By Carroll Colley

Washington is on the verge of completing an improbable trifecta in U.S.-Russian relations. In August, the Obama administration helped guide Russia across the finish line for World Trade Organization membership. Congress is now fast tracking an end to the Jackson-Vanik amendment, a piece of Cold War-era legislation that ties trade policy to human rights, and one that has remained a bone of contention between Moscow and Washington for more than twenty years. Finally, Congress is also about to establish "permanent normalized trade relations" with Russia.

So why are relations on the verge of a potentially serious turn for the worse-and perhaps a reassessment of the "reset" in U.S.-Russian relations? Because this legislation will also include the so-called Magnitsky Act, which publicly rebukes the Kremlin for its poor human rights record.

Sergei Magnitsky, an attorney investigating a corruption case involving tax fraud charges against a UK-based investment firm, announced he had uncovered evidence of collusion among police, organized crime figures, bankers, and the Russian judiciary to push the company out of business. In November 2008, Magnitsky was arrested on corruption charges and held for 11 months without trial. He then died in prison under disputed circumstances. An independent human rights organization, Moscow Helsinki Group, has accused Russian security of torturing him. Magnitsky's death provoked international criticism, but a defiant Russian government continues with a posthumous criminal case against him.

The Magnitsky Act will publicly name and shame Russian officials involved in the case, bar them from receiving US visas, and freeze any assets they hold in the United States. Moscow, as you might imagine, is incensed. The Kremlin sees the bill as evidence of continued anti-Russian sentiment in the United States - -Mitt Romney's campaign comments about Russia were grist for this mill -- and as an intrusion by the U.S. into Russia's domestic affairs. The House looks set to vote on the legislation tomorrow, the third anniversary of Magnitsky's death. The Kremlin promises to respond to the bill's passage by retaliating in kind.

The Magnitsky Act won't damage President Vladimir Putin inside Russia. He remains Russia's dominant political figure, his approval numbers are strong, and few Russians closely followed details of this case. Yet, Moscow remains extremely sensitive to international charges of human rights abuses and corruption of government officials. That leaders of Russia's nascent opposition movement have endorsed the Magnitsky Act aggravates the Kremlin even more.

Moscow has already floated suggestions for a 'black list' of US officials, including those connected with the extradition and trial of convicted arms dealer Viktor Bout or with the prison at Guantanamo Bay. Of more concern is the likelihood of increased pressure on U.S. industry operating in Russia, including, for example, unannounced tax inspections of U.S. companies, delayed or denied licensing or registration procedures, and other bureaucratic complications.

While the Magnitsky Act will punish those involved in the case, it won't do much to improve Russia's human rights regime in the near term. Several incidents since Putin's inauguration in May demonstrate that the state continues to use force to weaken the political opposition. Russian officials recently announced the arrest of political activist Leonid Razvozzhayev on charges of orchestrating a series of riots. Razvozzhayev insists that Russian security officials kidnapped him in Ukraine where he was applying for political asylum, transported him back to Russia, and gained a confession from him by torturing him and threatening his children. Politically connected murders of journalists and human rights activists are no closer to being resolved.

U.S.-Russian relations are now likely to enter a period of strain and recrimination, though pragmatism on both sides will prevent a total collapse. The U.S.-Russian "reset" was a good idea at the time and produced significant results, but there is only so much it can accomplish with so much continuing mistrust on both sides.

Carroll Colley is an analyst in Eurasia Group's Eurasia practice.

By Shaun Levine

It is befitting that Indonesia has become the latest darling of the investment community, drawing private equity firms, retail and consumer giants, and the world's largest automakers to its shores. Even in a depressed global economy, the world's fourth most populated country continues to grow strongly, perhaps by as much as 6.2 percent in 2012. Indonesia is also blessed with natural resources, shipping its coal, nickel, copper, and gold to supply many of Asia's giants, including China and Japan, with the precious materials they need for their own economic engines.

Indonesia's stubborn affinity for subsidies, however, remains a major impediment to its longer-term growth.  President Susilo Bambang Yudhoyono's government remains committed to unsustainable funding for subsidies, which will potentially consume up to 20 percent, or $30 billion, of the 2013 budget-nearly the amount spent on education. The largest portion of this spending, nearly $20 billion, will be allocated to fuel subsidies, which the government acknowledges largely benefit the country's more affluent households.

Indonesia's current high growth rates mask the problems that, if left untouched, will likely make the country an example of a booming emerging market economy that never quite reaches its potential.  Without a realignment of spending priorities away from subsidies and toward vital infrastructure and education, investors are likely to take their dollars elsewhere.

Unfortunately, the political context is not conducive to a reduction in subsidies in the near term, despite external pressure from ratings agencies, the World Bank, and the IMF. Subsidies remain highly popular with a large portion of the voting population, and given this reality, Yudhoyono appears reluctant to press for reforms any time soon. Such a move would certainly dampen his party's electoral prospects: Recent polling suggests that if the 2014 parliamentary election were held today, Yudhoyono's PD would lose its top ranking, ceding substantial ground to rivals Golkar and PDI-P. Parliament also appears to reject subsidy reform, and political parties want to make sure it would be Yudhoyono's prerogative to reduce popular subsidies ahead of the 2014 elections.

But subsidy spending will shrink Indonesia's growth potential. Improving the country's decrepit infrastructure remains paramount: Even though parliament boosted Yudhoyono's planned infrastructure spending by $3 billion to $20 billion in 2013, that number is dwarfed by spending on subsidies, which offer no return on investment. Indonesia's backlogged and rickety ports, crumbling road and rail networks, and antiquated system of airports remain a large handicap for this country of 17,000 islands. Despite the size of its economy, Indonesia's level of spending on infrastructure, at nearly 2 percent of GDP, remains far below that of another favorite of investors-neighboring Vietnam (9 percent-10 percent).

At the moment, though, investors appear to be placated by government pledges to improve Indonesia's infrastructure. The country has reported record foreign direct investment thus far into 2012, perhaps a yearly total of more than $22 billion; investment officials proudly boast of having $75 billion more in the pipeline. New laws have been passed helping to ease the process of land acquisition, and spending continues to increase. But how long can Indonesia squeeze growth out of a flawed model before the darling of investors becomes the disappointment?

Shaun Levine is an analyst with Eurasia Group's Asia practice.

By Crispin Hawes

There are a growing number of signals from Saudi Arabia that the question of when the younger generation of princes will be included in the formal line of succession has been resolved. On 5 November, Prince Mohammed bin Nayef was appointed to succeed his late father as the minister of interior, a decision that is likely the result of a deal between King Abdullah and different branches of the ruling family. As a result of that appointment, an announcement on who will take the second spot in the succession is likely to come soon.

Mohammed's appointment to head the Ministry of the Interior is the latest move in an extended process aimed at setting out the ruling family's plans for the long-term succession. Prince Mohammed replaces his uncle Prince Ahmed at the ministry after a truncated term. Prince Ahmed was likely moved aside, despite official statements that he had asked to relinquish the post, and that hints at a decision on the succession. Defining the long-term line of succession requires public consensus among senior family figures, and Ahmed's recent public statements suggested that he was pushing to succeed Crown Prince Salman, who is set to take the throne on Abdullah's death. Saudi Arabia's opaque internal politics make interpreting what is happening behind the scenes very difficult, but Ahmed's replacement as interior minister could well have been triggered by his opposition to developments in the line of succession. If Abdullah has decided to appoint Prince Khaled al-Faisal as second deputy prime minister, the position occupied by the second in line, Ahmed's opposition would be enough to force his departure.

Abdullah seems intent on defining a long-term plan for the succession in an effort to prevent the kingdom from instability if, as is possible, there is a rapid series of deaths among the current and elderly ruling generation. The transition to the generation of Mohammed and Khaled al-Faisal, grandsons of Abd al-Aziz Ibn Saud and modern Saudi Arabia's founder, has been the subject of speculation for years. Faisal is in his early 70s, only a few years younger than Salman, but the move is a very significant one.

Mohammed's promotion is likely part of a broader compromise between the king and the dominant Sudairi branch of the family. Again the details are impossible to confirm, but it is likely that the Sudairis have retained the interior ministry in return for agreeing to allow the insertion of the moderate Khaled al-Faisal (and not a Sudairi) in the line of succession. If that is indeed what is happening, there will almost certainly be a number of other deals emerging in coming weeks and months that will set the stage for other members of the next generation, including King Abdullah's son Mitaeb, to move into more prominent positions.

Crispin Hawes is the director of Eurasia Group's Middle East practice

By Ayham Kamel

During their fight for the White House, President Obama and Governor Romney made clear they do not believe Syria poses a substantial enough threat beyond its borders to require direct foreign intervention on the ground. Take a closer look. Even if intervention is not a realistic option just yet, it's hard not to notice that Syria's problems have become its leading export.

Syria bloody struggle continues with no end in sight. The international community is paralyzed; it can neither live with an Assad regime that commits daily atrocities nor afford a risky intervention in an already unstable Middle East. To add fuel to the already raging fire, Jihadists are increasingly interested in hijacking the Arab Spring.

This problem is now redefining the rocky relationship between Jihadists, who once focused mainly on global goals, and Salafists who focused on a local agenda. Especially after the killing of Osama bin Laden, Jihadists have shifted their priorities and gone local, as well, working side-by-side with Salafist allies. Ayman al Zawahiri's call for Jihad in Syria highlights this trend. While the struggle against the West remains a long-term goal, Jihadists are focusing on regaining alternative bases. That's why so many foreign fighters -- though clearly not a majority of rebels -- have joined opposition ranks to fight the Assad regime.

Syria is now the crown jewel for Jihadists. It provides access into Europe through Turkey, a border with Israel, a launch site for a new insurgency in Iraq, and easier access to Salafists in Jordan and Lebanon. The opportunity to find a new recruitment hub is also invaluable: The two movements have always been ideologically close and many Jihadists are exploiting that relationship to boost their ranks.

The ripple effects of this conflict are evident across the region. In Lebanon, the assassination last month of General Wissam al Hassan, head of the intelligence division of domestic security forces, will probably undermine an already shaky security environment in that country. Northern Lebanon has effectively become a zone of instability. Salafist groups, among others, have claimed a share of the money headed for Syrian rebels, joining a battle that is both morally required and financially supported.

Jordan is beginning to experience the contagion. Recently, the Jordanian General Intelligence Directorate (GID) uncovered a plot by a Salafist terrorist cell. The group acquired weapons and arms from Syria and crossed into Jordan to carry out operations against civilian targets. Both Salafists and Jihadists in Jordan are beginning to view instability in Syria as an opportunity to expand their networks and improve their capacity to carry out attacks. Jihadist forces in Syria, which are currently fighting the regime, have broader goals. As the Assad government grows weaker these groups may be willing to support their allies elsewhere, including in Jordan. While the Jordanian security services have a significant intelligence and operations capacity, it will become increasingly difficult to monitor events across the Syrian border. More importantly, while the GID was able to preempt the most recent terror attacks, their success in the future can never be guaranteed.

Iraq, whose long border with Syria has always been porous, faces growing risk of cross-border militancy. In recent years, Prime Minister Nouri al Maliki has built a loyal army that succeeded in containing a Sunni insurgency. But he is now right to worry that Sunni forces in Syria are encouraging and supporting their counterparts inside Iraq. Maliki, who initially supported Assad, had feared that a new Sunni government would become a hostile neighbor to Shia Iraq. But he now appears more concerned with Jihadist and Salafist groups. Cooperation between Jihadis across the border and potential flow of new fighters into Iraq are especially problematic for Iraqi stability. While violence is now concentrated in areas that are not core to oil production, the situation could change if Sunnis succeed at mounting a more robust insurgency.

Soon, Americans may again be hearing about a fight with insurgents for control of Iraq.

Ayham Kamel is an analyst in Eurasia Group's Middle East practice.

By Ayham Kamel

The massive bomb that exploded on October 19 in Beirut, killing Lebanon's domestic security head, signaled the potential arrival of a bloodier, more aggressive phase in the Middle East conflagration. The sophistication of the attack suggests the involvement of capable forces. While there is no evidence clearly implicating Syria or Hizbullah, both stand to benefit from the assassination.

The bombing that killed General Wissam al Hassan, and the clashes that have followed, raises the prospect of civil war in Lebanon and the continuing spread of sectarian conflict throughout the Middle East. It helps to relieve pressure on an increasingly weaker regime by forcing Lebanon to turn inward.

At one time, Syria preferred a stable Lebanon, one where it retained influence through its allies. But as Bashar al Assad's grip on power has weakened during Syria's own civil war, Sunni opposition forces in Lebanon have become more aggressive in supporting Syrian rebels.

Assad has now likely calculated that stability in Lebanon is a threat to his own regime. Prime Minister Najib Mikati and his Hizbullah-led government have implemented a non-alignment policy that aims to appease both domestic and external powers. But with Sunni rebels taking advantage of the policy by using northern Lebanon as a logistical staging ground, the Mikati government is not of use to Assad. The government has become dispensable.

Forcing the Sunni Lebanese opposition to focus at least some of its attention on local affairs as a result of the bombing reduces its ability to aid Syrian rebels. Moreover, Hassan built a highly capable force in the security services that largely served the interests of the Sunni-dominated Future Movement. And Syrian officials believe that Hassan's intelligence division crossed a red line when it recently accused top echelons of the Syrian security establishment of conspiring to assassinate Lebanese politicians.

Despite the rise in tensions, the Mikati government is likely to remain intact in the near term, primarily because he has the backing of Western countries that fear the potential power vacuum and instability that would ensue if the government were to crumble. President Michel Sulaiman initiated consultation to form a new government but the process will be challenging. And unless Lebanese parties reach consensus on a new government, Mikati is unlikely to resign and leave an open power vacuum. Neither the Mikati government nor the Future Movement is in firm control of its supporters, making it difficult to prevent escalation should more violence occur. The Mikati government will wither over time, with the prospect of civil war climbing steadily.

Ayham Kamel is an analyst in Eurasia Group's Middle East practice.

By Hani Sabra

Egypt was rocked on October 12 by yet another violent demonstration in Cairo's iconic Tahrir Square, but this time the two groups fighting were erstwhile comrades who had cooperated to bring down the previous regime. The street fighting between Egypt's young secularist revolutionaries and the Muslim Brotherhood's core supporters marks the opening of a rift between the two groups that had been threatening to emerge ever since the heady days after former president Mubarak was forced from power. It also could set the stage for ongoing tensions and perhaps weakening international support for the Islamist dominated government.

The cause of the fighting was a broadening dispute over Egypt's constitution. It's been nearly two years since former president Hosni Mubarak was ousted but the country is only now likely to get a new constitution in the next few months. The document, when it is finally approved, will probably only satisfy the nation's Islamists who are taking the lead given their slim majority in the constituent assembly that is drafting the new constitution and their majority among the population.

Egypt's Islamists have made it clear that they are completely willing to move ahead with their version of the constitution without buy-in from secularists or the Copts. And even if a court order dissolves the current constituent assembly (as was parliament) President Mohamed Morsy would move quickly to appoint a new assembly that would be of a similar makeup.

When the assembly releases a draft for a public referendum, it will pass. The last yes or no referendum in Egypt was in March 2011 soon after Mubarak was ousted. The Islamists then urged their supporters to support the constitutional amendments and the final tally was 77 percent in favor. The secular argument against a more Islamist-leaning constitution and in favor of one that stresses human rights, press freedom, and some separation between religion and state, does not resonate with a majority of the population, which is eager to end the constitutional vacuum.  

Unfortunately, a new constitution will not settle Egypt's transitional woes. Continued tension, instability, and violence are likely to continue given that the young revolutionaries who sparked the movement to oust Mubarak, most of the establishment secular politicians, and their supporters are increasingly unhappy with Islamist efforts to monopolize politics. These groups represent a minority, but they are vocal and their anger is growing as evidenced by the ugly brawl between Islamists and the secularists.

The revolutionary activists are embittered and believe the Brotherhood has betrayed them. Many of these young secularists backed the Brotherhood for the past year and half and even voted for Morsy in the second round of the presidential election when he faced Mubarak confidant Ahmad Shafik. They also supported Morsy's move to sideline the two most senior Mubarak-era generals. In exchange, the revolutionaries believed the Muslim Brotherhood would honor its promise to ensure that the constitution would be broad-based, and that it be a truly democratic founding document. This will not be the case. In fact, early drafts raise concerns on issues such as women's rights, religious tolerance, and freedom of expression, spurring sharp criticism from local activists and international organization such as Human Rights Watch.

The revolutionaries do not have the public support or the capacity to force adoption of a more liberal constitution or bring down the Morsy government. But they can make the next several months difficult for the Muslim Brotherhood, and they probably will. More clashes like the recent episode in Tahrir Square are likely, and will attract exactly the kind of attention that Morsy's government would prefer to avoid, given that it wants to project an air of stability for foreign investors and governments.

Hani Sabra is an analyst in Eurasia Group’s Middle East practice.

By Cliff Kupchan

In Iran last week, sanctions pressure pushed frustration into violence. Iran's currency has lost half its free market value over the past month, and a clumsy policy response made matters worse.

The rial's dramatic depreciation is stoking a level of inflation that has become the most serious threat now facing the regime. The official inflation rate stands at 23.5 percent, but anecdotal evidence suggests the rate is much higher and climbing. The government's lack of a coherent anti-crisis strategy, economic mismanagement, corruption, and heavy transaction costs imposed by sanctions suggest the worst is yet to come. Sporadic protests are likely to become a fact of life in Tehran.

As a result, the bickering within Iran's political elite is becoming more vitriolic. President Mahmoud Ahmadinejad blames foreigners and their sanctions for the current crisis; parliamentary speaker Ali Larijani instead points the finger at the incompetence of Ahmadinejad's government. Ahmadinejad can't seek re-election next June, but his exit won'tprevent these fights from heating up in advance of the vote.

Yet, there is no evidence that Iran is close to the boiling point. Following the controversial presidential election of 2009 and the street demonstrations that followed, the regime proved it can and will use deadly force to intimidate Iran's fractious opposition. Nothing has happened to suggest that new protests would produce a different result.

So what should Western governments, anxious to slow Iran's momentum toward a nuclear program, be hoping for? Iran's economic turmoil is unlikely to topple the regime, at least not anytime soon, but it just might bring about a more conciliatory Iranian approach to nuclear talks after the U.S. presidential election -- and especially after Iran's presidential election next year.

Over the past half decade, Tehran has demonstrated an almost existential commitment to the nuclear program, but the sanctions-induced pain is squeezing Iran's economy ever tighter, and that could make Iran more flexible. In turn, it's now very important for Western negotiating partners to offer a diplomatic proposal that allows Iran's government to save face before its people.

The Iranian government will never negotiate away its domestic legitimacy, but there might be room for a crucial compromise on the nuclear issue. Without such a breakthrough and relief from tightening sanctions, the Iranian regime has a bleak future -- and the country's leaders know it.

Cliff Kupchan is director of Eurasia Group’s Eurasia practice. 

By Stephen Majors

The global community is focused on the EU's efforts to implement the fiscal union that its currency union now demands, but ambitious eurocrats are quietly pursuing an even more fundamental change for the bloc: a truly common foreign and security policy. This lofty dream remains an unlikely prospect, but the painstaking process of European institution-building in response to the ongoing debt crisis is chipping away at obstacles that may once have been immovable.  

Brussels' efforts to implement the Common Foreign and Security Policy (CFSP) and the Common Security and Defense Policy (CSDP) are closely tied to the far more high-profile efforts to achieve fiscal and banking union. The fiscal union that few considered possible just a few short years ago now appears to be the only way to save the euro, though it may takes years to emerge. The relinquishing of sovereignty this will require from member states provides the potential foundation for a collective security policy.

The global political and economic environment is also helping encourage consideration of a common foreign policy. European countries are on the verge of becoming security-takers instead of security-makers. European officials -- perhaps surprised by former Secretary of Defense Robert Gates' candor when he said European states were not pulling their weight in NATO -- concede the facts. In part, the issue is driven by economic stagnation. European countries had started to reduce defense spending even before the debt crisis, which has simply compounded the economic challenge. And the trend is expected to continue. By 2050, according to a projection from HSBC economists, Europe will only have five economies in the top 20, compared to eight today, illustrating the decline in the prominence of individual European countries. Collective security would be a logical way to address those concerns, if (and it's a big if) the political issues can be resolved. The EU could be a force to be reckoned with; it has more than 500 million people (far larger than the U.S., but smaller than China or India).

The evolving geopolitical environment provides another impetus for collective European security. The US is reorienting its security approach with its pivot to Asia in response to China's rise, and Europe feels less secure and less favored by the U.S. The Balkans crisis of the 1990s set in motion the move toward a collective foreign policy and Europe's leaders do not want to again find themselves unable to respond to vital security needs. The debate in Europe now revolves around whether EU member states will rally around the CSDP, or whether NATO will retain its primacy in the continent's security affairs. It is difficult to imagine how NATO could co-exist alongside a strong collective EU security body, should it come to fruition. But as Gates' comments illustrated, NATO is already fraying.

The EU is in the process of centralizing its foreign policy, albeit with a focus on soft power that avoids the thorniest concerns over sovereignty. The EU's External Action Service (the EU equivalent to the US State Department) already maintains delegations in 130 countries. The CFSP currently runs more than 20 missions abroad ranging from an anti-piracy mission in the Horn of Africa (Operation Atalanta) to the training of police forces (EUPOL) in Afghanistan. Catherine Ashton, the EU's high representative for foreign affairs and security policy, has an important role in many international negotiations, from Syria to the nuclear talks with Iran. The EU has also levied sanctions against Iran for its nuclear program, and is considering whether to go further with additional penalties. But many member states maintain their own missions in parallel to the EU, and turf wars abound. And of course, sending European troops into combat under a European flag is many, many years away. 

Beyond the external forces that support the logic of the CSDP, internal politics within the EU also present some advantages. Germany, as the continent's economic power, has only been willing to disburse funds in favor of struggling EU economies after those states agree to cede sovereignty on economic issues, which has driven institution-building on the European level. And given its unique history in Europe, Germany itself is willing to cede sovereignty on security issues-in fact, it is only willing to project power abroad in the context of collective EU decision-making. France and the UK, conversely, would be most opposed to foreign policy integration. Notably, though, these two European powers have already begun cooperating with each other on military matters.

A truly unified European security policy is perhaps the grandest political experiment of them all. But it is a measure of Europe's evolution over the last couple of years that what once appeared to be a utopian EU dream now sounds almost feasible.

Stephen Majors is an editor with Eurasia Group. He recently completed the European Union Visitors Program fellowship in Brussels.