Our Political Risk Track Record In H1 2013

BMI View: Below is a commentary on our political risk track record in the first half (H1) of 2013. The document provides a general overview of our coverage, and it is not intended to list every single country prediction or development in major states.

General comments: The first half of 2013 was another busy time for political risk (although frankly, we are hard-pressed to think of periods that are not busy). Most recently, we have seen major protests in Turkey and Brazil, and a popular uprising and military intervention that deposed the Egyptian president. Other big events included Italy's post-election deadlock of February-April, the Korean 'crisis' or war scare of March-April, the power transition in Venezuela in March-April, and the Iranian presidential election in June. We also saw continued fighting in Syria, and Western intervention in Mali. Arguably, though, there were no 'new' shocks to the international system in the first half of this year. In fact, at the end of March, we correctly argued that the biggest risks, namely Italy, Cyprus (both in relation to the eurozone's broader stability), Korea, Iran, and Syria, would be contained for the time being.

Country Predictions (Listed By Alphabetical Order)

Our Political Risk Track Record In H1 2013

BMI View: Below is a commentary on our political risk track record in the first half (H1) of 2013. The document provides a general overview of our coverage, and it is not intended to list every single country prediction or development in major states.

General comments: The first half of 2013 was another busy time for political risk (although frankly, we are hard-pressed to think of periods that are not busy). Most recently, we have seen major protests in Turkey and Brazil, and a popular uprising and military intervention that deposed the Egyptian president. Other big events included Italy's post-election deadlock of February-April, the Korean 'crisis' or war scare of March-April, the power transition in Venezuela in March-April, and the Iranian presidential election in June. We also saw continued fighting in Syria, and Western intervention in Mali. Arguably, though, there were no 'new' shocks to the international system in the first half of this year. In fact, at the end of March, we correctly argued that the biggest risks, namely Italy, Cyprus (both in relation to the eurozone's broader stability), Korea, Iran, and Syria, would be contained for the time being.

Country Predictions (Listed By Alphabetical Order)

Armenia-Azerbaijan: At the end of 2012, we expressed concern that the 'frozen conflict' over the disputed territory of Nagorno-Karabakh could escalate through miscalculation into a 'hot' war, amid rising nationalist sentiment as both nations geared up for presidential elections in February and October 2013, respectively. The situation has actually remained calm, although we will naturally remain vigilant.

China-Japan Tensions: At the end of 2012 and start of 2013, there were quite a few articles in the mainstream global media warning of the risks of a Sino-Japanese war this year over the disputed Diaoyu/Senkaku islands in the East China Sea. The prospect was being taken far more seriously than ever before. Against this backdrop, we correctly anticipated that both new Chinese President Xi Jinping and new Japanese Prime Minister Shinzo Abe would avoid conflict, but at the same time, we said that the fundamentals of the Sino-Japanese territorial dispute would not be resolved. We have repeatedly warned that the real risk is a skirmish between Chinese and Japanese vessels or aircraft. This has not happened thus far, but we remain vigilant towards such an incident ( see 'Sino-Japanese Relations: Outlook For 2013', January 14) .

Egypt: We correctly predicted that Egypt's then-President Mohamed Morsi would struggle to handle the economic crisis and the formation of a new constitution, noting that the country was vulnerable to policy reversals and increasing schisms between Islamists and secularists. We also warned that the deteriorating political situation could prompt military intervention to restore order. The latter transpired on July 3, 2013, amid a mass popular uprising against Morsi. More broadly, we have long maintained that the military would remain a major political player.

Iran: We correctly anticipated that neither Israel nor the US would attack Iran before the latter country's June 2013 presidential election, with the former two adopting a 'wait and see' attitude instead. However, we also warned (probably incorrectly, as it happens) that war risks would rise in H2 2013, due to the possibility that Iran would elect a conservative hardliner as its next president. While we were correct in saying that the presidential election would be a competition between conservatives, we did not anticipate that a relatively moderate conservative cleric, Hassan Rouhani, would win with such a big margin. Due to Rouhani's election, we believe that Israel and the US will continue with a 'wait and see' policy as regards Iran's nuclear programme, at least for the next several months.

Italy: Ahead of February's general election, we failed to explicitly warn of the risk of a deadlock between the Chamber of Deputies and the Senate that would necessitate a coalition between the centre-left PD (Democratic Party) and former premier Silvio Berlusconi's centre-right PdL (People of Freedom). We did recognise that the PD-led bloc would probably fall short of a Senate majority, but we assumed that the PD would form a coalition with the then-outgoing premier Mario Monti's SC (Civic Choice) party ( see ' 2013 Election Primer: Parties, Policies, And Scenarios', February 18). Overall, though, we believe that the Italian government is ill-positioned to implement major economic reforms.

Japan: We initially underestimated Shinzo Abe and the Liberal Democratic Party (LDP)'s ability to win a landslide victory in December 2012, and Abe's personal determination to drive down the value of the yen and adopt aggressive quantitative easing. Nevertheless, we maintain that 'Abenomics' is a highly risky strategy in the medium term, and that Abe's willingness and ability to implement structural economic reforms after July's Upper House elections will be a key determinant of whether 'Abenomics' can deliver a sustained revival. We have also warned that if Abe places greater emphasis on defence issues rather than the economy after the election, he would quickly lose support.

Kenya: We correctly predicted that the March 2013 election would not see a repeat of the mass violence that characterised the 2007 election and its aftermath ( see 'Widespread Election Instability Unlikely, Despite Recent Violence', November 14, 2012).

Korean Peninsula: We initially erred in thinking that North-South relations would improve following the change of president (from Lee Myung-bak to Park Geun-hye) in the South ( see 'The Outlook For 2013', January 3). However, we correctly anticipated the North's February nuclear test and recognised that the war threats/scare of March-April 2013 were largely rhetorical and aimed at boosting North Korean leader Kim Jong Un's personal standing ( see 'Assessing Pyongyang's True Intentions', April 2). That said, we overestimated Pyongyang's likelihood of carrying out a new armed skirmish with the South during this tense period (none happened). Going forward, we warn that North-South relations will be subject to a high degree of volatility, and we remain concerned about potential instability within the military, due to repeated reshuffles.

Syria: As has happened before, we have underestimated President Bashar al-Assad's resilience, and had prematurely warned that his regime faces near-term collapse ( see for example 'Regime Closer To Collapse, But War Will Go On', December 7, 2012). Although the rebels have made gains, by the late spring of 2013 Assad was mounting a significant counter-offensive and seemed to be recovering ground. Yet, we were correct in our belief that the West would not intervene directly, instead choosing behind the scenes efforts such as weapons supplies. Overall, we believe that even if Assad left the scene, Syria's war would continue for some time to come, due to significant sectarian and ethnic divisions, and because it has become a proxy conflict between Sunni nations Turkey, Saudi Arabia, and Qatar, and Shi'a nation Iran ( see 'Syria's Parallels With Bosnia Offer Clues As To Endgame', May 23, 2013) .

Turkey: We did not anticipate the recent mass protests, but we did warn that 2013 would be an important year for Turkey, as Prime Minister Recep Tayyip Erdogan's desire to rewrite the constitution would heighten tensions between Islamists and secularists. We also noted that Erdogan's bid to accrue more powers under a presidential system would prove contentious, and that his support would decline somewhat this year.

Venezuela: We correctly anticipated that President Hugo Chávez's rule would come to an end (realistically this was only a matter of time, due to Chávez's terminal illness), and that his chosen successor, Vice-President Nicolás Maduro, would win the early presidential election and maintain Chavez's economic policies. Opposition candidate Henrique Capriles had a stronger than expected result in the election, confirming our view that Venezuela would remain highly polarised. Going forward, we see political and social tensions remaining elevated for the foreseeable future.

×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

×

REQUEST A DEMO

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

Thank you for your interest

A member of the team will be in touch shortly to arrange a convenient time for your free demonstration and trial. If your enquiry is urgent, please email our Client Services team here.