From the Forecast: “[For Moscow] 2018 will be spent trying to play … enemies off one another, occupying them with ancillary problems that divert their attention from Russia.”
Update: This may not be our flashiest individual forecast, but it’s among our most accurate. Russia has spent the year poking and prodding rivals such as China and the U.S. with seemingly harmless actions that, left unchecked, could become larger problems to which they would eventually have to respond. Low-cost but potentially high-yield, it’s an ideal strategy for a country as cash strapped as Russia.
As we’ve noted throughout the year, U.S.-Russia relations are deteriorating fast, so it’s no surprise that this forecast has affected the United States more than any other. Most recently, Russia ruffled Washington’s feathers by sending the head of Russian intelligence to Cuba and by deploying bombers to Venezuela for aerial exercises that lasted five days. The move came just after President Vladimir Putin pledged to increase investment in Venezuela’s oil and mining sectors. Moscow also went out of its way to highlight a new helicopter repair facility opening in Peru, even though it struck the deal years ago. None of these acts seriously threatens the U.S., of course, but all are meant to remind Washington that Russia can find ways to meddle in its backyard.
The U.S. is hardly alone. Elsewhere, Russia highlighted its diplomatic overtures with Greece, setting their bilateral relationship on a more positive path. But this was a little disingenuous. Moscow cares much more about having a presence in the Mediterranean it can use to counter Turkey than it cares about Greece. Ankara and Moscow can cooperate on select issues in Syria, but overall they are natural competitors. Similarly, Russia is using energy projects and other economic opportunities to improve its relationship with Italy, which could give it an economic partner in the eurozone.
Russia’s recent behavior is in keeping with its behavior earlier in the year. Moscow cannot resolve the crisis on the Korean Peninsula, but it can antagonize the U.S. by offering coal and oil shipments to North Korea to ease the pain of sanctions. Moreover, its military outreach to African nations such as Rwanda, Sudan and the Central African Republic run counter to the interests of the U.S., Europe and China – in an area, no less, that they’d rather not spend much time in. Russia may not have the capacity to take enemies head-on, but it has all it needs to chip away at them from the sides.
From the Forecast: “U.S. policy is likely to focus on encouraging Turkey and Israel to work together while providing as much assistance to them as possible, all while looking for reliable partners in the divided Sunni Arab world.”
Update: Going into 2018, we anticipated that the U.S. would focus its Middle Eastern policy on encouraging cooperation between Turkey and Israel. Our logic was that the U.S., unwilling to increase direct intervention in the Middle East, would rely on other regional powers to do the heavy lifting in containing their shared foe, Iran.
We made another, seemingly contradictory forecast: that Turkey and Iran would continue pragmatic cooperation and that 2018 would not be the year in which Turkey confronts Iran. While we anticipated that their interests would diverge in Syria – a development that will likely bear out and could trigger greater Turkish-Iranian competition – this has not yet happened (at least not in any meaningful sense). Iran and Turkey are still finding more reasons to cooperate than to compete, including trade, support for Qatar, and operations against Kurdish groups in Syria and Iraq.
What we did not consider is that, to challenge Iran, Ankara must first be powerful enough that its interests expand and come into conflict with Tehran’s. This would require Turkey to increase its influence over the non-Turkic Sunni Muslim world, a task that inherently necessitates ideological competition with Saudi Arabia. Turkish-Saudi competition started to heat up toward the end of the year with the fallout from the Jamal Khashoggi case. And though Turkey tries to paint Saudi Arabia as a bad actor at every possible opportunity, Ankara still isn’t on an equal footing with Riyadh, which continues to wield enormous power in the region. Put simply, despite these developments, the preconditions for Israel and Turkey to cooperate are not in place. That explains why there have been few developments on this forecast. The geopolitical principles check out, but the timing was off, and it simply hasn’t happened yet.
Meanwhile, Ankara and Washington have continued to butt heads over U.S. support for the Syrian Kurd-dominated People’s Protection Units, or YPG, in Syria. Turkey considers the outfit an offshoot of the Kurdistan Workers’ Party, which is on its list of terrorist groups. As a result, there’s strain in the relationship between Turkey and the U.S., and the tensions have spread beyond Syria; the U.S. Congress threatened to kick Turkey out of the F-35 program over Ankara’s purchase of Russian S-400 missiles. The strife between these two NATO allies has decreased the United States’ ability to influence Turkish decision-making – including over relations with Israel – and Turkey’s quest to become the leader of the Sunni world has led to rhetorical sparring with Israel throughout much of the year.
What we’ve seen instead of a detente between Israel and Turkey is a growing detente between Israel and Saudi Arabia, supported by the U.S. This makes sense: Iran is a more immediate threat to Saudi Arabia and Israel than it is to Turkey. Despite the Khashoggi murder and U.S. popular disdain for the war in Yemen, Washington is sticking by Saudi Arabia’s side as part of its effort to contain Iran. So, while we correctly identified the dynamic – the U.S. dependence on regional allies to oppose Iran – we missed the order in which it would need to occur: first with Saudi Arabia, rather than with Turkey.
From the Forecast: “Beijing will try to implement structural reform without alienating or angering any segment of its population so much that it would question Beijing’s rule. China should be able to manage this relatively well in 2018.”
Update: This is one of our trickier forecasts both to track and to grade. Chinese President Xi Jinping’s reform agenda is simply too sweeping in scale, with too many moving parts, and it requires too many minor course corrections on the fly to reduce to something neat and falsifiable. But it’s a critical forecast. China is in a race against time to defuse alarming debt and property bubbles, rein in a reckless financial system, and forge a path to sustainable growth. Xi’s success or failure in these endeavors will have profound implications for China’s future, at home and on the global stage. And taking a step back, we can see that the broad trajectory of the reform effort is starting to run into trouble.
Through the first half of the year, it was smooth sailing for Xi. For instance, Beijing made strides in clamping down on shadow lending, local government excesses and heavy-polluting industries without sparking a major backlash. Xi even managed to wrestle the state bureaucracy into something far better equipped to carry out Beijing’s writ. But these actions took place at a time of relatively strong growth, reducing the risk that Beijing would push too hard, too fast. The question was whether it could stay the course once the loss of easy credit, implicit state guarantees on returns and the added costs for businesses of environmental regulations began to intensify China’s slowdown. This question only grew once the trade war with the U.S. kicked off in July, giving Beijing even less room to maneuver.
Since then, we’re starting to see signs of backsliding on reforms. Pollution and supply-side restructuring goals have been the first to go, or at least to be put on hold, as Beijing prioritizes keeping employment stable amid the uncertainty of the trade war (and fearing a repeat of last winter’s gas shortages). The crackdown on shadow lending is also proving problematic. The formal banking system has been struggling to get funding to small and medium enterprises in the private sector, including those in export-heavy provinces that are most vulnerable to the trade war. The government is urgently trying to get risk-averse state banks to dole out credit to those companies that need it, while also trying to selectively bail out ailing sectors and keep monetary policy loose. If these efforts fail, Beijing may have little choice but to ease off the shadow lending controls and return to a more robust fiscal stimulus, undoing much of the progress it has made in cleaning up the mess left behind from 2008.
Some degree of calibration was always going to be necessary as Beijing pushed forward with its reform agenda. Sweeping overhauls often lead to an endless game of reform whack-a-mole as solutions to old problems invariably have unintended consequences, creating new problems elsewhere. Beijing is not so foolish as to assume it could stick with a rigid plan through thick and thin. Still, the mounting pressures are such that the Chinese Communist Party’s immediate survival may very well require it to abandon its core long-term objectives and return to square one. Given that 2018 is almost up and that Xi succeeded in profoundly changing the Chinese system without provoking a backlash this year, we’ll call this forecast a hit. But the road will get only rockier from here.