By Mark Rosenberg

South African politics is broiling. The exceptional violence surrounding the wildcat strike at Lonmin's Marikana platinum mine -- where police killed 34 strikers and 10 people died in an inter-union clash -- reflects poorly on the leadership of President Jacob Zuma, who is up for re-election as head of the ruling African National Congress (ANC). By weakening Zuma's allies and strengthening his foes, the Marikana incident and its aftermath make Zuma's hold on the ANC presidency-and thus the presidency of South Africa-extremely tenuous.

The most immediate political victim of Marikana is the National Union of Mineworkers (NUM), the largest affiliate of the powerful Congress of South African Trade Unions (COSATU). The violence at Marikana began with clashes between members of the NUM and the splinter Association of Mineworkers and Construction Union (AMCU), which has exploited discontent over NUM-negotiated wages and its perceived coziness with management to make significant inroads into the NUM's membership rolls throughout the platinum industry. Meanwhile, the NUM has faced similar criticisms from COSATU's acerbic Secretary General Zwelinzima Vavi, who has accused the union of favoring management and higher-skilled workers over its rank-and-file. The NUM, for its part, has accused Vavi of sowing dissension in its ranks, and its leaders have been at the forefront of a politically-driven effort to replace Vavi at COSATU's upcoming elective conference in September. Given Marikana -- where the NUM was utterly unable to contain the situation -- Vavi's criticisms will reverberate within COSATU, whose leaders are freshly focused on preventing the kind of union splintering which has struck the NUM. As a result, the NUM's influence in the federation -- and thus its challenge to Vavi's leadership -- will be weakened.

This damages Zuma, who is close to the NUM and has actively pushed for Vavi -- a former ally and now vocal Zuma critic -- to be replaced. Vavi's likely re-election will probably deprive Zuma of COSATU's endorsement heading into the ANC's December elective conference in Mangaung. COSATU is in a "governing alliance" with the ANC, and many of its 1.8 million members are also members of the ruling party: Its rejection of Zuma (whom the labor federation forcefully endorsed in 2007) will not only cost the incumbent votes, but it will also highlight Zuma's weakness among his erstwhile base. Indeed, the COSATU conference may well spur anti-Zuma factions to push Deputy President Kgalema Motlanthe into a more explicit challenge to the party's leadership. Motlanthe -- who is closer to Vavi and favored by the ANC's more statist elements -- is Zuma's most viable challenger, though he has thus far been reluctant to take on Zuma directly.

Zuma's hold on the ANC presidency is also threatened by direct political fallout from Marikana. The fact that Zuma ordered police to bring the Lonmin strike under control has exposed him to accusations of being aligned with (mostly white-owned) mining companies and of complicity in the miners' deaths. Leading the anti-Zuma charge is Julius Malema, the expelled ANC Youth League leader and populist demagogue. While Malema has no official influence in the ANC election, he is still viewed sympathetically by the party's "nationalist" faction and its youth wing. More broadly, the incident reinforces the impression that Zuma is a leader who is not in control of his government or his party. His consensus style of leadership is not suitable for containing ANC factionalism or the rise in popular discontent among many of the ANC's core supporters, opening a window to potential challengers such as Motlanthe at Manguang in December. 

Mark Rosenberg is an analyst in Eurasia Group’s Africa practice.

By Famke Krumbmüller

The Dutch have long been one of the eurozone's and the EU's most reliable members. Since the introduction of the euro in 2000, the country has easily met EU economic targets for the maximum allowable budget deficit (3 percent of GDP) and national debt (60 percent of GDP), generally turning in better numbers than even Germany. That policy position has been supported by broad consensus among political parties and the general population. But in a timely reminder that the politics of austerity are tough, even for fiscally conservative countries, the Dutch political system is now wracked by some of the same tensions that are roiling politics in the EU's peripheral members. The Netherlands faces important general elections in early September as a consequence of failed budgetary talks. The Socialist Party is polling well with a populist policy platform that resists ongoing fiscal austerity, with possible implications for broader management of the EU's ongoing crisis.

In the early days of the eurozone's predicament, the Dutch were in the forefront of the drive for austerity. In September 2011, the minority coalition government led by Prime Minister Mark Rutte slashed €18 billion from the budget. And when the economy slid into recession in spring 2012, the government was forced to cut another €12.4 billion in spending. But Rutte's coalition made up of the People's Party for Freedom and Democracy (VVD) and the Christian Democratic Appeal (CDA) with parliamentary support from far right Party of Freedom (PVV) collapsed at the end of April when Geert Wilders, the PVV's leader, withdrew its support. He claimed that the budget cuts would hurt growth, purchasing power, and the elderly, a populist tactic designed to attract voters fed up with further austerity. A broad coalition of five parties (including the VVD and the CDA) passed the budget shortly after Wilder's defection, but the minority coalition's collapse echoed the messy politics of austerity that are playing out across the EU's peripheral countries and which provide an opportunity for parties at the extremes of the political spectrum to gain ground. 

The next challenge comes with the 12 September elections. So far it looks as though the politics of austerity are favoring the leftist Socialist Party, which is leading in the polls after winning support from Labor Party (PvdA) voters disenchanted with their party's backing of the pro-austerity Rutte government on European issues. The Socialists are running on a platform that rejects the EU-imposed austerity measures and any further transfer of sovereignty. The party argues for policies that favor growth and social agendas. At the other end of the political spectrum, the PVV continues to maintain solid support with its anti-European platform that includes a euro exit. Together these two fringe parties currently have support from about one-third of voters. Both parties (but especially the PVV) have populist tendencies and aim to capitalize on Dutch voters' disenchantment with austerity and any discomfort with financial support for peripheral countries that provides few obvious domestic benefits.  

The next Dutch government will continue to be pro-European and support sound public finances, but voter concerns will make it more difficult for it to justify continuing hardship for the sake of the EU. This outcome is likely because the Dutch political system features a number of small centrist parties that will always be needed to build a ruling coalition. That dynamic will likely ameliorate any dramatic shift in policy. As a result, public finances will return to health, but perhaps not on Germany's and the European Commission's preferred time line, and Berlin may lose the support of what has been a close ally in the drive for austerity. Nonetheless, strong supranational supervision will remain a precondition for further financial or monetary policy integration, in part to ensure that Germany and France do not break their own rules. But the next Dutch government will find it difficult to secure domestic support for any further transfer of sovereignty to the EU. The Socialists' increasing popularity will also encourage a debate on the social consequences of the eurozone crisis and the European project in general.

By Crispin Hawes

Iraqi Prime Minister Nouri al Maliki is losing patience with his fractious coalition and is trying a number of tactics to force it into line, including ceding concessions on some contentious issues designed to win over Sunni factions and weaken political opponents. The current political impasse has delayed much legislation, preventing progress on issues such as ongoing power shortages that are damaging the economy and the quality of life for most Iraqis. While Maliki has threatened to call new elections in an effort to sway his coalition, a vote is unlikely this year, as is any long-term easing of the current political impasse. A vote is possible, however, in 2013, one year before the next elections are currently scheduled.

Maliki continues to perform well in Iraq's limited opinion surveys, despite strong negatives in some parts of the country. His relative popularity results from his reputation for forceful government, and Maliki now views the legislative deadlock as a major problem that could undermine his position. As a result, Maliki wants his coalition to pass important legislation and has shifted his focus from backroom negotiations to openly confronting his political partners and rivals.

Maliki is also preparing the ground for elections. His chief tactic has been to allow the reinstatement of Sunni officers in the military and security forces, a decision reached in June and intended to ameliorate some of the anger among Sunnis. Maliki is not allowing across-the-board reinstatement and instead has instructed the military to focus on recruiting expelled officers from Anbar province. The political goal is to undermine support for the main political opposition Iraqiya.

Maliki has threatened snap elections, in large part to spur his coalition into action. He can do this because opinion polling indicates he would have won an election held in July this year, while some of his most fractious allies and opponents would have performed particularly badly.

The tactic may well result in some legislation being approved, a step that could add further gloss to Maliki's reputation for forcefulness. But a resolution on important issues, such as the long-running dispute between the Kurdistan Regional Government (KRG) and the Baghdad government over the legality of disputed oil contracts, will almost certainly be delayed until the next government. And even if some legislation is approved in the near term-which would be enough to delay any snap general election-structural issues will encourage tensions to eventually resurface.

As a result, Maliki is unlikely to make good on his threat to call elections this year, but is actively considering calling early polls in 2013. Despite his skepticism of opinion surveys, the consistent results could tempt him to schedule a vote a year ahead of schedule in an effort to maintain his position atop the delicate balance of forces in Iraq. Early polls would probably also favor his more coherent State of Law party list over other coalitions, such as Iraqiya.

Crispin Hawes is the head of Eurasia Group’s Middle East and North Africa practice.

By Samantha Grenville and John Watling

Australia's reputation for being a lucky country has certainly been polished to a high gloss over the past few years. Its buoyant economy contrasts mightily with the gloom and doom dominating the headlines in Europe and the U.S. But the country is abuzz with concerns about housing and whether or not the country is about to face the consequences of a busted bubble. The argument is vociferous but evenly matched, with partisans on both sides variously claiming imminent disaster or fevered imaginations. One thing seems certain though: the politicians are unlikely to intervene, even though in most such cases they would be falling over themselves to soothe the population's jagged nerves.

The arguments in favor of a bubble depend in large part on the meteoric rise in housing prices over the past decade and a half (by some estimates they were up about 150 percent between 2004 and the recent peak in 2010). Much of this increase was driven by higher household debt, which had many economists clucking in concern. Demand for housing has also been propped up by the soaring economy. China's gigantic appetite for the country's minerals and other primary resources has spurred strong growth in Australia's mining and allied sectors (including reports of unskilled mine workers earning six-figure salaries and attendant health and social issues), boosting the currency in the process. Other parts of the economy, such as tourism and domestic manufacturing have not been so lucky and are suffering because of the Australian dollar's surge. The recognition of the two-speed economy combined with elevated housing prices have spurred considerable popular fear among Australians that the country is on the brink.

Doomsday forecasters argue that the bursting of the housing bubble will cause the economy to implode, with the banks acting as the transmission mechanism. Collapsing home prices would destroy bank balance sheets, forcing the banks to raise capital in volatile markets, or to deleverage and withdraw credit from the real economy. That move would further depress home and other asset prices in a negative feedback loop.

So then why does Australia's government seem unwilling to intervene? Prime Minister Julia Gillard and Treasurer Wayne Swan have quietly deflected questions about housing with gentle bromides and urgings to the private sector to talk up the economy. They have likely made the wise decision, politically at least.

First, there may not be a housing bubble. Policymakers at Australia's Reserve Bank certainly seem to believe there is no danger. Reserve Bank assistant governor Guy Debelle speaking at a recent mortgage industry conference claimed he was more worried about the EU and that housing risk is not something that keeps him awake at night. Home prices have been declining steadily over the past year or so, and if that continues, household debt ratios may drop even further, freeing up the central bank to ease rates. In the meantime however, the Reserve Bank is clearly concerned that lowering rates would boost the wrong sort of confidence, encouraging still relatively indebted households to continue borrowing.

Second, there may be no need to act even if there were a dramatic decline in housing prices. Australian banks are considerably stronger than they were before the 2008/09 crisis. The IMF recently stress-tested the major banks by hypothetically invoking an Ireland-style housing bubble and bust, and found that banks would be buffeted but remain solvent. In perhaps the strongest vote of confidence in the local economy, Germany's Bundesbank -- arguably one of the world's most conservative central banks-is considering buying Australian dollars, signaling the country's emergence as a true safe haven.

Gillard may also be disinclined to tackle the issue lest it add to her burdens. Authorities are already facing a tough battle over the incoming carbon tax, which opposition Liberal Party leader Tony Abbot has used as a cudgel against the incumbent Labor Party government. Any misstep on housing would have the unfortunate side effect of giving Abbot another target.

All of these considerations argue in favor of a gentle hand on the tiller and against dramatic action until it may be absolutely necessary.

Samantha Grenville is an associate with Eurasia Group's Comparative Analytics practice, John Watling is a senior editor with Eurasia Group.

By Antonio Barroso and Mujtaba Rahman

Francois Hollande's May 6 victory in one of France's tightest presidential elections ever will have few implications for the EU's management of the eurozone crisis. Hollande is taking shape as a pragmatist who will follow reason on the European front, as signaled by the candidates he's likely to put in important positions in France's new government.

The president-elect claims he has already selected the new prime minister, who will be revealed on May 15 after Hollande takes office. Socialist Party (PS) leader Martine Aubry and long-time socialist politician Jean-Marc Ayrault are the most likely candidates, although a surprise choice (for example Hollande's campaign director Pierre Moscovici) is not completely out of the running. Aubry's selection -- who the majority of the French left support, according to opinion polls -- would hint at a more leftist course for Hollande's government. Ayrault's nomination, however, would imply policy pragmatism. The former minority leader in the National Assembly would likely be better able to build consensus among the many leftist factions in parliament, especially if the government must adjust policies to match the challenging economic situation.

Michel Sapin, a socialist, is frequently mentioned as the candidate most likely to take the crucial post of finance minister. Sapin, who has already served as finance minister, is a close ally of the president-elect and helped draft Hollande's economic program. Another possible choice is Jerome Cahuzac, a socialist former president of parliament's finance committee who actively supports austerity and deficit reduction. Both men would make a good finance minister, given their experience and their commitment to a balanced budget.

But Hollande's victory will not fundamentally change how the EU is managing the ongoing eurozone crisis, though there will likely be some changes around the margins. Hollande's desire to introduce some focus on growth in the fiscal compact is easy for German Chancellor Angela Merkel to accept and there are already tentative signs that Berlin will support such efforts. Hollande's objective of securing a capital increase for the European Investment Bank (EIB) also is unlikely to prove controversial. But the biggest obstacle to growth -- moving away from regressive agricultural payments toward greater use of structural adjustment funds in the EU budget -- is actually more difficult for France to overcome than it is for Germany. Also, Hollande's pledge to seek a change in the European Central Bank's mandate is a non-starter. Such a change requires all 27 member states to agree, but it will face stiff opposition in Germany, where it is perceived as a French strategy to inflate away debt.

Antonio Barroso and Mujtaba Rahman are analysts in Eurasia Group's Europe practice.

By Michal Meidan

A growing economic juggernaut and rising political power, China has many reasons to look to the Middle East: to import oil, extend its diplomatic influence, diversify its trade ties, and undermine U.S. hegemony. In that context, it seems hardly surprising that Beijing (alongside Moscow) vetoed a recent U.N. Security Council resolution on Syria and set aside its commercial dispute with Iran to conclude an oil import deal -- undermining U.S. and European sanctions on Tehran.

But Beijing's Middle East strategy is hardly the coherent, well-thought-out doctrine that some believe. Instead, it's the product of a number of (sometimes competing) domestic interests that must be coordinated each time a crisis unfolds. Worryingly for Beijing, as China's commercial ties to the Middle East increase, it will inexorably become more involved in the region's politics. In the process, the risk of antagonizing an important commodity supplier, getting on the wrong side of Washington, or fueling unwanted domestic debates will become more costly and more complicated.

Some argue, simplistically, that when China blocks pressure on Iran to protect its commercial relations with that country, it pays no price for it. The reality is not nearly that simple.

First, Beijing's decisions on Iran and Syria have clearly irked Washington. Secretary of State Hillary Clinton dubbed the Syria veto "despicable." Moreover, ongoing oil trading between China and Iran has already led Washington to slap sanctions on a Chinese trader. In a year of presidential elections in the U.S. and political turnover in China, when both sides are trying to keep tensions at bay, Middle East politics will burden an already complicated relationship with an unwelcome irritant.

But Beijing has more than the United States to worry about. Take China's ties with Saudi Arabia, which provides China with almost one fifth of its oil. Beijing's reluctance to support Western-led sanctions on Iran isn't going down well in Riyadh either. Nor has China's decision to veto the U.N. Security Council's Syria resolution, a choice that Beijing claims was intended to prevent the situation on the ground from escalating further.

Finally, several diplomatic principles -- non-interference in a third country's sovereignty, support for non-proliferation, China's rise as a responsible stakeholder -- are increasingly being called into question by other governments. The decision to veto the U.N. Security Council resolution on Syria may have been motivated by diplomatic principles of non-interference in a country's sovereignty and by Beijing's desire to prevent the situation from getting worse, but it has plainly damaged popular perceptions of China elsewhere in the region, and Premier Wen Jiabao's criticism of the Iranian nuclear program rings hollow to Western ears.

When thinking about its foreign policy goals, does Beijing really want to provide the security framework for the Middle East? These are difficult debates that Chinese leaders must have, but they will certainly want to postpone them until after Beijing's leadership transition is complete next year.

In short, the more deeply Beijing becomes involved in the Middle East, the more complicated its foreign relations and internal policy-making processes become -- and the more China has to lose. The choice between alienating an oil supplier, challenging an important trade partner and a global political power or opening up its diplomatic principles for debate is one that Beijing would like to avoid. But as its global reach extends, so will the trade-offs it has to make.

Michal Meidan is an analyst in Eurasia Group’s Asia practice.

By Hani Sabra and Willis Sparks

Some of the outsiders inspired by last year's protests in Tahrir Square and the power of ordinary Egyptians to oust their long-time dictator expressed surprise when the country's transitional government began in December to target prominent NGOs as agents of foreign (read Western) governments. They shouldn't be. So far, the great lesson of Egypt's ongoing "transition" is that it remains awfully hard for old dogs to learn new tricks.

Egyptian authorities are now prosecuting more than 40 people for operating NGOs without licenses and for receiving "illegal foreign funding." Among the accused are 19 Americans, including the Washington-based International Republican Institute's Sam LaHood, son of U.S. Transportation Secretary Ray LaHood.

The case is but one example of how far Egypt's revolution has unraveled. A year ago, after Hosni Mubarak's exit, even those Egyptian activists least willing to trust the Supreme Council of the Armed Forces (SCAF) believed that the generals understood that the country could not continue as it had for six decades, that power had to be shared, and that democracy demands much more than the conduct of hastily arranged elections.

The activists, and the rest of the country, watched the generals leap aboard the "January 25 Revolution" bandwagon and salute the struggle's young martyrs. Protesters believed they had an unspoken understanding with SCAF that the military would retain some political influence -- and some of the commercial assets they had amassed over the years -- in exchange for a willingness to pass political power to a pluralist civilian government following a period of transition, to reform state institutions, and to respect the rights of citizens to organize.

In the months that followed, minds changed and understandings evaporated. When the military killed more than two dozen Egyptian Christian activists in October, the illusion was publicly shattered. Clashes between activists and security forces in November and December upped the stakes. As 2011 drew to a close, it became clear that SCAF generals, who first rose to prominence via the intensity of their loyalty to Hosni Mubarak, shared their former leader's authoritarian worldview.

Over the course of 2011, SCAF froze out the protest leaders and struck a separate deal with the Muslim Brotherhood, one that gives various Islamist parties a dominant position in crafting Egypt's domestic policy while leaving the army in charge of foreign policy and key segments of Egypt's economy. Islamist parties, including the Muslim Brotherhood, won about two-thirds of seats in recent parliamentary elections. The protesters, now marginalized, are becoming more confrontational.

The crackdown on NGOs reveals the understandings that are implicit in the Muslim Brotherhood-SCAF understanding. Credible allegations have emerged that Islamist groups have received foreign funding too, from Gulf Arab countries, but SCAF has taken virtually no action against them. It's the groups that lobby for human rights -- and who have criticized SCAF -- that have been targeted.

If these NGOs have indeed broken laws, they are Mubarak-era laws. SCAF has changed the rules on elections and the formation of political parties, but their unwillingness to tolerate civil society shows the limits of their willingness to change.

The generals' inflexibility bodes ill for Egypt's future. The Brotherhood, eager to finally enjoy a share of formal power, has become the army's enthusiastic partner. But neither group appears to recognize that elections alone will not guarantee stability. Their broader public popularity and the power of state television ensure that, especially outside of Egypt's largest cities, the military and Muslim Brotherhood represent the "silent majority."

But the vocal minority will keep pushing back, and the potential for violence is on the rise.

Hani Sabra is an analyst in Eurasia Group's Middle East practice. Willis Sparks is an analyst in the firm's Global Macro practice.

Today, we turn to the last in our series of posts on Eurasia Group's Top Risks for 2012 and answer the most common questions we've gotten about it.

Here's a summary:

Venezuela -- A lose-lose election. No matter who wins the October 7 presidential election, Venezuela's political and economic conditions are likely to worsen. President Hugo Chavez would maintain the same distorting economic policies, and the economy would struggle to overcome the effects of a large pre-election increase in spending and debt issuance. An opposition win would likely lead to an eventual improvement in economic policy, but the transition could produce instability as Chavez supporters, who would still control most of the state apparatus, try to counteract reform. 

Q- Can Chavez win another election? What will affect the outcome?

A- Chavez has the edge because of his relatively persistent popularity despite a growing dissatisfaction with the status quo. The president's popularity (his approval ratings are currently around 50 percent) comes despite high inflation (estimated at nearly 28 percent in 2011), low growth, good shortages, and an electricity crisis. To alleviate these negatives, Chavez will likely engage in a massive campaign spending spree, fueled by high oil prices. His government will also issue a large amount of debt to provide dollar-denominated assets to curry favor and counteract dollar shortages. The major wild card is Chavez's health. He announced in July that he was diagnosed with cancer, but little is known about the severity of his illness. Should his health deteriorate significantly, Chavez's reelection chances will diminish, as the public's faith in his ability to lead drops.

Q- Who is the opposition?

A- The Coalition for Democratic Unity (MUD) will select its presidential candidate when it holds primary elections on February 12. Miranda Governor Henrique Capriles Radonski, a young and popular governor from one of Venezuela's most important states, is the favorite. The opposition hopes to capitalize on the growing dissatisfaction with Chavez and to continue the momentum from the 2010 legislative elections, when a unified opposition list of candidates won 54 percent of the popular vote against the president's United Venezuelan Socialist Party (PSUV). The MUD would promote more orthodox macroeconomic policies, likely leading to lower inflation and more fiscal stability in the long run. The opposition would also adopt oil-related policies that are more attractive to foreign investment.

Q- What are the different risks arising out of the election outcome?

A- A Chavez win would mean a continuation of the same economic policies that have produced widespread market distortions and a strained relationship with foreign oil companies. It will be even harder for the country to recover from the large uptick in spending and debt Chavez is likely to push to improve his election chances. Given Chavez's wide-ranging power within the government, however, it would be easier for a Chavez government than a more fragmented opposition to make some economic adjustments, such as devaluing the currency or tweaking the foreign exchange system.

An opposition win, while positive for long-run growth, could paradoxically lead to more instability in the short-run. The government would be opposed at every turn by Chavez allies, contributing to policy paralysis. The most stable outcome would probably occur if the opposition wins, and Chavez's health makes it difficult for him to continue leading his movement behind the scenes. The most unstable environment would likely arise from a rapid deterioration in Chavez's health, causing him to abandon the presidential race and creating a power vacuum that would roil both the governing party and the opposition.

Today, The Call presents our top risks for 2012. Click HERE for Eurasia Group's complete report.

1. The End of the 9/11 Era -- It was a truism of globalization: economics drives markets, and national security drives geopolitics. No longer. Following the 2008 financial crisis, the killing of Osama bin Laden, the withdrawal of U.S. troops from Iraq, and an end date for the war in Afghanistan, politics and economics will overlap almost entirely in 2012. Political officials around the world will worry mainly over economic risks -- the eurozone crisis, the strength of U.S. recovery, and China's evolving role in the global economy in 2012. Market players, in turn, are anxious mainly about political decisions, especially those that will be made in Europe, America, and China this year, as shortsighted leadership from virtually all the major geopolitical players generates policy stalemate and uncertainty.

2. G-Zero and the Middle East -- The inability/unwillingness of major powers to bolster the region's balance of force will generate greater turbulence across North Africa and the Middle East as unresolved religious, sectarian, and ethnic tensions threaten more unrest. The lack of a viable regional security framework, continuing protests, autocracies at risk, and enormous challenges facing newly democratic regimes will add to the potential turmoil. As this dynamic plays out in Syria, Egypt, Iraq, Libya, Yemen and Bahrain, regional heavyweights -- Saudi Arabia, Iran, and Turkey -- will generate friction as they vie for proxy influence.

3. Eurozone: the rollercoaster ride rolls on -- In Europe, it's not the breakup of the Eurozone we need to fear in 2012 but the "reactive incrementalism" that could spin beyond the control of political officials. The uncertainty and volatility we saw in 2011 has only just begun.

4. United States: right after elections -- Once the votes are counted in November, lawmakers will take up the $5 trillion worth of tax and savings decisions that must be taken in the final nine weeks of the year. Investors face uncertainty about their taxes and government contracts as well as about the broader impact of lawmakers' choices on economic growth.

5. North Korea: implosion or explosion -- The world's most opaque nuclear-armed state enters a year of uncertainty as the battle for power and influence within the regime gathers force.

6 - Pakistan: turmoil, spillover -- The end of the 9/11 era threatens neglect of other hotspots, and none is more combustible than Pakistan, a terrorism-plagued, nuclear-armed power burdened with an unpopular civilian government, a meddlesome military, politically motivated judges and an increasingly dangerous security environment. The expected withdrawal of thousands of U.S. troops from Afghanistan this year will fuel regional competition for new influence.

7. China: trouble in the neighborhood -- The Obama administration's recent emphasis on Asia will embolden China's neighbors to take more assertive positions with Beijing. Rising nationalism in China, its ongoing political transition, and the leadership's unwillingness -- perhaps inability -- to resolve internal debates about the country's role in the world suggest Beijing is especially likely to meet provocation with provocation in months to come with both naval and economic muscle.

8. Egypt: a transition in trouble -- Egypt faces the risk of political disintegration this year as anger builds between military and civilian political forces, both Islamist and secular. Egypt's base-line stability, its economic recovery, and its broader regional influence will suffer.

9. South Africa: populism ascendant -- The struggle for leadership of the ruling African National Congress will slow the pace of both policy and economic growth at a time when the eurozone crisis already weighs heavily on South Africa's trade and currency.

10. Venezuela: a no-win election -- The country's big political story this year is October's presidential election, which incumbent Hugo Chavez, if healthy enough for a vigorous campaign, is likely to narrowly win. But the outlook for economic and political stability is bad no matter the election result. Should Chavez die or abandon the race, the deep fissures between the Chavista movement and the opposition could stoke violence.   

In addition, Eurasia Group identifies four red herrings, the big stories we don't believe will happen in 2012.

Fallout from the 2012 political transitions -- In 2012, we'll see political transitions in the U.S., China, Russia, and France, countries that together represent nearly half of global GDP and four-fifths of the UN Security Council. But there's surprisingly little at stake in the outcomes for geopolitics and the global economy.

Eurozone breakup -- This is probably the single most overrated risk of 2012. The political will to maintain the eurozone remains strong among all the major political parties in the core Eurozone states, almost across the board in the European periphery and, just as importantly, among eurocrats in the ever-growing European bureaucracy. And there's no effective political mechanism for a Eurozone breakup.

China's hard landing -- There are signs of overheated growth in China, but the state has the tools and resources to manage short-term trouble, and it will pull out every stop to prevent a serious slowdown, especially during a major political transition.

Mayan apocalypse -- Just isn't happening. And if it does, well, sorry.

Over the next three weeks, we'll be posting more ideas and information on each of these risks.

By Nick Consonery

Beijing seems strangely unconcerned about the global market turmoil caused by fears of a second global recession. U.S. economic data over the past month has been disappointing, to say the least. The sharp sell-off in European markets at the beginning of the week hints that the continent's sovereign debt levels have become a persistent wound that rather than healing is developing a life-threatening infection. Brazil, meanwhile, unexpectedly cut interest rates to protect their domestic growth.

But rather than pulling out all the stops to prepare for another slowdown, the Chinese government is still taking steps to slow its own economy. The speed of yuan appreciation --which will make Chinese exports more expensive on global markets -- surprised markets over the past month. Beijing also hinted recently that it might take some steps to slow momentum in its domestic auto sector, even though it used subsidized auto sales to stimulate the economy in 2009. And Premier Wen Jiabao reiterated his government's commitment to inflation-fighting last week, meaning that liquidity will remain constrained in China, further restricting growth.

There are several theories to explain China's unexpected behavior. One is that the Chinese government is actually feeling a bit more confident about global growth than some of its peers in the developing world. Another is that Beijing has no choice but to continue tightening, given ongoing concerns that the economy is overheating and driving inflation. A third is that shifting politics in Beijing are facilitating economic reform.

The truth is that all these factors are in play.

From a global perspective, however, this is a big change. In 2008, when it faced the global financial crisis, Beijing pegged its currency to the dollar and rolled out a massive stimulus package. This response maintained rapid economic growth in China, kept Chinese citizens employed, put a floor under global commodity demand, and allowed many emerging market countries to benefit economically by satisfying Chinese demand.

But it did little to move the global economy onto more sustainable footing by achieving any kind of "rebalancing."

Contrast that history with today's realities. The policies implemented by China over the past few weeks are much more conducive to rebalancing. This marks a clear shift away from policies that are China-friendly and toward policies that are more system-friendly. China's leaders said as much in a white paper released on Sept. 7, in which they promised to "accelerate the shifting of the model of growth," which they predicted will "create great space for the growth of the world economy."

It is unclear how long this progress will go on. The yuan has weakened slightly in the past few days, and if there is any hint of a hard landing in China, Beijing's cautious leaders will surely stimulate the economy again to boost growth. But for now, Beijing's recent behavior is a positive for the longer-term sustainability of the international economic order. Let's hope it lasts.

Nick Consonery is an analyst in Eurasia Group's Asia practice.

By Ayham Kamel

In a much publicized television appearance on Aug. 8, King Abdullah of Saudi Arabia withdrew his country's support for the Bashar al-Assad regime in Syria, where the government has been beating back protesters for the last five months. The spilling of innocent blood was "against values and ethics," the king said. The Saudi ambassador in Damascus was recalled the same day, prompting similar steps by Kuwait and Bahrain. The developments came in response to Syria's military operations in the Sunni strongholds of Hama and Deir al Zour -- events that rankled the Saudi leadership.

Nevertheless, the militarization of the protest movement over the last few weeks has made Damascus even more assertive and less tolerant of dissent. As such, the situation in Syria is exacerbating Sunni-Shia tensions and raising the likelihood of conflict in all multi-sectarian nations in the region. And while the Gulf Cooperation Council (GCC) states' moves will not inhibit the regime's heavy handed strategy -- more than a dozen protestors were killed on Wednesday -- they presage Syria's emergence as the nexus of a regional power struggle between Saudi Arabia and Iran.

Heightened pressure on the Syrian regime will not lead to the immediate collapse of Assad's regime, but it will chip away at his power. The policy shift will leave Damascus more isolated and may lead Syria's political and economic elite, particularly Sunnis, to reconsider their allegiance to Assad. The GCC countries' change of heart likely also precedes a coordinated international upsurge of diplomatic and economic pressure. Secretary of State Hilary Clinton has already signaled a firmer U.S. stance toward the regime, and new U.S. and European sanctions are expected in the next few weeks. Today, in fact, the US Treasury imposed sanctions on the commercial bank of Syria and its Lebanon-based subsidiary, as well as Syriatel, the country's largest mobile phone operator. These moves, like those of the Arab states, seek to nudge the middle classes in Aleppo and Damascus, which so far have not joined the ranks of the demonstrators en masse. But the Syrian regime remains unlikely to rethink its strategy. The country's military and security establishments are firmly committed to confronting the protesters aggressively, arguing that any other approach would strengthen the opposition. 

Saudi leaders, meanwhile, are still on the fence about what the kingdom's Syria policy should be. They know that a political transition would be problematic and could spark a regional confrontation, which is why the king's speech, while criticizing the Syrian regime, also called on Assad to be courageous and introduce reforms. If Syrian policy remains unchanged over the next few weeks, however, the kingdom's position will likely shift toward outright opposition. Iran, in contrast, feels threatened by the potential loss of the Assad regime and of Iran's strategic depth on the shore of the Mediterranean, and has therefore reinforced its support of the Syrian government.

These opposing moves by Riyadh and Tehran suggest that Syria will become the focal point of Iran and Saudi Arabia's regional tussle for power. Indeed, many in Riyadh are beginning to perceive the upheaval as an opportunity to contain Iranian influence in the Middle East. In the meantime, all eyes are on Ankara to see if Turkey's leaders will be able to convince Assad to accelerate his reform program and resolve the crisis.  

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

By Risa Grais-Targow

Cuba. Oil. Two words that tend to get U.S. politicians hot under the collar, though usually not in the same sentence. That could change as the 2012 campaign season heats up in the U.S. and as Cuba's plans for offshore oil exploration materialize. The Chinese-built, Italian-owned Scarabeo 9 rig is scheduled to enter Cuban waters in August or September, and a consortium of international oil companies is set to begin drilling soon after. The struggling island nation, which currently depends on generous oil deals from its friend and neighbor Venezuela, has high hopes that its potential offshore resources might rev up its sagging economy. (Cuba claims that it has 20 billion barrels of "probable" oil in the continental shelf just off Havana, while the U.S. Geological Survey thinks that number is closer to 5 billion barrels.) But as the rig makes its steady way from Singapore, officials in Washington are getting anxious. Many lawmakers doubt that Cuba has the regulatory capacity or expertise to drill safely, particularly without the U.S.-manufactured equipment that the more than 50-year-old embargo has kept out of Cuban hands. And with BP's spill in the Gulf of Mexico still fresh in the U.S. public's mind, politicians are flagging the possibility of a Macondo-like spill 50 miles off the Florida coast.

The specter of such a disaster has already prompted several legislative efforts to punish foreign firms that drill in Cuba -- or at least those who chose not to comply with U.S. safety standards. Since January, Congressional hardliners from Florida have introduced three bills proposing to deny contracts to such firms or visas to their employees. The bills are designed to appeal to anti-Castro constituencies in the run-up to the elections, but widespread haggling over the issue is set to increase as Cuba's drilling plans progress, and the issue could become a talking point for presidential candidates in battleground states. For its part, Cuba will keep scrambling to convince the international community that it will uphold international safety standards. But those PR efforts will do little to cool the heated debate brewing on the Hill.

That said, none of the bills is likely to move anytime soon, given another powerful constituency: oil. Pro-drilling legislators in the House will be wary of punishing foreign oil companies (some of which have U.S. operations). The issue will also be overshadowed by pre-election priorities such as job creation. In the absence of Congressional action, the administration will likely take an ad-hoc approach. It might twist companies' arms behind closed doors, as it recently tried to do with Spain's Repsol, to get them to abandon their plans altogether. Or, if that doesn't work, it might simply push for guaranteed safety compliance. Measures that involve engaging directly with Cuban officials are unlikely, leaving room for less controversial alternatives such as allowing companies that specialize in emergency response to contract with Cuba and creating some kind of exception to the embargo that allows Cuba to use certain U.S.-manufactured equipment to prevent or minimize spills.

Risa Grais-Targow is a member of Eurasia Group's Latin America practice.