Rarely in the past six decades has global context counted for as much in strategic forecasting — trend analysis — as it does at the dawn of 2012. Reliance on stove-piped analysis of “strategic sectors” — such as economic and financial issues, security issues, politics, geopolitics, resources and energy, sociology and religion, and so on — will produce skewed and unreliable estimates, and will tend to favor linear extrapolations of recent experience. A study of broad contextual factors, including an expanded view of history, will show how cycles and confluences of trends potentially play a greater disruptive role than at any time since the end of World War II. We have, in recent writings, stressed the longer-term trends and outlook, but it is important to see how the strategic environment is likely to play out during 2012. Equally, it is important that these trends (and others) are seen collectively, and not separately. 1. Global Economic and Financial Trends: Economic fragility is everywhere, even in fairly robust and growing economies. Some of the new engines of economic and financial growth — Brazil, India, and the People’s Republic of China (PRC) — face significant hurdles in 2012. Indeed, it is likely that we may see economic growth couple with instability, and with an inability of even substantial growth to meet social (and therefore political) expectations. Absent major surprises, watch for India to fall still further behind the PRC in terms of economic, and therefore strategic, competitiveness. But the delicacy of the global situation, as well as the PRC’s leadership transition in 2012, means that the PRC is unlikely, during this year, to see its yuan (renminbi) transform into a major global currency. Three of the major global economic lynchpins — the United States of America, the European Union, and Japan — remain in economic and financial difficulties, and this will constrain their strategic capabilities significantly. The rising debt-to-GDP ratio in both the US and the EU will hollow economic recovery efforts. This situation also means that the US dollar and the euro will retain their status as global trading currencies only by default, and will help reinforce a continuation of a fundamentally inflationary situation in the global marketplace. National statistics, which are biased politically, will continue to obscure real, underlying inflation, and this will continue to be pervasive and exported from the US and eurozone. 2. Global Energy Supply and Demand: 2012 will see the start of a transformation in fossil fuel supply and demand patterns, driven to an increasing extent by technological capabilities (such as the increasing possibility of delivering fuels derived from shale deposits in Europe, North America, and elsewhere). Changing strategic power reach (such as the decline in US influence in the Middle East, Central Asia, and, increasingly, Africa; and the rise in the PRC’s and India’s acquisitiveness) will also change control and logistical patterns for oil and gas distribution. The US has the ability to move much of its fossil fuel dependence away from the Middle East and Africa through transforming political approaches to the exploitation of domestic oil and gas fields and through cooperation with Canada in the exploitation of Alberta’s shale deposits, but is unlikely to make headway in this arena in the short term, due to political inertia. Based on present evidence, the US energy dependence pattern will remain slow to change in 2012, and significant change is only likely to occur with a change in US political leadership, which could occur at the beginning of 2013. As a result, the US will continue to face high costs, and high security vulnerability, because of its ongoing dependence on the maritime delivery of its oil and gas imports. This dependence comes at a time of declining US ability to project power to protect or — through strategic influence — ensure security of supply from, say, the Gulf of Guinea or the Middle East. Declining US strategic reach has already ensured the loss of control over, for example, Central Asian/Caspian oil and gas supplies. Part of the changing fossil fuel logistical framework which will affect the strategic balance — apart from the exploitation of shale deposits in Europe, North America, and elsewhere — will be the clarity which will begin to emerge during 2012 in the future importance of oil and gas fields being developed in the Eastern Mediterranean. This will be a major driver in determining the economic creditworthiness (and therefore eurozone reliability) of the South-Eastern European countries such as Cyprus and Greece and, potentially, Italy. This will be a significant factor in the strategic behavior of Turkey, which is now seen as being outside the European Union bloc, and which is struggling to retain a major role in the energy marketplace. It lacks control over viable energy fields, and its influence over Central Asian/Caspian energy transportation to European markets (or even to the Mediterranean transshipment market) is, in relative terms, declining. Turkish economic fragility is, as a result, beginning to show, and this has generated an “equal and opposite” rise in Turkish strategic adventurism, designed to ensure a re-growth of neo-Ottoman influence over the Levant (particularly Syria and parts of the Palestinian Authority) and even Egypt. This adventurism seems likely to come to a head in 2012, even though the current Turkish Islamist political leadership is unsure how to effectively realize its adventurism given its concern over the reliability and loyalty of the Turkish Armed Forces to support an approach which goes so strongly against the secularist Kemalism of the Armed Forces. The growing uncertainty of hydrocarbon supplies from the Persian Gulf, North Africa, and the Gulf of Guinea has sent the EU into an even greater reliance on Russia-origin and Russia-dominated for its energy supplies. What started as an economic driven default option will keep evolving in 2012 into a grand-strategic transformation. Brussels’ ambivalence about continued reliance on the NATO-based Euro-Atlanticism versus shift to the Mackinderian “Common Eurasian Home” doctrine advocated by Berlin and Moscow will be decided in favor of the latter, primarily on energy supply grounds and irrespective of the brewing political instability in Russia. Cognizant, the Kremlin will increasingly trade artificial lowering of energy price for Europe’s political-strategic pliability. This realignment will have major impact on the EU’s policy in key issues outside the immediate bilateral relations such as interventionism in third-party conflicts on the European periphery. The strategic impact during 2012 of new energy-related technologies, apart from shale cracking, which will be worth watching are those related to energy transmission and storage. On the one hand, fixed, terrestrial electricity grids will become more efficient through interactive energy management computing, but at the same time they will become strategically more vulnerable, as noted repeatedly by this writer. On the other hand, 2012 will see a growth in the development to strategic scale (a significant change) of viable storage devices — batteries — which can act as stand-alone support for increasingly efficient local communications and computing networks, and be sustained by the newly-strategic-scale solar power technologies. It is the growth of these self-sustaining local networks which will serve as the guarantor of stability in the event of widespread interference with conventional terrestrial grids by natural disasters or human-sponsored disruptions. 3. Strategic Recovery by the US. The US will not, in 2012, show signs of any recovery of its global strategic credibility or real strength. Its manufacturing and science and technology sectors will continue to suffer from low (even declining) productivity and difficulty (for political reasons, primarily) in capital formation. A significant US recovery is not feasible in the timeframe given the present political and economic policies and impasse evident. US allies will, as they did in 2011, increasingly look to their own needs while attempting to sustain their alliance relationship with the US to the extent feasible. Those outside the US alliance network, or peripheral to it, will increasingly disregard US political/diplomatic pressures, and will seek to accommodate the PRC or regional actors. The continued economic malaise of the US during 2012, even if disguised by modest nominal GDP growth, will make economic (and therefore strategic) recovery more difficult and ensure that it will take longer. In any event, the fact that the US national debt exceeds the GDP hollows the dollar and thus makes meaningful recovery impossible. The attractiveness of a low dollar value in comparison to other currencies in making US manufacturing investment more feasible than in recent years is offset by declining US workforce productivity and political constraints which penalize investment in manufacturing, or even in achieving appealing conditions for capital formation. Banks are as afraid of such investment as are manufacturing investors themselves. 4. EU/Eurozone Prospects. The unwillingness of eurozone leaders Germany and France to decouple economic and financial issues within the currency zone will continue to extract a growing cost on the Continental European economies. This, potentially coupled with a plateauing of demand from the PRC and India (among others) for German manufactured goods, could bring the eurozone to a period of stagnation. The option of a break-up of the eurozone, and the reversion to national currencies by some euro states (such as Greece, Italy, Spain, Ireland, Portugal [the PIIGS states], etc.) may be dampened by the fact that such a move may not address the underlying fiscal structures. But tempers are fraying within the EU, and moves toward the creation of Europe as a nation-state have slowed commensurately. Indeed, the desire for EU unity seems mainly driven by German and French fears of a return to 19th and 20th century nationalism and its potential to generate military competitiveness on the Continent. Claims that this fear is no longer a factor in German and French desires to sustain the eurozone miss the visceral underpinning of Franco-German policy in this regard. In the meantime, EU strategic projection has also come, in relative terms, to a standstill, and those EU and other European states active in the Coalition war in Afghanistan are anxious to withdraw from that engagement and to reduce military costs as rapidly as possible. All that this will do will be to further reduce the EU’s diplomatic influence on Turkey, the Middle East, Africa, and on global issues. 5. Iran-US-Israeli Military Engagement. 2011 drew to a close with Iran, the US, and Israel posturing themselves confrontationally over the question of Iran’s pursuit of an indigenous nuclear weapons production capability. All parties to the disagreement have postured themselves badly, through diplomatic bluster, and find the search for face-saving difficult. Equally, there is a distinct lack of understanding of each of the players by each other. The reality, however, is that military solutions to the crisis are not feasible given the lack of sufficient military and economic resources available to any of the parties, including the US. By withdrawing unconditionally from Iraq and turning against Bahrain at the height of the Iran-sponsored turmoil, the US effectively demonstrated to friends and foes alike that, rhetoric to the contrary notwithstanding, that Washington was no longer committed to the Greater Middle East as a zone of vital interests. This may mean that any “military confrontation” between any of the players would — ideally for all parties — be limited to a short, sharp jab or series of jabs, without getting into major strikes against significant land targets. Symbolism in engagement would be the order of the day, allowing honor to be satisfied on all sides. Indeed, a US naval confrontation with an Iranian naval element in or near the Straits of Hormuz might even obviate any need for an Iranian-Israeli spat. Iran has been careful to ensure that any provocation of Israel in direct terms up to this point has been via HizbAllah elements in Lebanon, and even this option is less secure for Iran in the opening months of 2012 given the instability of Iran’s major conduit to HizbAllah, Syria. Any engagement of forces between any of these players is high-risk, however, given the prospect of a misstep, or over-reach, by a politician for whatever reason. The matter is further dampened by the knowledge in US policy circles — tangentially confirmed by the US Director of National Intelligence (DNI) at the beginning of 2011 — that Iran already had a number of nuclear weapons acquired since about 1991 from a number of international sources. Given that the US and Israel have “pledged” never to allow Iran to acquire nuclear weapons, any open acknowledgement of the reality of Iranian nuclear weapons possession either invites the US or Israeli governments to take decisive military action against Iran, or look foolish. The answer has been — as it was with the US denial of North Korean nuclear weapons possession for so many years — to pretend the evidence does not exist, but to act cautiously nonetheless. 6. The Arab “Spring Break”. Concerns over the positive or negative prospects for “democracy” in the Middle East as a result of the rash of examples of popular unrest (Egypt, Tunisia, Libya, Yemen, Bahrain, Syria) should be seen in the light of the removal of a firm superpower authority figure in the region following the collapse of the Cold War and subsequent decline of the US. They should also be seen in light of the reality of the maturing and stagnation of some of the political systems which did not have the flexibility and legitimacy of traditional systems. The very peaceful and stable transformation of Morocco in 2011 — with a new Constitution and subsequent parliamentary elections — showed the value of a respected, historical leadership and governance process which was inherently rooted in local values. But how the governance systems evolve in Egypt and Syria, in particular, and also elsewhere in the region, is of strategic importance, but the process is natural and inevitable, and the US and Europe have demonstrated in the past few years that they are unwilling and incapable to influence events. The PRC and Russia lack the capability to enforce any outcomes in the region, and Iran has an influence by virtue of being such an overwhelming presence in the Persian Gulf. Indeed, what happens in Syria is also of profound concern for Iran and its rise or fall as a major regional power. This, and some of the other disputes, highlights the competition which runs parallel to the cooperation between Iran and Turkey. Not unrelated to this is the tenuous nature of the attempt by the Turkish political leadership’s bid to rebuild the neo-Ottoman status of Turkey in the Levant and Eastern Mediterranean, the Greater Black Sea Basin and Balkans, and Eastward into the Caspian Basin and Central Asia. Turkey has also strongly promoted itself as a patron of the Arab states, on the Arabian Peninsula, as well as of Egypt. But memories of the Ottoman domination of the region are not merely reposited in Turkish minds; they are also, with negative connotations, embedded in the minds of their former subject peoples. So Turkey’s bid for major regional power status seems likely to come to a head in 2012, possibly through forced attempts to change the leadership of Syria on Turkey’s terms, or through confrontations with Israel and Cyprus (and possibly Greece) over Eastern Mediterranean energy deposits and maritime boundary claims. The beginning of 2012 finds Iran desperately fighting the formation of a Sunni Turkish-Saudi Arabian bloc which, if successful, would reverse and contain the historic ascent of Shi’ite Iran and its consolidation of hold over Iraq, Lebanon and parts of Syria; that is, consolidating a Shi’ite land-bridge to the shores of the Mediterranean. In recent months, as the tectonic shifts in the Greater Middle East were becoming more pronounced, Tehran has repeatedly used the specter of US-Iranian rapprochement and Iranian tacit facilitation of the safe withdrawal of US troops from neighboring Iraq, the Persian Gulf, and Afghanistan as inducement for the US to not side with the Sunni bloc led by Turkey and Saudi Arabia. Because of these higher priorities, Tehran elected to lick its wounds and refrained from escalating the Shi’ite insurrection in Bahrain even though Tehran definitely has the capacity to do so at will. In 2012, Tehran will remain confounded by the contradictory US policy toward Iran and the Middle East. On the one hand, the Obama White House continues to project great interest in rapprochement with Tehran over Iraq, Afghanistan, and the Persian Gulf, as well as willingness to compromise over Iranian influence in post-Mubarak Egypt and post-Qadhafi Libya. The Obama White House is also the primary supporter of tiny Qatar’s ascent as a regional interventionist Islamist power which seeks to enshrine regional stability by assisting the formation of jihadist types of government with which Iran can co-exist, first in Libya and now in Syria. On the other hand, the Obama White House remains committed to the political ascent of the Muslim Brothers (Ikhwan al-Muslimin) and the Turkish Islamists who are anti-Shi’ite. Moreover, the US supports the Syrian opposition and urges Turkey to topple the Assad Government in the name of demography-based-democracy: that is, the ascent of a Sunni-Islamist government in Damascus. Hence, while it seems to be too late to reverse the US encouragement of, and commitment to, the Turkish-Saudi Sunni bloc, the zealous unleashing of an all-out “anti-Iranian” campaign in this context is filled with great danger. Any military attack on Iran would result in a region-wide conflagration which would include Israel. This would play into the Mahdivists’ hands. Irrespective of the extent of the Arab military defeat, the real winners would be the Islamists-jihadists who would rise to power in the name of redeeming Arab-Islamic honor from the failed and now defeated Arab nationalism and statehood. The US penchant to encourage and exploit the ascent of Sunni-Islamist blocs in the Middle East (Turkey-Saudi Arabia-Egypt) and South Asia (Pakistan-Afghanistan) in order to stifle Iran might pressure Tehran but would also result in the radicalization of Central Asia and the soft underbelly of Russia to the detriment of vital Western interests such as what remains of its access to the region’s energy resources. 7. A Return to Chaos in Nigeria. What happens in Nigeria affects the global energy market, and the strategic stability of the EU and the US, and other states. By the beginning of 2012, Nigeria was falling rapidly toward civil war, or at least uncontrollable insurgency, and there seems little which Nigeria’s major trading partners can do to prevent the slide. Indeed, for the first time since the Nigerian Civil War of 1967-70, Nigeria is facing the prospect of a polarizing north-south schism. The experience of the Civil War is imprinted on the minds of older Nigerians, and so, too, is the basic framework to avoid a repetition of that war. But Pres. Goodluck Jonathan — who came to office from the “South-South”, the oil-producing Niger Delta region, with the promise of an ability to heal north-south divisions — has exacerbated the security situation in Nigeria by promoting a political culture bedeviled by two principles: corruption and indecisiveness. Increasingly, there has been talk of the military removing Pres. Jonathan as a means to prevent a new civil war, but the former Army Chief of Staff and former National Security Advisor, Lt.-Gen. (rtd.) Aliyu Mohammed, has been a voice calling for constraint and legal solutions. As the situation now stands in Nigeria, no Western power has the capacity to intervene militarily to stave off a further security decline in the country, but the US and other allies have been attempting to help train Nigerian security forces to do the job. This, in fact, is unlikely to work, but Nigerian security and military agencies could do the job under the right leadership, and — as US and European officials know — this is Gen. Mohammed. But Gen. Mohammed, a strict democrat, will not countenance an unconstitutional military intervention in government. Hence the only solution in Nigeria would be for Pres. Jonathan to be forced into making the decision he has constantly promised to make: to put Lt.-Gen. Mohammed into a super ministerial portfolio with authority to address the crisis. Here we see the fate of the stability of the Gulf of Guinea — emerging as perhaps the most important fossil fuel export zone in the world after Russia and the Middle East — hinging on the inability of a single man, Goodluck Jonathan, to make a decision: a corrupt and inept politician in fear of an honest and capable figure. 8. Stability on the Korean Peninsula. All indicators point to the probability that the new leadership of the Democratic People’s Republic of (North) Korea (DPRK), under Kim Jong-Un, will pursue a cautious (albeit with strong propaganda) policy toward adventurism on the Korean Peninsula for much or all of 2012. The new DPRK Administration can be expected to make some significant image-building initiatives, such as missile launches, and possibly even a further demonstration of a nuclear weapon, to demonstrate deterrence to the US and the Republic of Korea (RoK) and to demonstrate that Kim Jong-Un and his military team are firmly in control. However, the major cause for concern would be if the political transition and economic factors triggered popular unrest in the country. But this is not anticipated. There are many major issues which run beneath the surface, or in parallel, with these short-term trend issues. For example, PRC Pres. Hu Jintao will step down from the Presidency in 2012, and this will trigger a new era in Chinese politics. This transfer of power, like the US Presidential and Congressional elections later in 2012, will be of enormous long-term significance, but these changes are part of the evolving continuum. The watershed changes — such as transforming energy patterns, or the changes in the way most wars are likely to be fought over the coming decades — are, however, the ones which should figure strongly when analyzing global risks and opportunities. It is worth bearing in mind that 2012 is not expected to be a year of “big wars”, largely because most societies in the world are at a point where they lack the basic resources to sustain such activities on an inter-state scale. This will not prevent “short, sharp wars”, or clashes between sovereign powers, and the danger always exists that these can escalate, regardless of the preparedness levels or economies of the parties. The potential for clashes between Turkey and Israel or Cyprus, or the potential for a clash between Iranian and US forces fall into this category. But, conversely, a greater likelihood exists that the depressed, or even desperate, economic and social conditions of some states will exacerbate domestic unrest to the point of civil war. Nigeria falls into this category, but so do many other states. Indeed, the domestic situation in Pakistan is itself delicate, but also (as with Nigeria) potentially ripe for stabilizing actions by the domestic players. The strategic consequences of an implosion in such states as Nigeria or Pakistan are profound, and, as noted earlier in this report, the “major powers”, such as they are at the moment, cannot think of intervening in their conventional heavy fashion if they hope to stabilize the situations. This is a year which will call for greater skills than those required in the Cold War era, or even the post-Cold War age of wealth. It is a year of Great Power Impotence. Analysis. By Gregory R. Copley, Editor, and Yossef Bodansky, Senior Editor, GIS/Defense & Foreign Affairs.