StratforAnnualForecast2016

December28,2015
WitholdgeopoliticalrealitiesresurfacingacrossEurasiaandcommoditypricesstuckinaslump,2016is
shapinguptobeanunsettlingyearformuchoftheworld.
AlogicalplacetobeginisthecountrythatbridgesEuropeandAsia:Turkey.ThisistheyearwhenTurkey,
nervousbutmorepoliticallycoherentthanitwaslastyear,willlikelymakeamilitarymoveintonorthern
SyriawhiletryingtoenlargeitsfootprintinnorthernIraq.TurkeywillnotonlyconfronttheIslamicState
butwillalsokeepKurdishexpansionincheckasitraisesthestakesinitsconfrontationswithitsold
rivals,RussiaandIran.
ThelastthingRussiawantsisaconfrontationwithTurkey,thegatekeepertotheBlackand
Mediterraneanseas,butconfrontationissomethingitcannotavoid.Russiarisksmissioncreepthisyear
asitincreasesitsinvolvementontheSyrianbattlefield.ButtheIslamicStatewillbeonlypartof
Moscow'sfocusinSyria;RussiawilltrytodrawtheUnitedStatestowardacompromisethatwouldslow
aWesternpushintoRussia'sformerSovietspace.TheUnitedStateswillbewillingtonegotiateon
tacticalissues,butitwilldenyMoscowtheleverageitseeksbylinkingcounterterrorismcooperationtoa
broaderstrategicdiscussion.TheU.S.administrationwillworkinsteadtoshoreupEuropeanalliesonthe
frontlineswithRussia.
Regardlessoftheparticipants'secondarymotives,anintensifiedmilitarycampaignagainsttheIslamic
Statewillsurelydamagethemilitantgroup'score.However,thefledglingcaliphatewillnotbe
eradicatedthisyear.AlackofreliablegroundforceswillhampertheantiIslamicStatecampaign.And
themoretheIslamicState'sconventionalcapabilitiesweaken,themoreactivelythegroupandits
affiliateswilltrytoconductterroristattacksoutsidetheMiddleEasttomaintainitsrelevance.Thisin
turnwilldrivecompetitionwithinthejihadistlandscapeasalQaedafactionsintheArabianPeninsula,
theMaghreb,WestAfricaandSouthAsiatrytokeeppace.
ThejihadistthreatwillfuelIslamophobiaintheWestandcatalyzethefragmentationofEurope.Border
controlsandcallsforpreservingnationalidentitywilldilutetheEUprincipleofallowingfreemovement
ofpeople.ClosedborderswillcreateabottleneckofmigrantsintheWesternBalkans,aregionalready
rifewithethnicandreligioustension.ButthemainstoryinEuropefor2016willcenteronFranceand
Germany,thetwopillarsoftheEuropeanUnion.Bothwillbepreparingfor2017elections,andbothare
leaninginamorenationalistandEuroskepticdirection.Overtime,Germanywillbecomemore
outspokenandmuchlesswillingtocompromiseonmattersofEUintegration.
Thecontinuationofquantitativeeasingandanotheryearoflowoilpriceswillhaveapalliativeeffecton
thedeeperfrictionsinEuropeasglobalcommoditymarketscontinuetosuffer.TheadditionofIranianoil
tothemarketinthefirsthalfoftheyearwilloffsetadropinU.S.production.AnychangetoSaudi
Arabia'soiloutputwouldcomelaterintheyear,afterRiyadhhasassessedthepriceimpactfromIran's
returnaswellastheeffectonU.S.shaleproducers.AnyattemptbyRiyadhtocoordinateadropin
productionwithKuwaitandtheUnitedArabEmirateswouldcomeonlyafterthisassessment.Regardless
ofIran'simpact,SaudiArabiawillstillbepreparedtotakeonmoredebtanddrawdownreservestocope
withlowoilprices.
Chinawillnotbringaboutreliefincommodityprices,either.ConsumptiongrowthwillslackenasBeijing
strugglestoimplementreformsamidgrowingdissentamongthePartyelite.EvenasBeijingfacesthe

threatofpartyfactionalization,itwillstillhaveenougheconomichefttoofferincentivestoSoutheast
AsianstatestocounterbalanceastrongerU.S.securitypresenceintheregion.
LowcommoditypricesandrisingU.S.interestrates,whichaffectcurrencies,willalsospellanother
difficultyearformuchofLatinAmerica.ThethreatofimpeachmentwillhangoverBrazilianPresident
DilmaRousseffandfurthersourtheinvestmentclimateinBrazilintheshortterm.Argentinamayhavea
new,reformmindedpresident,buthisstrugglewithhighinflationandforeigncurrencyshortagesmeans
anymovestosettledebtandtoraiseprotectionistmeasureswillbelimited.InVenezuela,theendof
Chavismoisnear.AnembattledUnitedSocialistPartyofVenezuelawilleventuallysplinterunder
growingpoliticalandeconomicpressure,andthecountryrisksdefaultingonitsforeigndebtthisyear.
Thedefiningeventsof2016willraiseapprehensionaroundtheworld,leadingintowhatwilllikelybean
evenmoretumultuous2017asanarrayofdevelopingconflictscomesintosharperfocus.Theessential
thingtobearinmindisthatallthesetrendsareconnected.TheU.S.Russiastandoff,surgingnationalism
inEurope,Turkey'sreemergenceandothergeopoliticalcurrentswilltieintoandfeedoffofone
another.Wewillkeepoureyesfixedonthebiggerpicturein2016,forthereisamuchmorecomplex
onedevelopingin2017.
Europe
GermanyandFranceMovetotheRight
ThiswillbeatransitionyearforGermanyandFrance.Bothcountrieshaveelectionsin2017,and
politicallybotharemovinginamorenationalistandEuroskepticaldirection.Thefoundationofthe
EuropeanUnion,theFrancoGermanrelationship,willshowsignsofcrackingastheinterestsofParisand
Berlininevitablybegintodiverge.GermanywillopposeFrance'sproposalstodeepencontinental
integration(especiallyamongeurozonecountries)andincreasespendingacrossthebloc.Berlinand
PariswillfinditincreasinglydifficulttofindcommongroundonmeasurestoprotecttheEuropean
Union.
GermanChancellorAngelaMerkelwillcomeunderpressureasdivisionswidenbetweenconservative
andprogressivemembersofhercoalition.RegionalelectionsinMarchwillserveasapopularitytestfor
Merkel'sChristianDemocraticUnion.Shouldherpartyperformpoorlyintheelections,callsforher
resignationwillgrowlouder.
Thankstopressurefromtheconservatives,bordercontrolswillremainfrequent,andBerlinwilllookfor
waystopreventpeoplefromarrivinginGermany.TheconservativeswillalsocompelBerlintotakea
tougherstanceonGreece,especiallybecauseAthens,inanefforttoavoidsocialunrest,willdragitsfeet
inenactingeconomicreforms.
GreeceRemainsTroubled
InGreece,thegovernmentofPrimeMinisterAlexisTsiprasfacestwomainproblems:politicalfragility
andsocialunrest.TheGreekeconomyhasanotheryearofnegligiblegrowthandextremelyhigh
unemploymentaheadofit.Thiswillleadtorepeatedprotestsandfrequentconflictswithinthe
government,whichinturnwillforcetheadministrationtoslowtheprocessofreform.
AcollapseoftheGreekgovernmentcannotberuledoutbecauseTsiprasleadsonlyaverysmall
parliamentarymajority.However,theGreekestablishmentwantstoavoidearlyelections,soevenifthe

governmentfell,itwouldbereplacedbyatechnocraticorcoalitiongovernmentthatwouldstillbeable
toapprovelegislation.
In2016,Greece'smainthreatwillbesocialunrest,notdebtrepayments.Arepeatofthe2015crisis
seemsunlikelybecauseGreecedoesnotfaceaparticularlypressingcalendarofdebtmaturities.This
meansthattheriskofaGreekdefaultorexitfromtheeurozoneislowerthanin2015.ButGermany's
tenacityandGreece'sresistancewillmakeeverybailoutreviewtense,andnegotiationsoverpotential
debtreliefwillprobablybedelayeduntillate2016.WedonotexpectGreecetoexittheeurozonein
2016,butGreece'sproblemsarefarfromresolved.Increasingresistancetoreforms,initiallyamongthe
publicbuttheninthepoliticalsphereaswell,setthecountryupforanotherinevitableconfrontation
withitscreditorsdowntheline.
PoliticalFragilityinSouthernEurope
InPortugal,afragilecoalitionofleftwingpartieswillstruggletoremaininpower,andearlyelectionsare
likely.FollowingDec.20elections,Spainwillspendthefirstweeksoftheyeartryingtoforma
sustainablegovernment.Anagreementwillfinallybereached,butSpain'slimitedexperiencewith
coalitiongovernmentswillmakedecisionmakingslowandcumbersome.
NeitherPortugalnorSpainwillreturntothefinancialinstabilitythatdefinedtheearlyyearsofthe
Europeancrisis.Mostofthemainpoliticalpartiesinbothcountriesarepromarketanddefendthe
membershipoftheircountriesintheeurozone,sopoliticalfrictionswillnotleadtoadramaticchangeof
directioninLisbonorMadrid.Inaddition,acombinationoflowoilpricesandtheEuropeanCentral
Bank'sinterventionindebtmarketsshouldpreventanescalationoftheeconomiccrisisintheIberian
Peninsula.
However,bothcountrieswillprobablyreversesomeofthereformsthatwereappliedbytheir
predecessors.Inthelongrun,thiswillrecreatetheconditionsthatledtothecrisisinthefirstplace.The
behaviorofcountriesinMediterraneanEuropewillalsomaketheEuropeanCommissionincreasingly
ineffective.
InItaly,thegovernmentofPrimeMinisterMatteoRenziwillseekabalancebetweenintroducing
economicreformsandincreasingpublicspending.OneofthemainchallengesforRomewillbethe
introductionofreformsinthepensionsystemtomakeitmoresustainable.Italywillalsoholda
referenduminthesecondhalfoftheyearontheconstitutionalreformsthatwereapprovedin2015.
Renziwillcontinuetodealwithresistancewithinhisownparty,buttheprimeministerwillprobably
managetomakehisreforms.Akeyeventtowatchforin2016istheevolutionofthecenterrightas
conservativeandEuroskepticalforcestrytoformacommonfronttocompeteinthenextelections
(whicharetechnicallyscheduledfor2018butwillprobablyhappenbeforethen).Italy'sunderlying
economicsituationwillcontinuetodeteriorate;Romewillincreasespendingwhilefailingtodealwithits
debtproblems,creatingproblemsforitself(andEurope)inthenearfuture.Butalthoughincreasingly
troublesomeindicatorsarelikelytoarisesuchasratingagencydowngradesorintensifyingproblems
intheItalianbankingsectornosystemiccrisisisexpectedin2016,mainlybecauseoftheEuropean
CentralBank'songoingbondbuyingprogram.
TheBritishQuestion

Oneofthemainissuesin2016willbetheBritishreferendumonEUmembership.Thevoteisexpectedin
late2016orearly2017.SomeofLondon'sproposalsforEUreform,suchasreducingredtapeand
increasingcompetitiveness,areuncontroversialandarelikelytoproduceanagreementamongmember
states.TheUnitedKingdomwillprobablyalsobepromisedprotectionfornoneurozonecountries
againstmeasuresthataffectthecurrencyunion,andLondonwillevenreceivetheabilitytooptoutof
theconceptofan"evercloserunion."TheUnitedKingdom'spushtoreduceinworkbenefitsfor
immigrantswillprovemoretroublesomeandwillrequireLondontocompromise.
London'sproposalsforEUreformwillproducedifferentalliancesoverdifferentissues.Somecountries,
includingtheNetherlandsandPoland,willsupportthedemandstogivenationalparliamentsvetopower
overEUlegislation.Othercountries,mostlyinNorthernEurope,willsupportthedemandstorestrict
accesstowelfareforimmigrants,butcountriesinCentralandEasternEuropewillresistthem.Countries
inCentralandEasternEurope(specificallyPoland,HungaryandRomania)willdefendpoliciestoprotect
noneurozonecountriesfromeurozonedecisions.
Asaresult,BritishPrimeMinisterDavidCameronislikelytomakecompromisesandpresentthemasa
politicalvictoryathome.ThoughopinionpollsshowverydifferentresultswhenitcomestoBritish
citizens'viewofEUmembership,LondonwilltrytokeeptheUnitedKingdominthebloc.Ifthereisa
referendumontheissuein2016,the"in"sidewillwin.
TheMigrationCrisisRisksReignitingtheBalkans
Theimmigrationcrisiswillcontinueitscyclicalbehavior:Duringtheearlymonthsoftheyear,cold
temperaturesandbadweatherwillprobablyleadtoareductionintheinflowofpeopleintoEurope.The
flowwillincreaseassummerapproaches,butasylumseekerswillfindadifferentEuropein2016.Border
controlswillbecomemorefrequent,andcountriesalongthesocalledBalkanrouteswillbelesstolerant
ofimmigrantscrossingtheirterritories.Forthefirsttimesinceitscreation,theSchengenAgreementwill
notendtheyearasitbeganit;eitherfreemovementwillbesomewhatconstrained,orfewercountries
willbemembers.
Asaresult,asylumseekerswillfindithardertoreachNorthernEurope.Someofthemwillbeforcedto
lookfornewrouteswhileotherswillbestuckintheWesternBalkans.Thiswillincreasetheprobabilityof
violenceintheregionassomepeoplebecomeinvoluntaryimmigrantsincountriesalreadyexperiencing
highunemployment,ethnictensionandfractiouspolitics.
TheEasternFront
2016willbeintenseforPolandandRomania,thelargestcountriesontheeasternEUborder.InPoland,
theconservativegovernmentwillpushtheEuropeanUniontomaintainahardlinestanceonRussiaand
willcriticizeGermany'shandlingofEUissues,includingimmigrationandrelationswithMoscow.Berlin
willarguethattheMinskpeaceagreementisnotbeingcompletelyrespectedandwillpressureSouthern
EuropeancountriesthathavemoreflexiblerelationswithRussiatocontinuethesanctions.Atthesame
time,BerlinwilltrytoprotectitsenergytieswithMoscow(forexample,bydefendingtheNordStream2
project),whichwillantagonizeGermany'seasternneighbors.
PolandwilldemandagreaterNATOpresenceinCentralandEasternEuropewhiletryingtodevelop
strongertieswiththeVisegradGroup(whichalsoincludesHungary,theCzechRepublicandSlovakia)
andRomania.AsPolandbecomesmoredistantfromBrusselsandBerlin,itwilldrawclosertothe
VisegradcountriesandoccasionallytheUnitedKingdom.Warsawwillalsomakecontroversialmovesat

home,suchasloweringtheretirementageandcreatingspecialtaxesonsectorssuchasbanksand
supermarkets.ThesepolicieswillinvitecriticismfromboththeEuropeanUnionandforeigninvestors.
InRomania,thetechnocraticgovernmentwillhaveanauspiciousstartbutwilllosesteamovertime.
BucharestwillremaincommittedtoitsalliancewiththeUnitedStatesanditsmembershipinNATOand
theEuropeanUnion.RomaniawillalsocontinuetosupportMoldova'spathtoEUaccessionandmaintain
acoldrelationshipwithRussia.However,politicalsupportforthegovernmentwillerodegradually,
especiallyasthepartiesthatsupportthetechnocraticadministrationbeginmakingtheirown
calculationsaheadofthegeneralelectionsinDecember.
CountriesalongtheEuropeanUnion'seasternborderwillspend2016tryingtoimproveregional
cooperationandtoboostNATO'sengagementinthearea.DuringaNATOsummitinWarsawinJuly,
PolandandotherswillrequestapermanentNATOpresenceinEasternEurope.Somemembersofthe
alliance,mostnotablyGermany,willresistthisidea,aswillsomeCentralandEasternEuropeancountries
thatprefertosticktotrooprotationsastheytrytomanagerelationswithMoscow.
FormerSovietUnion
ABroadStandoffEndures
ThestandoffbetweenRussiaandtheWesthasbeencentralinshapingtheglobalsystemforthepast
twoyears.Stratforexpectsittostayinplacein2016,thoughthelevelsofconflictandpotential
cooperationwillwaxandwanefromissuetoissue.ThewarineasternUkraineislikelytobecomealong
termfrozenconflict,withfightinglessintensethanthatseenin2015butperiodicskirmishescontinuing
betweenUkrainiansecurityforcesandRussianbackedseparatists.TheMinskProtocolwillcontinueto
serveasthebackboneofdiplomaticnegotiations.However,Russiaandtheseparatistshaveadifferent
interpretationoftheMinskagreement'spoliticalcomponentsthanUkraineandtheWestdo,andthese
differenceswillpreventabroaderpoliticalandmilitarysettlementfrombeingreachedin2016.
Moreover,theUnitedStatesandtheEuropeanUnionarealmostguaranteedtokeepsanctionsagainst
Russiainplacethisyear,unlessMoscowproveswillingtorelinquishaccesstoandcontroloftheborder
betweenRussiaandtheseparatistterritoriesandallowmonitorsfromtheOrganizationforSecurityand
CooperationinEuropeintoDonbas.Moscowisunlikelytogiveinoneitherissue.
Inthemeantime,RussiaandtheWestwillcontinuefastpacedmilitaryexercisesandweaponsbuildups
focusedontheEuropeanborderlands.NATOwilladdtroopstoitsrotationaldeploymentsinCentraland
EasternEurope,andRussiawilladdairanddefenseassetsinareassuchasBelarusandKaliningrad.
TherewillbenodirectmilitaryconflictbetweenRussianandNATOforces,butbothsideswillbuildup
deterrencecapabilitiesandshoreuptheirrespectivesecurityalliances.
RussiawillcontinueitsmilitaryinvolvementinSyria,whichwillcomplicateitsrelationshipswithTurkey,
theUnitedStatesandEurope.Russiawillcoordinatewiththesepowerstodeconflictthebattlefield,
particularlyregardingcooperationagainsttheIslamicState,althoughMoscow'sreinforcementofSyrian
PresidentBasharalAssad'sgovernmentwillentailtargetingSunnirebelsandrunstheriskofmission
creep.Russia'sroleinSyriawillmostnotablyundermineitsrelationshipwithTurkey.AsTurkeydraws
closertoitsNATOallies,MoscowwillbecautiousinhowfarittakesitsconfrontationwithAnkara.The
twocountrieswillenacttitfortattraderestrictionsanddelayjointenergyprojects.Bothcountrieswill
alsocompeteforinfluenceintheCaucasusparticularlyinAzerbaijanandtrytoshapethetalksover
theNagornoKarabakhdispute.

RussiaFocusesonSecurityandtheEconomy
TheRussianeconomywillcontinuetobeamajorpriorityforMoscowin2016.TheKremlinhastaken
stepstoinsulateitfromtheeffectsoftheWesternsanctions,includingseekinginvestmentfromRussia's
neighborstotheeast,usingRussianbanksforfinancingandpostponinglargeprojectsthatrequireeither
foreigninvestmentortechnologyrestrictedunderthecurrentsanctions.Russiaprobablycanwithstand
anotheryearofsanctions,butbeyond2016theywilljeopardizethecountry'sfinancialstabilityand
abilitytomaintaincurrentlevelsofenergyproduction.Therefore,outofnecessity,Moscowwillbemore
accommodatingwithitsWesternenergycontractsin2016asitworkstoincreaseenergytieswiththe
eastbyprioritizingregionalpipelineintegrationprojects,suchastheEasternGasProgramandthe
EasternSiberiaPacificOceanoilpipeline.
EconomicgrowthinRussiawillberelativelyflat;theRussianMinistryofEconomicDevelopmenthas
forecastgrowthof0.7percentfor2016.TheeconomicdeclinethatsentRussiaintoarecessionwillslow,
aswillcapitalflightanddropsinindustrialproduction.MajorRussianindustrialfirmswillhavefewer
internationaldebtpaymentsduein2016($16billion,comparedtomorethan$30billionin2015).This
willmakeiteasierforthesefirmstoreceivefinancialassistancefromthegovernmentortobroker
assistancefrommajorRussianbankstorestructuretheirdebts.Therubleisexpectedtoremainvolatile;
theRussianCentralBankintendstostepinonlyperiodicallytosupportthecurrency.Thisvolatilitycould
helpRussianindustrialandenergyfirmswhoseexportrevenuesareindollars,butitwillputfurther
economicstrainontheRussianpeople,whoarealreadyexperiencinghighinflationandrisingpoverty
rates.TheweakrublewillexacerbateRussia'ssocioeconomicissues.Notonlywillthecurrency's
weaknesslimittravelopportunities,butalsothepriceofimportedconsumablesnototherwiseincluded
intheRussianconsumerpriceindexcalculationswillincrease.Thesecircumstancescouldgiveriseto
socialunrestacrosstheincomespectrum,includingmediumandhighincomeearners.
GrowingeconomicpressureswillleadtoprotestsacrossRussia.TheKremlinwillallowminorprotests
relatedtoeconomicconditionstotakeplace,butitwillattempttodefuseanylargeandwellorganized
proteststhattakeonmoreofanantiKremlintone.Moreover,increasedantiIslamicStaterhetoricfrom
thegovernmentcouldfuelanuptickinultranationalistunrestthatculminatesinprotestsand
vigilantismtargetingimmigrantcommunities,similartoincidentsseenin2013.TheFederalSecurity
ServiceswillattempttousethreatsfromtheIslamicStateandotherIslamistmilitantgroupstoexpand
itssecurityandintelligencepowerswithinandoutsideofRussia.Inaddition,aheadofparliamentary
electionsinSeptember,theKremlinislikelytocrackdownonoppositiongroupsandleadersinan
attempttokeepthemfromorganizingamorewidespreadmovement.
InfightingamongmembersoftheKremlinelitewillintensifyin2016.Disputesinvolvingmajorenergy
firms'politicalbackers,theministersoffinance,economyandenergy,andeventhesecurityserviceswill
eruptoverthefutureofRussia'senergypolicies.Pointsofcontentionwillincludefinancialassistancefor
bigenergyfirmsandprojects,whethertoprivatizeRosneft,andthepossibleendofGazprom'smonopoly
onnaturalgaspipelines.Disagreementswillemergeamongthevarioussecurityservicesandmilitary
forcesoverwhoholdstheportfoliosforhandlingtheongoingsituationsineasternUkraine,Syriaand
otherhotspots,anddebateswillariseoverthebalanceofpower,influenceandfinancialresources
amongthesecurityandmilitarygroups.RussianPresidentVladimirPutin'sabilitytomanagethese
disputesisdeclining,whichwillleadhimtorelymoreonultraloyalistswhohavesomedistancefromthe
coreareasofcontention.
Ukraine'sDomesticTroubles

ThepersistentconflictineasternUkrainewillbeonlyoneofmanyseriouschallengesforKievinthenext
year.FarrightandnationalistgroupswillcontinuetounderminetheUkrainiangovernmentandhamper
Kiev'sabilitytofollowthroughwithitspoliticalconcessionstotheseparatists.This,inturn,will
guaranteethatDonetskandLuhanskwillremainbeyondKiev'spoliticalcontrol,thoughcertaineconomic
linkscouldberestoredoutofnecessityforbothsidesoverthecourseoftheyear.
Theunpopularityofpainfulausteritymeasuresandtheslowpaceoflegalandjudicialreformarelikelyto
leadtoasignificantshakeupinKievin2016,potentiallyincludingthereplacementofembattled
UkrainianPrimeMinisterArseniyYatsenyuk.Nevertheless,UkrainianPresidentPetroPoroshenkowill
likelymaintainKiev'sproWestcourse.AccesstoWesternfinancialsupportandsecurityassistancefrom
NATOandtheUnitedStatesinparticulararekeytothesurvivaloftheUkrainiangovernment.
Aftercontracting10percentin2015,Ukraine'seconomywillbegintoslowlyreboundin2016,although
highinflationandunemploymentwillcontinuetospurprotestsandoccasionalunrest.Kiev'seconomic
linkswithMoscowwilllikelyweakenasthetwocountriesdebatedebtrepayments,energyand
electricitysupplies,andUkraine'simplementationofatradedealwiththeEuropeanUnionthattakes
effectJan.1.Tradeinresourcessuchasenergysuppliesandagriculturalgoodswilldeclinebetween
UkraineandRussiaasKievgraduallyreorientsitseconomyandbroaderstrategicinterestsawayfrom
RussiaandtowardtheWest.
PoliticalandSecurityConcernsintheFormerSovietSpace
TheUkrainecrisiswillcontinuereverberatingthroughouttheformerSovietUnionin2016.Belaruswill
graduallystrengthenitseconomictieswiththeWest,butitwillmaintainitsmilitaryandstrategic
alignmentwithRussia.BelarusianPresidentAleksandrLukashenkowillworktoavoidtheestablishment
ofaRussianairbaseinhiscountryinabidtokeepfromcreatingmoretensionbetweenMinskandthe
West,buthispositioncouldchangeifNATObuildsupitspresenceinneighboringPolandandtheBaltic
states.
InMoldova,acorruptionscandallinkedtotheproEUgovernmentwillcreategreatersupportforthe
country'sproRussiaparties,buttheparalysisinMoldova'spoliticalsystemwillensurethatChisinau
remainsdeadlockedontheissueofstrategicintegrationwitheitherRussiaortheWest.TheBalticstates
willmakefurtherstridestowardenergydiversificationawayfromRussiathisyearasinfrastructureand
energylinksarebuiltupbetweentheBalticsandPoland.Thesecountrieswillalsomakemoreprogress
towardregionalsecurityintegration;however,apermanentNATOorU.S.militarypresencetherewill
notmaterializein2016.
GeorgiawillreceivestrongerWesternsecuritysupportintermsofexercisesandinvolvementinthe
country'snewNATOtrainingcenter,butactualNATOaccessionwillremainoffthetable.Georgiawill
increaseitseconomictieswithRussiainareaslikeenergyandtrade,evenasTbilisistaysstrategically
orientedtowardtheWest.
ThelongstandingfrozenconflictbetweenArmeniaandAzerbaijanoverNagornoKarabakhcouldsee
significantchangein2016asRussiatriestopushalonganegotiateddealinvolvingatransferofterritory
toAzerbaijaninexchangeforeconomicandsecurityguaranteesforArmenia.Russia'smovesinthe
southernCaucasuswilldrawgreaterTurkishandU.S.attentionasbothworktocounterbalance
Moscow'sinfluence.IfthetalksoverNagornoKarabakhcollapse,anuptickinmilitaryhostilitiescanbe
expected.Thatsaid,aRussianbrokereddiplomaticshiftbacktothestatusquoismorelikelythanafull
scalemilitaryconflictoverthedisputedterritory.

Arangeofissues,includingongoingeconomictroubles,thereturnofmigrantworkersfromRussiaand
thethreatofrisingIslamistmilitancy,willmakeCentralAsiapronetoheightenedinstabilityin2016.
Economicvulnerabilitieswillforcesomecountries,suchasKazakhstanandUzbekistan,tolobbyfor
majorforeigninvestmentthroughplannedprivatizationprograms.Thoughthismaygarnerminor
interestandinvestment,neithercountryhasundergonethekindofregulatoryreformsthatwould
inspireforeigninvestorstoconfidentlygothere.
GiventheirproximitytonorthernAfghanistan,Uzbekistan,TurkmenistanandTajikistanwillbe
particularlyatriskfromasecurityperspective,thoughthegovernmentsinthesecountrieshavean
interestinplayinguptheIslamistmilitantthreatasareasontocrackdownondomesticopposition
elements.RussiaandtheUnitedStateswillalsohaveanincentivetoemphasizethisthreatasboth
pursuecompetingbordersecurityinitiativesinCentralAsia.MilitarycooperationbetweenAzerbaijan
andKazakhstan,includingjointexercises,willincreaseintheCaspianSeaastheWestcontinuespursuing
alternativeenergyprojectsliketheTransCaspianPipeline.AtaCaspianSeasummitinAstanainAugust,
Russiacouldvoicesupportforworkingtodelimittheseabed,althoughnomajorenergyprojectsare
likelytobeginin2016.
MiddleEastandNorthAfrica
AllEyesonTurkey
Turkeywillbethemostcriticalplayertowatch.Stratforhaslongdiscussedtheforcesbehindand
obstaclestoTurkey'sregionalresurgence.AlthoughAnkarahasencounteredanumberofhurdles,a
morepoliticallysecuregovernmentundertheleadershipofPresidentRecepTayyipErdoganwillbe
muchmoreassertivebeyondTurkey'sbordersthisyear.
TurkeyisalreadypreparingforanoperationwestoftheEuphratesRiverinnorthernSyriatoflushout
IslamicStatemilitantsalongitsborder.InadditiontocounteringtheIslamicState,Turkeywantstokeep
acheckonKurdishexpansioninnorthernSyriaandultimatelywantstocreatea"safezone"forSyrian
refugeeswithinSyria.Turkeyisnotinterestedinabsorbingmoreoftherefugeeburdenforthesakeof
easingEuropeanconcerns,butAnkaradoesintendtouseEuropeananxietyaboutmigrantflowsto
reinforceitsfootholdinEuropeandsecurebackingforitsmilitaryactionsinSyria.TheUnitedStateswill
likelyfacilitateTurkey'sheavyaircampaigninnorthernSyriawhilepursuingasecondoffensivethatwill
relyonmostlyKurdishrebelproxieseastoftheEuphrates.Turkeywillemphasizeitsintenttorely
principallyonSunniTurkmenandArabrebelproxiestoclearandholdtheIslamicStateinfested
territory,butAnkarawillalsohaveacontingencyplanreadyincaseitneedstodeploygroundforces.
Moreover,TurkeyandtheUnitedStateswillworkwithSaudiArabia,theUnitedArabEmirates,Qatar
andpossiblyotherArabcountriessuchasEgyptandJordantoassembleacoalitionforantiIslamicState
operationsinSyria.ThiswilladdmanpowertothecurrentmissionwhilealsohelpingAnkaraavoid
revivingthehistoricalresentmentinherentinreturningTurkishtroopstoArabsoil.
RussiawillbethegreatestcomplicatingfactorinTurkey'splans.TheRussianobjectiveinSyriais
multilayered,andMoscowwillnotstrayfromitspartnershipwiththegovernmentofSyrianPresident
BasharalAssadintryingtoweakentheIslamicState.ThispartnershipmeansthatRussiawillneedto
confrontforcestryingtoweakentheSyriangovernment,includingthearrayofrebelforcesthatthe
UnitedStates,Turkey,SaudiArabia,JordanandQatararerelyingonintheirownfightagainsttheIslamic
State.Russia'sdualtargetingofIslamicStatemilitantsandSyrianrebelswillpreventamorecoherent
coalitionagainsttheIslamicStatefromformingandwillwidenthedividebetweenTurkeyandRussia.

RussiawilltrytoscuttleTurkey'smilitaryplansbyincreasingitspresenceinSyria.Thiswillmainlymean
furtheruseofairassetsovernorthernSyria.Turkeywillnotnecessarilystanddowninthefaceofthis
pressure.Negotiationstodeconflictthebattlefieldarelikely,buttheyalsodonoteliminatethepotential
forskirmishes.AsRussiaTurkeyrelationsvisiblydeteriorate,MoscowwillnotwanttopushAnkaratoo
far.ThemoreTurkeyfindscommoncausewithitsNATOpartners,themorevulnerableRussiawillbein
theformerSovietsphere.
ThedeteriorationoftherelationshipbetweenTurkeyandRussiawillgivetheUnitedStatesandits
partnersinCentralandEasternEuropeanopportunitytodrawAnkaraintoatighteralliance.Neither
TurkeynorRussiacanaffordacompletebreakinrelations,buttradetiesareboundtosufferwhile
strategicenergyprojectsarelikelytoexperiencefurtherdelays.ThiswillgivemoreurgencytoTurkey's
pushtopursueenergyprojectsinAzerbaijanandtheKurdishregionsofIraq.Turkeywillalsobemore
compelledtomakeprogressinnegotiationsoverthereunificationofCyprusinordertoedgeitswayinto
easternMediterraneanenergyprojects.
TheSyrianbattlefieldissplitbetweenadizzyingarrayofcompetitorsandinterests.Thisallbutassures
thatanyattempttoimplementaceasefireorforgeafinalpowersharingagreementwillbeextremely
limited.Theforeignstakeholdersarenowwillingtoincreasemilitarysupportfortheirproxies.Though
thiswillbalanceoutthebattlefield,itwillalsofurtherdecreasetheincentiveforeithersideto
compromisetoadvancenegotiations.
AsTurkeygrowsmoreassertiveintheMiddleEast,itscompetitionwithIraninSyriaandIraqwill
intensify.WhilereinforcingthealAssadgovernmentalongsidetheRussians,Iranwillexploitdivisionsin
theKurdishregionsofIraqtocounterTurkey'seffortstotightenitseconomicandenergylinksin
northernIraqattheexpenseofBaghdad.RussiacouldalsoreviveitstieswithKurdishmilitantfactionsas
aleveragainstAnkara.TurkeywillcommitalimitednumberoftroopstotrainingoperationsforSunni
fightersinnorthernIraq.EvenasTurkeytriestobuildonitsrelationshipwithMassoudBarzani's
KurdistanDemocraticPartytodeepenitsfootholdintheKurdishregionsofIraq,Turkishrelationswith
theKurdistanRegionalGovernmentwillinevitablyrunintocomplicationsasTurkeycontinuestopursue
KurdishrebelswhouseIraqastheirrefuge.
TheIslamicStatePersists
TheIslamicStatecoreinSyriaandIraqwillsuffernotablelossesthisyear,thoughtheaspiringcaliphate
isunlikelytosuffertotaldefeat.TheweakeningoftheIslamicStateasaconventionalforceinitscore
territorywillencourageitsleadershiptocallformoreterroristoperationsintheWestandacrossthe
MiddleEast.AsseenintheParisattacks,hardtodetectgrassrootscellswillcontinuetoposeaserious
threat.Competitionwithintheglobaljihadistlandscapewillalsomotivateattacks,particularlyinthe
Maghreb,ArabianPeninsulaandWestAfrica,wherealQaedanodesaremostrelevant.
IranReturnstotheOilMarkets
MajorMiddleEasternoilproducersareenteringanotherstressfulyearoflowoilpricesandexpensive
foreignpolicycommitments.TheimplementationoftheIrannucleardealatthebeginningoftheyear
willaddatleast500,000barrelsperdaytotheoilmarketfollowedbyaslowerproductionincreaseover
severalmonths.
IranianPresidentHassanRouhaniwilltradeonthesuccessofthenucleardealtocampaignfor
moderatesinFebruaryelectionsfortheparliamentandAssemblyofExperts,whichisthebodyincharge

ofappointingandreviewingtheperformanceofSupremeLeaderAyatollahAliKhamenei.However,it
willtaketimeforIranianstoseethepositiveeconomicbenefitsofthedeal.Khameneicanbeexpected
tousehisinformalinfluenceoverparliamentandtheGuardianCouncil,whichvetscandidatesforthe
elections,tobalanceagainstthemoderates,drivingmorecompetitioninIran'sconservativepolitical
landscape.ThisimpliesgreaterchallengesaheadfortheRouhanigovernmentwhenitcomestolimiting
thepoliticalandeconomicinfluenceoftheIslamicRevolutionaryGuardCorpsasinvestorsmoveinto
Iran.
ThereintroductionofIranianoiltothemarketmakesSaudiArabiaunlikelytosignificantlyscaleback
productioninthefirsthalfof2016todefendthepriceofoil.OnceSaudiArabiahasbeenabletoassess
thepriceimpactofIran'sreturnaswellastakingintoaccountdecliningU.S.productionRiyadh
couldmodifyitsenergyoutputinthesecondhalfoftheyear.However,theSaudi'swillnotbeableto
coordinateasustainableproductioncutwithothermajorOPECandnonOPECproducers.Mostly
becauseoftheirsmallerpopulations,theUnitedArabEmiratesandKuwaitwillhaveaneasiertime
copingwithanotheryearofloweroilprices.SaudiArabia,ontheotherhand,willhavetofinancea
growingbudgetdeficitthroughdebtissuanceswhilemakingsmallandincrementalspendingcuts.
TheNextPhaseoftheYemenConflict
TheSaudiledcoalitionwillcontinuetopushforwardonthebattlefieldinYemenagainstHouthifighters
andforcesloyaltoformerYemeniPresidentAliAbdullahSalehastheyapproacharesolutiontothe
currentphaseofthecrisis.WhetherthisresolutiontakestheshapeofamilitarypushintoSanaaora
negotiatedsettlementaheadofapushwilldependontheresolveonthepartofbothsidestocontinue
thefight.FortheSaudiledcoalitionandYemeniantiHouthielements,adriveintothemountainous
coreofYemenwillmeanaslowintheadvancewithconsiderablecasualtiesandlossofequipment.
Higherlossescouldincreasefrictionbetweenmembersofthecoalition,suchasSaudiArabiaandthe
UnitedArabEmirates,overwhichYemenipartiestosupport.AsYemenmovestowardresolutionofthe
conflict,nonstateactorswillposegreatersecuritythreatswhiletheYemenisecurityapparatusis
weakenedanddistracted.TheSouthernResistanceMovement'sgrowingautonomywillfuelcallsforan
independent"SouthYemen,"movingthecountryalongapathtowardeventualsplitbetweennorthand
south.
Israel'sSecurityDilemmaGrows
AsthefightinSyriabecomesmorecomplex,theIsraeligovernmentwillworktomaintainarelationship
withasmanyplayersonthebattlefieldaspossibletobepreparedforworstcasescenarios.Israelcanbe
expectedtokeepclosetoboththeUnitedStatesandRussiatokeeptabsonthebattlefield.Thecountry
willalsomaintainitsrighttocarryoutairstrikesagainstHezbollahandIslamicStatetargetsnearits
border.Turkey'sgrowingroleintheregionwillcompelIsraeltotrytoimproveitsrelationshipwith
Ankara.
TheIsraeliPalestinianconflictwillbedefinedbyacycleofpersistent,lowlevelPalestinianradicalattacks
intheWestBankandIsrael,whichwillprovokecontinuedlocalretaliationandtheIsraelisecurity
responses.FromitsbaseinGaza,HamaswilltrytoavoidanotherdirectconfrontationwithIsrael,but
Israel'spolicyofholdingHamasresponsibleforendorsingattacks,alongwithattemptsbyafledgling
IslamicStateinGazatogoadHamasintoconflict,couldbroadenIsrael'sinterventioninthePalestinian
territories.HezbollahwillwelcomethesedistractionsforIsraelasthegrouptriestobalanceits
commitmentsinSyriawithdefendingitshometurfagainstpocketsofSunnirebelstryingtoundermine

Hezbollah'sroleintheSyrianwar.AnemergingSaudiIranianconsensusonselectingaLebanese
presidentwillalsohelptodefuseamoreseriousspilloveroftheSyrianconflictintoLebanon.
ADifficultbutManageableYearforCairo
NocrediblechallengetoEgyptianPresidentAbdelFattahalSisi'sholdonpowerwillemergethisyear.
Takingadvantageofloweroilprices,thegovernmentwillproceedcautiouslywithsubsidyreforminan
efforttoshoreupitsfiscalpositionandsecureassistancefromtheInternationalMonetaryFund.The
oppositionwillremainfragmented,enablingthegovernmenttomanagepotentialboutsofsocialunrest.
ApersistentjihadistthreatconcentratedintheSinaiPeninsulabutwiththepotentialtocarryoutattacks
incoreurbanareasofthecountrywilldriveheavydefensespendingandcouldfurtherunderminethe
tourismsector.Russiawillbeabletoleveragethejihadistthreattodeepenitssecurityrelationshipwith
Cairo,thoughtheEgyptiangovernmentwillcontinuetomaintainacarefulbalanceamongitsGulf
sponsors,theUnitedStatesandRussia.Egypt'soffshorenaturalgaspotentialintheeastern
MediterraneanwillspurenergycooperationamongEgypt,CyprusandIsrael.
NorthAfricaFightsInstability
Algeriawillbeundersignificantfinancialstressasitstrugglestocopewiththefalloutfromlowoilprices.
Spendingcutsandselectivetaxincreasesareunavoidable,thoughthegovernmentwillmanagetododge
majorsubsidyreformtoavoidstokingsignificantsocialunrest.Slowandunevenmovementcanbe
expectedonotherreformsthataimtoimprovethecountry'senergyinvestmentclimateandultimately
increaseenergyproductiontoshoreupgovernmentrevenues.DespiteAlgeria'sprecariouseconomic
position,thegovernmentwillnotsacrificedefenseandsecurityspending.
PreparationsforAlgeria'seventualpoliticaltransitionwilloccuratasteadypace.Partofthepreparation
couldentailsomeprogresstowardconstitutionalreformsdesignedtorebalancepowerbetweenthe
presidentandprimeminister.AlgeriawillencourageandhostnegotiationsamongcompetingLibyan
factionstotrytomitigateinstabilityonAlgeria'seasternborderwhileavoidingdirectmilitary
engagementsbeyonditsborders.
U.N.brokerednegotiationstoformaLibyanunitygovernmentbetweenrivalcampsinTripoliandTobruk
willcontinuedraggingundertheweightofintractabledisputesbetweenwarringparties.Libyanoil
productionandexportswillfluctuatebutwillremaindepressedoverallin2016.Internationaloil
companieswillcontinuetoprefertoworkwithTripolibasedinstitutionsoverparallelinstitutionsoutof
Tobruk.ThiswillpushtheinternationallyrecognizedTobrukgovernmenttowardcompromisewithits
rival.However,sustainingapowersharingagreementwillbeextraordinarilydifficult.Theinevitable
sideliningofmorehardlinefactionswillfeedintoongoingsecuritychallenges.
ThegrowingIslamicStatepresenceinLibya,especiallygiventhemilitantgroup'sincreasingpropensity
forforeignattacks,willtriggergreaterforeigninvolvementinthecountry.However,thisactivitywillbe
limitedprimarilytoairandspecialoperationsstrikesandworkingwithlocalactorstounderminethe
group.TheIslamicStateinLibyawillfocusonconsolidatingitspowerinthecityofSirtebutwillseekto
extendwestwardtowardMisratafromAbuGreinandeastwardtowardAjdabiyafromNawfaliya.Asthe
IslamicStateemergesasapowerplayerinLibya,Misratamilitiaswilldirectmoreoftheireffortsagainst
themilitantgroup.
EastAsia

PushbackinBeijing
China'sreformprocesshasreachedaprecariousphase.Themuchneededtransitiontoaneconomy
basedondomesticconsumptionhasbeenneitherquicknorwithoutcost.Divisionsarealreadyshowing
amongChina'sregions:theservicessectorisbolsteringthesouthernandcoastalprovinces,whileweak
housingandheavyindustrysectorsaredraggingdownthenorthernandinlandprovinces.The2016
agendaincludesstateownedenterprisereforms,withaparticularfocusonconsolidatingbloatedsectors
andimposingadditionaloversightonassets.Thiswilllikelyinvolveissuingmorecrudeoilimportlicenses
toprivaterefinersandspinningoffthepipelineoperationsofChina'snationaloilcompanies.
Governmentandindustryleadersbothwillpushforconsolidation,whileBeijingwillimposereductions
onmetalsproduction.Thissuggeststhatcommodityconsumptiongrowthwillremainsluggishin2016.
Risingcorporatedebt,exacerbatedbyslowingdomesticeconomicgrowth,willgeneratefurtherrisksto
thereformprocess.Thisdoesnotmean,however,thatBeijingwilldeliberatelysloworreversereforms,
assuchadecisionwouldcarryitsownrisks.Nonetheless,China'sleadershipislookingatatroubledyear
asitmanagestheeconomicandsocialimpactsofeconomicchange.Thenewyearwillalsolikelysee
further,cautiouslooseningofcurrencycontrolstofurthertheinternationalizationoftheyuan,aswellas
domesticfiscalreformsintendedtoboostthetaxrevenuesoflocalgovernments.
China'spolicymakerswillmakeitaprioritytominimizesocialandeconomicdisruptionwhilemoving
forwardwithreformplans.Asinpreviousyears,resistancetochangewillmanifestinbureaucraticinertia
andpoliticalmaneuvering.AsPresidentXiJinping'spoliticalconsolidationandanticorruptioncampaign
intensifiesaheadofthe2017PartyCongress,membersofChina'selitewillbandtogetherinsmall
factionstogainprotectionfromtheconsolidatedcenter.Competitionforpositionsaheadof2017will
acceleratethistrendafurthersignoftheshiftawayfromthesystemofconsensusrulethathasbeen
thestatusquosincetheeraofDengXiaoping.ThistransitionwillmeangreateruncertaintyinChinaover
thenextfewyears.
Beijingisalsolaunchingalongawaitedandambitiousseriesofmilitaryreforms.Thesewillsignificantly
alterthestructureofthePeople'sLiberationArmy,ultimatelybringingitmoreinlinewithWestern
militarymodels.Thiswillinvolvelargecutsinpersonnel,reorganizationofmilitaryregions,andthe
removalofasignificantnumberofstaffofficers.Beijingwillcarefullymatchthesechangeswith
economicincentivesforthosewhoaredemobilizedormovedoutofpowerfulpositions.Beijingcould
alsoreducetheroleofpoliticalcommissars,atleastatthelowerlevels,toallowformoreflexibilityin
militaryoperations,particularlyatthetacticallevel.
SoutheastAsia'sBalancingAct
InSoutheastAsia,theexpectedU.S.interestratehikewillplacepressureonsomeoftheregional
economies,particularlyMalaysiaandIndonesia,bothofwhichrelyheavilyonforeignlending.However,
theChineseeconomicslowdownwillcontinuetobethesinglegreatestsourceofeconomicdifficultyin
SoutheastAsia,thoughimpactedcountrieswillstillbecompelledtobalancetheireconomicdependence
onChinawiththeirgrowingsecurityrelianceontheUnitedStates.EvenasChina'seconomicgrowth
slows,BeijingwilluseitshefttoofferincentivestopushSoutheastAsiannationstocooperate,warning
themofbotheconomicandmilitaryconsequencesshouldtheyresist.
EffortstoestablishorimplementregionaltradeandeconomicagreementsinAsiawillacceleratein
2016.TheU.S.ledTransPacificPartnershipwillcomeupforratificationinseveralregionalcountries,
whileotherspetitionforinclusioninthesecondroundofmembership.NegotiationstowardtheRegional

ComprehensiveEconomicPartnershipwillintensify,aswillmovesbyChina,SouthKoreaandJapanto
createatrilateralfreetradeagreement.MembersoftheAssociationofSoutheastAsianNations(ASEAN)
willbeginimplementingtheblueprintforthenewASEANEconomicCommunity.Noneofthese
developmentswillradicallyaltertheeconomicsituationinAsiain2016,buteachwillcreatenew
challengesandnewopportunitiesforbusinessesintheAsiaPacificregion.
Thesedealswillalsoprovokedomesticchallengesfromplayerstryingtodefendtheirparticularinterests
amidthechangingenvironment.Thiswillcontributetodelaysinratificationandimplementationofnew
agreements.Attimes,thiswillyieldshort,butsharppoliticaldisruption,particularlyincountriessuchas
Japan,Malaysia,IndonesiaandSouthKorea,whicharealreadyfacinginternaleconomicandpolitical
stresses.
Thedesireforeconomiccooperationmayreininregionalsecuritycompetition.Itwillnot,however,fully
amelioratepoliticalandterritorialdisputes.TheSouthChinaSeainparticularwillremainacentralfocus.
Chinawillcontinueassertingitsclaimsoverdisputedterritories,andtheUnitedStateswillcontinue
freedomofnavigationpatrolsaroundChineseoccupiedisletsandexpanditsmilitarycooperationwith
severallittoralcountries.MaritimetensionscouldflareupagainastheNetherlandsbasedPermanent
CourtofArbitrationmakesitsinitialfindingsonthePhilippines'caseagainstChineseSouthChinaSea
claims.Althoughthecourtdecisiondoesnotidentifysovereigntyissues,andthoughChinaisnot
participatinginthecase,therulingsnonethelesswilladdanotherlayerofcomplexitytothemaritime
disputesandquestionsaboutwhetherthedisputedisletsevenserveaslegalbasesfordeterminingthe
extentofterritory.TheUnitedStateshasbudgetedforincreaseddefenserelatedtrainingandsalesin
SoutheastAsia(andTaiwan)in2016andwillexpanddefensecooperationwithJapanandAustralia.
JapanwillcontinuetodebatewhetheritispoliticallyormilitarilyreadytojoininSouthChinaSeapatrols,
butnodecisionisexpecteduntilthesecondhalfoftheyear,afterUpperHouseelections.Eventhen,
Tokyoismorelikelytolimititsdirectpatrolstoaerialreconnaissanceratherthananythinginvolving
surfacevessels.TheUnitedStateswillalsopushAustraliatotakeonamoreactiveroleintheSouth
ChinaSea.AswithTokyo,however,Canberrawillfinditselfcarefullyweighingthecostsandbenefitsof
anysignificantaction,givenitstighteconomicrelationshipwithChina.
DespitecontinuedU.S.activitiesintheSouthChinaSeaandanexpectedU.S.armssalespackageto
Taiwan,ChinaisunlikelytosignificantlycurtailbilateralmilitarytieswithWashingtonorthreatenits
standinginvitationtojointheRimofthePacificExercise(RIMPAC),oneoftheworld'slargestmultilateral
navalexercises.Meanwhile,toshaperegionalperceptionsandputtheexistingU.S.JapanSouthKorean
alliancestructureunderstress,Beijingcouldmakeconcessionsin2016innegotiationsonestablishinga
maritimeboundarywithSouthKorea.
Japan'sRegionalandDomesticRole
In2016,Japan's"Abenomics"economicagendawillprovokegrowingcriticismfromadisillusioned
public.Thegovernmentcouldtrytoreshapethetermsoftheprogram'ssuccesses,shiftingattention
awayfromthemonetary"arrow"oneofthethreecoreaspectsofthestrategyandtoward
structuralreformsandtheprogressbeingmade.Longertermplans,suchasa2017salestaxincrease,
couldbedelayedevenfurtherastheeconomyremainsattheedgeofrecession.ShouldtheAbenomics
programofficiallyend,governmentbondyieldslikelywillnotspiraltodisaster,asothersarepredicting.
Instead,JapanwilltakeapathsimilartotheoneitpursuedbeforePrimeMinisterShinzoAbetook
powerincreasinggovernmentspending,raisingdebtlevels,andpushingtheproblemsfurtherdown
theroad.

Japan'seconomic,politicalandsecurityrelationsthroughoutSoutheastAsiawillspreadin2016,despite
domesticeconomicconstraints.AlthoughJapanfaceseconomicchallengesathomeand"Abenomics"is
farfromaccomplishingitsmaingoals,Tokyostillhasafairnumberoffinancialincentivesitcanoffer
SoutheastAsiaandwillmoreactivelypursueinfrastructurecontractsthroughouttheregion,oftengoing
headtoheadwithChina.SoutheastAsiawillreapthebenefitsofincreasingcompetitionbetweenthe
twopowersaseachseekstoexpandregionaleconomiccooperation,loans,infrastructuredevelopment
andinvestment.
NotableElectionsintheRegion
ThoughStratfordoesnotpredicttheoutcomeofelections,andthoughgovernmentsareconstrainedby
geopoliticalrealitiesthatlimittheirabilitytoradicallyalterpolicydirections,ahandfulofelectionsslated
for2016areworthnoting.
InJanuary,Taiwanwillelectanewlegislatureandpresident,andmostpollssuggesttheopposition
DemocraticProgressivePartyispoisedtotakeoverfromtherulingKuomintang.Chinawillpayparticular
attentiontothiselection;theDemocraticProgressivePartytraditionallyisconsideredapro
independenceparty,thoughitscurrentplatformassertsthatitwantstomaintainTaiwan'scurrent
relationshipwithChina.Althoughwedonotexpectanyradicalchangesinthefirstsixmonthsofthenew
government,therewillbeplentyofroomforpoliticalmiscalculation.
ChinawillalsobecloselywatchingMay'selectionsinthePhilippinesacountryatthecenterofthe
SouthChinaSeadispute.Aheadofthevote,Beijingcouldmakeitapointtoappearmorecooperativeon
maritimeissuesandeconomicallyinhopesthatamoreconciliatorygovernmentwilltakeoverinManila.
InMalaysia,theembattledgovernmentofPrimeMinisterNajibRazakcouldchoosetocallanelectionin
2016.TherulingUnitedMalaysNationalOrganisationandBarisanNasionalwillcourttheethnicmajority,
potentiallyaddingstresstoincreasinglyunstableinternalrelationswiththeethnicChinese,acritical
componentoftheMalaysianbusinesscommunity.
InSouthKorea,risinglaborunrestwillcontributetoperiodsofpublicdemonstrationandoccasionally
violentprotestsleadinguptotheAprilparliamentaryelections.
Althoughnottrulyanationalelection,NorthKorea'sWorkers'Partycongresswillmarkthesolidification
oftheruleofKimJongUnandcouldendthefrequentleadershipshufflesthathavecharacterizedthe
pastfewyears.Additionalnuclearandmissiletests,drivenmorebytechnologicalthanpolitical
requirements,cannotberuledout.
Andfinally,inMyanmarthemilitarywillworktoretainitsplaceinthenewgovernment,adding
uncertaintytothehandoverofpowertotheNationalLeagueforDemocracy.
LatinAmerica
Venezuela'sDeclineContinues
ThedeteriorationoftheVenezuelaneconomyandthelossoftheNationalAssemblytotheopposition
willweakentherulingUnitedSocialistPartyofVenezuela's(PSUV)andcreatemoreroomforsocial
unrest,financialdefaultandpoliticalconflictamongthebranchesofgovernment.Theoppositionhas
wonasignificantmajorityintheNationalAssemblyandcanleverageittoundertakesubstantial

economicandpoliticalreforms.Underpressurefromthismajority,segmentsoftherulingpartycould
opennegotiationswiththeoppositionwiththeintentofformingalliances.ButthePSUVcouldalsouse
thecourtsystemtokeepahostilelegislatureincheck.Regardlessofthegovernment'sstrategy,divisions
withintherulingpartywilllikelyworsen,andthePSUVelitewillprobablyperceivetheDec.6electoral
lossasaharbingerofanotherdefeatinthe2019presidentialelection.
ThestrainonVenezuela'spublicfinanceswillworsenin2016.Duringthepastyear,Venezueladepleted
itsforeignreservesandfundstomaintainimportsandgovernmentspending.Withoutthatcushion,the
governmentwillhavetocarefullyprioritizepublicspending.Caracaswillprobablyreduceimportsfurther
in2016tomaintainbothforeigndebtpaymentsandreinvestmentintostateownedenergyfirm
PetroleosdeVenezuela(PDVSA).Thisisariskystrategy:WhileitpreservesVenezuela'slimitedaccessto
foreigncreditfortheenergysector,thecountry'sprimarysourceofdollarrevenues,itwillfuelinflation
andexacerbatefoodshortages.Evenwiththegovernmentattemptingtohonoritsdebt,lowrevenue
fromPDVSAanddepletedfinancesmakeadefaultapossibilityfor2016.
Venezuela'sworseningfoodshortagesandrisingfoodpriceswillspurfurtherisolateddemonstrations,
particularlyinruralareasandstatesoutsideofCaracas.Thegovernmentcanmanagesuchunrestaslong
asitdoesnotcoalesceintolargerdemonstrations.GiventhelevelofpublicdiscontentinVenezuela
concerninginflationandshortages,demonstrationscouldexpandintowiderunrestcapableof
worseningthecountry'spoliticalstability.
Brazil'sEconomicandPoliticalChallenges
Brazil'sgovernmentwillfacethedifficulttasksofmaintainingemploymentandlimitinginflationamida
domesticeconomicdownturnandlowglobalpricesforitsprincipalcommodityexports.Theeffectsofa
2014corruptionscandalatstateownedenergyfirmPetroleoBrasileiro(Petrobras)willlingerinto2016.
Thegovernmentwilltakemeasurestoaddressthenegativeeconomiceffectsofthescandal,suchas
allowingcontractingfirmscurrentlybannedfromdoingbusinesswithPetrobrastoagainsigncontracts
withit.Petrobraswillalsotrytoraiseadditionalcapitalthroughassetsalesandgovernmentfunding,
givenitsheavydebtobligationsandneedtofundexplorationandproductionactivities.
Onthepoliticalfront,therulingWorkers'Partywillencounterpersistentchallengestoitsauthority.Even
ifBrazilianPresidentDilmaRousseffsurvivesthethreatofimpeachment,theWorkers'Partywillremain
highlydependentonitsalliestofendoffadditionalchallengestoitspower.
SluggishdemandgrowthforBrazilianexportcommoditiesandaslowingdomesticmarketwillpushBrazil
tolookforadditionalforeignmarketsthroughouttheyear.DespitedisagreementswithArgentina,Brazil
islikelytopressaheadwithnegotiatingafreetradeagreementbetweentheCommonMarketofthe
South(knownbyitsSpanishacronym,Mercosur)andtheEuropeanUnion.ThedividebetweenArgentina
andBrazilconcerningforeigntradestrategieswilllikelydeepenin2016;Argentinawillremainreluctant
tosubscribetoanytradeagreementsthatweakenitsalreadyuncompetitivemanufacturingbaseorlead
toasignificanttradeimbalance.
Argentina'sNewGovernmentAddressesDebtProblems
Withanewpresidentatthehelm,theArgentinegovernmentwillbegintakingstepsin2016toaddress
thelegacyofeconomicproblemsfromthepreviousadministration.Thegovernmentwilllikelytryto
beginnegotiationswithcreditorsthataredemandingtherepaymentofdebtowedfromArgentina's
2001default;asuccessfulnegotiationwouldeventuallygiveArgentinarenewedaccesstoglobalcapital

markets.Inthemeantime,additionalfundingfromChinaorothercreditorscouldgiveArgentinepublic
financessomebreathingroom,butwiththecountryinaneconomicdecline,BuenosAireswillprobably
worktowardopeningtalkswithholdoutcreditors.Thenewgovernmentwillalsobeginreducingpublic
spendinganddevaluingthecurrencytoclosethegapbetweentheofficialandparallelexchangerates.
Despitethelikelihoodofsomeeconomicadjustments,structuralproblemssuchashighinflationanda
persistentshortageofavailableforeigncurrencywillcontinuetohurtArgentina.Consequently,itis
unlikelythatthenewgovernmentwillremoveallbarrierstoforeigntradethatwouldallowmore
importsandincreasecapitalinflowin2016.
ColombiaNearsaPeaceDealWithRebels
Colombia'sexportrevenuegrowthwillremainslowbecauseoflowoilprices.Becauseofthestate's
relianceonoilforrevenue,Bogotawillhavetomakeupfortheshortfallelsewhere,likelythroughatax
reform.However,suchareformcouldbedilutedordelayedifitfacesresistancefromtheprivatesector.
TheColombiangovernmentandtheRevolutionaryArmedForcesofColombia(FARC)willnegotiatethe
militants'demobilization.ThegovernmentintendstosignapeacedealbyMarch2016,althoughthe
deadlineforsigningwilllikelybeextendedifthetwosidesfailtoreachconclusiveagreementsonthe
rebels'participationinColombianpolitics,thenatureoftransitionaljusticemechanismsandthewayin
whichmilitantswillsurrendertheirweapons.AnypeaceagreementsignedbetweentheFARCandthe
governmentwillbeputtoanationalvoteatadatethecentralgovernmentwilldetermine.Althoughthe
ColombiangovernmentandtheFARCmightnotsticktotheprevioustimelineandsignadealbytheend
ofthefirstquarter,allthepiecesareinplaceforthetwosidestocontinuetalks,andanagreementcould
wellbereachedin2016.
IfthegovernmentsealsapeacedealwiththeFARC,insurgentattacksacrossColombiawillremainfew
andlargelylimitedtoremoteareasofthecountryin2016.WiththeFARCfocusedonsigningan
agreementwiththestate,theNationalLiberationArmyamuchsmallerandlesscapablegroupthat
willpursueaseparatepeacedealwithBogotain2016willbetheonlyforcewillingandableto
conductmilitantattacks.
In2016,theColombiangovernmentwillfocusitscounternarcoticsstrategyontheeradicationofcoca
cropsbyindividualsonthegroundratherthanbyaerialspraying.Thisislikelytospurmoreviolence
againstsecurityforcesandismoretimeconsumingthanaerialspraying.Overall,thisshiftcouldhamper
Bogota'sabilitytoeradicatecocacropsinthecountry'sruralareas.
Mexico'sCriminalGroupsFragment
During2016,Mexico'sexportorientedeconomywillcopewithslowingglobalmarketsandarisingtrade
imbalance.Economicgrowthwillbesluggishrelativetootheryears,althoughthecountrywillremain
attractivetoforeigninvestors.Onthepoliticalfront,periodicunrestfromantigovernment
demonstratorsandsegmentsofteachers'unionswillcontinueinMexico'ssouthwest,albeitatamuch
lowerlevelthanin2015.
Mexicancriminalorganizationswillcontinuefragmentingacrossthecountryasindividualcriminal
networkscomeundergovernmentpressureorengageinturfwarsagainstoneanother.Thisprocesswill
causesomeareasofthecountrysuchasthenortheasternregion,encompassingpartsofTamaulipas,
NuevoLeonandnorthernVeracruzstates,aswellasthesouthwesternstatesofMichoacanand
Guerrerotoexperiencehighlevelsofviolence.Turfwars,suchasthosebetweenthehighly

fragmentedpatchworkofcriminalgroupsoperatinginTamaulipas,theongoingstrugglebetweenTierra
CalientecriminalgroupsinMichoacanandJalisco,andthefragmentationofSinaloaFederationaffiliates
inBajaCaliforniaSurandotherregionsofnorthwesternMexico,willcontinuedrivingviolence.The
Mexicangovernmentwillkeeprelyingonthearmedforcesandfederalpolicetospearheadits
counternarcoticsstrategy,andtheweakruleoflawinspecificareaswillmaketheuseoftheseforces
necessary.
Bolivia'sPresidentSeeksAnotherTerm
BoliviawillholdanationalreferendumFeb.21tograntBolivianPresidentEvoMoralestheabilitytorun
forathirdtermin2019.IfMoraleswinstheabilitytocampaignforthepresidencyagain,someprotests
fromtheoppositioncoalitionarelikely.Bolivianoppositionpartieslackthecohesionandpublicapproval
toconductprolongedunrestandsecessionistthreats,astheydidin2008.However,atleastsome
disruptiveprotestsarelikelytofollowthevote.
Peru'sEconomyStaysAfloat
BecauseofPeru'srelianceonmineralexports,lowerChinesedemandgrowthforPeruviancopper
relativetootheryearswillhamperitseconomicexpansion.However,Peruwilluseitsrelativelyhealthy
publicfinancestoavertthemorenegativeeffectsofasignificanteconomicdownturn,likethoseseenin
previousboomandbustcycles.PeruwillholdapresidentialvoteApril10,pittingtheconservativeKeiko
Fujimoriagainstseveralothercandidates,includingPedroPabloKuczynski,AlanGarciaandAlejandro
Toledo.Regardlessoftheelection'soutcome,majororimmediatechangesinthecountry'sopennessto
foreigninvestmentandtradearenotexpectedinPeruasaresultofthevote.
SouthAsia
IndiaStrugglesWithReform
LossesintheDelhiandBiharstateelectionsin2015willweakenIndianPrimeMinisterNarendraModi's
mandatetopushhisreformagendathroughparliamentin2016,stymieinglegislationontaxation,real
estate,accesstoelectricity,laborreformandlandacquisition.HisBharatiyaJanataParty(BJP)isunlikely
togainmanyseatsin2016intheparliament'supperhouse,whereitremainsintheminority.Among
upcomingstateelectionsinAssam,Kerala,TamilNadu,WestBengalandPuducherry,onlyAssamhasthe
potentialtodeliveraBJPvictory.Lowoilpriceswillhelpsustaintheeconomy'sgrowthrateof7percent
into2016,butdeficienciesinenergyinfrastructure,ahighfiscaldeficitandunderutilizationofcapacityin
manufacturingwillhamperfurthergrowth.Moreover,difficultyinpassingtheGoodsandServicesTax
BillasweepingpieceoflandmarklegislationaimedatsimplifyingIndia'sconvolutedtaxcodeby
imposingasinglelevyonall36statesandunionterritorieswillconstraineconomicgrowth.(The
oppositioncenterleftIndianNationalCongresshasstalledthebillinparliament.)
Stateownedbanks,burdenedby$100billioninbaddebts,willkeepmakingaslowrecoveryin2016but
willnotbestrongenoughtostartlendinginforceagain.Laborunionsandbureaucratswillcontinue
opposingthegovernment'splanstodivestsharesinstateownedenterprises.Additionally,Modiwill
struggletoaddresstheschismbetweentheBJP'straditionalistHindutvawingandtheparty'smore
pragmaticmiddleclassandprobusinessbaseastheCongresspartycapitalizesonrisingtensions
nationwideovertheissueofintolerancerelatedtoHindutva.

ThemaingoalofIndia'sforeignpolicyin2016willbesecuringforeigndirectinvestment.Modiwill
resumeavigoroustravelscheduleinsupportofhis"MakeinIndia"campaignand"ActEast"policy,
seekingtostrengthenbilateraltieswiththeAssociationofSoutheastAsianNationsandwithFrance,
JapanandtheUnitedStates.RelationswithNepalwillbegintostabilizeasthetwonationsworkto
implementathreesteppoliticalagreementthataddressestheconcernsoftheethnicMadhesi
communityoverKathmandu'srecentlyadoptedconstitution.ThelargelyHinduMadhesifeltthenew
constitutionwouldnotgivethemproportionalrepresentationandimposedablockadeinprotestan
actionNepalaccusedIndiaoftacitlyaiding.DespiteNepal'seffortstoappeasetheMadhesi,thestrategic
implicationsofthisepisodewillendure;KathmanduwillmoveclosertoBeijingasahedgeagainst
possiblefutureaggressionfromNewDelhi,weakeningIndia'sinfluencealongitsperiphery.(China
alreadyhasclosetieswithPakistan,isasignificantinvestorinAfghanistanandSriLanka,andhasa
defensecooperationrelationshipwithBangladesh.)TensionsbetweenIndiaandPakistanareunlikelyto
escalatebeyondtheoccasionalskirmishoverKashmir.India'ssecurityconcernsaboutAfghanistanwill
driveNewDelhitowardalimiteddialoguewithIslamabad.
PakistanPursuesSecurity
Supportedbyathreeyear,$6.6billionInternationalMonetaryFundloanandbuoyedbylowoilprices,
Pakistan'seconomywillmaintainitscurrentgrowthrateof4percentin2016.However,aweakbusiness
environmentandalackofreformsinthecountry'sdistressedenergysectorwillinhibitfurthergrowth.
TheIranPakistanpipelineandtheTurkmenistanAfghanistanPakistanIndiapipelinewillseelittle
progressinspiteofgrowingpoliticalsupportforthem.Thesameistruefora$46billionChinaPakistan
economiccorridor,aseriesofprojectsdesignedtolinkChina'swesternXinjiangprovincewiththeport
cityofGwadarontheArabianSea.(Balochistan,Pakistan'slargesouthwesternprovinceinwhichGwadar
islocated,ishometoaBalochiinsurgencythatneedstobecalmedbeforethecorridorcanbe
functional.)RelationsbetweenIslamabadandNewDelhiwillremainstableasPakistaniPrimeMinister
NawazSharifcontinuesdirectingthemilitary'sattentiontowardbattlingdomesticIslamistmilitants
somethingthatwillworkinModi'sbestinterests,too.
SharifwillcontinuepursuinghiscampaigntoestablishastablesecurityatmosphereinPakistaninthe
hopeofmakinghiscountryanattractivedestinationformuchneededforeigndirectinvestment.
Pakistan'sarmychief,Gen.RaheelSharif,willcarveoutaprominentroleforthemilitaryin2016and
serveasakeyfacilitatorintalksbetweentheTalibanandKabul.Pakistanwillcontinuetocalibratea
delicatebalanceamongRussia,ChinaandtheUnitedStates,aswellasbetweenIranandSaudiArabia.
IslamabadwillmonitortheSaudisecuritysituationwithrespecttoYemenandwillevensendmilitary
adviserstoRiyadh,butitwillbecarefulnottobecometooinvolvedlestitinviteIran'sdisapproval.
PeaceTalksWiththeAfghanTaliban
AfghansecurityforcescannotmilitarilydefeattheTalibanontheirown,evenastheinsurgency
continuesfragmenting.ForcountrieslikeChinaandPakistan,whichfearthepotentialconsequencesof
longerterminstabilityinAfghanistan,peacetalkswilllikelyremainthesoledesirableoptionin2016.But
severalfactors,particularlyTalibandisunity,willpreventanymeaningfultalksfromconcludingifthey
emergeatallin2016.
TheimpactofTalibanbattlefieldsuccessesin2015eventhosethatwereshortlived,suchasthefallof
KunduzinSeptemberwillcarryoverinto2016.Kabul'ssecurityforceswillfaceabroader,albeitless
unified,insurgentfrontasthenumberofdistrictsthroughoutthecountryunderthecontrolofthe
Talibanorothermilitantorganizationsrisesamidtheinevitablespringoffensive.Thiswillchallengethe

cohesionofthenationalunitygovernment,potentiallyspurringregionalwarlordslikeGen.AbdulRashid
DostumtoactwithincreasingautonomyfromKabultosecuretheirowninterests.Furthermore,Afghan
TalibanviolencewilllikelyfosterantiPakistansentimentswithinAfghanistanthatwillfurtherchallenge
Pakistan'sroleinanyfuturetalksbetweenKabulandtheTaliban.
TheIslamicStateandtheEvolutionoftheAfghanInsurgency
MorethanayearaftertheemergenceoftheIslamicStatebannerinAfghanistan,thenumberofAfghan
militantsclaimingallegiancetothegroupremainscomparativelysmall.Theirpresencemaygrowin
2016,buttheIslamicStatebrandnamemustcontendwiththehistoricaltribal,ethnosectarian,cultural
andmilitantdynamicsinAfghanistan.TheserelationshipswilldictatetheIslamicState'sbehaviorand
evolutioninthecountrymorethananypotentialguidancefrom,ordevelopmentswithin,theIslamic
StateinSouthwestAsiaandNorthAfrica.
Currently,theIslamicStateinAfghanistanlargelyconsistsofformerTehrikiTalibanPakistanfighters
(whoarethusinherentlyagainstIslamabad)anddisenchantedAfghanTalibanmembers.Despite
increasingfragmentation,theTalibanmovementsunderMullahAkhtarMansoorandMullah
MohammadRasoolwillremainbyfarthemostmilitarilypowerfulandwidelyoperatinginsurgentgroups
inAfghanistanthroughout2016.ViolentcompetitionbetweentheIslamicStateandAfghanistan'sother
militantgroupswilllikelycontinuein2016,buttheintensityoffightingbetweenrivalgroupsin
AfghanistanwillvaryfromregiontoregionintheareaswheretheIslamicStateoperates.
AfghanInsurgentsRaiseRegionalConcerns
TalibanallieslikethediffuseIslamicMovementofUzbekistanmilitantumbrellagroupwillfindgreater
mobilityandarolewithinAfghanistanin2016.Thisdevelopmentwillleadtogrowingconcernsamong
CentralAsianstatesandRussiaoversecurityalongAfghanistan'snorthernbordersincethepotentialfor
Afghanistan'sinsurgencytospilloveritsborderscouldrise.BecausethePakistanimilitaryoffensivehas
pushedmilitantsintoAfghanistan,Pakistanwillbecomemoreconcernedabouttheincreasingmobility
ofmilitantnetworksinsideAfghanistan.Thus,bordersecuritytensionsbetweenIslamabadandKabulare
likelytorisein2016.
SubSaharanAfrica
LeadersThroughoutAfricaClingtoPower
Duringthelasttwoyears,severallongrulingAfricanleadershavepushedforconstitutionalchangesto
termlimitsinhopesofprolongingtheirtimeinpower.Theyear2016willbenodifferent,particularlyin
CentralAfrica,whereseverallongtimeleadersarepushingforreelection.
ThemostpotentiallydestabilizingcaseisintheDemocraticRepublicoftheCongo,wherePresident
JosephKabilahasbeenpursuingextralegalmeanstosecuremoretimeinoffice.Hisactionshave
includedpushingforaconstitutionalchangethatwouldallowhimtoseekreelectioninavoteslatedfor
late2016.Althoughhehasnotpubliclyannouncedthathewillpursueanotherterm,hewillcontinue
makingeffortstoextendhispresidency.IfKabiladoessecureanotherterminoffice,violencecanbe
expectedinareassuchasKatangaprovinceandNorthandSouthKivuprovinces.Sporadicviolence
directedatKabilacoulderuptinthecapital.

AcrosstheCongoRiverintheRepublicoftheCongo,PresidentDenisSassouNguessoisseekingre
electionin2016aftersuccessfullypushingforaconstitutionalamendmentin2015thatremovedterm
limits.SassouNguessodoesnotfacearmedopposition,andthecountry'spoliticaloppositionisweak,so
theformersoldierandMarxistleaderisalmostcertaintosecurereelection.EventhoughSassou
NguessoisbehavinglikeKabila,theinternationalcommunityhasbarelycriticizedhisattempttoextend
histerm,probablybecauseunlikeKabilaNguesso'sbidwillnotengendermuchinternalstrife.
Althoughprotestsandviolencewilloccur,theunrestisunlikelytogrowtoanextentthatwouldmake
Nguessoconsidersteppingdown.
UgandanPresidentYoweriMuseveniwillstandforreelectioninFebruary,andwhiletherehavebeen
callsforhimtostepdown,MuseveniandtherulingNationalResistanceMovementhaveenoughcontrol
thatthereislittleriskofwidespreadsocialunrestinthecountry.InEquatorialGuinea,President
TeodoroObiangNguemaMbasogowillbeupforreelectioninNovember.HeisAfrica'slongeststanding
leader,butheisbelievedtohaveterminalcancer.Althoughheissupportinghissonashissuccessor,this
arrangementwouldnotbepopularamongEquatorialGuinea'spoliticaleliteandcouldcausefracturesin
thecountryatthehighestlevelasObiang'shealthrapidlydeteriorates.
LeadersinRwandaandAngolawillbeconsideringwhethertheywanttostandforreelectionin2017.In
Rwanda,asuccessfulreferendumenabledPresidentPaulKagametorunforathirdtermifhechooses.
extensionoftermlimitsthatallowhimtorunforreelection.Thiscouldresultinanationalreferendum
ontheissuein2016.InneighboringBurundi,thepresident'sdecisiontoseekanothertermcausedan
eruptionofviolencein2015.However,KagamehascompletecontroloverRwandaandlikelywillbeable
topushforanextensionwithfaceslittleopposition.Althoughheisnotbarredfromstandingforre
election,AngolanPresidentJoseEduardodosSantoswillmullsteppingdownin2017butwillcontinueto
considerhispositioncarefullyduring2016,perhapsevenanointingapotentialsuccessor.
SouthAfrica:TheANC'sSlowDecline
TheSouthAfricaneconomywillcontinuetofeelthebruntoflowcommodityprices,aweakcurrencyand
socialtensionfromperiodiclaborstrikes.SouthAfricaisexpectingitseconomytogrowbetween1and2
percentin2016,andthereisagreatriskitseconomicdifficultieswillonlymultiply.Severalfactorscould
depreciatetheSouthAfricanrandin2016,astheU.S.FederalReserveconsidersaslow,longterm
increaseinU.S.interestrates,contributingtoinflationconcerns.
Theweakeconomywillcontinuetofeedintotenselabornegotiationsintheminingsector,where
continuedlowcommoditypriceswillconstrainrevenueforminingcompaniesasdemandsfromlabor
unionssqueezetheirmargins.Meanwhiletheunions'demandslikelywillgounfulfilled,raisingthe
prospectsforstrikes.TheAssociationofMineworkersandConstructionUnionhasalreadyplannedan
eightmonthstrikeinthegoldsectorafterrejectingproposalsfromlastyear'slabornegotiations.Such
anextendedstrikemayproveexcessiveandunsustainable,however;theunion'smembersarealready
strugglingtostayafloatfinancially.Still,SouthAfricaissetforanotheryearoftenselabornegotiations.
ThestrainsonvariouspartsoftheSouthAfricaneconomywillcontributetothegradualdeclineofthe
AfricanNationalCongress(ANC)asthehegemoninSouthAfricanpoliticsaheadofthenextparty
congressin2017.Themostvisiblesignoftheparty'sweakeningpositionwillbeinthe2016municipal
elections.TheDemocraticAllianceSouthAfrica'slargestoppositionpartywillstronglychallenge
theANCinPretoria,PortElizabethandotherurbanareas,targetingunemployedbuteducatedurban,
middleclassblackSouthAfricans.TheEconomicFreedomFighterspartyseekstogaininfluenceamong
theworkingclassesandunemployedorunderemployedblackSouthAfricanlaborers,suchasminers.

TheANCwillretainthebroadestbaseofsupport,butbeyond2016andaheadofthenationalelectionsin
2019itsmajoritycouldslowlyturnintoapluralityastheDemocraticAllianceandEconomicFreedom
Fightersgainground.
Nigeria:SlowProgressonEnergy,CorruptionandSecurity
AfterfinallynaminghisCabinetattheendof2015,PresidentMuhammaduBuhariisinpositiontobegin
implementinghispoliciesfully.MaintainingsecurityinthenortheastisapriorityforBuhari's
administrationbecauseWilayatalSudanalGharbithegroupformerlyknownasBokoHaramis
heavilyconcentratedinthatarea.However,thetwomostdynamicinitiativesthatBuhariwilladvocatein
2016aremaintainingthefightagainstcorruptionandgeneralreformintheenergysector.
Buhari'santicorruptioncampaignwillbedifficultandlong.Hisbiggestpushwillbeinareasofrevenue
generationandrevenuemanagement,suchastheoilindustryandthecentralbank,andwillfocuson
highprofiletargets,suchasformergovernmentofficials.AlthoughBuhariwilllikelybesuccessfulat
puttingprogramsintoplaceinitially,thecountry'sweakinstitutionswillblunttheeffectivenessofhis
initiative.Hewillmaketheslowestprogressinthefightagainstlowlevelcorruption,briberyand
excessiveredtapein2016.
Nigeriaislikelytomakeprogressinreformingtheoilsector,althoughthisprocesswillcontinuebeyond
2016andwillnotbeuniform.NigeriawillsplitupitsPetroleumIndustryBillintoseveralsections,putting
reformsthattargettheupstreamsectorsuchasnegotiatingcontractswithinternationalandprivate
oilcompaniesonafastertrack,althoughimplementationwilltakemonthsorlonger.Progresson
issuesthataremorepoliticallydifficulttoachieve,suchasfuelsubsidyremovaloracomprehensive
revenuesharingagreementamongprovinces,willbeslow.
Buhariisunlikelytocompletelyremovefuelsubsidiesunlessthestates'financialsystemrapidly
deterioratesoverthecourseofthenextyear.Nigeria'scurrency,thenaira,willremainunderpressure,
aswilltheNigerianeconomy,becauseoflowoilpricesandpotentialU.S.interestratehikes.The
NigerianCentralBankwillhavetomakeadjustmentstothecountry'scurrencyregime.
Nigeria'ssecuritysituationwillremainrelativelystaticin2016.WilayatalSudanalGharbiwillcontinue
tobeaconstantsecuritythreatinthecountry'snortheast.However,Buhari'smilitaryactionswilllargely
containthethreatposedbythegroup,localizingitinthenortheast.Therewillbesporadicattacks
outsidethisregion,buttheywillbeinfrequentandonsofttargets.WilayatalSudanalGharbiwill
continuetobeadangerinadjacentareasofCameroon,NigerandChad,andNigeriawillcontinue
coordinatingwiththosecountries'militaries.
BuhariwillcontinuethemilitantamnestyprogramandothermechanismstoplacatetheNigerDelta
regionthroughpatronage.Asaresult,theregionwillnotreturntowidespreadpoliticallymotivated
violencetargetingtheoilandgasindustryaconsequenceoftheNigerDeltalosingthepresidency
whenformerPresidentGoodluckJonathanlosthisreelectionbidin2016.However,criminalnetworks
willcontinueconductingarmedrobberies,kidnappingsforransom,hostagetakings,pipelinevandalism
andbunkeringthroughouttheregion.
WestAfricaTriestoCopewithLowOilPrices
LikeNigeria,therestofWestAfricawillcontinuetofeelthepainoflowoilprices.Theeconomic
consequencesthroughouttheregion,includingcontinuedbudgetcutsandlowersocialspendingin

countriessuchasGabonandAngola,willnotconsiderablythreatenanygovernment'scontrol(except
possiblyEquatorialGuinea).
OneinterestingcaseisGhana,wherethegovernmentwillcontinuetobesqueezedforcashandrequire
paymentsfromtheInternationalMonetaryFundunderitsthreeyearbailoutpackagethatbeginsnext
year.ThiswillputPresidentJohnDramaniMahamaunderpressureaheadoftheDecember2016
presidentialelections,wherehisNationalDemocraticCongresswillfacestiffcompetition.Theausterity
requiredunderthetermsofGhana'sbailoutwillconstraingovernmentspendingprogramsintheleadup
totheelection.
InMali,terroristattackstargetingbothdomesticandWesterninterestswillcontinue.Assaultswilloccur
mostfrequentlyinnorthernMali,butneitherthesouthnorthecapitalBamako,inthesouthwest,willbe
immunetoextremistviolence.FranceandtheMalianarmywillcontinuetoconductstrikesandraids
againstthevariousmilitantgroupsoperatingtheregion,butthesemilitantsareunlikelytosignificantly
reducethetempoofattacks,particularlyinMali'snorth.
EastAfricaAttemptstoPutItselfontheGlobalEnergyMap
WhileWestAfricacontendswithlowoilprices,EastAfricawillcontinuemakingprogresstoward
establishingitselfasaglobalenergyproducer.InTanzania,nowthatelectionshavebeenheldandthe
countryhasfinallypasseditspetroleumact,thegovernmentwillworkwithinternationaloilcompanies
toprovideanenvironmentconducivetomakingplansforaliquefiednaturalgasexportterminalinthe
country'ssouth.NextdoorinMozambique,thegovernmentwilldothesame;ItalianenergyfirmEniand
U.S.basedAnadarkohopetomakefinalinvestmentdecisionsonLNGprojectsinthecountry's
northeast.InUganda,KenyaandTanzania,negotiationswillcontinueovercrudeoilpipelineoptionsto
linkproducingfieldsintheGreatLakesareawithexportfacilitiesontheEastAfricancoast,butafull
agreementwillnotmaterializein2016.Ultimately,internationaloilcompanies'decisionswillbe
determinedbyglobalconditionslargelyoutsidetheircontrol.
AlthoughSouthSudan'sinternalpeaceprocesswillcontinuetofalterin2016,SouthSudanandSudan
willbegantorenegotiateoiltransitcontractsandfees;thecountries'previousdeal,whichbeganin
2013,endsinmid2017.ThepriorthreeandahalfyearcontractgaveSudanfeesandpaymentsworth
about$25perbarrelofoiltransited,butthatwasnegotiatedwhenoilpriceswerehighwhichmeans
thatSouthSudanisnowreceivingverylittlefromitsoilexports.Withpricesunlikelytogobackup,the
SouthSudanesegovernmentwillstronglypushforsignificantreductionsinperbarrelfeesinwhatcan
beseenasazerosumrevenuegamebetweenitselfanditsnorthernneighbor.However,bothSudanand
SouthSudanwillbeunderconsiderableeconomicstrainin2016,andphysicaldisruptionsofoilsupplies
arenotlikelytooccuruntilafterthecontractrunsoutiftheyoccuratallbecauseneithercountry
canaffordtohaltsupplies.
SecurityConcernsinEastAfrica
SudanwillcontinueattemptingtobringrebelgroupsfromSouthKordofan,BlueNileandDarfurinto
peacenegotiationsin2016.SudanesePresidentOmaralBashirwasabletogettheSudanese
RevolutionaryFrontanallianceincludingtheSudanPeople'sLiberationMovement,theJusticeand
EqualityMovementandotheroppositiongroupstoagreetoasixmonthceasefirethatwillendApril
2016.However,furthernegotiationswillprogressslowly,andlocalizedviolencewillremain.Finally,after
breakthroughsintheSudanesegovernment'simprovingrelationswithSaudiArabiaandothersinthe
Arabworld,aswellasimprovingrelationswiththeWest,Sudanwillcontinuewarmingtotheoutside

world,includingmakingcontributionstoSaudiledeffortsinYemen.Khartoumwillmakethequickest
progressinmendingfenceswithSaudiArabiaandotherArabcountries.ItsprogresswiththeWestwill
remainslow,atleastuntilalBashirstepsdownduetoconcernsabouthumanrightsandhisoutstanding
indictmentbytheInternationalCriminalCourt.
InMozambique,therulingLiberationFrontofMozambique,orFrelimo,andthemainopposition
MozambiqueNationalResistanceparty,orRenamo,willcontinuestrugglingtoreachacomprehensive
politicalagreement.FrelimowillcontinuetorejectRenamo'scallsforfullautonomyintheprovinces
whereRenamohasthestrongestsupport.Instead,therulingpartywillworkslowlytowarda
governmentthatwillincludeRenamoinpoliticalandeconomicdecisionmaking.Renamo'sdisarmament
willremainelusive,whichmeansthemainoppositionparty'slowlevelinsurgencyinthecentralbeltof
Mozambique,suchasSofalaandManicaprovinces,willcontinuesporadicallytargetinggovernment
troops,thepolice,miningfacilitiesandinfrastructure.
Somaliacouldholdelectionsin2016.However,becauseoflingeringinsecuritythroughoutthecountry,
freeandfairdemocraticelectionswillbeimpossible.Ifelectionsareheld,theywillonceagainbelimited
toarepresentativevotethroughaselectionofclaneldersratherthanarealpopularvote.Sucha
selectionofclanelderswouldbeabletonominateanewparliament,whichwouldinturnbeableto
electapresident.Althoughthiswouldpreventthecurrentgovernmentfromembeddingitselfdeeply
intoSomalia'spoliticalstructure,arepresentativevotewouldnotachieveanyoftheobjectivesthe
countryinitiallyintendedtoreachby2016intermsofsecuringthecountryandnormalizingitspolitical
process.AlShabaabcontinuestobeathreat,anddespiteitsinternalfragmentationthegrouphas
managedtocontinuechallengingregionalpeacekeepingforcesforterritorialcontrol.AlShabaabwill
remaincapableofmountingcomplexterroristattacksdeepintheheartofthecapitalcity.
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