strategy, and the weak rule of law in specific areas will
make the use of these forces necessary.

Bolivia's President Seeks Another Term

Bolivia will hold a national referendum Feb. 21 to grant Bolivian President Evo Morales
the ability to run for a third term in 2019. If Morales wins the ability to campaign for the
presidency again, some protests from the opposition coalition are likely. Bolivian
opposition parties lack the cohesion and public approval to conduct prolonged unrest and
secessionist threats, as they did in 2008. However, at least some disruptive protests are
likely to follow the vote.

Peru's Economy Stays Afloat

Because of Peru's reliance on mineral exports, lower Chinese demand growth for Peruvian
copper relative to other years will hamper its economic expansion. However, Peru will use
its relatively healthy public finances to avert the more negative effects of a significant
economic downturn, like those seen in previous boom-and-bust cycles. Peru will hold a
presidential vote April 10, pitting the conservative Keiko Fujimori against several other
candidates, including Pedro Pablo Kuczynski, Alan Garcia and Alejandro Toledo.
Regardless of the election's outcome, major or immediate changes in the country's openness
to foreign investment and trade are not expected in Peru as a result of the vote.

South Asia
India Struggles With Reform
Losses in the Delhi and Bihar state elections in 2015 will weaken Indian Prime Minister
Narendra Modi's mandate to push his reform agenda through parliament in 2016, stymieing
legislation on taxation, real estate, access to electricity, labor reform and land acquisition.
His Bharatiya Janata Party (BJP) is unlikely to gain many seats in 2016 in the parliament's
upper house, where it remains in the minority. Among upcoming state elections in Assam,
Kerala, Tamil Nadu, West Bengal and Puducherry, only Assam has the potential to deliver a
BJP victory. Low oil prices will help sustain the economy's growth rate of 7 percent into
2016, but deficiencies in energy infrastructure, a high fiscal deficit and underutilization of
capacity in manufacturing will hamper further growth. Moreover, difficulty in passing the
Goods and Services Tax Bill a sweeping piece of landmark legislation aimed at
simplifying India's convoluted tax code by imposing a single levy on all 36 states and union
territories will constrain economic growth. (The opposition center-left Indian National
Congress has stalled the bill in parliament.)
State-owned banks, burdened by $100 billion in bad debts, will keep making a slow
recovery in 2016 but will not be strong enough to start lending in force again. Labor unions
and bureaucrats will continue opposing the government's plans to divest shares in stateowned enterprises. Additionally, Modi will struggle to address the schism between the
BJP's traditionalist Hindutva wing and the party's more pragmatic middle-class and probusiness base as the Congress party capitalizes onrising tensions nationwide over the issue
of intolerance related to Hindutva.
The main goal of India's foreign policy in 2016 will be securing foreign direct investment.
Modi will resume a vigorous travel schedule in support of his "Make in India" campaign
and "Act East" policy, seeking to strengthen bilateral ties with the Association of Southeast
Asian Nations and with France, Japan and the United States. Relations with Nepal will
begin to stabilize as the two nations work to implement a three-step political agreement that
addresses the concerns of the ethnic Madhesi community over Kathmandu's recently
adopted constitution. The largely Hindu Madhesi felt the new constitution would not give
them proportional representation and imposed a blockade in protest an action Nepal

accused India of tacitly aiding. Despite Nepal's efforts to appease the Madhesi, the strategic
implications of this episode will endure; Kathmandu will move closer to Beijing as a hedge
against possible future aggression from New Delhi, weakening India's influence along its
periphery. (China already has close ties with Pakistan, is a significant investor in
Afghanistan and Sri Lanka, and has a defense cooperation relationship with
Bangladesh.) Tensions between India and Pakistan are unlikely to escalate beyond the
occasional skirmish over Kashmir. India's security concerns about Afghanistan will drive
New Delhi toward a limited dialogue with Islamabad.

Pakistan Pursues Security

Supported by a three-year, $6.6 billion International Monetary Fund loan and buoyed by
low oil prices, Pakistan's economy will maintain its current growth rate of 4 percent in
2016. However, a weak business environment and a lack of reforms in the country's
distressed energy sector will inhibit further growth. The Iran-Pakistan pipeline and the
Turkmenistan-Afghanistan-Pakistan-India pipeline will see little progress in spite of
growing political support for them. The same is true for a $46 billion China-Pakistan
economic corridor, a series of projects designed to link China's western Xinjiang province
with the port city of Gwadar on the Arabian Sea. (Balochistan, Pakistan's large
southwestern province in which Gwadar is located, is home to a Balochi insurgency that
needs to be calmed before the corridor can be functional.) Relations between Islamabad and
New Delhi will remain stable as Pakistani Prime Minister Nawaz Sharif continues directing
the military's attention toward battling domestic Islamist militants something that will
work in Modi's best interests, too.
Sharif will continue pursuing his campaign to establish a stable security atmosphere in
Pakistan in the hope of making his country an attractive destination for much-needed
foreign direct investment. Pakistan's army chief, Gen. Raheel Sharif, will carve out a
prominent role for the military in 2016 and serve as a key facilitator in talks between the
Taliban and Kabul. Pakistan will continue to calibrate a delicate balance among Russia,
China and the United States, as well as between Iran and Saudi Arabia. Islamabad will
monitor the Saudi security situation with respect to Yemen and will even send military
advisers to Riyadh, but it will be careful not to become too involved lest it invite Iran's
disapproval.

Peace Talks With the Afghan Taliban

Afghan security forces cannot militarily defeat the Taliban on their own, even as the
insurgency continues fragmenting. For countries like China and Pakistan, which fear the
potential consequences of longer-term instability in Afghanistan, peace talks will likely
remain the sole desirable option in 2016. But several factors, particularly Taliban
disunity, will prevent any meaningful talks from concluding if they emerge at all in
2016.
The impact of Taliban battlefield successes in 2015 even those that were shortlived, such as the fall of Kunduz in September will carry over into 2016. Kabul's

security forces will face a broader, albeit less unified, insurgent front as the number of
districts throughout the country under the control of the Taliban or other militant
organizations rises amid the inevitable spring offensive. This will challenge the cohesion of
the national unity government, potentially spurring regional warlords like Gen. Abdul
Rashid Dostum to act with increasing autonomy from Kabul to secure their own interests.
Furthermore, Afghan Taliban violence will likely foster anti-Pakistan sentiments within
Afghanistan that will further challengePakistan's role in any future talks between Kabul and
the Taliban.

The Islamic State and the Evolution of the Afghan Insurgency

More than a year after the emergence of the Islamic State banner in Afghanistan, the
number of Afghan militants claiming allegiance to the group remains comparatively small.
Their presence may grow in 2016, but the Islamic State brand name must contend with the
historical tribal, ethno-sectarian, cultural and militant dynamics in Afghanistan. These
relationships will dictate the Islamic State's behavior and evolution in the country more
than any potential guidance from, or developments within, the Islamic State in Southwest
Asia and North Africa.
Currently, the Islamic State in Afghanistan largely consists of former Tehrik-i-Taliban
Pakistan fighters (who are thus inherently against Islamabad) and disenchanted Afghan
Taliban members. Despite increasing fragmentation, the Taliban movements under Mullah
Akhtar Mansoor and Mullah Mohammad Rasool will remain by far the most militarily
powerful and widely operating insurgent groups in Afghanistan throughout 2016. Violent
competition between the Islamic State and Afghanistan's other militant groups will likely
continue in 2016, but the intensity of fighting between rival groups in Afghanistan will vary
from region to region in the areas where the Islamic State operates.

Afghan Insurgents Raise Regional Concerns

Taliban allies like the diffuse Islamic Movement of Uzbekistan militant umbrella group will
find greater mobility and a role within Afghanistan in 2016. This development will lead to
growing concerns among Central Asian states and Russia over security along Afghanistan's
northern border since the potential for Afghanistan's insurgency to spill over its borders
could rise. Because the Pakistani military offensive has pushed militants into Afghanistan,
Pakistan will become more concerned about the increasing mobility of militant networks
inside Afghanistan. Thus, border security tensions between Islamabad and Kabul are likely
to rise in 2016.

Sub-Saharan Africa
Leaders Throughout Africa Cling to Power

During the last two years, several long-ruling African leaders have pushed for constitutional
changes to term limits in hopes of prolonging their time in power. The year 2016 will be no
different, particularly in Central Africa, where several longtime leaders are pushing for reelection.
The most potentially destabilizing case is in the Democratic Republic of the Congo, where
President Joseph Kabila has been pursuing extralegal means to secure more time in office. His
actions have included pushing for a constitutional change that would allow him to seek reelection in a vote slated for late 2016. Although he has not publicly announced that he will
pursue another term, he will continue making efforts to extend his presidency. If Kabila does
secure another term in office, violence can be expected in areas such as Katanga province and
North and South Kivu provinces. Sporadic violence directed at Kabila could erupt in the capital.
Across the Congo River in the Republic of the Congo, President Denis Sassou-Nguesso is
seeking re-election in 2016 after successfully pushing for a constitutional amendment in 2015
that removed term limits. Sassou-Nguesso does not face armed opposition, and the country's
political opposition is weak, so the former soldier and Marxist leader is almost certain to secure
re-election. Even though Sassou-Nguesso is behaving like Kabila, the international community
has barely criticized his attempt to extend his term, probably because unlike Kabila
Nguesso's bid will not engender much internal strife. Although protests and violence will occur,
the unrest is unlikely to grow to an extent that would make Nguesso consider stepping down.
Ugandan President Yoweri Museveni will stand for re-election in February, and while there have
been calls for him to step down, Museveni and the ruling National Resistance Movement have
enough control that there is little risk of widespread social unrest in the country. In Equatorial
Guinea, President Teodoro Obiang Nguema Mbasogo will be up for re-election in November.
He is Africa's longest-standing leader, but he is believed to have terminal cancer. Although he
is supporting his son as his successor, this arrangement would not be popular among
Equatorial Guinea's political elite and could cause fractures in the country at the highest level
as Obiang's health rapidly deteriorates.
Leaders in Rwanda and Angola will be considering whether they want to stand for re-election in
2017. In Rwanda, a successful referendum enabled President Paul Kagame to run for a third
term if he chooses. extension of term limits that allow him to run for re-election. This could
result in a national referendum on the issue in 2016. In neighboring Burundi, the president's
decision to seek another term caused an eruption of violence in 2015. However, Kagame has
complete control over Rwanda and likely will be able to push for an extension with faces little
opposition. Although he is not barred from standing for re-election, Angolan President Jose
Eduardo dos Santos will mull stepping down in 2017 but will continue to consider his position
carefully during 2016, perhaps even anointing a potential successor.

South Africa: The ANC's Slow Decline

The South African economy will continue to feel the brunt of low commodity prices, a weak
currency and social tension from periodic labor strikes. South Africa is expecting its economy to
grow between 1 and 2 percent in 2016, and there is a great risk its economic difficulties will
only multiply. Several factors could depreciate the South African rand in 2016, as the U.S.
Federal Reserve considers a slow, long-term increase in U.S. interest rates, contributing to
inflation concerns.
The weak economy will continue to feed into tense labor negotiations in the mining sector,
where continued low commodity prices will constrain revenue for mining companies as
demands from labor unions squeeze their margins. Meanwhile the unions' demands likely will
go unfulfilled, raising the prospects for strikes. The Association of Mineworkers and
Construction Union has already planned an eight-month strike in the gold sector after rejecting
proposals from last year's labor negotiations. Such an extended strike may prove excessive
and unsustainable, however; the union's members are already struggling to stay afloat
financially. Still, South Africa is set for another year of tense labor negotiations.
The strains on various parts of the South African economy will contribute to the gradual decline
of the African National Congress (ANC) as the hegemon in South African politics ahead of the
next party congress in 2017. The most visible sign of the party's weakening position will be in
the 2016 municipal elections. The Democratic Alliance South Africa's largest opposition
party will strongly challenge the ANC in Pretoria, Port Elizabeth and other urban areas,
targeting unemployed but educated urban, middle-class black South Africans. The Economic
Freedom Fighters party seeks to gain influence among the working classes and unemployed or
underemployed black South African laborers, such as miners. The ANC will retain the broadest
base of support, but beyond 2016 and ahead of the national elections in 2019 its majority could
slowly turn into a plurality as the Democratic Alliance and Economic Freedom Fighters gain
ground.

Nigeria: Slow Progress on Energy, Corruption and Security

After finally naming his Cabinet at the end of 2015, President Muhammadu Buhari is in position
to begin implementing his policies fully. Maintaining security in the northeast is a priority for
Buhari's administration because Wilayat al Sudan al Gharbi the group formerly known as
Boko Haram is heavily concentrated in that area. However, the two most dynamic initiatives
that Buhari will advocate in 2016 are maintaining the fight against corruption and general
reform in the energy sector.
Buhari's anti-corruption campaign will be difficult and long. His biggest push will be in areas of
revenue generation and revenue management, such as the oil industry and the central bank,
and will focus on high-profile targets, such as former government officials. Although Buhari will
likely be successful at putting programs into place initially, the country's weak institutions will
blunt the effectiveness of his initiative. He will make the slowest progress in the fight against
low-level corruption, bribery and excessive red tape in 2016.

Nigeria is likely to make progress in reforming the oil sector, although this process will continue
beyond 2016 and will not be uniform. Nigeria will split up its Petroleum Industry Bill into several
sections, putting reforms that target the upstream sector such as negotiating contracts with
international and private oil companies on a faster track, although implementation will take
months or longer. Progress on issues that are more politically difficult to achieve, such as fuel
subsidy removal or a comprehensive revenue-sharing agreement among provinces, will be
slow.
Buhari is unlikely to completely remove fuel subsidies unless the states' financial system rapidly
deteriorates over the course of the next year. Nigeria's currency, the naira, will remain under
pressure, as will the Nigerian economy, because of low oil prices and potential U.S. interest
rate hikes. The Nigerian Central Bank will have to make adjustments to the country's currency
regime.
Nigeria's security situation will remain relatively static in 2016. Wilayat al Sudan al Gharbi will
continue to be a constant security threat in the country's northeast. However, Buhari's military
actions will largely contain the threat posed by the group, localizing it in the northeast. There
will be sporadic attacks outside this region, but they will be infrequent and on soft targets.
Wilayat al Sudan al Gharbi will continue to be a danger in adjacent areas of Cameroon, Niger
and Chad, and Nigeria will continue coordinating with those countries' militaries.
Buhari will continue the militant amnesty program and other mechanisms to placate the Niger
Delta region through patronage. As a result, the region will not return to widespread politically
motivated violence targeting the oil and gas industry a consequence of the Niger Delta
losing the presidency when former President Goodluck Jonathan lost his re-election bid in
2016. However, criminal networks will continue conducting armed robberies, kidnappings for
ransom, hostage-takings, pipeline vandalism and bunkering throughout the region.

West Africa Tries to Cope with Low Oil Prices

Like Nigeria, the rest of West Africa will continue to feel the pain of low oil prices. The economic
consequences throughout the region, including continued budget cuts and lower social
spending in countries such as Gabon and Angola, will not considerably threaten any
government's control (except possibly Equatorial Guinea).
One interesting case is Ghana, where the government will continue to be squeezed for cash
and require payments from the International Monetary Fund under its three-year bailout
package that begins next year. This will put President John Dramani Mahama under pressure
ahead of the December 2016 presidential elections, where his National Democratic Congress
will face stiff competition. The austerity required under the terms of Ghana's bailout will
constrain government spending programs in the lead-up to the election.

In Mali, terrorist attacks targeting both domestic and Western interests will continue. Assaults
will occur most frequently in northern Mali, but neither the south nor the capital Bamako, in the
southwest, will be immune to extremist violence. France and the Malian army will continue to
conduct strikes and raids against the various militant groups operating the region, but these
militants are unlikely to significantly reduce the tempo of attacks, particularly in Mali's north.

East Africa Attempts to Put Itself on the Global Energy Map

While West Africa contends with low oil prices, East Africa will continue making progress
toward establishing itself as a global energy producer. In Tanzania, now that elections have
been held and the country has finally passed its petroleum act, the government will work with
international oil companies to provide an environment conducive to making plans for a liquefied
natural gas export terminal in the country's south. Next door in Mozambique, the government
will do the same; Italian energy firm Eni and U.S.-based Anadarko hope to make final
investment decisions on LNG projects in the country's northeast. In Uganda, Kenya and
Tanzania, negotiations will continue over crude oil pipeline options to link producing fields in the
Great Lakes area with export facilities on the East African coast, but a full agreement will not
materialize in 2016. Ultimately, international oil companies' decisions will be determined by
global conditions largely outside their control.
Although South Sudan's internal peace process will continue to falter in 2016, South Sudan
and Sudan will began to renegotiate oil transit contracts and fees; the countries' previous deal,
which began in 2013, ends in mid-2017. The prior three-and-a-half-year contract gave Sudan
fees and payments worth about $25 per barrel of oil transited, but that was negotiated when oil
prices were high which means that South Sudan is now receiving very little from its oil
exports. With prices unlikely to go back up, the South Sudanese government will strongly push
for significant reductions in per-barrel fees in what can be seen as a zero-sum revenue game
between itself and its northern neighbor. However, both Sudan and South Sudan will be under
considerable economic strain in 2016, and physical disruptions of oil supplies are not likely to
occur until after the contract runs out if they occur at all because neither country can
afford to halt supplies.

Security Concerns in East Africa

Sudan will continue attempting to bring rebel groups from South Kordofan, Blue Nile and Darfur
into peace negotiations in 2016. Sudanese President Omar al Bashir was able to get the
Sudanese Revolutionary Front an alliance including the Sudan People's Liberation
Movement, the Justice and Equality Movement and other opposition groups to agree to a
six-month cease-fire that will end April 2016. However, further negotiations will progress slowly,
and localized violence will remain. Finally, after breakthroughs in the Sudanese government's
improving relations with Saudi Arabia and others in the Arab world, as well as improving
relations with the West, Sudan will continue warming to the outside world, including making

contributions to Saudi-led efforts in Yemen.Khartoum will make the quickest progress in

mending fences with Saudi Arabia and other Arab countries. Its progress with the West will
remain slow, at least until al Bashir steps down due to concerns about human rights and his
outstanding indictment by the International Criminal Court.
In Mozambique, the ruling Liberation Front of Mozambique, or Frelimo, and the main opposition
Mozambique National Resistance party, or Renamo, will continue struggling to reach a
comprehensive political agreement. Frelimo will continue to reject Renamo's calls for full
autonomy in the provinces where Renamo has the strongest support. Instead, the ruling party
will work slowly toward a government that will include Renamo in political and economic
decision-making. Renamo's disarmament will remain elusive, which means the main opposition
party's low-level insurgency in the central belt of Mozambique, such as Sofala and Manica
provinces, will continue sporadically targeting government troops, the police, mining facilities
and infrastructure.
Somalia could hold elections in 2016. However, because of lingering insecurity throughout the
country, free and fair democratic elections will be impossible. If elections are held, they will
once again be limited to a representative vote through a selection of clan elders rather than a
real popular vote. Such a selection of clan elders would be able to nominate a new parliament,
which would in turn be able to elect a president. Although this would prevent the current
government from embedding itself deeply into Somalia's political structure, a representative
vote would not achieve any of the objectives the country initially intended to reach by 2016 in
terms of securing the country and normalizing its political process. Al Shabaab continues to be
a threat, and despite its internal fragmentation the group has managed to continue challenging
regional peacekeeping forces for territorial control. Al Shabaab will remain capable of mounting
complex terrorist attacks deep in the heart of the capital city.