With just hours to go for the New Year, here’s a quick look at some of the key global issues to look out for in 2017. And if you thought most of 2016 was a bumpy ride, there could be more of the same next year.
The failed Islamic State: Sometime by the end of next year, the Islamic State will have contracted to the desert between Syria and Iraq. The IS will be hemmed in by Russian-backed Syrian forces on one side and US-backed Iraqi troops on the other, with Iranian militia in the mix on both sides.
However, Islamist terror won’t disappear. IS plans to fade into the countryside and cyberworld. Sunni Arab alienation, the fount of the region’s terror tendencies, will remain. Also, the uneasy coalition of Russia, Sunni and Shia regional powers could disintegrate once the IS falls off the priority list.
Terrorism expert Rohan Gunaratne warns: “Contrary to popular opinion, IS will remain a threat as long as its ideology lives on in the cyber and physical space.”
Watch for: The IS may disappear off the maps. However, what is filling the resulting vacuum is al-Qaeda, a new version with a smart strategy of winning the masses first before turning on the infidel. The originals are coming back.
Indian accent: India will applaud the end of the IS. But the profiles of the Taliban and Lashkar-e-Taiba, its main militant concerns, will benefit from the fall of their rival.
Donald Trump, the new oil sheikh: The negotiated production cuts in OPEC will kick in with the new year. If no one cheats, OPEC and Russia are set to cut production by 1.8 million barrels a day. Oil prices will rise, possibly to $70 or even $80 a barrel. Gas prices will follow.
In this hydrocarbon heaven, leaders from Moscow to Riyadh, Abuja to Tehran, will breathe easier and wealthier.
The spoiler in all this is US president-elect Donald Trump. He plans to produce all the US oil, gas and coal he can – and export it. Shale collapsed on low prices in 2016. But, notes oilprice.com, each $10 increase in oil prices boosts US shale oil output by a half-million barrels a day. Analysts say the return of shale will encourage the Saudis and Iranians to cheat – and unpack OPEC.
Watch for: Trump has an energy team of Texas oilmen. After they announce their dig and drill targets, watch oil prices.
Indian accent: New Delhi has fretted about oil prices rising in the coming years. Sheikh Donald al-Trump will be the best foil against OPEC’s plans and his ambitions will keep prices at the $60-level.
Euro is a four letter word: The French, Dutch and Germans are all set to cast ballots in 2017. If they go badly, the European Union and the euro are doomed. Even if they go well, German Chancellor Angela Merkel will emerge weakened and the EU a body without a head.
The Economist’s foreign editor, Robert Guest, recently said he could not rule out a President Marine Le Pen in the Elysee Palace. That would mean game over, Europe. But conservative Francois Fillon still seems the favourite. The Netherlands seems set to give ultra-nationalist Geert Wilders a plurality of seats. While Merkel should stagger past the finish line, the far right will suck up enough votes to cripple her.
Salvation may come from two unexpected quarters. If the far right scares the mainstream enough, the EU may abandon the principle of movement across borders – which would make Brexit irrelevant.
The other is Trump. His stimulus-driven economic policies will feed a US boom – with a knock-on effect for Europe. Euro-economist Daniel Gros, going through the numbers, recently concluded, “Mr Trump could well end up saving the euro.”
Watch for: The nightmare for Europe would be a wave of terrorist attacks. Waves of terror attacks and immigration lose Merkel 10 to 15 percentage points in the polls. Le Pen gains three to five. The IS, amazingly, could decide Europe’s fate.
Indian accent: No real win-win situation for India. If the EU is saved and, as a bonus, Brexit reversed, India Inc will be relieved. But immigration barriers will become higher no matter what.
Buck the Yuan: Indians understand the importance of currency these days. The world will be reminded of the same as two trends inexorably head for a collision: A dollar becoming almighty again and a Yuan heading for a great fall of China.
Normally this would be no big deal. But this time the fallout will be a major dustup between Beijing and Washington. China is bleeding, with unofficial capital outflows probably close to $100 billion a month – more than President Xi Jinping can afford in a year the Communist Party plenum is being held. He will need to let the Yuan fall sharply to hold back the red tide.
On the other side of the Pacific, Trump will face the opposite problem. The dollar will strengthen as the US central bank raises interest rates and a recovering US economy picks up steam. Falling Yuan meets rising dollar; the US trade deficit will balloon. Trump, having made a song and dance about Chinese “currency manipulation”, will have to respond savagely. A trade war, a currency war, something more than tweeting will follow.
Watch for: China tightening capital controls till it becomes clear this ain’t working and the devaluation option is put on the table. As US inflation creeps towards 2%, interest rates will follow with global fireworks thereafter.
Indian accent: New Delhi will benefit strategically from a major trade conflagration between the US and China. But the resulting tumult in the global economy could take down India’s growth rate by a point or two.