Eurasia In Europe countries are arguing over monetary policy, France is making a grab for control of Europe’s Mediterranean policy, Poland is aggravating Russia, Greece is complicating Balkan policy and the United Kingdom stands aloof as ever. Any serious thoughts of pan-European integration were thrown into disarray in June when Irish voters defeated the Lisbon Treaty, the latest attempt at a European constitution.
For the third quarter, all eyes will be on France, which will hold the rotating EU presidency for the remainder of the year. Since France is one of Europe’s heavyweights, its turn at the presidency would have been notable even had Ireland ratified the EU treaty — but with political integration efforts in limbo, France now has a chance to realign European structures with its own national interests. This will not take the old Gaullist form of ambitions for French superpower status. Instead, Paris will seek to wrest the economic and political leadership of Europe away from Berlin by subtly (and perhaps not-so-subtly) undermining the EU institutions that France perceives as giving Germany an advantage.
Economically, France is better poised than Germany to weather the storm of sustained high commodity prices: It has a less-industrialized economy, is an exporter of foodstuffs and has a huge capacity to generate electricity from nuclear power rather than petroleum fuels. But Paris is well-positioned politically as well. President Nicolas Sarkozy’s honeymoon might be over, but Germany finds itself distracted and divided by a failing, conflicted governing coalition that is about to enter an election campaign. Germany is still the rising star of Europe, but that rise has hit a bit of a pause, and France will seize the moment to adjust Europe’s direction to its own liking as much as possible.
Europe has seen Serbia as the litmus test of whether the Balkan region as a whole will move decisively toward the West — with each of the Balkan states eventually joining the European Union — or whether there will be a radical wild card in the center of Southeastern Europe, which could give Russia a foothold in the region.
However, we should have known better than to think that the Serbian election could generate a clear result. While Serbia enters the third quarter with its most stable government yet, it would be a mistake to label it firm enough to execute a clear break with the country’s past. Undoing 18 years of contradictory policies and international isolation is simply too large a task for any government to complete in short order, much less an untested coalition containing five parties and three ethnic groups.
Nevertheless, steps toward Serbia rejoining Europe — complete with halting steps toward EU membership — appear to be in the cards for the third quarter. Vojislav Kostunica, whose power plays have often upended Serbian policy, will not be in the new government, leaving pro-Western factions with more flexibility than they have known in years. But it will take far more than three months of progress before the probabilities for success can be assessed.
Russia spent the bulk of its energy in the second quarter on managing the transition from Vladimir Putin the president to Vladimir Putin the prime minister. In the shuffle, Russia’s restless power clans struggled for supremacy, with the conflict reverberating through some of Russia’s most crucial institutions, including the Federal Security Service, Gazprom, Rosneft and the defense sector. This struggle is now over — with the battle lines ending roughly where they began — but the fighting consumed nearly all of Moscow’s attention and energy for the bulk of the second quarter.
During this reorganization, the West — particularly the Europeans — did manage to force Kosovar independence over Russian objections, making a mockery of the Russian position in Europe. But Russia did not exact any retribution — or at least, not in Europe. What Russia did do was focus some of its energy on the area where its influence is strong: its immediate periphery. Belarus, Ukraine, Armenia, Azerbaijan and Georgia all witnessed a surge in Russian attention as Moscow locked down its positions in regions it feared the West was eyeing.
The result is a continuing mismatch of perception: the Europeans feel that their victory in Kosovo proves the Russians are more bark than bite, while the Russians feel that they have made their true red-lines clear by focusing on their near abroad. Major Eurasian conflicts have been rooted in far smaller misperceptions, but that will be a crisis for another day.
Luckily for both sides, each has other issues to occupy it for now. The Europeans have turned inward after yet another failed attempt at a constitution, and the Russians have to get their affairs in order in the third quarter before venturing outward again.
Putin has implemented major personnel reshuffles across the length and breadth of the Kremlin, with the biggest changes in the energy industry, the military and the defense-industrial complex. Additionally, Russia is a major energy exporter and a moderate food exporter, but it still struggles with inflation — doubly so now that qualitative and quantitative labor shortages are starting to bite, courtesy of Russia’s deepening demographic crisis.
While Russia might be in its best posture financially, politically and militarily since the end of the Cold War, it faces a number of nagging problems that it is organizationally ill-suited to solve. Finding a way to get through these problems is not a severe challenge, but it will take time. We expect no major moves out of the Kremlin until the very end of the third quarter at the earliest. But when Russia does return, it will do so with the most money — courtesy of petrodollars — and the best leadership team it has had in 20 years.
Middle East
In the second quarter, U.S. efforts in the Middle East received a boost in the form of petrodollars. Like the United States, Saudi Arabia wants to see Iraq stable and Iran blocked from expanding its influence. High oil prices are bringing the Saudis more than a billion dollars a day in revenues, some of which they are using to push Sunnis into Iraq’s governing coalition.
Syria has found a role in the tightening Arab-American alliance, but that role has taken an unexpected form: peace talks with Israel. Soon after the negotiations came into the public eye, political instability in Israel threatened to derail them, but a deal between Israel’s Kadima and Labor parties now ensures that the talks will proceed even if Israeli Prime Minister Ehud Olmert is replaced toward the end of the third quarter. While Washington certainly has its reservations about an Israeli-Syrian detente, the United States is refraining from sabotaging the talks — in part because Saudi money is supporting the initiative, in part because Turkey is hosting the talks, and in part because Hezbollah will be defanged if the talks prove successful.The third quarter could well prove to be a decisive turning point for many actors in the region. Hezbollah has no good options. It needs to find a way to scuttle the Israeli-Syrian peace talks, and an attack on Israel might be the only way it can do so — but then it risks inviting a major retaliatory attack by Israel. Iran and the United States need to seal a deal on Iraq before the U.S. elections in November, or else risk the situation remaining unresolved for years. If a U.S.-Iranian deal proves elusive, Israel needs to ensure that Iran is knocked down a few pegs before a new U.S. administration potentially restricts the Jewish state’s military options. Israel can bomb Iran only with U.S. approval.
The player that will work the hardest to ensure none of these situations spins out of control is Saudi Arabia. High commodity prices are showing signs of eating into global demand, and the last thing Riyadh wants is a war-related price spike that would push many economies over the brink. So Saudi oil income will play a growing role in buying calm throughout the region.
We expect rapid progress in the region’s major peace negotiations — those between Israel and Syria and those between Iran and the United States — because most of the heavy lifting has already been done. There has been a near-halt to violence in Iraq, and Israel has been preparing its public to give up the Golan Heights. We would not be surprised at all to see deals materialize in the third quarter, with Syria and Israel more likely to be successful than Iran and the United States.
In the Israel-Syria talks — assuming that they are not derailed — we expect the traditional fanfare of a peace deal, complete with public handshakes. The U.S.-Iranian negotiations, however, are unlikely to present such a tableau. Tehran and Washington seem content to dial back tensions without dropping their public hostility, for fear that their respective populations would not approve of a public burying of the hatchet.
Turkey is becoming bolder on the international stage: sending troops into northern Iraq, mediating Israeli-Syrian peace talks, pushing energy projects in the Caucasus and Central Asia and making its influence felt in the Balkans. But internally, the country is paralyzed. A domestic power struggle over the nature of the state, pitting the new socially and religiously conservative elite against the established ultrasecular elite, has stalled not only local economic growth and foreign investment but also Ankara’s progress toward regional player status.
We expect Turkey’s court system — operated by the ultrasecularists — to dictate terms to the elected Islamist-rooted government, likely resulting in the ruling Justice and Development Party’s dissolution. A verdict is expected in mid-August on a pending case that seeks to do just that, though we cannot rule out the possibility of a compromise. Toppling the government will not reverse or deflect the underlying trend of Turkey’s re-emergence as a leading regional power, but it will delay it significantly.
East Asia
Anti-Chinese foreign activist campaigns have been neutered with a mix of visa policy and slick organizing of counterprotests, while security has been tightened ostensibly in response to the threat of domestic terrorism. But these small victories belie much larger problems that have nothing to do with the Olympics.
The Olympic Games have created an inflection point in Chinese development, disrupting the stability of Beijing’s political decision-making process. On some issues, this break point has caused the government to postpone decisions beyond when they would usually have been made, while on others, decisions have been accelerated ahead of the time frame Beijing would have preferred. Reducing energy subsidies was a policy from the former group, but the attempt to delay skidded out of the government’s control. Meanwhile, allowing more media access because blackouts proved no longer feasible is an example of the latter.
In short, the Olympics have forced what is normally a gently-gently decision-making process into chaotic fire-fighting mode, and rising commodity prices are forcing the entire system into the pressure cooker. All things considered, China is juggling the issues admirably, but the scope and depth of the challenges it faces guarantee tension and a continuous trickle of small crises for the next quarter (not to mention that everyone who has an interest in seeing a weaker China will use the next several weeks to nudge the country toward as many of those crises as possible).
But the Olympics are still the Olympics, the Chinese people are still very proud to be hosting them, and regional leaders fully realize that the Politburo will certainly come for them if they spoil the show. We expects this combination of nationalism and fear to see the government through the worst of the problems. Then, once the last hungover tourist steps onto the last departing plane, cracks will likely start showing, the system will start creaking, and the gloves will come off — with the acceleration of price reforms the most likely first order of business.
Efforts to consolidate the energy sector are proceeding, but not quickly. The central government is meeting resistance from all of the expected groups — state oil firms, local distributors and retailers, and especially regional leaders — who stand to see their influence, wealth and sources of income all subjugated to Beijing’s will. With the added complications of the Olympics and global high energy prices, the central government has been forced to shuffle and reshuffle the plans several times to keep them more or less on track.
In the quarter to come, President Hu Jintao will attempt to bring all the disparate threads of the energy sector more or less under his personal control, a task that will become even more complicated once the burning incentive of the Olympics has passed and all the players take a good hard look at their bottom lines. But in many places, the push for consolidation will not rise above the level of rhetoric, given that many of Hu’s key supporters are local leaders who continue to resist change on multiple issues in order to maintain their own viability and profitability. As such, Hu will likely take his campaign to provinces and regions led by people outside of his personal network — a move that will create some tensions and contradictions in the inconsistent application of central government directives across the country.
This readjustment intensified in the second quarter, with several states becoming increasingly proactive in how they manage their bilateral relations with the United States and their neighbors. As we expected, U.S. allies sought not to sever, but simply to adjust, the ties that bind.
Australia short-circuited several plans to exclude the United States from various proposed Asian clubs by proposing to create and lead its own version of the Asia-Pacific Economic Cooperation to manage the region’s economic and military affairs. South Korea, despite domestic opposition, continues to put finishing touches on a free trade deal with the Americans, still vying to become the only major Asian state to land such an agreement. Taiwan’s new government sought to find a middle ground that keeps its American alliance intact while allowing it to nudge closer to Beijing. And the United States took advantage of a hurricane disaster in the Philippines to demonstrate vividly that, while it might not be flying the flag in Asia as much as in times gone by, it has hardly vacated the premises. Meanwhile, one state that is by no means a U.S. ally — North Korea — saw its relations with the United States continue shifting away from crisis management toward routine bureaucracy.
This process is only in the beginning stages and will continue to intensify and accelerate in the third quarter. Bear in mind that all four of Washington’s primary allies in the region — South Korea, Australia, Thailand and Taiwan — have freshman governments that are feeling their way forward. And with China’s attention absorbed by the Olympics and the Americans preoccupied by the Middle East and their own election cycle, all four realize that the time to adjust their alliance relationships is now.
South Asia
Pakistan’s incoming coalition is fractious, inexperienced (it has been 10 years since civilians ran the government) and certainly not in the mood to rock any domestic boats. This has led Islamabad to do everything in its power to avoid unduly angering Islamist militants operating in the country’s northwestern reaches. The dawning problem is that this ungoverned land is providing opportunities for militants battling NATO forces in neighboring Afghanistan to rest, recruit and rearm — re-creating precisely the sort of environment that allowed al Qaeda to operate so efficiently until Sept. 12, 2001. In response, NATO forces are beginning to target these militants regardless of the political border, critically damaging the credibility of the Pakistani government.
The third quarter will force the new government in Islamabad to decide whether it is more afraid of NATO forces or of its own militants — who now have made leaps eastward out of the tribal areas into the North-West Frontier Province (NWFP). Ultimately, we expect the government to choose to target the militants, however half-heartedly, rather than make a stand against NATO’s incursions into territory that is nominally under Islamabad’s writ. The government will be driven by the fear that a conflict with NATO could, at worst, destroy Pakistan or, at best, trigger a military coup — which would end the first civilian government in a decade. In the meantime, U.S. forces will escalate their overt operations in the tribal badlands and perhaps even in the NWFP, which will complicate both the security and political situation in the country.
Hopes for a “Shining” India have all but darkened, and even that assumes that there is no fallout from the deepening militant struggle in Pakistan.
With oil prices skyrocketing, India’s energy subsidized economy cannot cope and state oil refiners are buckling under the pressure. This not only spells a highly uncertain political future for the ruling Congress party, but it also raises the specter of fuel shortages in an extremely riot-prone society should the government slip in managing this fuel crisis. Add in infrastructure bottlenecks and a government that is paralyzed due to rising food prices, and it is clear even to the Indian government that New Delhi’s foreign direct investment (FDI) hopes are overinflated. But with inflationary pressures in the country nearing a critical point, maintaining FDI has slid well down the government’s priority list.
In the third quarter, India will continue to be squeezed by economic pressure and stymied by political paralysis, both getting worse by the day. A break point is unlikely in the next three months, however. New Delhi still has enough quick fixes at its disposal to manage the impact of the commodity crisis day-to-day, but its attention is now almost fully consumed with containing domestic dissent. The political tension will continue to intensify, but with elections still more than half a year away, the situation will continue to simmer without quite boiling over.
In the rest of South Asia, domestic squabbles between governments and their opponents took place as per our predictions with one exception: Afghanistan. The advances made by the Taliban, the diversion of U.S. attention to Afghanistan because of progress in Iraq, and the rise of Pakistan’s own indigenous Taliban movement has pushed Afghanistan into a world very different from the self-contained situations in Sri Lanka, Bangladesh and Nepal. In the third quarter, the decaying security situation in Pakistan will intensify Afghan militant activity, and will push NATO in general and the United States in particular to boost the involvement of their troops in southeastern Afghanistan.
Latin America
Politically, financially and militarily, Brazil is truly prospering by Latin American standards. Independent of the fact that the country discovered yet more oil fields in the second quarter, Brazil certainly surged ahead of the rest of the continent by any measure.
The economic realm is where Brazil is shining brightest. It exports or is self-sufficient in many of the commodities whose prices are causing the rest of the world no end of problems — but its governance is professional and competent enough that it is, so far, managing the stress of high prices at home.
In the meantime, its primary regional competitors — Argentina and Venezuela — are struggling, falling backward in relative power as Brazil strides forward. Brazil is leveraging this growing space competently. In the second quarter, Brazil became the largest single investor in Argentina. And in the third, it will take its first shipments of liquefied natural gas, setting the stage for it to declare full energy dependence from its unreliable neighbors. And with its investment into the energy industries of those same neighbors, Brazil is laying the groundwork for controlling their energy options, not the other way around.
In the annual and second-quarter forecasts, we dealt with Argentina, Bolivia and Venezuela separately. We now weave those three trends together: The populist policies that all have adopted are coming home to roost.
Argentina’s financial, political and economic stability is taking a sharp turn for the worse. Argentine President Cristina Fernandez de Kirchner’s populist efforts to placate a variety of groups have consistently laid the foundations for future, greater problems. The juggling already has radically increased Argentina’s debt and reduced the country’s trade surplus by a quarter — despite soaring international prices for all of Argentina’s exports. This shortsightedness is triggering unrest on a national level, sparking runaway inflation of the type that has made previous Argentine governments fall. It also is gutting the country’s productive capacity in industries in which it was until recently a global leader, and is raising the specter of food shortages in the not-so-distant future — quite possibly before the end of the third quarter.
Meanwhile, Bolivia is slowly sinking into chaos as the divisions deepen between the poorer, populous and indigenous highlands led by President Evo Morales and the more European and richer lowlands. Morales will hold a referendum on centralizing power in the third quarter, essentially attempting to force the lowlands into economic and political submission. So long as the lowlands physically control the economy on which the government depends, however, they cannot be talked or voted or threatened into submission. When the government realizes it cannot resolve the situation through constitutional channels — and we do not expect this realization to occur in the third quarter — Bolivia will have its defining crisis. Until then, the imbalance of political and economic forces in the country will only become more skewed, making the eventual conflict that much worse.
In Venezuela, it appeared at the beginning of the year that the opposition was beginning to coalesce into a meaningful political force that could challenge President Hugo Chavez. That trend has since faded away, but Chavez’s own economic and political mismanagement has more than compensated for the lack of threats to the regime. Chavez has in many ways become his own worst enemy. Rising food and commodity prices, combined with self-destructive means of dealing with them, have soured the Venezuelan population on Chavez’s leadership and fractured the ruling party. Many of Chavez’s attempts to rally nationalist sentiment — threatening war against Colombia, for example — have instead backfired badly.
The country’s social stability has been reduced to the point where it depends on Chavez’s lavish social programs. But the cost of these programs is rising faster than the country’s oil income, making Venezuela unique among oil exporters as the only one getting poorer with global crude prices at historic highs. Against this backdrop, it would be logical for foreign states hostile to Chavez to take a swipe at him, or for domestic opposition to rally against him, but no one with the capability to hurt Chavez has a deep enough interest to take any dramatic steps (the same, incidentally, goes for the Argentine and Bolivian governments). In the third quarter we expect Chavez’s credibility to take hits — abroad, but even more so at home — as the system’s coherence begins to crumble.
The problems of all three states feed upon each other. Bolivia’s secession crisis and poor economic management are reducing natural gas flows to Argentina, complicating Argentina’s existing power crisis. Venezuela’s political — and by some reports, military — support for Bolivia’s Morales only outrages and emboldens the secessionist lowlanders there. Venezuela’s financial support for Argentina not only reduces the cash Caracas has to stabilize its own system, but several billion dollars of debt linkages now tie the economic problems of one state to the other. These connected problems, mostly rooted in the three countries’ populist economics, have been building for years. In the first two quarters, cracks in the facade began to show — but in the third quarter the depth of the problems will become apparent. We do not expect any catastrophic failures in the next three months, but it is time to start thinking of just that.
Africa
Africa simply has not seen any meaningful direct involvement from the traditional players, whether from the continent or beyond. China has made a couple of commodities deals, but little more. India and Japan each hosted Africa summits but have not pursued other engagements. The French are participating in the European Union peacekeeping force (EUFOR) in eastern Chad, but they are keeping their heads down and have not intervened between the Chadian government and opposing rebels. The United States pulled back on plans to relocate its Africa Command (AFRICOM) headquarters from Germany to Africa. Nigeria is preoccupied with managing the Niger Delta, and South Africa has engaged in very little direct activity in Zimbabwe. Even Angola, the region’s up-and-comer, is currently focused on internal development. (In the second quarter, it overtook Nigeria to become Africa’s leading oil-producing state.)
But if the second quarter was quiet, it will seem like a roar compared to the third. China has the Olympics, France has the EU presidency, and the United States is in the middle of an election campaign season and has little capacity for putting pressure on its African allies over relocating AFRICOM.
Nigeria’s perennial problems with internal stability will take center stage as the country’s Ijaw ethnic community makes its firmest — and, if necessary, most violent — bid for a larger slice of the country’s oil revenues when Nigeria’s government convenes the Niger Delta Summit, expected to commence in late July.
In South Africa, the internal issues that absorbed the country’s attention for the past quarter continue to beckon. President Thabo Mbeki truly is already a lame duck and has minimal room to maneuver in either domestic or international politics. A leadership transition is only a year away, and the likely next president, African National Congress chief Jacob Zuma, continues to be hounded by corruption allegations, complete with court cases. The single issue on which Mbeki can act is Zimbabwe, where growing international condemnation has provided an opening for Pretoria’s more nuanced policy of engagement.
Only Angola, awash with oil revenues, will have the luxury of picking the issues it wants to address without fear of reprisal or competition. But even Angola will have internal issues to keep it busy. Parliamentary elections — the first since 1992 — will occur in the third quarter, and the government wants to add a stamp of electoral legitimacy to its list of achievements. The rest of the world, it seems, can wait for another day.
Concluding update
Since the failure of the Ottoman Empire, the Middle East has not hosted an indigenous grand player. Instead, the region serves as a battleground for extra-regional grand powers, all attempting to grind down the local (petit) players to better achieve their own aims.
At this moment however, a peace deal — where Israel and Syria are looking to bury the hatchet, somewhere in the Golan Heights is probable. In fact, Israel has secured deals with Egypt and Jordan already, and the Palestinians — by splitting internally — have defeated themselves as a strategic threat. A deal with Syria would make Israel the most secure it has been in millennia.
Syria, poor and ruled by its insecure Alawite minority, needs a basis of legitimacy that resonates with the dominant Sunni population better than its current game plan: issuing a shrill shriek whenever the name “Israel” is mentioned. The Alawites believe there is no guarantee of support better than cash, and their largest and most reliable source of cash is in Lebanon. Getting Lebanon requires an end to Damascus’ regional isolation, and the agreement of Israel.
The outline of the deal, then, is surprisingly simple: Israel gains military security from a peace deal in exchange for supporting Syrian primacy in Lebanon. The only local loser would be the entity that poses an economic challenge (in Lebanon) to Syria, and a military challenge (in Lebanon) to Israel — to wit, Hezbollah.
Hezbollah, understandably, is more than a little perturbed by the prospect of this tightening noose. Syria is redirecting the flow of Sunni militants from Iraq to Lebanon, likely for use against Hezbollah. Damascus also is working with the exiled leadership of the Palestinian group Hamas as a gesture of goodwill to Israel. The French — looking for a post-de Gaulle diplomatic victory — are re-engaging the Syrians and, to get Damascus on board, are dangling everything from aid and trade deals with Europe to that long-sought stamp of international approval. Oil-rich Sunni Arab states, sensing an opportunity to weaken Shiite Hezbollah, are flooding petrodollars in bribes — that is, investments — into Syria to underwrite a deal with Israel.
While the deal is not yet a fait accompli, the pieces are falling into place quite rapidly. Normally we would not be so optimistic, but the hard decisions — on Israel surrendering the Golan Heights and Syria laying preparations for cutting Hezbollah down to size — have already been made. On July 11 the leaders of Israel and Syria will be attending the same event in Paris, and if the French know anything about flair, a handshake may well be on the agenda.
But the deal must please not just the petit players, but the grand ones as well. At this point, those with any interest in disrupting the flow of events normally would step in and do what they could to rock the boat. That, however, is not happening this time around. All of the normal cast members in the Middle Eastern drama are either unwilling to play that game at present, or are otherwise occupied.
The country with the most to lose is Iran. A Syria at formal peace with Israel is a Syria that has minimal need for an alliance with Iran, as well as a Syria that has every interest in destroying Hezbollah’s military capabilities. (Never forget that while Hezbollah is Syrian-operated, it is Iranian-founded and -funded.) But using Hezbollah to scupper the Israeli-Syrian talks would come with a cost, and we are not simply highlighting a possible military confrontation between Israel and Iran.
Iran is involved in negotiations far more complex and profound than anything that currently occupies Israel and Syria. Tehran and Washington are attempting to forge an understanding about the future of Iraq. The United States wants an Iraq sufficiently strong to restore the balance of power in the Persian Gulf and thus prevent any Iranian military incursion into the oil fields of the Arabian Peninsula. Iran wants an Iraq that is sufficiently weak that it will never again be able to launch an attack on Persia. Such unflinching national interests are proving difficult to reconcile, but do not confuse “difficult” with “impossible” — the positions are not mutually exclusive. After all, while both want influence, neither demands domination.
Progress has been made during the past six months. The two sides have cooperated in bringing down violence in Iraq, now at its lowest level since the aftermath of the 2003 invasion itself. Washington and Tehran also have attacked the problems of rogue Shiite militias from both ends, most notably with the neutering of Muqtada al-Sadr and his militia, the Medhi Army. Meanwhile, that ever-enlarging pot of Sunni Arab oil money has been just as active in Baghdad in drawing various groups to the table as it has been in Damascus. Thus, while the U.S.-Iranian understanding is not final, formal or imminent, it is taking shape with remarkable speed. There are many ways it still could be derailed, but none would be so effective as Iran using Hezbollah to launch another war with Israel.
China and Russia both would like to see the Middle East off balance — if not on fire in the case of Russia — although it is hardly because they enjoy the bloodshed. Currently, the United States has the bulk of its ground forces loaded down with Afghan and Iraqi operations. So long as that remains the case — so long as Iran and the United States do not have a meeting of the minds — the United States lacks the military capability to deploy any large-scale ground forces anywhere else in the world. In the past, Moscow and Beijing have used weapons sales or energy deals to bolster Iran’s position, thus delaying any embryonic deal with Washington.
But such impediments are not being seeded now. Rising inflation in China has turned the traditional question of the country’s shaky financial system on its head. Mass employment in China is made possible not by a sound economic structure, but by de facto subsidization via ultra-cheap loans. But such massive availability of credit has artificially spiked demand, for 1.3 billion people no less, creating an inflation nightmare that is difficult to solve. Cut the loans to rein in demand and inflation, and you cut business and with it employment. Chinese governments have been toppled by less. Beijing is desperate to keep one step ahead of either an inflationary spiral or a credit meltdown — and wants nothing more than for the Olympics to go off as hitch-free as possible. Tinkering with the Middle East is the furthest thing from Beijing’s preoccupied mind.
Meanwhile, Russia is still growing through its leadership “transition,” with the Kremlin power clans still going for each other’s throats. Their war for control of the defense and energy industries still rages, their war for control of the justice and legal systems is only now beginning to rage, and their efforts to curtail the powers of some of Russia’s more independent-minded republics such as Tatarstan has not yet begun to rage. Between a much-needed resettling, and some smacking of out-of-control egos, Russia still needs weeks (or months?) to get its own house in order. The Kremlin can still make small gestures — Russian Prime Minister Vladimir Putin chatted briefly by phone July 7 with Iranian President Mahmoud Ahmadinejad on the topic of the nuclear power plant that Russia is building for Iran at Bushehr — but for the most part, the Middle East will have to wait for another day. But by the time Beijing or Moscow have the freedom of movement to do anything, the Middle East may well be as “solved” as it can be.
The post-World War I interregnum witnessed the complete upending of Asian and European security structures. The post-World War II interregnum brought about the Korean War as China’s rise slammed into America’s efforts to entrench its power. The post-Cold War interregnum produced Yugoslav wars, a variety of conflicts in the former Soviet Union (most notably in Chechnya), the rise of al Qaeda, the jihadist conflict and the Iraq war.
All these conflicts are now well past their critical phases, and in most cases are already sewn up. All of the pieces of Yugoslavia are on the road to EU membership. Russia’s borderlands — while hardly bastions of glee — have settled. Terrorism may be very much alive, but al Qaeda as a strategic threat is very much not. Even the Iraq war is winding to a conclusion. Put simply, the Cold War interregnum is coming to a close and a new era is dawning.