Third Quarter Forecast

Stratfor predicts that three major global trends continue to dominate the international system. First, the Greek crisis and attendant economic problems continue to place great stress on European systems, driving the region toward a political and economic redefinition. Second, U.S. operations in Iraq are moving toward a milestone as U.S. combat forces are scheduled to be drawn down by the end of August even as progress is proving elusive in Afghanistan. Third, the Russians, in part using the disarray in Europe and U.S. preoccupation with the Middle East to consolidate its gains in the former Soviet Union, are opening the door to new economic relationships — particularly with the Germans — designed to modernize Russia’s economy.

Certainly the issue that is both most important and new is Europe. For much of the financial crisis, the Europeans held up the continental model as superior to the “Anglo-Saxon” model. Slower growth with stronger social safety nets seemed superior to the more aggressive, less protective, American and British model. The continental Europeans are now facing both cuts in social services and slow growth. More important, this is not equally spread among countries. Southern Europe is in the weakest position and Northern Europe, particularly Germany, is being called on to underwrite the stability of the eurozone. This is causing profound political difficulties in Germany, which, in turn, have prompted Berlin to demand greater controls over the economic policies of its fellow EU countries, via new regulations and supervisory bodies. Germany’s plans are creating a serious rift in Europe that has geopolitical implications. We expect that process to continue during the next quarter. For the time being, European institutions are safe, but it is not clear that the system can withstand any greater shocks.

At the other end of the global spectrum — Middle Eastern military affairs — new international and bilateral sanctions have been imposed on the Iranians to get them to abandon their alleged nuclear weapons program. There are numerous ways for Iran to get around these sanctions, and therefore their effects will be limited. But ultimately the issue on the table is not Iran’s nuclear program, but its conventional power. Without the United States in Iraq, Iran is the dominant military force in the Persian Gulf. The United States is scheduled to withdraw its “combat” forces by August, leaving 50,000 troops behind, including at least six brigade combat teams redubbed “advisory and assistance brigades.” Each reduction of U.S. forces in Iraq increases Iran’s influence on the region. If the nuclear program were abandoned tomorrow, Iran would still be the dominant conventional power native to the region. This means that the United States must stay in Iraq to balance Iran, but the United States must also leave to re-establish a strategic military reserve. With the United States caught in this position, we expect Washington to continue quiet efforts to reach some sort of accommodation with Iran. The issue is, of course, whether Iran has any interest in helping to solve this problem for the United States.

The world continues to resonate from the twin shocks of September 2001 and September 2008: the U.S.-jihadist war and the global financial crisis. It has been processing these events for several years, and it will continue to do so this quarter.

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