Geo-political Issues – Some Bumps Ahead?

By Scott B. MacDonald

 

While U.S. economic and corporate news are moving in a generally supportive direction for the U.S. stock market, geo-political factors are aligning on an even more positive trend – at least over the short term. This by no means reflects the view that the threat of a major terrorist attack is not a possibility. Rather, the Bush administration's objective of reducing the scope for radical Islamic attacks and restoring some degree of stability to the Middle East is looking better than it has for some time. Bush now has four things going for his foreign policy:

The outcome of all of this is that the Bush administration ended 2003 in a much stronger position than it was in following the early occupation of Iraq. Yet, problems still remain - there is still no major momentum on a peace agreement between Israel and the PLO, North Korea continues to simmer, and calls for a shift in status from being a province of China to an "independent" Taiwan through a popular referendum all have the makings of being flashpoints during 2004. There are likely to be growing concerns that Asia could see another outbreak of SARS, as there are reports of new cases in Guangdong, China and the Philippines. Avian flue is now rising on the points of concern list.

In addition, the stakes in launching a major terrorist attack on the part of al-Qaeda have risen. Despite the ongoing tapes allegedly by Osama bin-Ladin, al-Qaeda has not launched a major attack on the United States or major allies (UK, Australia and Spain) since 9/11. The heightened airline security for flights from London and Paris during the winter holidays reflected that al-Qaeda is not a spend force. It is thought that al-Qaeda has managed to recruit new agents, who are referred to "White Moors", i.e. Europeans or North Americans, who have converted to Islam and do not fit any easy profiling. This also means that a White Moor would carry a legitimate passport, hence the tightened security in the UK and France, two countries with large Muslim populations.

The international war on terrorism is not over. The risks remain high. However, 2003 ended up in a more positive direction than many had projected. The trick for 2004 is likely to center on how the U.S. handles the delicate issue of political development in Iraq. In particular, Washington will have to strike a balance between maintaining control of Iraq and allowing the Shiites to appear to wrest some sovereignty from the United States. For this to happen the Bush administration will have to be flexible and somewhat thick-skinned. For the Shiites, they will have to carefully measure their rhetoric while not allowing actions to get out of control. The end game for Washington is to have a relatively representative government in place (that means Shiite-dominated) by year-end 2004 so that the Bush administration can demonstrate that Iraq was not a policy disaster - at least until after the November elections. For the Shiites, the end game is the creation of an Islamic republic, which they dominate. Failure for both sides to reach an accommodation could reverse some of the gains made in the international war on terrorism in 2004.

The other major battle zone is going to be Saudi Arabia. Since 2001 there has been an ongoing and marked political polarization between the regime and its supporters and those opposed, in particular, al-Qaeda and liked-minded radical Islamists. The problem is that a majority of the Saudi royal family is corrupt, largely opposed to any changes (including reforms), and has been slow to deal with the radical Islamic threat. In 2003 and early 2004 the regime has made a greater effort to deal with the problem, but those willing to challenge the government also appear to be stepping up their activities. While it would be rash to argue that any change is imminent, the political stability of Saudi Arabia is a major point of concern. There is no mistake that many countries, including China, are actively seeking energy sources outside of the Middle East. Too much dependence on Middle Eastern oil leaves the door open to the political upheavals top come.