To the long list of Israel's vulnerabilities, add the risk that the country won't be able to attract as much foreign investment in coming years and that the most talented Israelis will leave the country.

A generation ago, Western companies looked at the rest of the Middle East as an oil play. Israel's world-class education standards, its durable political institutions, its capable bureaucrats, and its strong rule of law earned the confidence of those looking to set up shop in other sectors.

Today, other countries in the region offer attractive opportunities for retail, tourism, health care, light-medium manufacture, and a host of other investments, and Israel's small size and political isolation are becoming real weaknesses. Persian Gulf and other Middle Eastern governments are letting would-be investors know that companies with a large-scale presence in Israel aren't going to fare as well inside their borders. Over time, this subtle (in some cases, not-so-subtle) pressure could have an impact.

Israel has outlasted many such threats in the past. The country's comparative excellence in advanced technology -- an area requiring limited long-term capital exposure and where the Israelis have little competition in the region -- will offer lasting advantages. Second, Iran's nuclear program provides a seriously destabilizing element to the politics of the region, but it doesn't pose much direct threat to Israel's economic development. Israel's military capabilities, including its own nuclear weapons program, make direct conflict with Iran highly unlikely.

Other threats are more serious. One day soon, Hezbollah will have access to missiles with the range and accuracy to effectively target Tel Aviv from anywhere inside Lebanon. That will be a game-changer for Israel's security, its economy, and its politics. More than half of Israel's population and the heart of its economy are centered in and around Tel Aviv. As the city becomes more vulnerable to the threat of precision-guided missile attacks, those Israelis most directly involved in the country's economic and financial life will be the most vulnerable to attack -- and some may well leave the country.

Tel Aviv's vulnerabilities to ballistic missile attack will strike at the heart of Israel's technology and pharmaceutical industries. Consider the recent history of Armenia. Once the best educated of Soviet republics, a steadily deteriorating security environment, better opportunities elsewhere, and a strong Armenian diaspora presence in Russia, France, the United States and other countries made it easy and attractive for the best educated Armenians to leave. And leave they did -- about a third of the population emigrated within 15 years of the Soviet collapse. The exodus hollowed Armenia out, and the country has yet to recover its economic dynamism. With an almost certain-to-deteriorate security environment, Israel's greatest long-term risk may be a serious brain drain, just as its Arab neighbors are opening for business in so many non-energy-related sectors.

That's a lot more dangerous for Israel's future than a surprise attack from Tehran.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)

Did everyone notice the Saudis suggesting that further sanctions against the Iranians are well and good, but that they'd rather see a quicker resolution? (The FT did, with the Saudis saying that they meant the Middle East peace process. Umm, that's not credible. And not what they've been saying privately.) 

I'd discount hints at support for the more direct approach as 90 percent bluster, since the Saudis know the Obama administration is completely committed to the present course. But the absence of routine communications between Saudi Arabia and Israel gives you the remaining 10 percent -- many in the kingdom could think of worse outcomes than having the Israelis "resolve" their looming Iranian nuclear issue through surgical strikes. 

At one level, given the attendant risks in the region, it's an eye-opening assertion. At another, in the absence of Bush administration hawks willing to keep the "or else" drumbeat going, it's a little less surprising.  

Having said that, when I was in Saudi Arabia a few weeks ago -- the geopolitical issue most frequently brought up was neither brewing tensions with Iran (No. 2 issue) nor the potential for a failed state and cross-border terrorism coming out of Yemen (No. 3 issue) ... but the enormous investment opportunities afforded in a stabilizing oil-rich Iraq. Not at all where the Saudis were a year ago. Interesting.

By Ian Bremmer and David Gordon

By far the biggest purely geopolitical risk in 2010 comes from Iran. Its government now faces growing pressure on three fronts. At home, the regime has had a tough time since last June's presidential election; hardliners had initially consolidated, but are now under intensifying pressure as domestic protests continue. Regionally, Tehran has lost considerable influence, with elections in Lebanon turning against Hizbullah, rising Iraqi nationalism making it harder for Tehran to exert influence upon their principal historic competitors, and Iran's financial outpost in Dubai put at risk by the growing influence of Abu Dhabi.

Globally, Iran faces a considerably tougher sanctions regime over its nuclear program, a push spearheaded by the United States, Europe, and Japan, with even Russia and China unhappy over Tehran's aggressive rhetoric. A Western push for negotiations will continue, but divisive local politics and insufficient leadership coordination make it very unlikely that Iran's leadership could reach a negotiated settlement even if it wanted one. And it doesn't. Even under considerable domestic pressure, the hardliners in charge of the regime will continue to try to buy time to achieve their nuclear ambitions.

That's why the government is likely to overreact to sanctions when they hit. 2010 carries the highest risk to date of Iranian provocation in the region, in the form of harassment of shipping in and around the Strait of Hormuz, support for radical organizations in neighboring countries, and instigation of trouble for Iraq and other neighbors in demonstrations of muscle. The Iranian regime looks increasingly like a cornered, wounded animal. In 2010, it's likely to act like one.

Israeli military strikes have actually become less likely -- certainly for the first half of the year as sanctions are put in place. Faced with strong opposition from the Obama administration (even as it uses the threat of strikes to gain support for sanctions and to pressure Tehran), mounting intelligence challenges on the location of key Iranian targets, and recognition of the military limitations of Israeli strikes, some Israeli government officials now privately are beginning to discuss how to cope with an eventual nuclear Iran as much as the nature of its "existential threat." Still, the perceived Israeli national security issue is enormous. Looking toward the final months of the year, the Israelis remain an important question mark.

Over time, if the regime in Tehran remains in power, the Iran danger will become more diffuse and start to look more like North Korea. It's clearly a significant long-term negative for global stability. Though for Iran itself, by 2011, we'll probably see a bunch of countries start thinking about how they'd like to start investing there, even as the Western powers seek to prolong sanctions.

Next up: Fiscal issues in Europe

Ian Bremmer is president of Eurasia Group, and David Gordon's is the firm's head of research.

By Ian Bremmer

When Yemen makes international headlines, it's usually because outsiders look at the unrest there as yet another proxy conflict between regional heavyweights Saudi Arabia and Iran. It's one more version of the Sunni vs. Shia Middle East story. The Saudis are supporting Yemen's government in a fight with Shia Houthi rebels financed and trained by Iran. The Saudi, Yemeni, and Iranian governments each have their motives for feeding this simplification.

The Houthis are a Shia rebel group in northern Yemen, centered in the city of Saada. They've warned for years that they've been politically and economically marginalized by Yemen's government, and Houthi rebels launched a rebellion in 2004. There have been six rounds of fighting since. In August of this year, the Yemeni government, with Saudi support, launched another battle against the Houthis, and the conflict has spilled across the border into Saudi Arabia, where Houthis have fought pitched firefights with Saudi forces. In response, the Saudis have launched bombing raids on Houthi positions inside northern Yemen. Tens of thousands of people have fled the expanding conflict zone.

The spike in violence is now getting the regional attention it deserves-but for the wrong reasons. Yemen's weak government already has its hands full with a growing threat from al Qaeda in the Arabian Peninsula (AQAP) and increasing secessionist pressures in the south, adding to the risk that Yemen will become a failed state. The refugee problem is creating a risk of social unrest inside Saudi Arabia. These are serious issues. Less serious is the fear, fanned by both Saudi and Iranian officials, that Iran wants to use the Houthis to create an Arabian version of Hizbullah, a direct Shia threat to Saudi territory. The Saudis are playing up this threat to justify cross-border attacks into Yemen. Yemen's government is using the threat to justify its willingness to accept Saudi attacks on Yemeni soil and to gain Western military support and financial help. Iran feeds the story to pose as increasingly influential within the region.

The Houthis, though, have no reason to play along. They follow the Zaidi form of Islam. They're technically Shia, but theologically and historically distinct from Iran's Twelver Shia majority, which has cultural connections in Lebanon and (to a lesser extent) in Iraq -- but not in Yemen. The Houthi rebels need guns and cash and can't be picky about where they get them. If Iran is willing to sell, they're willing to buy. That doesn't mean they will use them to advance Iranian interests in Saudi Arabia's backyard.

In Yemen, at least, all militancy is local. Few outside al Qaeda relish the idea of the world's largest oil-producer sharing a border with a failed state. That's a risk worth worrying about, but it's not a good reason to over-simplify a complex political, economic, ethnic, religious, and social problem into some sort of regional proxy war between Sunni and Shia.

KHALED FAZAA/AFP/Getty Images

By Greg Priddy

Saudi Arabia faces a complex set of challenges in its role as leading member of OPEC amid ongoing economic and financial market volatility. After achieving an unprecedented level of compliance with OPEC production cuts from other members earlier this year, the kingdom now confronts a problem: compliance is beginning to fray, even as a weakening of the U.S. dollar and a surge in global equities markets push the oil market surging ahead.

If the breakout above $75 per barrel for West Texas Intermediate (WTI) crude oil is sustained and the momentum continues, it's entirely possible that Saudi Arabia will intervene to try to tamp down prices. If that happens, it wouldn't be as part of any understanding with the United States -- a relationship now under serious strain -- but from pure self-interest. With the global economic recovery still fragile, a rapid momentum-driven escalation in oil prices could weigh on consumer confidence and economic growth. That could produce a drop in oil prices. Saudi Oil Minister Ali al Naimi has spoken in recent months of a "goldilocks" range for crude oil at around $75 per barrel, and hinted at action to blunt any sustained push past $80 per barrel.

The Saudis also need to manage price increases to maintain pressure on Iran. Iran's nuclear progress has Gulf Arab governments on edge -- and the Saudis, in particular, would like to avoid taking any action that provides Iran's government with extra revenue. The Saudi government can balance its budget with WTI crude oil in the vicinity of the high $50s. That means they are now replenishing reserves at a rapid pace after running a deficit for the first half of this year. Despite spending cuts, Iran is still under financial pressure, and the Saudis would like to keep it that way.

Managing output levels and prices will be difficult, given that global inventories of crude oil and petroleum products remain well above their normal ranges. Any move by the Saudis to tamp down a surge in prices would likely involve a modest amount of increased exports -- say 500,000 bpd -- and could be pulled back once it has its intended effect of breaking the market's momentum. To bring inventories down, however, the leading Gulf Arab members of OPEC (Saudi Arabia, Abu Dhabi, Qatar, and Kuwait) will need to keep their own output well below pre-September 2008 levels through at least the end of 2010. Right now, compliance outside the Gulf Arab members has receded, particularly in Iran and Angola. Nigeria remains at its target, but that's a result of the continuing violence in the Niger Delta, not a policy decision to keep its promises.  

Greg Priddy is a Global Energy & Natural Resources analyst at Eurasia Group.

JOE KLAMAR/AFP/Getty Images

By Willis Sparks and Geoff Porter

As the world focuses on the diplomatic tug of war over Iran's nuclear program, Israel lives with the worrying hum of all those centrifuges spinning just a thousand miles to the east. Yet, Benjamin Netanyahu's government knows that if Israel launches airstrikes, there's a limit to how much damage can be done and how long Iran's progress can be delayed. It therefore has to persuade the Obama administration -- and anyone else who might help slow Iran's march -- to see the risks from Iran as Israel sees them.

It helped that Iran recently revealed the existence of an undeclared nuclear site near the city of Qom. At the very least, that revelation of Iranian dishonesty might have made it a little more difficult for Beijing and Moscow to justify continued resistance to sanctions. Yet, Israel remained quiet. Suddenly it appeared Netanyahu, Defense Minister Ehud Barak, and National Security Advisor Uzi Arad might have a wind at their backs. Though they'd like the wind to blow a bit more steadily and to get them to their destination quicker, they can't risk the rhetoric that might label them as blowhards.

But now there's talk of a diplomatic breakthrough. Following talks in Geneva with negotiators from the United States, China, Russia, Britain, France, and Germany, Iran has signed on to a tentative "interim agreement" to accept a U.S.-Russian proposal (that has been on the table for more than a year) to ship much of its low enriched uranium outside the country for reprocessing. Ensuring that this uranium is processed outside the country would help verify that it's used for civilian, not military, purposes. And then over the weekend, Iran ostensibly agreed to allow IAEA inspectors into the Qom facility on Oct. 25.

This leaves the Israeli government in a bind. First, because the details have yet to be worked out and Iran could renounce a completed agreement at any time, Israel can't take much comfort from it. Second, the fact that others treat it as a potential diplomatic breakthrough makes it even less likely than before that Israel could justify military strikes or that the US can persuade Russia and (especially) China to support sanctions tough enough to make any difference in Iran's strategic planning.

Israel has no faith that the potential for diplomatic détente between Iran and the US and EU is anything more than an Iranian stalling tactic, buying Tehran more time to speed toward the nuclear finish line. Likewise, Israel doesn't believe that sanctions -- no matter how tough they are -- will back Iran down. For Israel, diplomacy and sanctions are merely different forms of delay, but Netanyahu has little choice but to wait them out.

He'll be waiting for some time. First, diplomacy has to run its course. Following the tentative agreement in Geneva and the announcement that Iran will allow inspection of its Qom facility, the diplomatic track seems to be gaining momentum. Once that momentum slows and stalemate resumes, sanctions will be debated and some of them will be implemented. That won't happen before spring 2010 at the earliest.

In the meantime, Israel has little choice but to sit on its hands. Netanyahu knows that strikes on Iran's nuclear sites during delicate negotiations would inflict much more damage to Israel's international reputation -- and its relations with Washington, in particular -- than to Iran's nuclear program. Nothing brings this home more clearly than the U.N. Human Rights Council's report investigating Israel's military campaign in the Gaza Strip in 2008-09, which came very close to launching a legal process within the UN that could have produced a referral to the U.N. Security Council -- and possibly a war crimes tribunal. That's not going to happen, but it underscored already shifting international attitudes toward Israel.

Former Defense Minister Shaul Mofaz has said 2010 would be the year of sanctions. His government was hoping for a year of action. Instead, Israel will wait.

Willis Sparks is Global Macro Analyst and Geoff Porter is Middle East & Africa Director at Eurasia Group. 

Alex Wong/Getty Images

By Eurasia Group analyst David Bender

Iranian President Mahmoud Ahmadinejad made it through his August 5 inauguration with the regime secure, but he faces a bumpy road ahead. The Iranian government won round one against the opposition through its willingness to use force in the streets, torture in the jails, and heavy propaganda in the media. Based on its apparent calculation that excessive repression will not provoke a revolution, but compromise might, the regime won't let up anytime soon on its crackdown. While this hard-line policy may keep the regime firmly in control for the short term, it leaves it few long-term options. The regime now has neither the legitimacy nor the political capital to effectively rule or institute needed economic reforms.

Iran is less politically stable than it has been at any time since the Islamic Revolution. The regime shows deep internal fractures, even between Ahmadinejad and Supreme Leader Ali Khamenei. The two are hanging together for now, but if Ahmadinejad becomes too great a liability, Khamenei may have to dump him. Ahmadinejad faces serious challenges, including an increasingly reactionary support base dominated by the hard-line Islamic Revolutionary Guards Corps, a wide field of opponents, and wary clerics in Qom. Meanwhile, the parliament is gearing up to challenge the president on a number of technocratic matters. In other words, the impetuous president is under pressure from multiple angles, something that history suggests will push him to become more brash, outspoken, and antagonistic.

Beyond his inflammatory rhetoric, Ahmadinejad needs to bring the concrete economic reforms he promised to the country. He must tame inflation, which has been higher than 20 percent for most of the last four years; reduce budget-draining energy subsidies that have made cheap gasoline a virtual entitlement for the urban middle class; and raise tax revenue to reduce Iran's dependence on oil revenue, which currently accounts for more than 80 percent of the country's total revenue. At the same time, with oil prices half of what they were 13 months ago, but official unemployment still at more than 12 percent, Ahmadinejad's government will need to continue creating jobs to maintain social stability. It remains unclear how the government can actually solve any of these major problems, however, given that the regime has little political capital and Ahmadinejad seems to have a personal aversion to technocratic expertise.

An opening to the West now looks even less likely than before the June presidential election. The Iranian regime's decision to blame the post-election social unrest on sinister foreign elements means that few in power in Tehran will be amenable to compromise with the United States on the nuclear issue -- or anything else. In Washington, there will be more support for expanding sanctions than pushing talks. A nuclear or diplomatic breakthrough between the United States and Iran is extremely unlikely at this point, raising the threat of U.S. or Israeli military action in 2010.

For now, having consolidated control of the government and the security services, the Iranian regime looks secure. The political equation, however, has fundamentally changed as the Islamic republic has essentially become a military junta that imposes its will though force. This arrangement leaves very little margin of error for the regime and makes the country even less able to withstand future political or economic shocks. During the next 18 months, the Iranian regime will struggle to maintain regime unity, effectively counter the opposition, and deal with disillusioned cleric elites while trying to make difficult economic decisions and manage an increasingly complex geostrategic position. Ahmadinejad may find that fixing his election was the easiest part of his next four years in office, if he makes it that long.

By Ian Bremmer

The George W. Bush administration learned the limits of a policy approach to America's antagonists (like Iran and North Korea) that relies almost exclusively on political pressure and economic coercion. Even as Washington issued warning after warning, Iran made enormous progress toward a nuclear capability, and North Korea amassed a small nuclear arsenal.

But the Obama administration is now learning the limits of constructive engagement. Iran is ignoring U.S. calls for an end to a crackdown on Iranian demonstrators, and North Korea is threatening the United States with a "fire shower of nuclear retaliation." What do we learn from this? That, as time passes, U.S. policymakers have less and less ability to influence events within isolated countries and the choices made by their leaders.

In fact, events inside Iran over the past two weeks represent something close to a worst-case scenario for Washington. Since Obama became president, his tactical approach to Iran has been governed by a simple principle: Don't do or say anything that will help Iranian President Mahmoud Ahmadinejad use Washington to rally support. That was a wise choice, but one that came to nothing because, as Joseph Stalin once observed, "It's not he who votes that counts but he who counts the votes."

Obama responded to the stolen election and the protests that followed with characteristic caution, using vivid language of condemnation only after the level of violence in Tehran demanded it. But it will be harder now to make the deal he wants over Iran's nuclear program, because whatever he offers Iran will open him to charges of "appeasement," and because Iran's weakened government will likely respond to U.S. warnings with renewed belligerence.

On North Korea, whatever the president's approach, uncertainty within that country is generating a level of anti-American vitriol that's unusual even by North Korean standards. Kim Jong-Il has apparently tapped his 26 year-old son, Kim Jung Un, to succeed him. Whether this latest of the Kims will actually rule or the North Korean military will wield new power within a kind of dictatorship by committee, we can only guess. But it's clear that, for the moment, U.S. officials can plan for various contingencies and respond to events, but can't do much to influence what comes next.

The Obama approach to these problems is to try to keep as many options open as possible. That might help to protect him against the charges of hubris that rained down on Bush-era neocons, but it also allows others who don't play by the same rulebook to outmaneuver him. Political decision-makers inside Iran and North Korea are now defining the terms of their engagement with the United States.