2008: Year of weakness and confusion

2008: Year of weakness and confusion

In the United States, 2008 is a year of choices, with the presidential election campaign likely to further polarize the electorate. Luckily, the two contenders will emerge by late spring due to early primaries. The United States is unlikely to focus on foreign policy until at least 2009, when key appointments in the next administration start coming through. Nevertheless, Middle East topics will be drive US security and economic concerns next year — ready or not.

American foreign policy, suffering from a number of setbacks, will further deteriorate in 2008 as principal decision makers now serving in the administration of George W. Bush take their leave.

Already confused over the National Intelligence Estimate, which declared that Iran froze its nuclear weapons program in 2003 (without explaining that it didn”t freeze the uranium enrichment program), Washington will be groping for a new Iran policy. This choice will be constrained by the ongoing clash between Vice President Richard Cheney”s confrontational approach, and the search for a negotiated solution being spearheaded by the State Department and the intelligence community.

The Iran policy will have a direct influence on the U.S. goal of deploying ballistic missile defenses in Poland. Most likely, plans will be frozen, as Russia rattles its saber and the U.S. expands its intelligence investigations. Meanwhile, any U.S. outreach to Iran may paradoxically hasten the end of Iranian President Mahmoud Ahmadinejad, much hated by the country”s mullahs, or it could paradoxically strengthen his position, which is that defiance of the United States and the West pays off.

As a part of the complicated diplomatic dance, Iran may allow the United States to save face in Iraq. However, the withdrawal of U.S. troops after a rather successful surge in Iraq, domestically necessary for Republican electoral success, may prove to be premature, leaving too many al-Qaida in Iraq cells in place to stage a comeback. An early pullout that brings extremist Sunni-led violence once again to the streets of Iraq”s much suffering cities would put an even stronger question mark over the entire U.S. venture in Iraq.

Question marks may also quickly rise over the latest Arab-Israel peace process attempt kicked off in Annapolis. The negotiations are likely to sputter. Chances are that weak Israeli Prime Minister Ehud Olmert will be abandoned by his coalition partners, who are deeply uncomfortable with his promises to withdraw and divide Jerusalem, and the new Israeli elections will kick the can down the road to 2009 and beyond.

On the other side of the negotiating table, there is no Palestinian commitment to recognize Israel and end the conflict once and for all. The weakness of Mahmoud Abbas and the implacability of Hamas in Gaza may contribute to the difficulty in finding a solution for what I have termed “the graveyard of diplomacy” – the Arab-Israeli conflict. To top it off, there is always the threat of a terrorist attack derailing the negotiations or even taking out one of the key participants.

In Egypt and Saudi Arabia, the elderly leaders, sober and rational, are still at the whim of biology. Or gerontology. The death of either Egyptian President Hosni Mubarak or Saudi King Abdullah may throw their countries into turmoil despite the ready availability of their heirs, who happen to be close blood relatives.

While chances are good that transitions in both countries could be relatively smooth, “it is the Middle East” (Translation: Anything can happen, from street violence to a full-scale uprising.) With the United States concentrated on elections and economic woes, these fragile regimes may finally crack.

And speaking of fragile regimes, Pakistan will be facing one of the most difficult years since its independence, as the January 2008 parliamentary elections may leave malcontents. If all is less than free and fair — which is likely — President Pervez Musharraf will be further de-legitimized, while the Islamists may become stronger. There is only so much the Pakistani state, corrupt and inefficient, can take.

In Europe, the popularity of its three top leaders, Britain”s Gordon Brown, France”s Nicholas Sarkozi, and Germany”s Angela Merkel is declining. In Japan, the “gray man” Prime Minister Yasuo Fukuda, son of a past Liberal Democrat prime minister, has no vision and his popularity is plummeting.

U.S. economic problems will remain connected to the Far East as well as to the Middle East. High oil prices and the trade imbalance with China and other countries, combined with profligate spending by Congress, will make the dollar weaker. Oil exporters increasingly prefer euros and might even develop markets in other currencies. Russia, for example, is dreaming of a ruble-denominated oil exchange.

The United States will continue grappling with the aftermath of the sub-prime mortgage crisis – with unpredictable consequences for the stock market, the U.S. economy, and the world”s overall economic health.

Today, the U.S. economy is chugging along, with 4.7 percent unemployment and a significant rise in productivity. Yet, the national debt is over $7 trillion, the trade and budget deficits are burdensome, and a massive credit crunch could cause an economic downturn that would reverberate around the world. A global slowdown then would be likely, with catastrophic consequences for the Republicans in the November 2008 elections.

Thus, China should be interested in keeping the U.S. economy, its main market, afloat, and making sure nothing happens until the Olympic Games in summer. After that, all bets are off. We do not know how China”s ruling politburo will respond to Taiwan”s independence referendum, scheduled for next May. A recent strong U.S. reaction against such an event was aimed to placate Beijing and forestall a military intervention amidst the U.S. election campaign, say in September-October, when Bush will be literally packing his bags at the White House.

China, India, and Russia will increasingly define the global economy and emerging markets in 2008. China”s spectacular growth is leading to runaway oil and other commodities prices, and resulting in the greatest redistribution of wealth of our time. Yet the Chinese stock market bubble could be a bigger trigger of a global recession than even the sub-prime mortgage credit crunch.

China is going to overtake the United States as an energy consumer by 2015. The Middle Eastern oil exporters are already sending half of their energy exports to Asia.

However, if oil is too expensive, other energy sources, such as nuclear and coal, will grow in importance. China is already building coal-fired power stations at the rate of one a week, and has embarked on an ambitious program to build 100-200 nuclear power stations. India is not far behind, though its political system is less stable, and its nuclear-armed Pakistani neighbor much more unpredictable.

Russia may be hit with some minor turbulence as “Captain” Vladimir Putin rearranges chairs on his ship. If he steps on the wrong toes, a backlash is possible, though not very likely. A stronger Russia is a challenge for everybody, from its European neighbors, dependent on its gas, to the United States, which wants to have Russia as partner but cannot stand Putin”s cockiness and swagger, to its former colonies in the “near abroad” who will need to tread carefully … or else. President Mikhail Saakashvili of Georgia, who is facing his nation in presidential elections in January, knows this well, or at least he should.

Thus, in 2008, weakness and confusion prevail. Russia, China, and Iran, aided by Venezuela, will continue challenging the United States on the international scene, while the Middle East countries and Europe are wringing their hands.

Not an enviable position to be in, no matter how you look at it.