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 Carroll Colley

While Russia will enter the WTO in late August, U.S. industry will be left on the sidelines until Congress removes the Cold War-era impediment to greater trade between the former foes. But it's a safe bet that Congress won't graduate Russia from the Jackson-Vanik amendment, which is necessary to grant permanent normal trade relations to Russia and take advantage of its accession to the WTO, before the November election. The reason? Russia is perpetually steeped in controversy, and U.S.-Russia relations have become a campaign issue in the race between Republican Mitt Romney and President Barack Obama. U.S. industry likely won't be able to take advantage of greater market access in Russia until the lame-duck session at the end of the year, and possibly later.

The White House is much more focused on November 6 (Election Day) than August 23 (the approximate date of Russia's WTO entry). Only after repeated requests from Republican lawmakers for senior level officials to testify on the Hill -- widely viewed as a Republican maneuver to force the administration to speak on the record about its Russian policy -- did the administration relent by sending the duo of Deputy Secretary of State William Burns and U.S. Trade Representative Ron Kirk to testify before the House Ways and Means Committee and the Senate Finance Committee. The White House calculates that a "yes" vote on graduating Russia from Jackson-Vanik (a 1974 provision that ties trade relations to freedom of emigration and other human rights considerations) would have little electoral upside, and might even harm Obama before the election.

Obama's meeting on June 18 with President Vladimir Putin on the margins of the G20 in Los Cabos seemingly failed to produce a breakthrough on Syrian policy. Headlines about ongoing arms shipments bound for Syria and the potential for continued Russian intransigence at the U.N. Security Council also represent potential political liabilities during the election home stretch, not to mention a host of domestic political issues. Romney, meanwhile, has called Russia the U.S.'s greatest political "enemy" -- and later changing that description to "foe" -- because he senses a potential weakness in an Obama foreign policy that has otherwise produced several notable successes.

It would be much simpler, politically, if supporters of graduating Russia from Jackson-Vanik could cast it as a vote for American business, as Secretary of State Hillary Clinton did in a recent opinion piece. But they can't. Passage is complicated by the Magnitsky bill, human rights legislation that targets government officials involved in the case of Sergei Magnitsky, a Russian lawyer who died in police custody in 2009. Largely viewed as a replacement for Jackson-Vanik, the stated aim of the bill is to deny visas to corrupt officials, freeze any U.S. accounts they have, and publish their names. The reality is that the Obama administration last summer instituted its own visa ban and any potential offenders have long ago transferred any funds from the U.S.. The net effect of the bill, therefore, is the "naming of names," which would represent a significant embarrassment to the Putin regime. The bill enjoys broad bipartisan support, with a number of lawmakers stating publicly that passage of the Magnitsky bill is a prerequisite for their vote on Jackson-Vanik.

The Obama administration has sent contradictory messages about its support for the Magnitsky bill. While originally opposing the bill, the administration seems to have accepted the inevitable and has been working with its primary author, Democratic Sen. Ben Cardin of Maryland. One recent Senate version provides for the public list as well as a confidential annex, which would largely allow the administration to circumvent the thrust of the bill by invoking national security exemptions. This is strongly opposed by a number of senior lawmakers, including Sen. John McCain, who was a co-sponsor of the effort to repeal Jackson-Vanik on the caveat of corresponding passage of the Magnitsky bill.

As the August recess rapidly approaches, the window for graduating Russia from Jackson-Vanik prior to its WTO accession closes. Obama appears to have little room to maneuver in expending political capital on the matter without raising the risk of elevating Russia-and its collateral baggage including Syria, Georgia, Iran, and domestic protests-to a legitimate campaign issue. Unless Congress moves forward on its own prerogative-which appears unlikely-the repeal of Jackson-Vanik won't get passed before November, or later, leaving the world's largest economy unable to take advantage of the accession of the WTO's newest member.

Carroll Colley is the director of Eurasia Group’s Eurasia practice.

By Damien Ma

Though the curious case of blind Chinese dissident Chen Guangcheng has badly embarrassed China's leaders, it has provided them one important benefit -- it has diverted attention from the far more dangerous story of Bo Xilai. Regardless of the outcome in either case, the Communist Party's image has been badly tarnished. For a Chinese government that seems bent on investing in soft power, these last few months have offered clear reminders that soft power cannot be bought. It must be earned.

For a Chinese government that prefers to keep its differences behind closed doors, the Bo Xilai episode is a nightmare, in part because the involvement of the U.S. and British governments in the case has brought an unusual degree of international media scrutiny. (One of Bo's deputies briefly took refuge in the U.S. embassy, and Bo's wife has been implicated in the murder of a British businessman.) China's familiar tools of propaganda have been overwhelmed by frenzied speculation about the case in the Western press and China's social media echo chamber -- yet another reminder that Beijing can no longer afford to ignore Sina Weibo, China's version of Twitter.

The party leadership has dismissed the Bo Xilai saga as a sideshow and Bo himself as an aberration within the country's otherwise upstanding roster of senior officials. But little of China's blogosphere appears to be buying it. Instead, Bo's story signals for many that China remains a corrupt and opaque place, that the unbridled capitalism practiced in China has mainly benefited politically-connected VIPs, and that greed has infected the leadership right to the top.

And though the drama surrounding Chen Guangcheng has given the public something new to speculate about, in some ways, the story reinforces the cynicism that Bo Xilai has exposed. Chen and Bo -- a powerless and once illiterate legal activist and a powerful political scion who long stood above the law -- seem polar opposites. But they have something important in common; both were left without a place to hide when the leadership decided they should be punished.

Few within the country believe that Bo or his wife will have their day in court, reinforcing public fear that average citizens have no real protection within a system manipulated for the benefit of the party. That Chen, like Bo Xilai's deputy, first sought sanctuary in the U.S. embassy underscores a point not lost on the Chinese public: The United States, not China's own government, offers protection of last resort in times of political turmoil.

These stories are engendering a growing trust deficit between the government and the informed public -- the very elites that the party counts as its crucial constituency. A perception of systemic "rot from within" and the lack of legitimacy it implies undermine the regime's monopoly hold on domestic political power.

Despite Premier Wen Jiabao's constant talk of political reform, the last decade of the Hu Jintao/Wen Jiabao administration saw an economy that raced ahead and a political system that changed very little. But to repair this latest damage to its "brand," the party may feel it has to produce some real change. Some within the leadership are already using this opportunity to push for political liberalization. In his closing arguments as premier, an increasingly legacy-conscious Wen Jiabao is making a final pitch for real political reform. But Wen is a lame duck.

Over the course of the next few months, China will introduce a new generation of top leaders. Any political changes they might produce are unlikely to fundamentally recast Chinese politics or to appear soon. But they may soon find that delivering go-go growth is no longer enough. They may find that, particularly in the online public square provided by social media, a growing segment of China's people will expect a new degree of accountability -- and a new kind of change.

Damien Ma is an analyst in Eurasia Group's Asia practice.

By Jennifer Lee

The new, young regime in North Korea surprised more than a few observers when it agreed last week to a moratorium on its nuclear activities in return for 240,000 tons of U.S. food aid so soon after Kim Jong Un assumed leadership. Instead of the legitimacy-building provocations expected from the young Kim (who is in his late 20s), the world got a measured concession from a totalitarian regime that demonstrated a degree of consensus and decision-making ability. In some ways, it was the story of the young son continuing his father Kim Jong Il's efforts to improve relations with the U.S. prior to his death.

There is general optimism surrounding the agreement, which stalls North Korea's uranium enrichment program, and nuclear and long-range missile tests, and allows the International Atomic Energy Agency to inspect the Yongbyon nuclear facility. Last week's step forward, however, does not necessarily presage a more substantive shift in North Korea's posture. The agreement allows North Korea to possibly address its immediate concerns (economic sanctions) and affect domestic politics in South Korea, without ceding its ability to provoke or flip the switch (again) on its nuclear program.

While it is easy to think that the U.S. food aid "carrot" must have been the main reason behind North Korea agreeing to this deal, it is unlikely the case. North Korea is not known for being particularly concerned about the hunger of its people (allegedly more than one million people died during the famine in the 90s, and food security has been dismal for the past few decades); and the totalitarian nature of the regime means that its leaders are not very concerned about their approval ratings.

North Korea is more concerned about the economic condition of the state and the long-term implications of sanctions (North Korea's version of the statement mentions that it would want to discuss the lifting of sanctions and provision of light water reactors if the Six Party Talks resume). The current move is probably a gambit to see if it can resume the Six Party Talks and have sanctions lifted without giving up the nuclear program. The deal is also likely an effort by Pyongyang to slight the Lee Myung-bak administration in Seoul, which it views with hostility, in the hope of increasing the chances of the liberal parties in South Korea's presidential election in December.

The U.S. and South Korea both have presidential elections this year. The agreement is likely North Korea's way of buying time for a year or so until the South Korean administration changes, while trying to extract concessions from an Obama administration that does not want any more conflicts on its hands during an election year. This is also a moratorium that is to last only while "productive dialogue continues." Everything North Korea has promised is reversible if it decides to back out. And it certainly has set a precedent for doing so. Furthermore, this moratorium applies only to the Yongbyun nuclear facilities; it is widely believed that there are several other nuclear development sites throughout North Korea that will be out of reach under this agreement.

It should not be forgotten that North Korea's nuclear capability has been extolled within North Korea as Kim Jong Il's most important legacy. It is undoubtedly seen as the single most powerful card that North Korea has, and with the recent leadership transition to a young new leader, there is little chance that the country will completely forgo this leverage, especially after the NATO operation in Libya that removed Muammar Qaddafi.

There is still a possibility that this could turn into something positive and lasting for U/S.-North Korea relations or North Korea's future behavior. Last week's agreement demonstrates that the totalitarian regime in North Korea was able to take a rational step for its self-interest. But it does not demonstrate that North Korea is contemplating giving up its nuclear weapons, or that it is on the verge of changing its behavior.

Jennifer Lee is an associate in Eurasia Group's Asia practice.

By Ayham Kamel

Recent, though futile, efforts to resolve the crisis in Syria have demonstrated the absence of leadership from global powers such as the U.S. and likely set the stage for possible contagion. The unwillingness of the major powers to intervene in crises such as in Syria -- a marker of what Eurasia Group has called the G-Zero World -- has allowed regional players to step into the breach, notably Qatar via the Arab League. But the League's efforts have also exposed a regional power vacuum and tensions among Middle East nations that could potentially escalate into a proxy war in Syria.

The Arab League's late-January initiative called on President Bashar al-Assad to step down, leaving the vice president to negotiate with the opposition, but it reflects neither the complexity of the Syrian conflict nor the domestic power balance. For example, the opposition is still deeply divided and there is still considerable support for the regime among business interests and some minorities. The Syrian regime is likely to retain power throughout most of 2012, but the risk of collapse will rise considerably in the last quarter.

Other players have taken advantage of major powers' unwillingness to get involved in Syria. Qatar has been pushing for more hawkish Arab League policy on Syria, but the organization lacks the power to push through such initiatives. Turkey, Iran, and Saudi Arabia have also staked out a role. But, the lack of interest in producing a negotiated solution effectively means that the Syrian regime can disregard the Arab League on many issues.

Divisions in the League between Gulf Cooperation Council (GCC) states and other members also limit the group's ability to formulate and pursue effective policies. The 24 January decision by the GCC to withdraw monitors from Syria highlights this division. Both Egypt and Algeria, traditionally important players in the organization, are uncomfortable with what is increasingly seen as Qatari and Saudi dominance. In the near term, Egypt's leverage will likely decrease given its own political transition, but major stakeholders (such as the military and the Muslim Brotherhood) will eventually seek a more proactive foreign policy. Within the GCC, there is also a subtle, but important, tension between Qatar and Saudi Arabia. Saudi royals are wary of Qatari calls for direct military intervention as a tool for democratic reform in Syria or any other Arab countries, a precedent that could be later used against Riyadh.

Syria is a key part of the regional balance of power between moderate pro-U.S. states and the so called resistance camp lead by Iran. Seeking a broader realignment in the Middle East, regional powers are likely to increase their support of their local allies. Saudi Arabia, Turkey, and Qatar are actively encouraging the uprising driven by conservative Sunnis. Meanwhile, Iran is providing the Assad regime with intelligence, and technological equipment to suppress the uprising.

The Syrian conflict has fanned Sunni-Shiia tensions and the risks of contagion in Lebanon, Jordan, and Iraq are considerable. In Iraq, Sunnis are emboldened by a resurgence of conservative movements across the Middle East. Lebanon could become more unstable as the Syrian conflict has divided political factions in an increasingly delicate struggle. Jordan's own communities could reconsider their allegiance to the Hashemite monarchy as communal divisions between Jordanians of Palestinian descent and tribal elites begin to increase. Potential Syrian or Iranian support to Kurdish separatist groups in Turkey is likely to become a problematic issue. Finally, covert action by either the Sunni axis (Saudi Arabia, Qatar, and the Arab League) or Shiias (Iran and Iraq) entails significant risks to regional stability and could spur a violent proxy war that would hurt the business environment and oil flows.

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

By Cliff Kupchan

On Sept. 16 and again on Sept. 19, the Palestinian Authority's President Mahmoud Abbas stated that his government would apply to the U.N. Security Council for full membership at the UN this week, a move which will further stoke already significant strains. The United States will almost certainly veto the application, however, amplifying ill-will among all interested parties.

Security Council approval requires at least nine votes and no vetoes; some international diplomats believe there is a chance that the Palestinian Authority (PA) will fail to secure the nine "yes" votes, obviating a U.S. veto. In any case, a membership application to the Security Council takes time, ranging from weeks to months. This would provide an interlude for other diplomatic actions, including a shift of focus to the U.N. General Assembly and efforts to return to the peace process, though that outcome is not likely.

Despite Abbas' statements, there is still a small chance that the Palestinians will go straight to the General Assembly and avoid the provocative Security Council option. Significant debate is ongoing within the PA, with Abbas and his senior advisor Nabeel Shaath favoring the Security Council route. Prime Minister Salam Fayyad favors a less inflammatory path. At the General Assembly, the PA would apply for non-member state status. Most observers believe the PA would need a two-thirds majority to attain that status, which appears to be within easy reach. The weight of that majority would be enhanced by affirmative votes from France and, probably, Britain. Again, the United States would vote against the proposal.

The Palestinians are taking the U.N. path because the PA has given up on the peace process in its current form. A high-level Palestinian recently visited Washington, delivering the message that leverage between Israel and Palestine had to be equalized and that U.N. membership or de facto recognition (non-member state status) was the only peaceful option. The PA leadership appears genuinely committed to a two-state solution, and does not believe its gambit will lead the Israelis to abandon further negotiations.

The biggest, and most likely, risk is of Palestinian unrest and violence directed against Israel, though casualties will likely be limited. The mood among the population in the West Bank is a mix of apathy and anticipation over the U.N. vote. PA officials have stated that they will prevent any violent reaction, though celebratory marches have already been planned. The population is likely to be emboldened, angry at the United States, and frustrated by lack of actual change on the ground following the vote, a factor that will grow stronger over time.

The combustible mix will probably lead to actions, peaceful or otherwise, against Israeli soldiers or settlers. In any case, a Palestinian mobilization will probably push Israel into a defensive crouch that could lead to preemptive actions. Israeli forces would probably curb movement by Palestinians and enter refugee camps and cities, settlers may commit hostile acts, and the government could withhold tax remittances. Palestinian security forces will likely seek to curb unrest, but at the risk of the PA's legitimacy. Fear of uncontrolled escalation on both sides will probably limit violence, but the West Bank could well remain unstable for a protracted period.

Any unrest would likely come in waves. Abbas is scheduled to address the United Nations and submit the Security Council application on Sept. 23, shortly after Israeli Prime Minister Netanyahu's speech; unrest could well occur on Friday. After that, disorder is most likely following Security Council or General Assembly action.

Cliff Kupchan is a director in Eurasia Group’s Middle East Practice

By Risa Grais-Targow

By all rational measures, Cuba is effectively irrelevant to the United States. The island is small, its economy is about the size of New Hampshire's, and since the collapse of the USSR it poses no strategic threat. Yet the Castros have a habit of popping up in the headlines. In part, that is because of the inevitable fascination with a small country that has been a foreign policy irritant for the United States since 1959 and, more recently, its outsized role in Florida politics. But change is coming to Cuba, slowly but surely, and with change comes the possibility of unexpected volatility.

Cuba is gearing up for the first Cuban Communist Party (CCP) congress in 14 years, to be held April 16-19. Much of the event will be focused on formalizing Raul Castro's small steps toward economic liberalization (e.g., trimming the state's workforce and allowing more room for entrepreneurs) outlined in a November 2010 wish-list of 300 reforms. Another, perhaps more important, development will be the identification of the next generation of leaders, including the appointment of a new second-in-command for the CCP (the second most powerful position in Cuba). The long delay since the previous CCP congress suggests that there has been much internal wrangling over that issue.

The Castros are clearly on the way out (Fidel is 84 and Raul is 79), and the CCP has promised that the congress will usher in a new generation of leaders. Just how new and young they will be remains to be seen. On March 25, Raul Castro announced that the 50-year-old Economy and Planning Minister Marino Murillo, who has been the architect of much of the economic reform agenda, would now oversee its implementation as a sort of economic czar, signaling Raul's devotion to the reform process. The CCP may, however, simply shuffle senior party members into new positions rather than appoint younger reformers.

Such developments could also be important for the U.S. and perhaps trade with Cuba. Unless Congress decides to revisit the issue, the Helms-Burton Act of 1996 stipulates that the Cuban embargo cannot be lifted while the Castro regime is still in power. A shift in the leadership could also open the way to dealing with other potential concerns. For example, Cuba is actively exploring for oil in the Gulf of Mexico, raising U.S. concerns about how it would handle disasters similar to the 2010 Macondo well blowout.

But the CCP faces deeper challenges than this round of leadership refreshment. Most young Cubans are disenchanted with the regime. They have spent most of their lives in post-Soviet Cuba dealing with grinding economic hardship. Finding true believers among that generation is likely a difficult task and the regime's ability to implement meaningful reforms will affect the stability of Cuban politics further down the line.

Risa Grais-Targow is an analyst in Eurasia Group's Latin America practice.

By Heather Berkman

During last month's State of the Union address, President Obama said little about the region south of the border. There was no reference to Mexico, unless you count acknowledgment of the need to tackle immigration reform. There was the expected call for a congressional push on trade deals with Panama and Colombia. The White House's recent move to lift some restrictions on US travel to Cuba thankfully remained under the radar. He did announce that in March he would visit three countries in the region: Chile, Brazil, and...El Salvador.  

Chile is one of the region's most dynamic emerging markets, one that has signed trade agreements in recent years with Japan, China, South Korea, and the European Union. Brazil is Latin America's heavyweight and an increasingly important player in international politics. But why is the president visiting El Salvador?

Central America's smallest country has a population of about 6 million, less than a third the population of metropolitan Mexico City. Locals call the country the "pulgarcito" (little thumb) in honor of its size and shape. Its economy depends heavily on remittances from the two million Salvadorans living in the United States and on U.S. consumers buying its exports. El Salvador is a member of the U.S. - Central America Free Trade Agreement, but its trade impact on the United States is negligible. Plagued with gang violence and high levels of organized crime, the country suffers from one of the highest murder rates in the world, and it has appealed to the United States for help in combating crime.

El Salvador's president, Mauricio Funes, has made strong relations with Washington a priority, and the country's current president of congress was photographed hugging a cardboard cutout of Obama shortly after he won the election in 2008. Flattered though he may be, this hardly explains why the real President Obama chose El Salvador for a presidential visit.

A broader look at the region brings the country's importance for Washington into sharper focus. U.S. policymakers have become increasingly concerned with the rise of drug trafficking in Central America, especially as Mexico's efforts to crack down on drug cartels have pushed traffickers and their operations into remote areas of Guatemala and Honduras. Both those countries share a border with El Salvador.

The U.S. military coordinates with Salvadoran authorities at the country's Comalapa Air Base to plan drug interdiction operations, which some Salvadoran officials say has helped their country avoid the spike in drug-related violence that plagues its northern neighbors. In addition, El Salvador has remained politically stable. Honduras is still regrouping following the ouster of President Manuel Zelaya in 2009. Guatemala's government lacks the resources and the political will to effectively combat drug traffickers. Throw in the likely reelection of Daniel Ortega in Nicaragua this year, Washington's ongoing tensions with Panama's mercurial President Ricardo Martinelli, and Costa Rica's lack of regional political weight, and El Salvador begins to look more like Washington's foothold in the region.

During the Cold War, U.S. policymakers watched Central America carefully for signs of communist encroachment. Today, it's mainly drug trafficking that Washington cares about, a less immediate priority. But if U.S. officials really want to see progress on that front, a deeper commitment to El Salvador's stability might be a smart use of resources. Obama's visit could be a useful step in that direction.

Heather Berkman is an analyst in Eurasia Group's Latin America practice.

By Ian Bremmer and David Gordon

We've now released our annual report on the ten most important political risks for 2011. Over the next two weeks, we'll be discussing each risk in more depth in this space. We begin with a brief overview.

In the past, our coverage of political risk has centered on particular countries, regions, issues, or events. We worry about elections in brittle countries and their ability to generate unrest, military confrontations involving unpredictable governments, or a policy shift with serious implications for a country's business climate and growth trajectory. For 2011, we're focused on a fundamental ongoing change in the global order.

As we step into 2011, headlines in the United States suggest a little more optimism about recovery, but market players and business decision-makers aren't convinced. Gold prices remain relatively high, and trillions of dollars that could be invested remains on the sidelines. Why the caution?

We're entering an entirely new world order with new ways for states to relate to one another, both politically and economically. That problem could provoke new areas of conflict, and it will highlight an emerging vacuum of power in international leadership -- and the uncertainty that comes with it.

We're calling this new order the G-Zero, because no country or bloc of countries has the political and economic leverage today to drive an international agenda. The G-20 helped build a useful crisis response when the financial crisis hit, but as the sense of urgency evaporated, so did the unity. The G7 is an anachronism. The G2 (the United States plus China) won't work, because the United States can't afford to keep up its role as primary provider of public goods, and China (like other emerging states) is much more interested in protecting domestic growth and stability than in accepting new burdens abroad. The G3 (the United States, Europe, and Japan) isn't viable, because Europe is shoulder deep in a bid to save the eurozone, and Japan's government is dysfunctional.

There's no international leadership, and each government will increasingly protect its gains at the expense of others. That's why the dominant economic trend of the last 50 years, globalization, now faces a direct challenge from geopolitics. Governments in both the developed and the developing world have every incentive to throw up barriers to commerce and investment that are designed to protect their own workers and companies -- and no country or bloc of countries has the will or the muscle to reverse this trend.

Our list of risks for 2011 includes the potential for crisis in Europe, tensions at the intersection of cybersecurity and geopolitics, China's unwillingness to bow to a growing surge of international pressure for economic policy changes, provocations from North Korea, and the risk of a spike in currency controls. All these risks are intensified by this transition to a G-Zero order.

Next up, we'll look at the G-Zero in greater depth, because it's our top risk for 2011.

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

By Roberto Herrera-Lim

Western governments recently cheered Aung San Suu Kyi's release, but don't expect any major changes to their Myanmar (formerly known as Burma) policies in the near term. By contrast, Asian countries will probably increase their level of engagement, no matter what the country's politics, because they want access to its natural resources. So what does this all mean for Myanmar's relations with the East and West?

Divining the intentions of Myanmar's generals is never easy, especially their calculations around the release of the country's most famous dissident. It could be an act of economic desperation, the result of a power play between the old guard and relatively more moderate factions within the military, or simply the regime's efforts to achieve some form of normalization. Regardless of the motives, however, the effects are clear: While the West remains distrustful of recent moves, other Asian countries will increase their dealings and investments with Pyinmana, giving these governments greater leverage with the generals who effectively run the country (albeit in civilian clothes). In other words, there will a widening gap between how the West and Asia deals with the Burmese regime, for the next year at least.

The current U.S. administration, whose priorities in Asia lie elsewhere, will not expend much political capital on the country. Influential pro-democracy constituencies in Washington can easily find arguments for continued sanctions and against engaging with the country's nominally "civilian" leadership. While the country held its first general election in 20 years on Nov. 7, it was not free, fair, nor credible. Furthermore, most Myanmar watchers are mindful of May 2003 when, barely a year after Suu Kyi's first release from detention, an armed group apparently recruited by the regime's front, the Union Solidarity and Development Association (USDA), attacked her convoy, killing about 100 people. Senior generals seen as responsible for the attack are now in the new parliament as part of the government-sponsored majority belonging to the Union Solidarity and Development Party (USDP), the successor of the USDA. ??

Meanwhile, many countries in Asia (including China, India, and Thailand) will continue to pursue policies toward Myanmar based on their economic interests and a sense that the country is an arena for strategic competition with rivals. China is already Myanmar's de-facto regional patron. Other countries are now pursuing postures more similar to Beijing's than to Washington's, which, in turn, eases the environment in Asia for further Chinese pursuit of Burmese resources such as natural gas. This year, for instance, CNPC started construction for its oil and gas pipeline projects from Arakan (Rakhine) state off the Andaman Sea to the southern Chinese province of Yunnan. The gas pipeline will draw its supply from the Shwe fields off the Arakan coast in the Bay of Bengal and transport it to Kunming and Nanning in China. The oil pipeline, meanwhile, will transport oil offloaded by tankers from the Middle East at Ramree (Maday) Island in Kyaukphyu to Ruili in China's Yunnan province; it will be able to carry roughly 10 percent of China's imports from the Gulf. For Thailand, meanwhile, Myanmar supplies about a fourth of Thai gas needs, and the amount is expected to increase by 2013, based on new agreements by Thai state energy company PTT.

The next few months will be critical for Myanmar's political and economic trajectory. In the days after her release, Suu Kyi was understandably vague about her plans. She did, however, emphasize "national reconciliation" and flirted with the line that Western sanctions might need to be rethought. Increasingly, Suu Kyi will likely test the limits of the government's tolerance and willingness to pursue political reform. But she'll have to be careful, as the generals will probably be assessing whether their experiment of releasing Suu Kyi succeeds -- and they'll recalibrate as necessary. If they sense that increased instability is the likely outcome of her freedom, the leadership will likely revert to old practices, including increasing the military's role in maintaining order and possibly finding an excuse to again arrest Suu Kyi. On the other hand, if Myanmar's leaders believe their gamble has paid off -- and that the economic and diplomatic gains from her release outweigh the risks to their control over the country -- the pro-democracy movement could be given some breathing room. In this case, if the regime can claim it has fulfilled former prime minister Khin Nyunt's seven-step roadmap (announced in 2003), then a more significant, though slow, thawing of ties with the West becomes more likely. This process will, of course, take time. But if the momentum generated by Suu Kyi's release is sustained, some change might become a more realistic expectation within a couple of years.

Roberto Herrera-Lim is a director in Eurasia Group's Asia practice. 

Almost as soon as the midterm elections ended, President Barack Obama set off on a 10-day Asia swing. He's found friendly footing abroad so far: a receptive India looking for a general counterweight to China and a rapturous day in Indonesia, where Obama spent several formative years as a child. Next came a G20 summit hosted by South Korea, a strengthening U.S. ally, and then he'll hit Yokohama for an APEC summit and to commemorate the fiftieth anniversary of the U.S.-Japan alliance. But this happy-go-lucky itinerary doesn't even hint at an overarching foreign policy. Which got me thinking, is Obama ever going to come up with one?

Plenty of commercial and defense deals were delivered during the India visit, which shows how that relationship is improving. There were high hopes for a breakthrough in Seoul on the U.S.-Korea trade agreement, though that now seems unlikely (at least for now). The Japan visit should include broad agreement on Tokyo moving ahead (along with the United States) with a trans-Pacific partnership (TPP). But these are all small things.

What's the big picture?

I was thinking about this while listening to Undersecretary of State Bob Hormats around-the-world speech at the World Affairs Council in Washington last week. I couldn't help but compare it with a similar speech from Secretary of State Hillary Clinton a couple months before. They both talked about the necessity of focusing on issues of bilateral cooperation with China, on Japan as the lynchpin of U.S. policy in the region, on the necessity of promoting free trade, the determination to stay focused on fighting terrorism, and to continue to support democracies around the world. There was talk about not neglecting traditional U.S. allies in Europe. And then, at the end, both emphasized the need to maintain strong commitments with America's key allies in the Western hemisphere, Canada, and Mexico.

I also thought about a speech I had heard from then Secretary of State Colin Powell in 2005. How different were the speeches? How much had the basic precepts of U.S. foreign policy changed over the course of the last two administrations, and during the past five years? To be charitable, I'd say 2 percent. Maybe. Primarily, the difference is that Asia is now taking up a little more attention, Europe getting slightly shorter shrift. Yet in that same period of time, the world has clearly changed more than 2 percent.

I'd say the world has hit a decisive inflection point, even more profound than after the collapse of the Soviet Union. The fall of the wall produced a new global security balance, to be sure -- the United States emerged as the sole hegemon. But in terms of the global economic and policy order, the world basically moved from the G7 to the G7+1. And to be blunt, the +1 sped up the process of globalization, but it did not reflect a new world order. Once the financial crisis hit, by contrast, the G7+1 became the G20. And that, however unworkable, is indeed a completely new ordering principle. It means different types of countries and governments vying for influence, power, and preference on key issues of global governance-from trade to currency to the politics of austerity, on climate, and on conventional and cyber security.

Yet there's a stark disconnect between our drastically changed world and US foreign policymaking. Over the past few decades, foreign policy has been the preserve of presidents, successful or not (think about the Carter, Reagan, Clinton, and Bush "doctrines"). But two years and a Nobel Peace Prize into the Obama administration, there's no sign of an Obama doctrine. This U.S. president has handled foreign policy primarily by managing conflict as it arises (stepping in directly when absolutely required), and otherwise making small, incremental policy gains on fronts with momentum. Obama has shaped America's foreign policy apparatus accordingly, with a strong and relatively autonomous Secretary of State in Clinton, a series of senior, competent special envoys in the State Department to handle intractable, longstanding foreign concerns, and loyal but comparatively weak, non-strategic national security advisers (namely, Jim Jones and now Tom Donilon, who primarily serve to coordinate policy communication and untangle disputes, not to leverage the National Security Council as a mechanism for executive policymaking.

The biggest new idea that the Obama White House flirted with, albeit briefly, was the prospect of a G2 -- a notion that the new world order could be jointly managed by the United States and China. But that concept was essentially stillborn as the first efforts to realize it came to an embarrassing naught at the Copenhagen climate summit last December. Since then, U.S-.China relations have steadily deteriorated on most fronts. For the world at large, that means a growing disconnect on global architecture -- think Gondwanaland, inexorably splitting into continents while the old government still embraces a single state. But faster. 

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? 

For the sixth time in less than four years, the U.N. Security Council has voted to impose new sanctions on Iran in connection with its nuclear program. Nothing new there. U.S. officials wanted stronger measures, but the Chinese in particular pushed back hard. Nothing new there either. The sanctions, which are still significantly tougher than earlier models and include tightened restrictions on arms sales, new headaches for Iranian shipping, and an assault on the finances of the Revolutionary Guard and about 40 Iranian companies, will not persuade Iran's government to renounce its nuclear ambitions. Nor is there anything new there.

The real news is that Turkey and Brazil voted no. That's a diplomatic coup for Tehran, which in five previous UNSC votes had won virtually no support. Qatar voted no on the first round of sanctions in July 2006. Indonesia abstained on the fourth round in March 2008. Support from regional heavyweights like Turkey and Brazil (and an abstention from Lebanon) give Iran something tangible to build on as its embattled government works to ease its isolation and to persuade other governments to resist U.S. and European calls for further sanctions outside the U.N. process.

President Ahmadinejad's recent dance card-a Russia/Turkey summit on security just before the sanctions vote and a trip to Beijing just after-illustrates the value of that strategy.

But there's a larger point here about the current state of international politics. It's getting harder for Washington to exercise international leadership. With 10 percent unemployment, an ambitious legislative agenda, an oil spill, and mid-term elections to worry about, President Obama has limited time and energy to invest in grand strategy on foreign policy. Managing geopolitical risk has also become much more complicated in a world that has shifted from a G7 model of international leadership to a G20 model that brings countries like Brazil and Turkey to the international bargaining table. And there is no emerging power willing and able to fill the gap left by new limits on American power and resources, because European powers, China, Russia and others who might lead on key transnational issues are likewise occupied with complex challenges at home.

In other words, no one is really steering this ship, and we can't expect it to sail smoothly through troubled waters.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?

Thus far, the Obama administration isn't making much of a showing. Undersecretary of State Bob Hormats did a strong job on yesterday's U.S.-China panel. But there's little coordination and not much of a message. If Secretary of State Clinton is too busy, why not send Vice President Biden? Combined with perfunctory foreign policy mention in the State of the Union, I'd suspect it's a feeling that anything but domestic issues isn't going to play well politically. That's not the strategy I'd be going with.

So for the American delegation, it's the U.S. private sector that's leading the charge here. And the omnipresent Barney Frank -- who yesterday told a private industry group to stop listening to what congress says, and look at actual policies ... do they have anything to complain about? Heads nod reasonably sagely.   

Meanwhile, criticism of imminent political explosion grows as the nights wear on. Rogue economist/historian/documentarian Niall Ferguson, distinctly unshaven (proffered excuse--he forgot his razor on his flight from Delhi), wagered me $100 that the United States would have a new Secretary of Treasury by June 1st this year. Wager accepted. Howard Lutnick of Cantor Fitzgerald said he'd go $100 for Sept. 1. The bankers are always pushing it. 

Ian Bremmer will be blogging from Davos this week sending reports and commentary from inside the World Economic Forum.

By Ian Bremmer and David Gordon

Before Copenhagen, the prevailing presumption was that 2010 would be the year when a global treaty, including the United States, China and India, really got done. After Copenhagen, we look years away from such a treaty, and there is a growing likelihood that it will never happen.

From a market and industry perspective, the failure to establish clear timetables and goals at Copenhagen complicates investment decision-making for everything from renewable energy investments to forest product management to commodity price forecasting. On the latter, natural gas markets emerge as a loser from the climate change gridlock. While the overall trend is toward greater use of natural gas-fired generation for electricity in North America, the implementation of an actual carbon price is crucial to unleashing new investment and encouraging fuel-switching. The absence of this catalyst (outside of the European Union) increases the likelihood that the current weak price environment for natural gas is likely to continue, creating problems for gas exporters from Russia to Bolivia.

The Copenhagen outcome makes it even less likely that the United States Congress will pass cap-and-trade legislation in 2010. Though Obama's political advisors see a big push for cap-and-trade as a way to energize the base and sharpen distinctions with Republicans ahead of November's mid-term elections, they don't have an international treaty to use as a pressure tactic to move votes forward in the Senate. Opponents of the legislation will use the absence of a substantive agreement with China as further reason to balk at American commitments. Moderate Democratic senators in poor and energy-intensive states strongly oppose the climate change measure and will not provide the votes that Obama needs.

The Copenhagen failure also makes it more likely that individual countries will move to "nationally appropriate" mitigation measures. Countries like China, India, Canada, Brazil, and eventually even the United States will move toward an increasingly heterogeneous set of policy responses, including intensity-based goals, renewable energy mandates, and even carbon taxes, creating a greater challenge for international coordination.

The lack of an international framework will complicate compliance efforts by multinational corporations that have carbon footprints in dozens of countries at once. More significantly for global politics, technical disputes over implementing and verifying actual emissions from these uncoordinated systems will create diplomatic tensions, particularly between the United States and China. And a multilateral stalemate is likely to intensify the existing rift between industrialized and G77 countries. Lastly, the risk of trade disputes over carbon will rise as disparate policy responses heighten concerns over firms relocating to countries with more lax carbon policies, and border adjustment measures gain traction as a result.

Next stop: Brazil.