'Pivotal' States Facing Defining Moments In 2014

BMI View: Several critically important countries are facing tests in 2014 that could determine their political and economic evolution for years to come. Iran perhaps offers the greatest opportunity for positive change, while the biggest systemic risk among 'pivotal' states is the Korean Peninsula.

One way of gauging global political and geopolitical stability is by assessing the political and economic conditions in countries that play crucial roles in their respective regions. We call these countries 'pivotal' states. These are typically middle-ranked countries in which any transformation of their polity or behaviour could have a profound and lasting impact on their region, and possibly the wider world. Pivotal states draw their importance from a combination of their large populations, economic influence, military power, key geographical location, cultural reach, or commodity resources. Although definitions of pivotal states vary, BMI has in recent years identified a list of fourteen such countries. These are in alphabetical order: Brazil, Egypt, Indonesia, Iran, Kazakhstan, Korea (North and South), Mexico, Nigeria, Pakistan, Saudi Arabia, South Africa, Taiwan, Turkey, and Ukraine. The list deliberately excludes traditional 'great powers' such as the US, China, Japan, Russia, key EU members, and aspiring world power India, because they are too big to be considered 'swing' states. Our reasons for selecting the pivotal countries are listed in the table below:

In 2014, five of the fourteen pivotal states - Brazil, Egypt, Indonesia, South Africa, and Turkey - will hold national elections of some sort, while a sixth - Nigeria - will be gearing up for general elections in 2015. Meanwhile, Iran - arguably one of the most crucial of the pivotal states - will face a major test this year of whether it can end 35 years of hostility towards the US and reach a lasting rapprochement with the West. The Korean Peninsula, too, could face major challenges, amid signs of a power struggle in the North. Elsewhere, Ukraine, which is a geopolitical swing state in western Eurasia, faces the prospects of ongoing anti-government demonstrations, which could eventually weaken or topple the pro-Russian administration of President Viktor Yanukovych.

'Pivotal' States Facing Defining Moments In 2014

BMI View: Several critically important countries are facing tests in 2014 that could determine their political and economic evolution for years to come. Iran perhaps offers the greatest opportunity for positive change, while the biggest systemic risk among 'pivotal' states is the Korean Peninsula.

One way of gauging global political and geopolitical stability is by assessing the political and economic conditions in countries that play crucial roles in their respective regions. We call these countries 'pivotal' states. These are typically middle-ranked countries in which any transformation of their polity or behaviour could have a profound and lasting impact on their region, and possibly the wider world. Pivotal states draw their importance from a combination of their large populations, economic influence, military power, key geographical location, cultural reach, or commodity resources. Although definitions of pivotal states vary, BMI has in recent years identified a list of fourteen such countries. These are in alphabetical order: Brazil, Egypt, Indonesia, Iran, Kazakhstan, Korea (North and South), Mexico, Nigeria, Pakistan, Saudi Arabia, South Africa, Taiwan, Turkey, and Ukraine. The list deliberately excludes traditional 'great powers' such as the US, China, Japan, Russia, key EU members, and aspiring world power India, because they are too big to be considered 'swing' states. Our reasons for selecting the pivotal countries are listed in the table below:

The World's Pivotal States
PIVOTAL STATES
Country Region Strategic Value Sources Of Instability Issues At Stake
Brazil Latin America Large popn; big economy; dominant state in South America; major commodity producer; key voice in the 'Global South' Economic inequalities; high crime rates Evolution of Latin America
Egypt MENA Large popn; large military; key US ally; traditional hub of Arab world Economic inequalities; uncertain political evolution; secular-Islamist divide Future of Arab world and political Islam, Israeli security; Suez Canal
Indonesia Asia Large popn; world's most populous Muslim state; key East-West trade route; major commodity producer Economic inequalities; past separatist forces; Muslim-Christian tensions; Islamist militants Southeast Asian and Australian security; global LNG supplies
Iran MENA Large popn; critical location between Middle East, Caucasus, Central Asia; major oil producer Economic inequalities; rising opposition to clerical rule; UN sanctions; risk of war Power balance in Middle East and Southern Eurasia; future of political Islam; global nuclear proliferation
Kazakhstan Asia Critical location between Europe and Asia; major oil producer Autocratic rule; uncertain political succession Power balance in Central Asia; US-Russia-China relations
Korea (North & South) Asia Large popn; key location in North East Asia; major industrial power; vast armed forces North-South tensions; potential power struggle in North Power balance between China, Japan, and US; global nuclear proliferation
Mexico North America Large popn; adjacency to US; rising manufacturing hub Economic inequalities; drug cartels Border security; refugees; spillover into US; potential distraction of US from global threats
Nigeria Africa Large popn; dominant state in Africa; major oil producer North-South, Muslim-Christian, and regional tensions; rebel groups Economic future of Africa; global oil supplies
Pakistan Asia Large popn; major Muslim country; frontline state in 'war on terror'; world's sole Muslim nuclear state Political schisms; Islamist militants; adjacency to Afghanistan Power balance in South Asia; future of political Islam; nuclear proliferation; India's security
Saudi Arabia MENA Large popn; spiritual centre of Muslim world; world's major oil producer Lack of democracy; high youth unemployment; rising Islamism; Sunni-Shia sectarian divide Power balance in Middle East; future of political Islam; global oil supplies
South Africa Africa Large popn; dominant state in Southern Africa; key voice in the 'Global South' Economic inequalities Economic future of Africa
Taiwan Asia Critical location between North East Asia and South East Asia Divisions between pro-China and pro-independence forces; threat of Chinese military action Power balance between China, Japan, and US; Sino-US relations
Turkey Europe Large popn; critical location between Europe, Middle East, Caucasus, Central Asia Civil-military relations; secular-Islamist divide; Kurdish groups Evolution of European Union; power balance in Middle East and Western Eurasia; future of political Islam
Ukraine Europe Large popn; East-West land bridge; adjacency to Russia and Black Sea Divisions between pro-West and pro-Russia forces; occasional tensions in Crimea Power balance in CEE region and Western Eurasia; expansion of EU and NATO; US-Russia relations
Source: BMI
Source: BMI

In 2014, five of the fourteen pivotal states - Brazil, Egypt, Indonesia, South Africa, and Turkey - will hold national elections of some sort, while a sixth - Nigeria - will be gearing up for general elections in 2015. Meanwhile, Iran - arguably one of the most crucial of the pivotal states - will face a major test this year of whether it can end 35 years of hostility towards the US and reach a lasting rapprochement with the West. The Korean Peninsula, too, could face major challenges, amid signs of a power struggle in the North. Elsewhere, Ukraine, which is a geopolitical swing state in western Eurasia, faces the prospects of ongoing anti-government demonstrations, which could eventually weaken or topple the pro-Russian administration of President Viktor Yanukovych.

Countries Facing 'Game-Changing' Events (For Better Or Worse)

Iran-US rapprochement: now or never. The year 2014 will be critical in determining whether the tentative rapprochement between Iran and the US will succeed, or prove ephemeral. The prospects of a genuine breakthrough are arguably the best they have been since the late 1990s, because both countries' presidents want a major improvement in relations. Nonetheless, there are powerful elements in Tehran and Washington that view each other with deep suspicion and could block the rapprochement by sabotaging any deal that curbs Iran's nuclear programme. Much is at stake. If the rapprochement succeeds, it could dramatically reduce geopolitical tensions in the Middle East and pave the way for Iran to become a major emerging market in the region. Yet if the rapprochement fails, voices calling for an attack on Iran's nuclear facilities, especially in Israel, will grow louder and potentially become irresistible.

North Korea to become more unpredictable. Leader Kim Jong Un could yet face major fall-out following the execution of his powerful uncle, Jang Song Thaek, in December 2013. The opacity of the regime means that dramatic change - such as a coup or regional uprising - could happen completely out of the blue. As of January 2014, it is still unclear whether Kim is fully in charge, and whether or not he favours economic reform or continued isolation. A clearer picture might emerge after 'elections' (i.e. of the single party variety) in March. Regardless of Kim's power or economic intentions, we do not preclude more provocations by Pyongyang towards Seoul, mainly so that the former can remind the latter that it can dictate the geopolitical agenda on the Korean Peninsula. The biggest risk facing the Koreas, other than armed conflict, is that the North might collapse suddenly, causing major security and economic risks for South Korea, and to a lesser degree, China. State collapse would become more likely, if infighting within the Kim regime becomes more pronounced.

Egypt attempting return to 'normality'. After three years of political turmoil in 2011-2013 following the start of the 'Arab Spring', Egypt will attempt to return to 'normality' in 2014. A new constitution has now been approved, and elections will be held this year. General Abdel Fattah El Sisi, the defence minister and de facto ruler of Egypt, is expected to run for and win the presidency. This would essentially return Egypt to the pre-2011 era of quasi-military rule, albeit with greater democratic legitimacy. Assuming that stability can be maintained, the economy should find a surer footing. However, we expect to see residual opposition from the Muslim Brotherhood and other organisations. Overall, Egypt's future is still highly uncertain, and if Egyptians perceive there to be a new tyranny emerging, then mass protests could erupt once again. For now, though, Egypt does not appear to be heading in any radical new direction.

Turkey and the future of Erdogan. This year will be important for the future of Turkish Prime Minister Recep Tayyip Erdogan, who is planning to run in the country's first direct presidential election in the summer of 2014. His most plausible successor as premier is Abdullah Gul, who currently holds the largely ceremonial presidency. The potential job switch could exacerbate what we interpret as a power struggle between the two, thus weakening the unity of the ruling AKP party, which is still the most popular party in Turkey despite mass protests against Erdogan in 2013. The unrest reflected widespread discontent with Erdogan's perceived authoritarian and Islamist drift. Public sentiment will be tested in local elections at the end of March. Also worth watching will be signs that Turkey is drifting further away from the West. Ankara's stated intention in late 2013 to purchase a Chinese air defence system has worried the US and fellow NATO states, and raises question marks about Turkey's future trajectory. NATO has been Turkey's main anchor to the West since the 1950s, so any hint of a change to its status within the alliance merits attention.

Ukraine: east, west, or neither? Since independence in 1991, Ukraine has struggled to find a comfortable (in both domestic and international terms) balance between east (Russia and the Commonwealth of Independent States) and west (the EU and the US). The 'Orange Revolution' of 2004-2005 appeared to tilt Ukraine westward, but the old Russia-friendly regime subsequently prevailed in 2010 elections. Since late 2013, Ukraine has once again been gripped by unrest, with demonstrators seeking to force President Viktor Yanukovych to sign an Association Agreement with the EU at the expense of a trade pact with Russia. Ukraine has long been polarised geographically, with the western and central parts of the country overwhelmingly favouring pro-Western leaders, and the east and south overwhelmingly supporting pro-Russian leaders. This schism would appear to be structural, meaning that whoever is president will face considerable opposition from 40-50% of the electorate. Any prolonged political crisis in Ukraine is likely to attract Russian political and economic intervention, because keeping Ukraine within the Russian sphere of influence is one of Moscow's top foreign policy priorities.

Indonesia after Yudhoyono: is stability the new norm? Indonesians will elect a new parliament in April and new president to succeed Susilo Bambang Yudhoyono this summer. Yudhoyono's decade in power has been remarkably stable, and Indonesia has acquired quasi-BRI(I)C status as a major emerging economy (although some investors have been disappointed that reforms have not proceeded more quickly). This is in stark contrast to the years 1998-2004, when Indonesia was wracked by mass unrest, four changes of president, religious violence, multiple separatist rebellions, terrorist attacks, and rumours of coups, as the country struggled in the aftermath of the Asian financial crisis and fall of long-time ruler Suharto in 1998. The question is whether the past decade represents a new stable norm, or whether it was an aberration that will be followed by political instability. Investors may well take a 'wait and see' attitude, at least until the next president's policies become clear.

Other Pivotal States Facing 'Routine' Challenges

For now, the other pivotal states are mostly facing 'routine' political challenges. General elections in Brazil and South Africa are unlikely to bring to power figures that shake-up their systems. Nigeria and Pakistan are probably the most unstable of the pivotal states, but the risks there do not appear to threaten the survival of the central governments or the states as a whole. That said, Pakistan could face rising security threats in 2014-2015, if the withdrawal of most NATO troops from neighbouring Afghanistan leads to more militancy emanating from across the border. In Kazakhstan, the key question for the foreseeable future is, who will succeed President Nursultan Nazarbayev, who is 74 years old and has led the country since the late Soviet era. As for Saudi Arabia, the Kingdom could benefit from a US-Iran rapprochement if it reduces tensions in the Gulf region, but Riyadh will also be worried that the rapprochement would reduce its geopolitical and economic importance in the Middle East. Ultimately, Iran and Saudi Arabia will remain rivals for regional leadership. Elsewhere, we are encouraged by Mexican President Enrique Pena Nieto's liberalisation of the country's oil sector, which could substantially raise foreign investment, and by extension, economic growth.

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