Risk and opportunity in the archipelago world

Nader Mousavizadeh, 06 Jan 2012

Ten years after the attacks of September 11th, the brief moment of global solidarity that followed when we were “all Americans," in the words of Le Monde, seems as improbable as it is distant. Barring a global catastrophe, the world is unlikely to unite again as it did on that day –and not just because of the conduct and course of the wars of 9/11 in Afghanistan and Iraq. A deeper –and more radical –shift is at work in the politics of the global economy. A fragmentation of power, capital and ideas is creating a new map of the world –with lasting implications for investors and policymakers alike.

The evidence is everywhere. Europe beginning to roll back key aspects of the free market even as it manages yet another bail-out of Greece; the failure of the Copenhagen climate change negotiations; a Doha trade round dead in all but name; the emergence of new global governance structures, such as G-20; the flows of macro-finance investments between emerging markets combining state and business interests; China’s “going out" strategy upending traditional vectors of global capital and influence; an Arab awakening as much defined by its diversity as its aspiration for accountability and legitimate government; the resurgence of nationalist, populist movements across rich and poor parts of the world; a proliferation of hybrid economic and political systems defying old categories of left and right, liberal and authoritarian.

Distinct paths beyond ideological labels

Conventional thinking holds that all this is a threat to an otherwise well-ordered global order –or that it reflects a zero-sum shift from West to East, U.S. to China, democracies to dictatorships. For large parts of the world, of course, the existing global order seemed less well-ordered than designed to perpetuate –by any means necessary –dated power structures of the mid-20th century. Equally, to see this merely as reflecting an all-embracing power shift to the East (as observers both Eastern and Western do) ignores the fact that pivotal powers such as Turkey, Brazil, Indonesia and Nigeria are charting distinct paths aimed above all at economic independence and national power –beyond ideological labels.

Instead, what we’re seeing is an emerging world of sovereign states vertically integrating national interests across the public and private sectors –and then going out strategically to compete for resources, growth and job creation. Having previously understood global interdependence as a reason for horizontal integration across markets and regions, states as diverse as Finland, Saudi Arabia, Japan and Mexico are now pursuing distinct, often bilateral, strategies for economic and political security. This is the new dynamic of global competition –one with implications as profound as they can seem contradictory.

From South-east Asia to West Africa, commodity states are leveraging their economies to the Chinese demand driver without wishing to replace Washington’s dominance with Beijing’s. Across the Middle East, citizens are deploying technology and new-found communications tools to demand consent in how they are governed without losing their ability to see their values and traditions reflected in the fabric of their societies. In Latin America, state-owned corporations are working hand-in-hand with governments to pursue inclusive growth of a kind that holds promise beyond what was achieved by structural adjustment programmes imposed by Western-dominated multilateral institutions.

There is an undeniable logic here. After all, it was never credible that climate change threatened each country or region in the same way –or to the same degree; that an overleveraged West threatened the global economy as much as it did its own dominance over rising powers; that the attempts of rogue states acquiring weapons of mass destruction represent an equal threat to states large and small, West and East. Now the narrative has been broken. Where you stand really is a function of where you sit –for states and people alike.

Resilience in diversity

Today, after a six-month period of sovereign debt crises, tsunamis, nuclear disasters, revolutions, uprisings, and military interventions (and the list could go on), it would be natural to see this emerging order as inherently unstable. Volatility may seem like the new norm, but we are more likely seeing a turbulent transition to a more resilient, and more diverse, global economy governed by national interests. The old stability was as much an illusion in Mubarak’s Egypt as it is in a global economy structured for the benefit of a few dominant, but deeply indebted, powers.

For the West, negotiating this new mosaic of power will require a mix of pragmatism, modesty, innovation, and strategic patience. It means, at times, partnering with Chinese investments in Africa instead of trying to convince its leaders that they have more to gain from yet more conditional aid. It means, at other times, accepting that an Egyptian government more legitimate and accountable in the eyes of its people will chart a course less pliable to Western demands. It means looking at a successful, modernizing Muslim country like Turkey and understanding that there is far more to gain by engaging with its growing influence than in lecturing it on the character of its politics, as long as it remains a constitutional democracy.

Above all, it means focusing on management of the structural drivers of global growth and development –including energy, commodities, inflation and, yes, climate change –in ways that address the ways they affect different countries in different ways. The locus of legitimacy has returned to the nation-state, and as new powers gain the economic and political power to assert their interests, no solution that isn’t both global and national will be successful or sustainable.

A multi-speed global economy –with diverging long-term growth profiles –will increasingly be mirrored by a multi-dimensional global politics. This is a Great Game worthy of the name and the winners will be those states and corporations increasingly seeking their own success irrespective of traditional boundaries of geography, ideology, interest and alliances.

The Middle East – A fulcrum of shifting power balances

The year of the Arab awakening is drawing to a close with an ominous air of peril and paranoia hanging over the Middle East. A movement of genuine promise for more legitimate and accountable government for the peoples of the Arab world is in danger of being overwhelmed by the forces of tyranny, corruption, fundamentalism and conflict. From Syria to Egypt to Libya, Palestine, Israel and Iran, resistance to peaceful change is manifesting itself in ways new and old –and all in the context of a global re-alignment of power that few in the region yet recognize. Preventing the four central challenges of the Middle East –Iran, the Arab awakening, energy security, and the Israeli-Palestinian conflict –from turning into conflicts with global implications will be a task far more for the countries of the region themselves than at any time in recent memory. For this new reality the parties are almost completely unprepared.

In the Gulf, the collapse of trust between adversaries –as well as allies – is evident. Arab leaders express as much distrust of each other as they did of their ascendant rivals, the Persians and the Turks. The minimum demands of the Palestinians are as distant as ever from the maximum on offer from the Israeli government. For a number of regional leaders buffeted by the extraordinary changes forced by popular movements from Syria to Tunisia, a key lesson appears to be lesser, not greater, openness to representative government. The Middle East, more than any other region of the world, gives validity to the old joke that even paranoid schizophrenics have enemies. To the very real perils arising from deeply divergent interests among Arabs, Turks, Persians and Israelis is now added a degree of heightened paranoia that threatens to multiply the perils with consequences reaching far beyond the region itself.

Critical to understanding the new strategic landscape is an appreciation of the degree to which the United States –since Suez, the arbiter of war and peace in the Middle East –is on course for a long-term disentanglement from the cares and conflicts of the region. While its commitment to Israel certainly –and to its Arab allies less so –long has been more than just a matter of security, it is evident that a Middle East less critical as a source of oil will be one less able to claim the extraordinary expenditure of blood and treasure made by America over the past half-century. As a consequence of technological advances leading to new discoveries and new sources of oil and gas, the next oil shock will likely be one more defined by the growing irrelevance of the Middle East to the United States –however much the region’s ability to disrupt international oil markets will remain.

Energy security

The estimates of the future U.S. dependence on non-North American sources of oil are as dramatic as they are under-appreciated. The share of U.S. oil imports from both OPEC more broadly and the Gulf, in particular, has collapsed since the 2007-09 financial crisis, replaced largely with Canadian and domestic crude. In 2008, the U.S. imported an average of 2.370 million barrels per day (bpd) from the Gulf and 5.954 million bpd from OPEC as a whole. In 2010, the average was 1.711 million bpd from the Gulf and 4.906 million bpd from OPEC.
Critically, this is not simply attributable to a cyclical fall in U.S. import demand. Canada alone has exported an average of 2.240 million bpd to the U.S. this year, up from 1.935 million bpd in 2010 and now accounts for approximately double Saudi crude imports. Thus, if U.S. domestic tight oil production touches 2.9 million bpd, and oil sands production increases to 3.0 million bpd by 2020, it could cut OPEC imports by well over half in less than ten years. Conceivably, by 2030, OPEC imports could drop to zero if 2007 daily consumption proves to be a historic high and domestic and Canadian production is increased as projected. This is in contrast with China, currently serving more than 50% of its demand through crude imports –a figure that may hit 70% by 2020 –has equally significant consequences for Beijing and its future relations with the Middle East.

Of course, even after departing Iraq and gradually reducing its dependence on Middle East oil, Washington will maintain a substantial force presence in the Middle East, and the capability rapidly to enlarge it as needed. However, the wider context of U.S. strategic repositioning towards Asia, Pentagon budget cuts, and public hostility in host states will challenge this force posture at a time of heightened tensions and uncertainty throughout the region. If the Middle East’s energy security game is in the midst of profound change with dramatic strategic consequences for the future U.S. commitment to the region, so are the dynamics of the region’s political and security challenges.

The Arab awakening

To appreciate the depth of change in the politics of the Arab world over the past year, it is enough to look at non-Arab Turkey’s leadership role in the management of its current challenges –from Egypt to Libya to Israel and now Syria. Arab leaders are looking with fear and jealousy to the prospect of their region’s politics being dominated by three outsiders –Turkey, Iran and Israel. From Tripoli to Cairo to Damascus, hard-line resistance to genuine representative government is making a self-fulfilling prophecy of the darkest warnings of anarchy and Islamist ascendancy being the winners of the Arab awakening. Even after the fall of governments in Egypt, Tunisia, Libya, and Yemen, critical momentum still eludes the broader push for change.

Among the monarchies and sheikdoms, the pace and depth of reform are reflective more of an attempt to do the minimum needed to assuage popular sentiment, rather than acknowledging the need for profound changes in the relationship between governed and governors. A bloody endgame in Syria is increasing fears of a sectarian civil war, drawing in outsiders in yet another intervention. An absence of political legitimacy is being joined by a power vacuum, within and among the countries of the region, suggesting that the focus of the regimes in the year ahead will be a defence of the realm at all costs.

Iran

The recent IAEA report on Iran’s nuclear program has triggered another round of speculation about an Israeli attack on suspected nuclear sites in Iran. The Iranian nuclear challenge has been a pre-eminent hard security focus in a period otherwise defined by economic crises and political convulsions. The U.S. commitment to the Libya campaign was circumscribed, in part, by the Pentagon’s priority monitoring of threats –both conventional and unconventional –emanating from Iran. Tehran, of course, maintains that its programme serves solely peaceful purposes, such as power generation and medical research. However, there are widespread concerns over possible military dimensions, particularly when viewed in conjunction with Tehran’s developing missile capability and alleged work on warhead technology.

Paranoia towards the actions of Iran is reaching a fever pitch in the Gulf and Israel. Gulf countries are as concerned about Iran’s meddling in their internal affairs as about its nuclear weapons programme. The fact that their own domestic policies towards their Shia minorities are giving Iran fertile ground to meddle in their internal affairs, seems rather less appreciated by them. Combine this with Israel’s growing fear of Iran reaching a point of no-return in its nuclear weapons program (something they’ve been warning about since 2005 and one day of course will be true), and the stage is set for confrontation, either deliberate or accidental.

Looking to Iran’s domestic politics, many have questioned whether persistent elite infighting suggest any meaningful regime fragility –particularly in light of the Green Movement’s demonstration of deep and broad opposition to the regime. The reality is likely to be different –and less encouraging of change. A principal source of resilience for the regime has been its ability to apply effectively the lessons of the Shah –his rise as well as his fall. A proliferation of power centres –however much beset by rivalries between the President, the Supreme Leader, the clerical elites, the Revolutionary guards, and the military –share a fundamental fate in having everything to lose from a democratic Iran with an accountable and legitimate government, and everything to gain from sustaining the status quo.

Iran will therefore remain the wild card in the secular trend towards a West less dependent on –and less preoccupied with –the Middle East. Resolving the struggle between Iran’s strategic and tactical interest in a nuclear deterrent and Israel’s in maintaining the existing nuclear balance of power in the region is the one question that won’t be left to the region itself.

The Israeli-Palestinian conflict

For this perennial crisis of the Middle East, the next year is likely to prove as fraught as ever. With the effective departure of the United States from the negotiations between the two parties, internal as well as external pressure for a final settlement is at a low point. Real perils from Hamas to Hezbollah to Iran combine with a deeply rooted paranoia about the irreducible hostility of Arabs –and now Turks –to the existence of the Jewish state to strengthen hard-liners in Jerusalem. For Israel, moreover, the Arab awakening has been a profoundly disorienting experience, leading it to appear as sceptical of the promise of a democratic evolution in its neighbourhood as the Saudi monarchy –as strange bedfellows as one otherwise could imagine.

Allies in Egypt and Jordan are now poised to demand greater progress on the peace process, and Islamist movements in the ascendancy across the region are likely to settle for far less. For the Palestinians and their erstwhile supporters among Arab states, the upheavals have reduced, rather than expanded, the room for direct negotiations. The Palestinian leadership, disabused about the prospect of any serious effort by Washington to pressure Israel on settlements, is more vulnerable than ever to popular revolt among its own citizens. The rise of a non-violent resistance movement among Palestinians in the West Bank and Gaza is poised to pose profound challenges to both Ramallah and Jerusalem.

US foreign policy evolution

Whatever the near-term developments in Palestine, the broader Arab awakening and the Iranian nuclear challenge, the long-term strategic balance of the Middle East is destined to be defined by the rise in the relative power of Turkey and Iran. Paranoia and peril will have to be separated in this respect more than any other. Their rise will be driven by strategic aims for power and influence with deep domestic support that can’t easily be dismissed as passing pursuits by particular governments in Ankara or Tehran. This is a development that is equally unwelcome to the United States, to Israel, and to the Gulf countries allied over the past quarter-century around a status quo that is gone forever. An era far less susceptible to the hard and soft power of the United States –in any way increasingly reoriented towards Asia –will require a more patient and judicious approach by all players if conflict is to be averted and a new, peaceful, order is to emerge.

Nowhere will the burden of new strategic thinking fall heavier than in Washington. In a recent essay on the legacy of George Kennan, the architect of U.S. containment policy towards the Soviet Union, Henry Kissinger wrote that “Kennan served a country that had not yet learned the distinction between the conversion and the evolution of an adversary —if indeed it ever will. Conversion entails inducing an adversary to break with its past in one comprehensive act or gesture. Evolution involves a gradual process, a willingness to pursue one’s ultimate foreign policy goal in imperfect stages.”

The terrible price paid in blood and treasure for the Wars of 9/11 in Afghanistan and Iraq, combined with the effects of an economic crisis that now threatens a decade of stagnation in the U.S., may well make America appreciate the virtues of evolution, and accept that our ultimate goals can only be met in imperfect stages. The alternative policy of forced conversion of adversaries, based more on paranoia than true peril, is likely only to be achieved at the price of conflicts with potentially calamitous consequences –for the Middle East as well as for America itself.

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Author

Nader Mousavizadeh

Chief Executive Officer of Oxford Analytica

Nader Mousavizadeh is Chief Executive Officer of Oxford Analytica. Mr. Mousavizadeh was previously founder and managing director of Archipelago Partners, a geostrategic advisory firm. Prior to establishing Archipelago Partners, Mr. Mousavizadeh was an investment banker at Goldman Sachs. Before entering the private sector, he served at the United Nations, where he was Special Assistant to UN Secretary-General Kofi Annan and a UN Political Officer in Bosnia-Herzegovina. A magna cum laude graduate of Harvard College and a Rhodes Scholar at the University of Oxford where he received his M.Phil. in International Relations from Christ Church College, Mr. Mousavizadeh received his MBA as a Sloan Fellow at the Sloan School of Management at MIT.

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