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How to manage risk amid growing international instability


For optimists, let’s hope that dominant leaders use their power to settle conflicts. The U.S., Russia, China, Turkey, Europe and Israel all should want to end the war in Yemen – and such an initiative could give Saudi Arabia and Iran a path out.

Or perhaps President Trump and North Korean leader Kim Jong Un will renew their courtship – inescapably, with China’s consent – to revive prospects for stability on the Korean peninsula. Slim as the prospects might be, in both these cases dominant powers could shape better global outcomes.

The Middle East, especially Syria, will be a cauldron for conflict. Even as the U.S. now pledges to slow its Syrian withdrawal, President Trump has made clear that it will happen. President Assad, ISIS, Turkey and Iran will wait him out.

Russia and Iran will test each other’s hunger to be Syria’s dominant power. Israel will be driven to check Iran’s support for Hezbollah and Hamas and Iran’s encroachment toward Israel’s borders. Any spark could set off this tinderbox.

No issue will be watched more closely than the U.S.-China trade war. Since the IMF signaled in October a potential 1.6 percent percent fall in China’s GDP due to U.S. tariffs, equity markets tumbled and commodity markets plummeted – with an upsurge at any signal of a settlement.

From a western perspective, nations may converge on bringing China into compliance with the norms of international trade, intellectual property, technology transfer, and cybersecurity. The uncertainty lies in the world being rendered a spectator on decisions, and perhaps a rivalry, that ultimately rest with Presidents Trump and Xi.

The stalemate over Russia’s presence in Ukraine will remain – a stalemate. Europe struggles to maintain consensus on its current well-weathered sanctions toward Russia. A new U.S. Congress may well seek tougher penalties on Russia – partly in Ukraine’s name, partly to punish and test President Trump on Russia.

Additional unilateral rather than multilateral sanctions may further strain already frayed trans-Atlantic relations. When it comes to negotiating a deal that will change Russian behavior, no executive authority in the U.S., Germany or France has greater political will and interest than President Putin to define the outcomes.

In the backdrop simmers a new geopolitical clash on climate change. The 30-40 percent gap between Paris Agreement pledges to reduce emissions and virtually any scenario on necessary reductions looms undiminished. Without the U.S. and China agreeing on specific measures, the gap is too big to close diplomatically.

Public pressures on financial institutions and industry to close the gap technologically will increase. The longer the impasse, the greater the risk that the climate agenda will revert to a type of post-Kyoto political stalemate.

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