The Short Distance To A Global War Scare
The distance to a truly global geopolitical crisis is not as far as most people would think. In recent years, we have seen several regional crises, but not a truly global one – at least, not since 9/11.
Last spring (March-April), we witnessed a major war-scare on the Korean Peninsula, as North Korea ramped up its aggressive rhetoric to levels not seen since the 1994 nuclear crisis. Although we did not believe that Pyongyang wanted war, the real risk, as we warned at the time, was conflict as a result of miscalculation.
The Korean crisis calmed down after the US and South Korea ended joint military exercises in April, but then, in August-September, we saw a new crisis in the Middle East, as the US geared up for airstrikes against Syria after blaming it for carrying out a mass chemical attack against civilians. At the time, observers (including BMI) warned that an attack on Syria risked triggering a wider Middle Eastern war that would eventually take the US into conflict with Iran. The Obama administration stepped back from military action at the last minute only after Russia brokered an agreement for Syria to surrender its chemical weapons.
Also last year, observers were for the first time taking seriously the possibility of a Sino-Japanese war over the disputed Senkaku Islands (known as Diaoyu in China).
And now, we are witnessing another geopolitical crisis, with Russia having seized control of Crimea from Ukraine. The situation remains tense, and there is still a possibility that Russia could send its troops into Eastern or Southern Ukraine, which would invite a sterner response from the West. No Western politician is talking about military intervention in Ukraine, but what if Russia miscalculates and decides one day to send troops in the Baltic states (which are members of NATO)? NATO would have to respond, if it were to maintain its credibility.
All of the above crises have occurred in relative isolation from one another. But, let us suppose that the world was faced with two simultaneous geopolitical crises, for example, a Russian offensive in Eastern Ukraine, and a decision by China to seize the Senkaku Islands. The latter move could be the result of Beijing opportunistically taking advantage of the Ukraine situation, or coordinated between Russia and China (unlikely, admittedly).
Twin crises in Eastern Europe and East Asia would send shockwaves through financial markets and push the global security architecture towards breaking point, even if it did not lead to major conflicts. That is something worth thinking about.