BMI View: Egypt's political crisis is the most urgent among 'pivotal states' indentified by BMI . Six other such states - Iran, Turkey, Korea, Brazil, Indonesia, and Pakistan - will also face important political challenges in the second half (H2) of 2013 and 2014.
Egypt's crackdown on anti-government protestors, which has left hundreds dead, will substantially increase political risks in the country. Aside from the human toll, events in Egypt are significant because it is a 'pivotal state' in the Middle East and North Africa (MENA). Egypt's pivotal status stems from its large population and armed forces, its close military relationship with the US, its peace treaty with Israel, and its crucial geographic location at the intersection of the Mediterranean, the Middle East, and Africa. Overall, s even of the 14 pivotal states we identified in April 2011 ( see 'Pivotal States Facing Pivotal Challenges', April 14, 2011 ) are facing important challenges in the second half (H2) of 2013 and going into 2014. The other six countries, in approximate order of decreasing urgenc y, are Iran, Turkey, Korea, Brazil , Indonesia, and Pakistan .
What Is A 'Pivotal State'?
Pivotal states 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 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. Our reasons for selecting these countries are listed in the table below:
|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; potentially rising Islamism||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|
As of August 2013, seven pivotal states are facing importance political challenges over the remainder of this year and next year. These are:
Egypt: The interim government's violent crackdown on opposition Muslim Brotherhood (MB) protestors risks polarising the country further. Although former MB President Mohamed Morsi was toppled by a hugely popular uprising in July, the brutality of the latest crackdown could alienate many liberals. This could eventually portend a three-way split between the military, the MB , and liberals . In theory, the military-backed interim government is supposed to hold new elections over the coming year, but if violence persists, then these would be postponed - potentially resulting in even more unrest. Under such circumstances, we would not rule out the possibility of a formal military coup (as opposed to military intervention backed by popular uprising), with Defence Minister General Abdul Fattah El-Sissi potentially positioning himself as a future president.
Any prolonged instability in Egypt would be highly negative for the MENA region, and would distract the US from dealing with other regional issues such as Syria's civil war and Iran's nuclear programme. In any case, the US has little leverage over Egypt, for even if Washington were to suspend its US$1.5bn in annual military aid, Cairo could probably make up the shortfall thanks to the support of Saudi Arabia and the United Arab Emirates (UAE).
Iran: The election of the relatively moderate cleric, Hassan Rouhani, as president, is positive for near-term stability. Rouhani won with 51% of the vote on a platform of greater liberalisation at home and a less confrontational foreign policy. Rouhani's rise should also reduce the likelihood of an Israeli or US attack on Iran, at least for several months, if not longer, as Tehran and Western powers attempt to establish some sort of modus vivendi and renew their dialogue on the nuclear dispute. Israel may well find its position more awkward, for it will be far less easy to demonise Iran while it is being led by a relatively moderate figure.
Nevertheless, we caution against expecting too much from Rouhani. The economy will continue to suffer under sanctions, and, unless he can get these eased, it will remain a source of voter frustration. In addition, Rouhani will probably lack the power and authority to deliver a breakthrough in the nuclear dispute. Therefore, if Rouhani fails to achieve a breakthrough, or offer the realistic possibility of one, then Israel may well conclude that no leader in Tehran will concede, and thus decide that it has a 'now or never' moment to attack Iran to prevent it from going nuclear. This could occur in 2014.
Turkey: Mass protests against Prime Minister Recep Tayyip Erdogan in recent months demonstrate that vast segments of the Turkish electorate are increasingly weary of the ir country's most successful leader in many decades. In particular, many Turks fear that the country is becoming more authoritarian, especially with Erdogan positioning himself to become president with full executive powers in 2014. Therefore, we see a distinct possibility of more unrest over the coming year.
If Turkey becomes convulsed by more unrest, then its leadership will probably turn its focus inwards, making Ankara a less reliable partner of Washington in terms of addressing regional security issues such as the Syrian civil war and Iranian nuclear programme.
Korea (North And South): The 'war scare' of March-April 2013 demonstrated the swiftness with which events on the Korean Peninsula can take centre-stage. Although we never believed that North Korea intended to start a war, we saw a possibility that Pyongyang could initiate a skirmish with the South, which could conceivably have escalated into a major battle at sea or in the border area. Since that time, tensions have eased considerably, but we caution that they could flare up at any time, without warning, as evidenced by the North's sinking of the Southern warship Cheonan in March 2010.
We are also closely keeping an eye on internal stability in North Korea, amid rapid changes at the top of the military high command. North Korea will hold nominal parliamentary elections in April 2014, providing another opportunity for a political reshuffle.
Brazil: Mass protests in June demonstrated widespread dissatisfaction with the administration of President Dilma Rousseff, who faces re-election in October 2014. The protests were not anti-systemic per se , but the speed with which they emerged caught investors by surprise. Going forward, with economic growth in Brazil set to remain relatively weak in 2013-2014, the real weakening, inflation likely to remain elevated, and little substantive progress made on reforms, we would not be surprised to see more unrest. This would be problematic as Brazil prepares to hold the 2014 FIFA World Cup.
Indonesia: Indonesia will hold parliamentary elections in April 2014 and presidential elections in July. G iven that President Susilo Bamb a n g Yudhoyono is ineligible for a third term, his decade-long presidency will end. Yudhoyono has played a critical role in bringing stability to Indonesia and making the country appear as an attractive investment destination after the chaos that followed former president Suharto's overthrow in 1998. The question, therefore, is whether the next president can build on Yudhoyono's legacy, or whether the country will return to instability after he leaves office.
Pakistan: Pakistan experienced a peaceful transfer of power from the Pakistan People's Party (PPP) to the Pakistan Muslim League - Nawaz (PML - N) after the May 2013 general election, boding well for domestic political stability. Nevertheless, major political and economic challenges remain, and there is the question of whether Islamist militancy will increase, as the US and its NATO allies withdraw most of their troops from neighbouring Afghanistan over the course of 2014.