As we brace for what looks to be a volatile 2017, it is important to reflect on the year that was. Our 2016 Annual Forecast stressed the complex interconnectivity of several major trends: Turkey's resurgence, the U.S.-Russia standoff, the Syrian civil war, surging nationalism in Europe and economic stress driving big political change in much of the world.
Accountability is a critical part of our forecasting process that requires we identify where we got things right and where we went off track and why. Below is a brief summation of our 2016 evaluation.
We said in our annual forecast that 2016 would be the year of Turkey, as Ankara, in spite of building obstacles, will nonetheless "make a military move into northern Syria while trying to enlarge its footprint in northern Iraq." Russia and Turkey were at each other's throats in the wake of Turkey's downing of a Russian fighter jet, but in evaluating their strategic interests, we said, "neither Turkey nor Russia can afford a complete break in relations." Economic ties suffered during the year as we predicted, but sure enough, Ankara and Moscow navigated their way to a rapprochement and Turkey returned to its former Ottoman sphere in northern Syria and Iraq.
Our forecast for Turkey did not predict the attempted coup in July. However, as that crisis unfolded, we were the first to identify the reasons the coup would likely fail and why it would not derail Turkey's regional resurgence.
Turkey has a number of fault lines that breed opposition to Erdogan's Islamist-leaning political agenda and neo-Ottoman foreign policy direction, but on the other side of those splits are a substantial number of supporters who legitimately support the president. Moreover, there are many Turks who are anti-Erdogan yet also anti-coup, and who remember the deep economic and political instability of Turkey's coup-ridden past. This coup attempt is the product of an Islamist division within the military – and divisions within divisions do not spell success for a coup.
Abandoned uniforms and equipment on a bridge in Istanbul speak to the rapid collapse of the Turkish coup attempt in June. (Stringer/Getty Images)
The rise of Turkey's conservative class is a decades-long project that will endure for decades more. Regardless of whether Erdogan is at its helm, Turkey will continue down its expansionist path, a path that was unlikely to be short-circuited by a haphazard coup led by a motley group of Islamists and nationalists. Turkey is on this course, at this stage in history, because geopolitics wills it. But nobody said it would be a smooth ride.
The Friction Between the U.S. and Russia
The 2016 Annual Forecast stated that Russia would use its heavy involvement in Syria "to draw the United States toward a compromise that would slow a Western push into Russia's former Soviet space. The United States will be willing to negotiate on tactical issues, but it will deny Moscow the leverage it seeks by linking counterterrorism cooperation to a broader strategic discussion. The U.S. administration will work instead to shore up European allies on the front lines with Russia."
The endurance of U.S.-Russia standoff and the deepening of the frictions between them, particularly toward the end of the U.S. election cycle, was a defining theme for 2016. Russia has grown enormously frustrated with Washington's resistance to a broader negotiation but also sees more opportunity ahead in 2017 to make some headway in this area in preparation for more challenging years ahead.
The problem is that the layers to Russia's strategy tend to be too dense for the Western eye. For Russia, the Syrian battleground is not about propping up an ally through reckless spending, nor is it simply about pursuing an alternative strategy to defeat the Islamic State. Syria is a land of opportunity for Russia. This is the arena where self-control, patience and a careful identification and exploitation of its opponents' strengths and weaknesses will enable Russia to reset its competition with the West.
Russia has used its involvement in the conflict in Syria to try to gain leverage in its faceoff with the West. (ALEXEI NIKOLSKY/AFP/GettyImages)
Russia is entering the next phase of its historical cycle, in which the state is highly vulnerable yet increasingly aggressive. Putin will therefore be acting from a position of survival instead of strength. Russia could muddle along in its compromised position for some time, but eventually the cycle must progress, and the next phase of transformation will begin.
A Divided Europe and the Brexit
Ever since the 2008 global economic crisis broke out, Stratfor has stressed that the financial upheaval would morph into political upheaval and that in turn would eventually lead to the dissolution of the European Union. We also mapped out the blocs that would likely emerge from a broken EU earlier in the year, with the United Kingdom among the first to head for the exit door.
If Britain quits the European Union, though, it risks disrupting the base of power the bloc has come to rest on. Germany relies on Britain's backing when it comes to promoting free trade in the face of France's protectionist tendencies. France sees Britain as not only a key defense partner but also a potential counterweight to German influence. Removing Britain from the equation would shatter this tenuous arrangement at a particularly dangerous time for the deeply fragmented Europe, when neither Germany nor France is satisfied with the status quo.
No matter what British voters choose, the damage to Europe has already been done. If Britain leaves the European Union, it would throw the Continent into yet another political and economic crisis, giving Euroskeptic forces greater ammunition against the bloc and voters fewer reasons to defend it. But if Britain keeps its membership, it would have proved to other European governments that it is possible to demand concessions from Brussels while winning support at home. And so, regardless of what happens June 23, Britain has set a precedent that Brussels cannot stop other EU members from following.
Stratfor had long predicted the British split from the European Union. But the timing eluded us in our 2016 forecast that the 'remain' forces would win the day. (CHRISTOPHER FURLONG/Getty Images)
We made a fatal error in our 2016 forecast: We tried to predict the outcome of a vote and said that even though Europe is in the long-term process of fracturing, the Brexit vote would likely tilt on the side of "Remain." This misstep spurred intense introspection on the part of our analyst team to understand why the call was made in spite of our longer-term forecast that the United Kingdom was distancing itself from increasingly divisive Continental affairs. The problem is inertia: We know the overarching trend, but it is much trickier to pinpoint when the fundamental break occurs.
Our lesson learned from the Brexit is to discipline ourselves to remain in the strategic realm of forecasting with a focus on the structural forces at play. With critical elections ahead in France, Germany and possibly Italy next year, our team developed scenarios to game out internally how each outcome would influence the other. Regardless of whether moderates or extremists claim victory in these elections, the European Union is still on a path of dissolution. The question is to what degree each of these inflection points actually accelerate the long-term trend.
Like a piece of classical music in which the instruments and melodies are introduced one by one, building to a harmonious crescendo, several of the themes that have arisen in Europe in the past few years may soon all be playing at once. Next year, a combination of nationalist and anti-establishment sentiments, unresolved north-south frictions, a lurking migration crisis, regionalization, fragile banking sectors and inefficient decision-making could surface, widening the cracks in the Continental union. In theory, none of these problems alone would be serious enough to destroy the eurozone within the next 12 months. But together they could prove too much for the eurozone to withstand. Though the collapse of the currency union next year isn't likely, it is possible, ensuring that 2017 will be the most crucial year for European integration since the Continent's many crises began.
The Evolution of the Islamic State Threat
We said in the 2016 Annual Forecast that "the Islamic State core in Syria and Iraq will suffer notable losses this year, though the aspiring caliphate is unlikely to suffer total defeat. The weakening of the Islamic State as a conventional force in its core territory will encourage its leadership to call for more terrorist operations in the West and across the Middle East."
Indeed, a number of jihadists responded to the Islamic State's call to carry out attacks using whatever means they had. Beyond the spate of attacks in the Middle East, several more resourceful grassroots terrorist operations were conducted in Belgium, France and Germany by Islamic State affiliates as well as by radicalized lone-wolf assailants acting in the group's name.
The bottom line is that even if a militant group is losing power in absolute terms, it can and often will continue to pose a significant insurgent or terrorist threat.
Under increasing military pressure in places like Mosul, Iraq, the Islamic State has increased its calls for terrorist action through its affiliates and followers. (AHMAD AL-RUBAYE/AFP/Getty Images)
With tens of thousands of fighters currently in places like Syria, Iraq, Libya and Somalia, it will be impossible for their home governments to monitor them all. Undoubtedly some combatants will return home intending to conduct terrorist attacks, while other grassroots operatives will stay home and attack. But the threat they represent is not a totally new phenomenon: The grim truth is that there are undoubtedly jihadists in the United States, Europe and elsewhere planning attacks at this very moment — just as they have over the past two decades.
OPEC’s Waiting Game
At the beginning of 2016, there were growing expectations that Saudi Arabia would intervene in the oil markets by cutting production to try and boost the price of crude. We disagreed:
"The addition of Iranian oil to the market in the first half of the year will offset a drop in U.S. production. Any change to Saudi Arabia's oil output would come later in the year, after Riyadh has assessed the price impact from Iran's return as well as the effect on U.S. shale producers. Any attempt by Riyadh to coordinate a drop in production with Kuwait and the United Arab Emirates would come only after this assessment. Regardless of Iran's impact, Saudi Arabia will still be prepared to take on more debt and draw down reserves to cope with low oil prices."
Saudi Arabia was playing a longer game. Though the economic pain ran deep for many producers, including the Saudi kingdom, Riyadh still needed to wait out the supply glut before it would intervene. As it turns out, Saudi Arabia coordinated a production cut involving both OPEC and non-OPEC countries at the very end of the year. The implementation of the cut will not solve producers' problems. We expect cheating to be rife within the bloc in 2017. Saudi Arabia will also have to contend with a gradual recovery in North American shale production that will limit the price rebound.
After waiting almost all year for the oil supply glut to abate, OPEC members along with key non-OPEC producers, instituted a production cut. (HANS PUNZ/AFP/Getty Images)
Since November 2014, Saudi Arabia and its allies have made it clear that they prefer to let the market correct itself. In the meantime, they are not willing to unilaterally slash production without other important producers, including Russia, Iran and Iraq, agreeing to do so as well. Of course, pragmatic cooperation among the world's oil exporters becomes more appealing as oil prices sink and financial crises deepen. However, a substantial production agreement — and one that is actually enforced — will probably remain elusive as geopolitical impediments and fundamental disputes among Saudi Arabia, its allies and other oil-producing countries persist. And with no cohesive bloc at its helm, the global oil market will be at the mercy of market forces, promising further price volatility and uncertainty…Saudi Arabia and its Gulf allies have lost much of the hold they once had over the global oil market; they are now more stewards than puppeteers.
China's Push in the South China Sea
We did not specifically discuss the populist rise of Philippine President Rodrigo Duterte in the 2016 Annual Forecast.
However, we noted that, "even as China's economic growth slows, Beijing will use its heft to offer incentives to push Southeast Asian nations to cooperate, warning them of both economic and military consequences should they resist." In regards to the Hague ruling on the Philippines' case against Chinese South China Sea claims, we said that the "Beijing could make it a point to appear more cooperative on maritime issues and economically in hopes that a more conciliatory government will take over in Manila."
The Philippines under Duterte quickly put into motion a rebalancing strategy to distance itself from the United States and cozy up to Beijing in hopes of extracting economic concessions. China is now in a phase where it has already accomplished many of its strategic objectives in the South China Sea and can now transition to a more conciliatory approach with willing claimant states like the Philippines. Fishing rights will remain a major carrot that Beijing will offer in trying to reshape regional politics in its favor and keep the United States at bay.
Every maritime region has had flare-ups over fishing before, but the unique geography of East Asia raises the risk of such disputes — and their stakes. The Western Pacific differs from most of the Pacific Rim in that it has wide continental shelves, with numerous coastal waterways and deeply incised gulfs. The coasts of North and South America, by contrast, have narrow continental shelves and relatively simple coastlines. This makes delineating territory in the Asia-Pacific more difficult, especially since most waterways are not broad enough to allow many of the region's nations to claim full 200-nautical-mile exclusive economic zones (EEZs) without bumping up against their neighbors'.
The Reshaping of the Global Order
Bearing in mind the danger of trying to predict election outcomes, we did not attempt to forecast the outcome of the pivotal U.S. presidential election. With the Brexit vote, it became clear that the nationalist fever that gripped Europe could easily drift across the Atlantic to the United States. And as a tumultuous election campaign wore on, we tried to stay focused on the deeper, structural forces underway, from China's economic evolution to demographics to technological advancements in manufacturing that are reshaping the global system.
A sense of embattlement enlivens the innate sense of nationalism. As more and more election cycles and referendums worldwide reveal, a substantial number of people apparently do not believe that the elites have their nations' best interests at heart. Globalization supposes that there will be winners and losers in every country. But it also promises that even the losers, with enough time and a bit of assistance, will eventually come out ahead.
Many people have grown tired of waiting for the benefits of a vastly interconnected world to trickle down. As the world whizzes by them, their wages remain flat and jobs become scarcer. Then it becomes convenient to blame their straits on the immigrant speaking a strange tongue and taking their employment opportunities. These people are not studying demographic charts and complex economic models to understand why their country needs immigrants in the long run, nor are they lying awake at night fretting over a Moody's downgrade. The more sophisticated rhetoric they hear about the benefits to come — and the fewer benefits they actually see — the more distrustful they become. As John Maynard Keynes said, "In the long run we are all dead."
The masses begin to crave plain speak on a simple path to a better life. The populist leaders who answer their call know perfectly well that a simple path does not exist. They will find neither the political establishment's support nor the financial resources to make good on their promises. Expectations breed further disappointment, and more political volatility ensues.
Donald Trump's ability to connect with voters disillusioned with the supposed benefits of globalization, which they were not seeing, helped elevate him to the White House. (CHRISTOPHER GREGORY/Getty Images)
Opportunities for producing and assembling products and their components have spread worldwide, making it is easier for countries to climb the production value ladder. States at the bottom, extracting raw materials, can gradually move up, first making low-value components and then progressing to higher-value ones or basic assembly. But just as technology spurred globalization and the shifts in international trade that followed, so, too, will it revolutionize how countries again do business with one another. Compounded by the economic and demographic changes taking place today, automation, advanced robotics and software-driven technologies are ushering in a new era — one of shorter supply chains that will provide fewer opportunities for the developing world. Regions once labeled "emerging economies" may instead stagnate, and the divide between the haves and have-nots within and among nations could widen further.