Analysis: 2012 Could Prove Even Wilder Ride than 2011

December 22, 2011 by · Leave a Comment 

By Peter Apps, Political Risk Correspondent

LONDON (Reuters) – The ancient Mayans attached special significance to 2012, possibly the end of time. That has spawned a rush of apocalyptic literature for the holiday season.

But you don’t have to believe the world is about to end to realize that next year contains perhaps the widest range of political risks to the global economy in recent history.

With elections and leadership changes in the most powerful countries, Europe in crisis, ferment in the Middle East and worsening economic hardship driving unrest and discontent everywhere, 2012 could be just as volatile as 2011 if not worse.

The current year may yet carry a sting in its tail, with worries over the euro and jitters over a possible Israeli strike on Iran likely to keep financial markets and policymakers on tenterhooks all the way to the New Year.

More than three years after the collapse of Lehman Brothers prompted the worst financial crash since the Great Depression, economic turmoil looks to be driving political upheaval in what could become a particularly disruptive feedback loop.

Economic stresses — from rising food prices to worsening economic hardship in the developed world — were at the heart of many of 2011’s political stories. As they intensify, political volatility, gridlock, confrontation and conflict — whether domestic or international — look set to worsen.

“It’s going to get worse before it gets better,” said Jonathan Wood, global issues analyst at London-based risk consultancy Control Risks. “If you look at what’s been driving events this year, none of the factors has gone away and many of the economic drivers are still growing.”

Presidential elections in the United States, France and Russia and the dual transition of power at the top of China’s Communist Party will add to the uncertainty. They may make it harder for political leaders to find compromises or push through tough policy choices.

GROWING GRIDLOCK?

That, many analysts warn, brings with it a mounting risk of political gridlock coming just as the world needs leadership most. The failure of the U.S. Congressional “super committee” to agree on how to reduce the budget deficit may be a sign of things to come domestically in many countries.

President Barack Obama faces a tough re-election bid, whomever the Republicans choose to challenge him, because of a sluggish economy, 8.6 percent unemployment and a squeeze on the middle classes due to fallen home and stock prices.

A fragile global consensus forged at a 2009 summit of leaders of the Group of 20 major economies may be gone for good, replaced by what Ian Bremmer, president of political risk consultancy Eurasia Group, calls a rudderless “G-zero” world.

Top of the list of 2012 risks for many analysts is the unresolved sovereign debt crisis in the euro zone.

If the 17-nation European single currency is to survive in its current form, its members will have to confront harsh economic adjustments and seismic political reform. Last week’s Brussels summit, the 16th since the start of the two-year-old crisis, was billed by some as the last chance to save the euro.

While euro zone leaders and some non-euro states agreed to forge a closer fiscal union with stricter budget discipline, the outcome fell short of guaranteeing the euro’s ultimate survival.

At worst, 2012 could still see a disorderly breakup bringing with it a chain of defaults, bank runs and civil unrest, not to mention a savage global economic shock worse than that of 2008.

Ultimately, however, many believe the euro will endure — although not without colossal strains as it tries to reconcile very different economies such as Germany and Greece.

“The greatest single risk is obviously the euro zone but it might also be the risk that is sorted out the quickest,” says Alastair Newton, a former British government official who is chief political analyst at Japanese bank Nomura.

“But even if that happens then you’re still going to have very low growth and a rise in social unrest in the southern euro zone in particular and across Europe in general. Even in the best case scenario, 2012 looks pretty rough.”

For others, the Middle East remains the most important area to watch for potential disruption to the global economy.

Almost a year after the beginning of the “Arab Spring” democracy movement, the region remains in political flux with untested Islamist parties winning power across north Africa and Syria’s uprising slowly turning towards outright civil war.

CONFLICT, UNREST

After the fall of several veteran Western-backed Arab rulers, the withdrawal of U.S. forces from Iraq is seen as the latest sign of the diminishing influence of Western powers in a region they dominated for some 200 years.

In the resulting vacuum, regional powers such as Turkey, Saudi Arabia and an isolated and perhaps more erratic Iran appear in increasingly open confrontation.

Western intelligence estimates that Iran is moving closer to a viable nuclear weapon have a shorter timeline, and some analysts say 2012 could be the year when Tehran’s enemies decide to go beyond covert sabotage with a military strike that could spark retaliation against oil supplies in the Gulf.

“The bigger wild card out there is an Israeli attack on Iran’s nuclear facilities and elements of regime control,” says Thomas Barnett, chief strategist of political risk consultancy Wikistrat, saying neither the Israeli nor the Iranian leadership looks inclined to back down. “The setting here is scary… something has got to give in this strategic equation.”

Even if the world avoids a devastating shock such as a Middle East war or a European breakdown, many analysts fear the business of politics and policy-making could become increasingly difficult around the world.

With economic growth slowing and unemployment creeping up, most analysts believe the risks of social unrest will continue to rise across much of the developed and developing world.

“We have all the problems you’d expect from economic hardship. At some stage we will have rising food prices which are always destabilizing and we have a question over whether China will overheat,” says Elizabeth Stephens, head of credit and political risk at London insurance brokers Jardine Lloyd Thompson.

“Even a fall of one or two percentage points of GDP (in China) could be enough to really question social stability if they can’t keep job creation going… We (also) have probable ongoing unrest in Europe and the ongoing transition in the Middle East and North Africa could be quite unstable.”

In the dying days of the year, other long held assumptions of stability have be thrown into question — not least by the rising tide of protest against Russia’s Vladimir Putin. The one certainty for 2012, many believe, is more of the unexpected.

“2011 was a nightmarish year to be a policy maker or an investment portfolio manager but it was a great one to be a political analyst,” says Newton. “I’d certainly expect the same for next year.”

(Reporting By Peter Apps)

13-52

Saudi Says Iran Will “Pay the Price” for Alleged plot

October 13, 2011 by · Leave a Comment 

By Parisa Hafezi and Jeremy Pelofsky

TEHRAN/WASHINGTON (Reuters) – Saudi Arabia vowed on Wednesday that Iran would “pay the price” for an alleged plot to kill its ambassador in Washington and U.S. officials said there could be a push for a new round of U.N. sanctions.

Tehran angrily rejected the charges laid out by a number of top U.S. officials on Tuesday as “amateurish,” but a threat nevertheless to peace and stability in the Gulf, a region critical to global oil supplies with a number of U.S. military bases.

“The burden of proof is overwhelming… and clearly shows official Iranian responsibility for this. Somebody in Iran will have to pay the price,” senior Saudi prince Turki al-Faisal, a former ambassador to Washington, said in London.

Vice President Joe Biden echoed those hawkish sentiments, telling U.S. network ABC Iran would be held accountable. He said Washington was working for a new round of international sanctions against Iran, warning that “nothing has been taken off the table.”

U.S. authorities said on Tuesday they had broken up a plot by two men linked to Iran’s security agencies to assassinate Saudi Ambassador Adel al-Jubeir. One was arrested last month while the other was believed to be in Iran.

The motive for the alleged plot was not clear. Iran has in the past assassinated its own dissidents abroad, but an attempt to kill an ambassador would be a highly unusual departure.

Iran and Saudi Arabia are bitter regional and to some extent sectarian rivals, but they maintain diplomatic ties and even signed a security agreement in 2001. Iranian President Mahmoud Ahmadinejad visited Riyadh in 2007.

The United States has led a global effort to isolate Iran and pile on United Nations sanctions in recent years over Tehran’s nuclear energy program which Washington and its regional allies including Israel and Saudi Arabia fear is a front for developing nuclear weapons. Iran denies nuclear arms ambitions.

Those allies fear Washington could take its eye off the ball on Iran. US diplomatic cables from Riyadh leaked by Wikileaks over the past year — in which Jubeir features prominently — show Riyadh repeatedly pushing the United States to take a tougher stand, including the possible use of military force.

Tensions rose between Riyadh and Tehran when Saudi Arabia sent troops to help Bahrain put down pro-democracy protests let by the island state’s Shi’ite majority that both governments accused Iran, a non-Arab Shi’ite state, of fomenting.

This month Riyadh accused some among its Shi’ite Muslim minority of conspiring with a foreign power — a reference to Iran — to cause instability, following street clashes in the Eastern Province.
But Iranian analyst Saaed Leylaz said it was hard to see why Iran would risk involving itself in such a plot.

“Killing the Saudi envoy in America has no benefit for Iran,” he said. “The consequences of this plot are dangerous … It could cause military confrontation in 2012 between Iran and America.”

ACTION AT U.N.

A Western diplomat in Riyadh said the charges would likely be discussed at the UN Security Council.

“The U.S. and Saudi Arabia and other allies are discussing the possibility of taking this to the Security Council because this is an assault on a foreign diplomat in the U.S,” he said.

President Barack Obama, who seeks reelection next year, called the alleged conspiracy a “flagrant violation of U.S. and international law.”

The United States said Tehran must be held to account and Secretary of State Hillary Clinton said she hoped countries hesitant to enforce existing sanctions on Iran would now “go the extra mile.”

But also seeking recourse in the world body, Iran’s ambassador to the United Nations voiced outrage and complained of U.S. “warmongering” in a letter to Secretary-General Ban Ki-Moon. “The U.S. allegation is, obviously, a politically motivated move and a showcase of its long-standing animosity toward the Iranian nation,” Mohammad Khazaee wrote.

Ali Larijani, Iran’s parliament speaker, said the “fabricated allegations” aimed to divert attention from Arab uprisings Iran says were inspired by its own Islamic revolution that toppled the U.S.-backed Shah — though Islam has not been the overt driving force for unrest across the Arab world.

“America wants to divert attention from problems it faces in the Middle East, but the Americans cannot stop the wave of Islamic awakening by using such excuses,” Larijani said, calling the a “childish, amateur game.”

“These claims are vulgar,” he said in an open session of parliament. “We believe that our neighbors in the region are very well aware that America is using this story to ruin our relationship with Saudi Arabia.”

The State Department issued a three-month worldwide travel alert for American citizens, warning of the potential for anti-U.S. action, including within the United States.

“The U.S. government assesses that this Iranian-backed plan to assassinate the Saudi ambassador may indicate a more aggressive focus by the Iranian government on terrorist activity against diplomats from certain countries, to include possible attacks in the United States,” it said in a statement.

At a news conference, FBI Director Robert Mueller said a convoluted plot involving monitored international calls, Mexican drug money and an attempt to blow up the ambassador in a Washington restaurant smacked of a Hollywood movie.

Attorney-General Eric Holder tied it to the Islamic Revolutionary Guard Corps (IRGC), guardian of Iran’s 1979 revolution, and the Quds Force, its covert, operational arm.
“I think one has to be concerned about the chilling nature of what the Iranian government attempted to do here,” he said.

QUDS FORCE CONNECTION

The primary evidence linking Iran to the alleged conspiracy is that the arrested suspect is said to have told U.S. law enforcement agents that he had been recruited and directed by men he understood were senior Quds Force officials.

The Quds Force has not previously been known to focus on targets in the United States.

A plot against targets inside the U.S. “would be a first for the Quds Force,” said Kenneth Pollack, a former CIA and National Security Council analyst who now heads the Saban Center at the Brookings Institution in Washington.

“I do want to hear more about what evidence (U.S. authorities) have and why they believe” that the Quds Force was involved, Pollack said.

U.S. officials said there had also been initial discussions about other plots, including attacking the Saudi and Israeli embassies in Washington, but no charges for those were brought.

There are no formal diplomatic ties between the Islamic republic and Washington, which accuses Tehran of backing terrorism and pursuing nuclear arms, charges Iran denies.

Iran already faces tough U.S. economic and political sanctions and Washington slapped further sanctions on five Iranians, including four senior members of Quds.

U.S. SAYS AMBASSADOR NEVER IN DANGER

U.S. officials identified the two alleged plotters as Gholam Shakuri, said to be a member of the Quds Force, and Manssor Arbabsiar, who was arrested on September 29 when he arrived at John F. Kennedy International Airport from Mexico.

Arbabsiar, 56, a naturalized U.S. citizen with an Iranian passport, initially cooperated with authorities after being arrested. He made calls to Shakuri after being arrested and acted as if the plot was still a go, court documents said.

Arbabsiar appeared briefly in a Manhattan courtroom on Tuesday where he was ordered detained and assigned a public defender. He appeared in blue jeans and a dress shirt, with thinning gray hair and a scar on the left side of his face.

Officials said the Saudi ambassador, who is close to King Abdullah and has been in his post since 2007, was never in danger. Obama was briefed in June about the alleged plot.

Court documents say a plot began to unfold in May 2011 when Arbabsiar sought help from an individual in Mexico who was posing as an associate of an unidentified drug cartel and who was in fact a U.S. Drug Enforcement Administration informant.

The unidentified paid informant tipped off law enforcement agents, according to the criminal complaint. Arbabsiar paid $100,000 to the informant in July and August for the plot, a down-payment on the $1.5 million requested.

LIKE A “HOLLYWOOD MOVIE”

Shakuri approved the plan to kill the ambassador during telephone conversations with Arbabsiar, the complaint said.

As part of the plot, the informant talked to Arbabsiar about trying to kill the ambassador at a Washington, D.C. restaurant he frequented, but warned him that could lead to dozens of others being killed, including U.S. lawmakers.

The criminal complaint said that Arbabsiar responded “no problem” and “no big deal.”

In a monitored call, Shakuri told Arbabsiar to execute the plot, saying “just do it quickly, it’s late,” court papers say.

After Arbabsiar’s arrest in New York, he gave U.S. authorities more details of Tehran’s alleged involvement, Holder said.

Mueller, the FBI director, said that “individuals from one country sought to conspire with a drug trafficking cartel in another country to assassinate a foreign official on United States soil.”

He added: “Though it reads like the pages of a Hollywood script, the impact would have been very real and many lives would have been lost.”

The men face one count of conspiracy to murder a foreign official, two counts of foreign travel and use of interstate and foreign commerce facilities in the commission of murder for hire and one count each of conspiracy to use a weapon of mass destruction and conspiracy to commit an act of terrorism.

Authorities said no explosives were acquired for the plot and the weapon of mass destruction charge can range from a simple improvised device to a more significant weapon. The two men face up to life in prison if convicted.

(Additional reporting by Basil Katz in New York, James Vicini, Mark Hosenball, Tabassum Zakaria, Matt Spetalnick and Andrew Quinn in Washington and Louis Charbonneau at the United Nations; Editing by Alistair Lyon)