Note: Today is the third in a series of posts that detail Eurasia Group's Top Risks for 2013.
The Middle East will enter a new phase in 2013. Arab Spring will give way to Arab Summer, as the region faces a series of increasingly complicated overlapping conflicts. As Americans and Europeans resist deeper involvement, rivalries among Saudi Arabia, Iran, and Turkey, competition for influence between Sunni and Shia, a lack of economic progress, and a resurgence of militant groups will each heighten tensions.
Syria remains the central arena of conflict, as Shia powers -- Iran and Lebanese Hezbollah -- on the one side, and Sunni states -- Turkey, Saudi Arabia and Qatar -- on the other compete for leverage. Jihadists have also entered the fray, and turmoil has spilled across the country's borders into Lebanon, Turkey, Jordan, and Iraq.
Emerging conflicts elsewhere are less obvious. Egypt, Tunisia, and Morocco now have moderate Islamist governments. In Jordan and Kuwait, Islamist opposition groups threaten the governing dominance of secular administrations. But while the words and actions of mainstream parties like Egypt's Muslim Brotherhood and Tunisia's Ennahda make headlines in the West, the more serious risk comes from militant organizations that threaten the ability of new leaders to govern and maintain security.
Fueling this trend is the reality that, across the region, new leaders are trying to consolidate power and build popularity at a time when complicated economic problems demand solutions that will make large numbers of people angry. New governments in Tunisia, Libya, Egypt, and Yemen will last only if they can deliver tangible economic progress for an increasingly frustrated and impatient public.
The risk that a Salafist or jihadist group can exploit these frustrations to seize power in 2013 is low, but groups like al Qaeda in the Islamic Maghreb, al Qaeda in the Arabian Peninsula, al-Shabab, and smaller affiliates continue to attract support and new followers by using resentments against local regimes to foster anger at America and the West.
But Iraq may become 2013's newest hotspot. Sunni-Shia tensions are growing, and none of Syria's neighbors is more vulnerable to the threats created inside that country by radical Wahhabi clerics, often with Saudi or Qatari support, now fueling the emergence of an increasingly radicalized and militarily experienced Salafist movement. The Kurdish regional government is becoming more aggressive in promoting its energy development agenda at Baghdad's expense, and Sunni-led violence inside the country might well encourage Iraq's Shia-led government to forge closer ties with Tehran, antagonizing the governments of Saudi Arabia and Turkey.
The Obama administration wants to focus on domestic challenges and an ongoing foreign policy shift toward Asia. But regional rivalries are heating up, and Americans and Europeans will only add to the uncertainty by keeping their distance -- in hopes that they don't get burned.
On Wednesday, we'll profile Risk #4: Washington Politics.
By Ayham Kamel
During their fight for the White House, President Obama and Governor Romney made clear they do not believe Syria poses a substantial enough threat beyond its borders to require direct foreign intervention on the ground. Take a closer look. Even if intervention is not a realistic option just yet, it's hard not to notice that Syria's problems have become its leading export.
Syria bloody struggle continues with no end in sight. The international community is paralyzed; it can neither live with an Assad regime that commits daily atrocities nor afford a risky intervention in an already unstable Middle East. To add fuel to the already raging fire, Jihadists are increasingly interested in hijacking the Arab Spring.
This problem is now redefining the rocky relationship between Jihadists, who once focused mainly on global goals, and Salafists who focused on a local agenda. Especially after the killing of Osama bin Laden, Jihadists have shifted their priorities and gone local, as well, working side-by-side with Salafist allies. Ayman al Zawahiri's call for Jihad in Syria highlights this trend. While the struggle against the West remains a long-term goal, Jihadists are focusing on regaining alternative bases. That's why so many foreign fighters -- though clearly not a majority of rebels -- have joined opposition ranks to fight the Assad regime.
Syria is now the crown jewel for Jihadists. It provides access into Europe through Turkey, a border with Israel, a launch site for a new insurgency in Iraq, and easier access to Salafists in Jordan and Lebanon. The opportunity to find a new recruitment hub is also invaluable: The two movements have always been ideologically close and many Jihadists are exploiting that relationship to boost their ranks.
The ripple effects of this conflict are evident across the region. In Lebanon, the assassination last month of General Wissam al Hassan, head of the intelligence division of domestic security forces, will probably undermine an already shaky security environment in that country. Northern Lebanon has effectively become a zone of instability. Salafist groups, among others, have claimed a share of the money headed for Syrian rebels, joining a battle that is both morally required and financially supported.
Jordan is beginning to experience the contagion. Recently, the Jordanian General Intelligence Directorate (GID) uncovered a plot by a Salafist terrorist cell. The group acquired weapons and arms from Syria and crossed into Jordan to carry out operations against civilian targets. Both Salafists and Jihadists in Jordan are beginning to view instability in Syria as an opportunity to expand their networks and improve their capacity to carry out attacks. Jihadist forces in Syria, which are currently fighting the regime, have broader goals. As the Assad government grows weaker these groups may be willing to support their allies elsewhere, including in Jordan. While the Jordanian security services have a significant intelligence and operations capacity, it will become increasingly difficult to monitor events across the Syrian border. More importantly, while the GID was able to preempt the most recent terror attacks, their success in the future can never be guaranteed.
Iraq, whose long border with Syria has always been porous, faces growing risk of cross-border militancy. In recent years, Prime Minister Nouri al Maliki has built a loyal army that succeeded in containing a Sunni insurgency. But he is now right to worry that Sunni forces in Syria are encouraging and supporting their counterparts inside Iraq. Maliki, who initially supported Assad, had feared that a new Sunni government would become a hostile neighbor to Shia Iraq. But he now appears more concerned with Jihadist and Salafist groups. Cooperation between Jihadis across the border and potential flow of new fighters into Iraq are especially problematic for Iraqi stability. While violence is now concentrated in areas that are not core to oil production, the situation could change if Sunnis succeed at mounting a more robust insurgency.
Soon, Americans may again be hearing about a fight with insurgents for control of Iraq.
Ayham Kamel is an analyst in Eurasia Group's Middle East practice.
PHILIPPE DESMAZES/AFP/Getty Images
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.
Wathiq Khuzaie/Getty Images
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.
DON EMMERT/AFP/Getty Images
By Eurasia Group's Middle East practice
Predictions of coming market booms in the Middle East have a long history of proving overly optimistic, but there are reasons to believe that this year will be different. Clear positive signs are emerging in several countries and in multiple sectors. At the macro level, the region will benefit from upward pressures on energy prices and from the broader phenomenon of large-scale capital inflows into emerging markets.
Many countries in the Middle East -- including the United Arab Emirates, Iraq, Saudi Arabia, and Egypt -- are positioned to take advantage of these trends. Despite Dubai's drawn-out and still incomplete recovery, the UAE will remain the region's most dynamic economy. Investment in energy, petrochemicals, infrastructure, real estate, and education will drive its growth. Politically, Abu Dhabi has strengthened its influence and economic coordination between the emirates is now the norm. Dubai's financial troubles may not be completely over, but the economic and political situation in the UAE will continue to improve in 2011, in part because Abu Dhabi remains in a strong fiscal position.
Iraq will see massive new investment in its oil sector and infrastructure building. The country's myriad challenges cannot be underestimated, and the risk of sliding back toward violence remains, but Iraq now has a viable path forward. Its new government, led by Prime Minister Nouri al Maliki, has representation from all of Iraq's ethnic, sectarian, and political groups; and project work on the country's massive southern oil fields is set to ramp up quickly.
Infrastructure and energy investment will drive growth in Saudi Arabia, which is poised for a strong 2011. Saudi officials are justifiably confident about the direction of their economy. Riyadh is attempting to manage global oil prices unilaterally and does not want prices to rise to unsustainable levels; it would not want to be blamed for contributing to a double-dip recession if the global economy slows again.
Egypt, despite political uncertainty ahead of its September 2011 presidential election, will build on years of strong growth -- buoyed by investment in the energy sector, tourism, remittances, and increased traffic through the Suez Canal. Unemployment, however, will remain one of the top socioeconomic concerns, and something that opposition parties will try to seize on in order to gain popularity.
One of the most interesting political developments in the region will be Turkey's continuing emergence as a significant economic and diplomatic regional player. Long aligned with Israel, and more politically oriented toward Europe than the Middle East, Ankara is in the midst of a significant rebalancing. The effects of a more active Turkey in the Middle East will become clearer during 2011. Economically, Turkish businesses will look to invest and work in countries and regions that Western firms view as too risky, such as Iraqi Kurdistan. Politically, Turkey could emerge as an intermediary between the West and Iran, as well as a regional counterweight to the Islamic Republic.
This post was written by analysts in Eurasia Group's Middle East practice.
KARIM SAHIB/AFP/Getty Images
By David Bender
What exactly did Iraq wait 8 months for?
It's been seven weeks since Iraq smashed the record for the longest period of time between an election and the formation of a government. But last week there was finally a breakthrough of sorts between the country's squabbling political factions. It's not yet a done deal, but it's now finally possible to speculate about what the next Iraqi government will look like -- and time to ask the question of whether it was all worth the wait.
The deal struck last week between the Shia-dominated National Alliance, Sunni-backed Iraqiya, and the Kurdish alliance provides the basis for the next government. But it isn't a basis for a stable government. The agreement was an attempt to satisfy everyone in the short term, while delaying decisions on important political issues further into the future. The next government is likely to have little policy coherence, much infighting, and numerous contradictory agendas. That's a troublesome dynamic given that Iraq faces an impending onslaught of tough technical and political questions in 2011. The Kurds will press hard for progress on their territorial issues and their right to sign their own oil contracts, provincial governments will call for greater shares of the profits from Iraq's oil and gas, al Qaeda is attempting to reassert itself going after soft targets, and someone competent will need to direct and oversee the upcoming massive infrastructure expansion needed for the growing Iraqi oil industry.
The outlook for a government capable of managing all these challenges is not good, and the process that got us here was chaotic. Nouri al Maliki will remain prime minister after he skillfully navigated the long political limbo by using his incumbency to project a sense of inevitability that he would retain the premiership. This occurred despite the fact that nearly every other political bloc in the country despises him. Maliki's hold on the job was finally sealed when Iran brokered a deal in Qom, the Iranian city home to many of that's country's senior religious leaders, between Maliki and followers of firebrand Iraqi cleric Moqtada al-Sadr, who had previously declared they would sooner support the devil as prime minister. It's not clear what the Sadrists have been promised in exchange for their support, but they are likely to be a meaningful player in the next government. That's bad news for virtually everyone, because the Sadrists' hard-line nationalism, religious extremism, capacity for violence, and generally uncompromising attitude will make them a disruptive force in Iraqi politics.
But Maliki needed more than just Sadrist support to gain majority backing in parliament. He also looked to the Kurds, who had enough seats to give him a comfortable majority. The Kurds responded with a long list of demands, but ultimately were likely to support him. The United States, which had been keeping its distance from talks, feared that Iraq was heading toward a narrow Shia-Kurdish government that would exclude Sunnis from any meaningful political participation, increasing the risk of a spike in sectarian violence. Washington began working feverishly behind the scenes to push Iraqi politicians to find a compromise that would bring Iyad Allawi's largely Sunni Iraqiya into the next government. So the United States succeeded, sort of.
The White House and other leaders hailed the "power-sharing" agreement that would permit a national unity government to be formed when Parliament convened on Nov. 11. How much power will be shared remains unclear. In the deal, Iraqiya was offered the position of Speaker of Parliament, while Jalal Talabani, a Kurd, would remain president. For Iraqiya, which actually won two more seats than Maliki's State of Law, being given what is perceived as the third best position in the government was an insult. This despite the fact that the speaker, who has control over legislation in the parliament, is arguably more influential than the president, whose powers are largely symbolic. Under the deal, Allawi is to be named head of a newly created national security policy council, which in theory will check Maliki's control over the security forces.
But formally changing the chain of command in Iraq would require a highly unlikely constitutional change, and it seems unlikely that Maliki will ultimately agree to a significant reduction in his powers. He has argued that the new council will function as an advisory panel with no independent authority. If Allawi decides he is powerless in his new position, he could resign and become a forceful leader of the opposition.
Between an unclear Iraqiya role, an uncomfortably large Sadrist contingent, rising Kurdish demands, and no unity of purpose among any of the political groups, the prospects for the next government are not great. But the overall situation in Iraq will probably improve anyway. The next government isn't going to resolve much of Iraq's deep social and political dysfunction, but having it in place will finally allow the oil sector, budget, and infrastructure projects to begin to move ahead.
Was it worth the eight (soon to be nine) month wait? No.
But is it a good thing that there's likely to be a government by the new year? Absolutely.
David Bender is an analyst in Eurasia Group's Middle East practice.
SAFIN HAMED/AFP/Getty Images
By David Bender
Earlier this week, just as Iraq seemed to be finally settling on a new prime minister -- the incumbent, Nouri al-Maliki -- the Washington Post reported a largely overlooked but telling development: the Ministry of Interior had stripped hundreds of police officers in Anbar province of their rank. The problem is that these weren't just any cops: they are Sunnis and former members of the Awakening Councils, paramilitary forces once backed by the United States that had helped turn the tide of the insurgency in 2007 when they turned their guns on al Qaeda.
Now would seem a very strange time for the Iraqi government to be abandoning the Awakening, given that al Qaeda in Iraq (AQI) has lately shown some signs of reconstituting itself. But the dismissals are not about security. Rather, they're indicative of the current (and likely next) government's inability to envision a place for Sunnis in Iraq's future. And they're a sign of the fundamental sectarian dysfunction that is likely to define Iraqi politics and society for years to come.
When Sunnis in western Iraq agreed to stop shooting at U.S. Marines and start fighting AQI in 2007, the United States was more than happy to welcome them with money and weapons. Using the Awakening Councils to help combat al Qaeda was a critical element of General David Petraeus's strategy ending Iraq's civil war by making the Sunnis part of the solution rather than problem. The gambit was a big success in reversing the tide of the war, but it gradually raised fears among the Shia. Decades of repression under Sunni-dominated governments and the military had helped convince many of the newly empowered Shia leaders that the well-armed and battle-tested Awakening Councils might eventually become a base for a Sunni renaissance. These Shia leaders went along with an American plan to start integrating the Awakening Councils into the Iraqi police and military starting in 2008, but only grudgingly; and few of the government jobs that were promised to Sunni fighters in recent years have materialized.
Having boycotted the 2005 elections, Sunnis participated fully in last March's vote, turning out en masse for Iraqiyya, a nonsectarian political alliance led by former Prime Minister Iyad Allawi, a secular Shia (who, once upon a time, was also a Baathist, although he turned against the party in the 1970s and Saddam Hussein tried to have him killed with an axe). Iraqiyya won more seats in the election that either Maliki's (nominally nonsectarian but actually largely Shia) State of Law or the Shia sectarian Iraqi National Alliance (INA). But Sunnis saw their preferences ignored when the two Shia coalitions formally merged and declared themselves the largest political bloc in parliament. Now Allawi and the Sunnis are trapped on the sidelines and forced to watch as Shia kingmakers decide who will lead the next government.
That person -- and it seems extremely likely to be Maliki -- will have to choose how to handle the Sunnis. On the one hand, there's no question it would help stabilize Iraq if he made a genuine effort to reach out to the Sunnis and give that disenfranchised community meaningful political influence and a role in the next government. But a combination of an almost implacable Shia fear of a Sunni resurgence and a sense that, after centuries of repression, this is the Shia's moment means that bold outreach is unlikely. Instead, some Sunni groups may be bought off in order to give the next government a veneer of sectarian diversity but little more.
The big question is how will the Sunnis respond? Should they decide they have no stake in the success of the next government, what will be their next move? Sunnis could cease their security cooperation with Baghdad, but a return to the sort of civil war we saw between 2005 and 2007 is unlikely. The Iraqi government of today, for all its problems, is significantly more stable than it was in 2005, and Iraqi security forces are dramatically more capable. Still, parallel efforts -- not cooperation but a sharing of similar goals -- by disaffected Sunnis and an AQI looking to reconstitute -- could keep Baghdad and Iraq's west violent and unstable for years to come.
David Bender is a Middle East Analyst at Eurasia Group.
By David Bender
Remember when Iraq was all about the oil?
Bush administration officials predicted that a post-war spike in Iraq's oil production would pay for both the conflict and ease the country's transition to democracy. Anti-war protesters countered that the war itself was little more than an oil grab. Now that the American combat mission is officially over, where is all that oil, and how will it change Iraq and the world?
It seemed for years that violent chaos inside Iraq made a big increase in oil production entirely unrealistic; but now there are growing signs that oil project work could begin on several fields in the south over the next six months. If these projects move ahead, over the next decade, Iraq could begin to contribute enough production to significantly influence the global oil market, providing enough supply to undermine assumptions that energy demand from emerging Asia and increasing production costs will squeeze energy markets and add serious upward pressure on prices in the mid 2010s.
Iraq is now producing about 2.4 million barrels per day. The 12 contracts signed with some of the world's largest oil companies fuel hopes that Iraq can increase production nearly fivefold by 2020. That target is unrealistic, but even the likelier tripling of production levels will have important implications for the global economy and raise interesting questions about regional political dynamics. For the moment, Saudi Arabia is the only producer with enough spare capacity to single-handedly move prices. How will the Saudis respond if Iraq can produce enough oil to usurp some of that market power? How will Iran react if a surge in Iraqi production drives down oil prices, depriving Tehran of badly needed revenue? Globally, will Iraqi oil power Chinese and Indian growth? Will it kill the electric car? Iraqi oil production increases will have widespread effects-if they happen.
But Iraq will be a politically volatile and potentially unstable place to do business for the foreseeable future, and a spike in the country's oil production is anything but a sure thing. Nearly six months after parliamentary elections, U.S. combat troops leave behind a country without a government. Vote winner Iyad Allawi, incumbent Prime Minister Nouri al Maliki, an array of Shia sectarian leaders (including firebrand cleric Muqtada al Sadr), and the Kurds remain locked in a seemingly endless battle of diplomatic nerves, holding fruitless rounds of negotiations, forming and breaking alliances, and making declarations of principle with little bearing on political realities.
ALI YUSSEF/AFP/Getty Images
By Greg Priddy
It might seem premature to address how the world oil market and other regional powers will accommodate rising Iraq oil production capacity -- considering that the outcome of Iraq's recent election remains unresolved, and the process of putting together a governing coalition has barely begun. But some of the broad dilemmas that more Iraqi oil will create are structural in nature, and not terribly dependent on the new government's makeup. One thing's for sure: Both Saudi Arabia and Iran will face major challenges to their interests if this scenario plays out.
The Saudi-Iraq axis is simpler than the Iran-Iraq one. If Iraq's production capacity rises to even half of the clearly unrealistic 12 million bpd by 2020, which was a goal cited by Oil Minister Hussein al Shahristani, it will likely serve to maintain some of the current overhang of spare capacity for longer than would have otherwise been the case. This would prevent a retightening of the world oil market that may have put upward pressure on prices. Saudi policy will have to confront how to deal with this situation -- both in terms of whether to delay investment in their own capacity, and how to accommodate what has the potential to be a much stronger second-place producer within OPEC. At some point, Saudi Arabia may approach the new Iraqi government for a discussion about how to renegotiate the system of OPEC quotas in order to accommodate Iraq's increasing oil production with both countries' interests in mind. But depending on how the bilateral relationship evolves, achieving this sort of cooperation may be problematic. Iraq has already added written provisions into its service contracts with foreign oil companies dealing with government-mandated output cuts. This demonstrates that the Iraqi side is beginning to grapple with the idea that it may at some point be adding capacity to an oversupplied market and need to exercise restraint.
The implications of increasing Iraqi oil are even more complicated when it comes to Iran. US secondary sanctions under the Iran Sanctions Act (ISA) have been reasonably successful at hindering development of additional Iranian oil and gas production capacity. While they haven't stopped activity altogether, they've kept it at a level where the volume of oil available for export is likely to continue its gradual slide over the next decade as production declines and domestic demand continues to grow. In this scenario, an eventual retightening of the world oil market with attendant higher prices would clearly be in Iran's national interest, helping it to maintain revenues even while volumes fall a bit during the next several years. The increase in Iraqi capacity, however, could prevent this from happening -- taking a toll on Iran's government finances, and potentially creating tension between the two Gulf neighbors. Given the substantial amount of Iranian influence within Iraq, and the still-latent disputes about the border and control over the Shatt al Arab waterway, this market-driven tension could potentially spill over into the geopolitical realm.
All of this, of course, is dependent on whether Iraq's internal stability permits large-scale oil development to move at a rapid pace, which remains a big "if" at this point. Still, it's not just a matter for the oil market. This situation has the potential to substantially redraw the map of state finances and national power in the Gulf.
Greg Priddy is an analyst in the Global Energy and Natural Resources practice at Eurasia Group.
ESSAM AL-SUDANI/AFP/Getty Images
By David Bender
On March 7th, Iraq
will hold its second parliamentary election and the world will again see
pictures of Iraqis' purple fingers. But these images of democratic
participation may obscure more than they reveal: Iraq's democracy is in
trouble. Currently, only 28 of more than 500 banned opposition candidates will
be permitted to run in the election. Through clever political and judicial
manipulation, the opposition has been eliminated before election day and left
with no clear constitutional or legal recourse.
Since January, an aggressive campaign to ban more than 500 largely Sunni and secular Shia candidates -- mostly from Iyad Allawi's largely Sunni and secular Shia Iraqiyya Alliance for alleged Baathist links -- has started to undermine the weak democratic process that was beginning to take shape in 2009. The Iraqiyya Alliance presented a non-sectarian alternative to the increasingly unpopular Iraqi Prime Minister Nuri al Maliki; and as a pro-US, secular nationalist, Allawi is a nightmare for pro-Iran factions in Iraq. With Maliki's support, the Justice and Accountability Council (JAC), which is charged with de-Baathification and is run by two notoriously pro-Iran figures, Ahmed Chalabi and Ali Faisal al Lami, ordered electoral bans against many Iraqiyya candidates linking them to Baathism.
Tim Boyle/Getty Images
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.
YASSER AL-ZAYYAT/AFP/Getty Images
By Ian Bremmer and David Gordon
Now for the red
herrings, the places and problems where
we think there is less risk than meets the eye.
In Iraq, elections in March will spark violence as foreign militants try to undermine the transition to Iraqi national sovereignty. A U.S. troop withdrawal beginning right after the elections will invite more violence. We could see a Sunni election boycott. But compared to what we've seen before, and what might have happened, the overall story is remarkably positive. For the markets, Iraq is suddenly an opportunity. The institutions are becoming legitimate (even with the unresolved Kurdish issue), the army is starting to work, and most importantly, political leaders from all communities are beginning to recognize the value of Iraq's tremendous natural resource base from which all can benefit if they make the compromises to maintain stability in the country. For all their basic governance problems, there's very little chance of Iraq actually becoming a failed state at this point -- a meaningful risk even a year ago. It's not a place we're ready to vacation in, but we're bullish on Iraq.
Iraq is also moving in a positive geopolitical direction. Ties with Turkey have grown particularly quickly -- not just in the Kurdish region in the north, but in Baghdad. That's one of the few positive stories for Ankara this year. Arab states in the region are still hesitant to build ties with Iraq as they wait for clarity on its next government. Maliki hasn't been a popular figure with neighboring gulf Arabs, but they recognize that Iraq's economic consolidation won't wait for another four years, and they'll start making political overtures to Baghdad if Maliki's mandate is extended. And if the Iraqi prime minister isn't returned (which is certainly plausible), we'll see a stream of head of state visits to place relations with a new leader on a more solid footing. So whatever the electoral outcome in March, we're likely to see Iraq on a faster path to integration with regional political and economic infrastructure next year. Meanwhile, Iran's role in Iraq has quietly receded. Iran's controversial presidential election and subsequent state violence did nothing to improve Tehran's influence among Iraq's Shia population, where Iraqi nationalism has been steadily growing.
The headlines for Iraq next year will undoubtedly be the timing/delays/pace of the US troop withdrawal. But the real story is going to be a moderate government, growing geopolitical influence, and the most exciting new investment opportunities the region has seen in a decade.
AHMAD AL-RUBAYE/AFP/Getty Images
By Ian Bremmer
As President Obama works toward finalizing a new plan for Afghanistan, here are five reasons why the challenges U.S. forces face in building stability there are more formidable than those in Iraq:
1) Political legitimacy. Parliamentary elections in Iraq scheduled for January will spark violence, the results will create controversy, and the eventual leaders will take their places within a system that pits lawmakers and cabinet ministers against one another in a more-or-less direct struggle for power. But voters will turn out in large numbers, and Iraq's new political institutions are slowly developing a broad popular legitimacy. That's not true in Afghanistan, which might have been better off without elections earlier this year. Virtually no one believes President Hamid Karzai won the August vote; few will embrace him when he claims victory following the November 7 run-off. He may hold the office, but he has virtually no natural political base in the country. Karzai is not exactly a reliable partner in efforts to build lasting stability.
2) Training of local forces. U.S.
forces have had real success in helping the Iraqi government build its police
and security forces. The large-scale drawdown of U.S. troops beginning next year
will create a power vacuum that encourages battles over political turf and
control of oil revenues. We've seen an uptick in violence in recent weeks, and
we'll see more in months to come. Corruption remains a serious problem. But the
Iraqi government has shown considerable progress over the past year in
asserting control over territory and in beating back challenges from
insurgents. In Afghanistan, there's almost no local support for a national
professionalized military. Because Karzai's government has so little
legitimacy, and few local leaders believe he can offer protection against
Taliban attacks, very few people are lining up to don a uniform and pick up a
3) International coordination. In the battle against insurgents in Iraq, the United States has called most of the shots -- with significant (though now more modest) help from Great Britain. American and British forces have been well coordinated from the start, both operationally and strategically. Afghanistan's International Security Assistance Force has included troops from 43 countries with widely varying degrees of professionalism, morale and operational capability. Short of the U.S. military accepting responsibility for the entire mission, there's no short-term fix here.
4) Tribal/warlord patronage networks. More than any other factor, the willingness of Sunni tribal leaders to partner with U.S. forces against a common external enemy has been central to improvements in Iraq's security over the past two and a half years. In Afghanistan, tribal leaders and local warlords face US requests for help against a domestic foe, the Taliban, with whom they may find themselves negotiating long after NATO forces have left the country.
5) Resource base. Iraq has enormously underdeveloped oil reserves, a relatively well-educated urban elite, a population with some limited but real sense of national identity, and a favorable geographical position for development of trade and investment ties with other countries in the region and beyond. For the foreseeable future, the bulk of Afghanistan's cash will come from foreign aid and opium production. Neither offers much hope as a source of long-term stability.
Iraq's government has a long way to go before it can function as a set of independent, secure and self-confident institutions and as guarantor of Iraq's long-term stability. But in Afghanistan, it will be years before local leaders can move from coping with serious problems to solving them.
Ian Bremmer is president of Eurasia Group.
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Eurasia Group analyst Willis Sparks
The Iraqi government draws 95 percent of its revenue from oil production. Every plan its political leaders can imagine will depend on reliable access to oil profits, and every political faction knows that the country can't achieve lasting political stability until a durable agreement is reached on who owns the estimated 115 billion barrels of reserves and who holds the right to sell them. As tens of thousands of US troops withdraw from the country over the first eight months of 2010, competition for control of that oil will intensify.
After years of haggling, Iraq's political leaders have yet to reach agreement on a hydrocarbon law that determines how oil profits will be divided among the country's competing factions -- a plan that is necessary to revive an energy sector that has suffered from years of under-investment -- and a steep drop in oil prices from $147 per barrel last July to less than $65 today.
Plans to attract badly needed investment and technical expertise from international oil companies face serious political obstacles. Many Iraqis continue to believe that the United States invaded Iraq to grab control of its oil. As Iraq fell under foreign military occupation, its would-be political leaders discovered that pledges to protect Iraqi oil for Iraqis boosted their personal popularity. Support for opening the country's oil sector to Western companies won't win many votes in upcoming parliamentary elections, now scheduled for January.
Political competition for control of the country's oil will sharply intensify next year. The post-Saddam constitution stipulates that Iraq's natural resources belong to the Iraqi people. But different political factions read this idea in different ways. The document also provides that "the federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from present fields." Some interpret this clause to mean that the central government in Baghdad has the right to manage Iraq's oil. Provincial leaders argue that this stipulation gives local governments the right to exploit resources located on their territory, especially in newly discovered fields.
This is the dispute that generates constant tensions between Baghdad and the Kurdistan Regional Government (KRG). Kurdish leaders, ever ready to assert the KRG's political and economic autonomy and much less resistant to doing business with Western companies, claim the right to formulate their own energy strategy and to award contracts to international oil firms. Baghdad insists these contracts are invalid and has "blacklisted" companies that invest in the Kurdish region. This multilevel game of chicken stokes political instability and fuels mutual suspicion.
And though the two sides managed to agree on an improvised revenue-sharing scheme that gives the KRG 17 percent of the profits from the oil exploited on its territory, the lack of an established energy law limits the inflows of investment that Iraq's rusting energy sector badly needs if it's going to maintain current levels of production -- let alone expand output.
The Iraqi government has now received its wake-up call. On June 30, Baghdad launched an international bid round to offer service contracts for field development. Iraqi officials calculated that access to some of the country's vast reserves would persuade reluctant firms to ignore the considerable political and security risks and jump into Iraq's oil sector. They gambled that the bid round would make for good television, broadcasting it across the country. They were wrong. Oil Minister Hussein al Shahristani now faces an uncertain political future.
As Iraq moves toward the next parliamentary elections scheduled for January 2010, oil will remain at the heart of every political debate. And as US troops begin to leave the country in large numbers, the Iraqi government will need steady flows of oil revenue to finance reconstruction of the country, further development of Iraq's army and police forces, and the social spending needed to provide Iraqis with basic services. Until Iraq's various political factions forge the political compromises necessary for equitable sharing of oil profits, and until large-scale outside investment in oil infrastructure expands production and export capacity, there will be plenty to fight over and no guarantee that Iraq can be rebuilt.
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By Eurasia Group Analyst Rochdi Younsi
As U.S. combat troops begin a gradual withdrawal from Iraq, a growing number of Iraqi politicians, militia groups, tribal leaders, and others will compete to fill the power vacuum that Americans leave behind. Last weekend's provincial elections across the country have exposed some of the emerging tensions within Sunni and Shia communities.
Most Sunnis boycotted the most recent provincial elections in 2005. But tribal leaders in Sunni-dominated al Anbar province successfully mobilized the community to vote this time, and leaders of the Islamic Iraqi Party (IIP) are determined that control of the provincial council will allow them to claim the speakership of the Iraqi parliament in Baghdad. Official voting results won't be announced for several weeks, but IIP members have already declared victory in several districts.
In response, Sheikh Ahmad Abu Risha, leader of the collection of Sunni tribes known as the Awakening Council, has charged the IIP with fraud and threatens to take up arms. Without intense mediation by both the U.S. and the central Iraqi government, these rival Sunni factions may well provoke new turmoil across Iraq's central provinces.
Local authorities imposed an overnight curfew Tuesday to reduce the risk of armed clashes, but there is little assurance that Iraq's central government and U.S. forces can quell the threat of violence indefinitely -- particularly since the Awakening Council is armed with weapons provided by the U.S. in exchange for cooperation in targeting foreign-born al Qaeda-inspired militants. Prime Minister Nouri al Maliki will try to limit any outbreak of violence, but other Shia leaders in Baghdad will view divisions among Sunnis as an opportunity to consolidate their influence.
Then there's the risk of violence among Shia groups. Early (and incomplete) results suggest that al Maliki's State of Law Coalition leads in Iraq's southern Shia-dominated provinces. Until now, the prime minister has depended on leading Shia factions for support. Victory for his coalition could shift the local balance of power in al Maliki's favor.
Why might that provoke violence? Because members of the Supreme Islamic Iraqi
Council and the Fadhila party, both Shia-dominated groups, fear that al Maliki
means to enact constitutional reforms that would strengthen the power of the
central government at the expense of local authorities and replace the current
parliamentary system with a strong presidential regime. Several Shia political
parties worry that this plan would reverse the political gains they've made
through greater representation in parliament and thwart their plans for
regional autonomy (and tighter control of local oil wealth).
Al Maliki has yet to publicly propose a specific plan, but he'll face strong resistance if he backs any idea that strengthens Baghdad at the expense of provincial governments.
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The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.