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Table of Contents

Introduction

Middle East

Annual Forecast 2014Forecast MONDAY, JANUARY 6, 2014 - 04:03 Print Text Size

After spending more than a decade

absorbed in intractable conflicts

across the Islamic world, the United

States will finally start to catch its

breath in 2014. As U.S. troops draw

down their presence in Afghanistan,

Washington will go to great lengths

to develop an understanding with

Tehran. Negotiations will face major

hurdles, and a final settlement that

lifts the economic embargo on Iran will be a bridge too far for 2014. However, our longtime readers

probably will not be surprised by the underlying depth and sincerity shared by Tehran and

Washington that will sustain this detente over the course of the year.

The United States has long struggled to resurrect a balance

of power in the region that would allow Washington to once

again manage and manipulate relationships on both sides of

the ethno-sectarian divide without directly entangling itself in

every quagmire that arises. Iran, for its part, knows it has a

limited time to negotiate the bounds of its sphere of influence

with an interested party in Washington while Tehran still has a

regional sphere of influence to claim. No party -- including

Israel, Saudi Arabia and Iran's own Islamic Revolutionary

Guard Corps -- will have enough leverage to block this

dialogue. The foundation for the negotiation has already been

laid, but the construction of a settlement that buries 34 years

of hostile relations will necessarily be a loud and trying

process.

Even as the United States takes care to avoid a confrontation

with Moscow while negotiating with Iran, Russian President

Vladimir Putin knows it will only be a matter of time before a

much freer Washington returns its gaze to the Russian

periphery. Russia will spend 2014 reinforcing the gains it has

made over the past decade in neutralizing and reorienting

peripheral states toward Moscow. Germany will quietly moderate Russia's steps in Central and

Eastern Europe, preferring a bargain with Moscow when it comes to thorny issues like EU energy

policy toward Russia.

Germany's far more consuming task this year will be the

ongoing challenge of holding the European Union together.

The eurozone will likely survive another year without a

widespread banking or sovereign debt crisis, but a virulent

combination of stubbornly high unemployment rates, low

domestic consumption and growing consumer and corporate

debt will have a sobering effect on the politics of the current

crisis. This year will see nationalist and Euroskeptical

parties gain popularity and thus build on their ability to obstruct

China's Uighur Militants

Make a Strategic Shift

This Forecast is part of multiple Timelines

EDITOR'S CHOICE

- Choose Timeline -

NEWER

JAN 6, 2014

In Syria, a Bleak Future for an al Qaeda Front

Group

JAN 6, 2014

Afghanistan: 88 Prisoners To Be Released

Despite U.S. Objections

JAN 6, 2014

Annual Forecast 2014

JAN 6, 2014

2013's Forecasting Report Card

JAN 4, 2014

Syria: Rebel Alliance Clash With Jihadists

JAN 4, 2014

Cambodia: Protesters Cleared From Park

JAN 4, 2014

Iraq: Army Shells Fallujah To Dislodge

Militants

JAN 4, 2014

Bangladesh: Nearly 60 Polling Stations Set

Ablaze

JAN 4, 2014

In Bangladesh, More Tensions Expected After

National Elections

JAN 3, 2014

Insecurity in South Sudan Continues as Talks

Commence

JAN 3, 2014

Egypt: Explosion Hits Near Intelligence

Headquarters

JAN 3, 2014

China: New Military Zones Another Step

Toward Modernization

OLDER



Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

Click to Enlarge

Table of Contents

Introduction

Middle East

Europe

Former Soviet Union

East Asia

structural reforms already laden with controversy at both the

national and EU levels.

China will experience similar frustration in trying to balance

deep reforms against growing social and political constraints.

Whereas the European Union will continue to grapple in

negotiations across 28 incredibly diverse member states,

China will gradually shift away from the Party's slower,

consensus-based decision-making to a more decisive

model under President Xi Jinping. Even so, China's underlying

structural weaknesses mean Beijing will have to pursue an

incremental and cautious approach, both in applying reforms

at home and in trying to define a sphere of influence in its near

abroad.

By and large, 2014 will be a year of careful deliberation and preparation by the world's great

powers, in which accommodation will likely prevail over confrontation in their interactions. By

contrast, the countries between these great powers will grow restive as they try to adapt to their

shifting geopolitical environment, lacking the influence to play a decisive role in the very issues

redefining their neighborhoods.

Middle East

U.S.-Iranian Talks Take Center Stage

The U.S. attempt to resurrect a balance of

power in the Middle East through a strategic

detente with Iran will be the driving issue for the

Middle East in 2014. Between U.S. President

Barack Obama's growing struggle with

Congress ahead of November midterm

elections and Iranian President Hassan

Rouhani's ongoing challenge of trying to garner support from hardliners at home, there are sure to

be hurdles in the U.S.-Iranian negotiations that could at times make the talks appear to be on the

verge of collapse. Despite the unavoidable obstacles, the U.S.-Iranian detente will endure this year.

However, a comprehensive settlement between Washington and Tehran -- and thus an end to the

Iranian sanctions -- will take more than 12 months to develop. Obama will rely on his executive

powers to skirt or override congressional resistance on sanctions relief when needed. Both the

U.S. and Iranian governments will also be able to use domestic resistance to the deal as leverage

in the negotiation. Iran's Islamic Revolutionary Guard Corps, which stands to lose the most

economically and politically from a U.S.-Iranian deal, will be the most assertive challenger to the

negotiation from Iran's side, but it will ultimately lack the institutional backing and public support to

overturn the process.

The Scope of U.S.-Iranian Talks

The U.S.-Iranian negotiation will publicly focus on neutralizing

the Iranian nuclear program in exchange for economic relief

for much of the year. However, talks will extend quietly to

other areas of mutual interest, including Syria, Iraq, Lebanon

and Afghanistan, as the two sides negotiate a balance of

power in the region. That said, progress will be uneven in

each of these arenas as the United States and Iran struggle to

work out their differences and influence a maze of competing

ethnic and sectarian forces. As the United States prioritizes a

difficult negotiation with Iran over the interests of its traditional

allies in the region, the resulting strain in those relationships

will hamstring U.S. efforts to work out the region's thornier

issues. However, this is a price the United States is willing to

Tensions Are Building in

Venezuela

Europe's Russia Factor

Annual Forecast 2013

Third Quarter Forecast 2013

Second Quarter Forecast

2013

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South Asia

Latin America

Sub-Saharan Africa

pay while working toward a settlement with Iran.

Saudi Arabia's Lack of Options

Saudi Arabia, though deeply unnerved at the prospect of its

primary patron developing a relationship with its main regional

adversary, will lack the power and influence to derail the

negotiation. The Saudi government will attempt to tighten and strengthen an Arab coalition against

Iran (this time without U.S. backing), but this effort will be mostly hollow, especially since the Gulf

Cooperation Council states will remain divided over how far they are willing to go in maintaining an

antagonistic relationship with their Persian neighbor. Despite the obvious strain between

Washington and Riyadh, the United States will maintain its relationship with the Saudi royals and

other Gulf states through military and energy deals.

As the U.S.-Iranian deal progresses, the Saudi government might consider quietly opening up a

back channel with Tehran to directly negotiate a truce with its adversary. Most of Saudi Arabia's

focus this year, however, will be on trying to maintain influence in still-active sectarian

battlegrounds.

Syrian Fighting and Spillover Continue

Syria will remain the main proxy battlefield between Iran and Saudi Arabia. Despite multilateral

efforts to negotiate a political transition in Syria, no negotiation will quell the Syrian civil war this

year. Limitations to external aid for the rebels and efforts to neutralize the Syrian chemical weapons

program will keep the civil war relatively contained. Although they will receive continued financial

and military aid from Saudi Arabia, Qatar and other Gulf donors, the rebels will not receive a

substantial boost in their fighting capabilities from the West. Iran's strong support for the Syrian

regime and Hezbollah reinforcements will make the imbalance of power on the Syrian

battlefield even starker, but the regime will continue to face constraints in manpower and logistics

in retaking rebel territory. The loyalist forces will have enough of a military advantage this year to

enable Syrian President Bashar al Assad to manipulate elections, scheduled for the spring, in favor

of the Alawite minority while playing rival rebel factions against one another.

A large and capable jihadist presence in Syria will encourage the slow rise of an indigenous jihadist

movement in Lebanon. Hezbollah will have to split its attention between an emerging Sunni militant

threat in Lebanon and reinforcing its sectarian allies in Syria. The Lebanese political and militant

landscape will become even more fragmented in 2014 as various factions seek accommodation

with one another to adapt to Iran's strengthening role in the region. Hezbollah and Iran will try to take

advantage of the atmosphere of negotiation in an attempt to push the United States toward

accepting Hezbollah as a political actor and to formally integrate Hezbollah's militia into the

Lebanese army for the Shiite organization's long-term preservation.

Strained U.S.-Israeli Relations Hamper Peace Talks

Like the U.S.-Saudi relationship, the U.S.-Israeli relationship will experience a great deal of strain as

the United States absorbs the political cost of distancing itself from Israel while its policy for the

region evolves. Israel will adapt reluctantly to the situation, focusing its efforts on shaping the terms

of the U.S.-Iranian negotiation in the hopes of mitigating the Iranian nuclear threat.

Israel will use its sense of betrayal to drag its feet in any U.S. effort to reinvigorate the Israeli-

Palestinian peace process. The deeply fragmented Palestinian political landscape, along with

Egypt's disinterest and preoccupation, will further hamper the peace process.

Egypt's Military Consolidates Power Amid a Growing Jihadist Threat

The Egyptian military will use the spring election cycle to further entrench its authority and stack the

government with political allies. Political unrest will persist -- but not to a paralyzing degree -- as the

Muslim Brotherhood struggles to recuperate from its losses and as the military selectively co-opts

Salafists into the government. An Egyptian economic collapse is unlikely, though Cairo will remain

severely constrained as it tries to manage a burgeoning electricity crisis and unavoidable subsidy



cuts amid a protest-prone populace. Egypt's continued dependence on aid from Gulf patrons keen

on suppressing the Muslim Brotherhood and like-minded political forces will help Cairo manage its

economic challenges.

On the security front, Egypt will face a persistent jihadist threat in the Sinai Peninsula that will spill

increasingly into Egypt's core urban areas. Egypt's preoccupation in managing its political,

economic and security challenges means Cairo will be unable to play a decisive role in Arab affairs

beyond its borders in 2014. Hamas, blocked in by Egypt and Israel, will maintain a close

relationship with Iran in the meantime.

A Distracted Turkey Seeks Balance in the Region

While Tehran stands to strengthen its regional position through accommodation with Washington,

Turkey will look for ways to balance against Iran. These efforts will be most visible in Iraq, where

Turkey will try to anchor its influence in the north through energy deals with the Kurdistan Regional

Government while Iran maintains a dominant position in Baghdad through the Shiite-led

government. Iraq's national elections, scheduled for April, will highlight this competition. Iraqi Prime

Minister Nouri al-Maliki will attempt to retain his post while leaning on both Tehran and Washington

to pressure Turkey and the Iraqi Kurdish leadership to respect Baghdad's authority in managing the

country's energy resources. The result will be a stalemate: Baghdad will try to avoid pushing the

Kurds too far in an election year while it also deals with a persistent jihadist threat, and Ankara will

struggle to work out a compromise with Baghdad and Tehran while trying to maintain Kurdish

support in a volatile election season at home. Periodic truces are possible, but a grand bargain

satisfying the interests of Baghdad, Ankara and Arbil in northern Iraq's energy exports is unlikely

this year.

Turkey's ruling Justice and Development Party will face great internal stress as a coalition of

unlikely allies -- including the Gulen movement, members of the business elite and the main

opposition Republican People's Party -- finds common cause to weaken Turkish Prime Minister

Recep Tayyip Erdogan's position and undercut the ruling party in local and presidential elections.

The government's ambitious peace process with the Kurdistan Workers' Party will reach an

impasse, with the government too politically constrained to agree to concessions on political

amnesty and the Kurds without an incentive to withdraw their forces. The Kurdistan Workers'

Party's frustration over the negotiations, particularly ahead of elections and as the ruling party is

already facing challenges on multiple fronts, could lead to large public demonstrations and sporadic

attacks, but a full resurgence of Turkey's Kurdish insurgency this year is unlikely.

Turkey will use this year to reprioritize its foreign policy objectives. While trying to further its gains in

northern Iraq, Turkey will have limited influence in Syria and Egypt. Outside the Arab world, Turkey

will maintain a dialogue with Armenia and Cyprus in an attempt to extend its influence in the

Caucasus and the eastern Mediterranean, but a diplomatic breakthrough in either arena will be

difficult. Turkey's ties with Israel will improve gradually, but Ankara will prefer to keep the

relationship muted while it tries to shape perceptions in the Arab world.

Instability Persists in North Africa

The Maghreb will be less affected by the implications of the U.S.-Iranian negotiation but will face its

fair share of challenges. Libyan instability will be at the heart of the region's security issues in 2014.

Even as Western states push the transitional national authority in Tripoli to move ahead in the

lengthy process of drafting a constitution and forming a new government, Tripoli will continue to

struggle in asserting its authority over a fragmented tribal and militia landscape. Tripoli will

coordinate with foreign capitals to train small groups of soldiers to help boost its fledgling national

army's capabilities and organization. In trying to counter the decentralization of authority that

defined much of Libyan instability in 2013, Tripoli will also work to co-opt smaller militia and tribal

groups throughout the country. At the same time, Tripoli will attempt to partner with larger regional

centers of authority to rein in renegade armed groups and militants that have benefited greatly from

Libya's current security vacuum. This is sure to be a violent process in which control over energy

infrastructure will be used as leverage. Expect oil production and exports to fluctuate greatly as a

result.



Click to Enlarge

Table of Contents

Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

Instability in Libya will continue benefiting regional jihadists in search of a haven and staging ground

for attacks. Neighboring Algeria and Tunisia in particular will not be immune to such attacks, but

Algiers will maintain its security cooperation with Tunis and, to a lesser degree, Tripoli as it tries to

insulate itself in the coming year.

Algeria will try to expand its political, security and economic inroads into Tunisia as the latter

continues through its difficult political transition. Algiers will also maintain security coordination with

the Sahel states to the south and continue low-level political provocations with Morocco to ensure

Rabat remains too distracted by domestic political and economic challenges to interfere with

Algeria's regional policies. Algerian President Abdel Aziz Bouteflika and his faction will work toward

securing a victory in the upcoming presidential election -- whether Bouteflika or an ally runs for the

office -- and overseeing changes to the constitution while balancing competing military, political and

economic interests. The success of Bouteflika's internal political management will determine how

far Algiers goes in its attempts to revive foreign investment in the energy sector later in the year.

Europe

Eurozone Sluggishness Continues

Europe will be able to muddle through another

year of stagnant economic growth and high

unemployment, but the political and social

pressures developing on the Continent will

hobble the very structural reforms needed to

manage the crisis in the long run.

Although some eurozone countries will see marginal reductions in unemployment and the

periphery will see decent export levels, negligible economic growth and high unemployment rates

(in the periphery, as well as core countries like France and the Netherlands) will persist. Under

these circumstances, credit conditions for households and companies will remain tight,

undermining domestic consumption as well as hopes for a strong economic recovery. Efforts

made by the European Central Bank to provide easier access to credit for small and medium-sized

businesses will have limited success, as the bank still lacks an effective mechanism to impose

monetary policy on member states and banks that will remain hesitant to lend. The combination of

high unemployment and tight credit conditions will carry a number of consequences for the year.

The Social and Political Effects of the Ongoing Crisis

The most palpable consequence will be the rise of social

unrest on the Continent. Street demonstrations will be the

most obvious expression of popular anger at ruling elites. Just

as important to watch will be the gradual strengthening of

nationalist and anti-establishment parties as well as the more

subtle emergence of grassroots movements capable of

gaining support from various, but equally frustrated, segments

of society.

From local to EU levels, the rise of nationalist and

Euroskeptical parties will be felt in the 2014 election cycle.

Belgium, Hungary and Sweden are scheduled to hold general

elections, while France, the United Kingdom and Greece will

hold municipal elections. In May, the populations of all EU

member states will vote in elections for the European

Parliament. Though nationalist and Euroskeptical parties will

not assume full control of the European Union and its

member states, they will perform strongly and achieve record

results in most of these elections.

More national governments will thus be forced to seriously consider the demands of anti-

establishment parties in shaping policy. At the same time, Brussels will continue pushing for further



government austerity measures and more centralized control at the EU level. These contradicting

interests will create more friction between national governments and EU institutions as member

states fail to meet their deficit targets under growing pressure from unions, protest groups and

nationalist parties to maintain spending levels -- and thus safety nets -- for their populaces.

EU-Level Developments and Complications

EU institutions largely will be paralyzed for the second half of the year due to European Parliament

elections in May and the election of a new European Commission at the end of 2014. Further

complicating matters at the EU level in this transition period will be the entry of nationalist parties

into the European Parliament, where they will try to block or at least delay EU integration

policies put forth by the member states and the European Commission, such as the creation of a

eurozone budget. The United Kingdom, widening the split between eurozone and non-eurozone

countries, will reinforce the trend of Euroskepticism by resisting reforms aimed at centralizing

Brussels' control over the union, particularly when it comes to immigration.

Greater political discord at the EU level will complicate efforts underway to insulate and repair

European banks, but the European Central Bank will retain the tools it needs to prevent a Europe-

wide banking and sovereign debt crisis this year. The task of forming a banking union will enter the

technical phase as the European Central Bank and national regulators try to implement a relatively

diluted political agreement to centralize the oversight of, and decision-making for, eurozone banks.

Decision-making shared among the European Central Bank, European Union and national

governments will greatly complicate the second pillar of the plan to decide when and how banks

should be closed.

Ahead of the European Central Bank's assumption of a supervisory role over the eurozone's

largest banks at the end of the year, these banks will undergo rigorous stress tests to reveal which

are overexposed and which will require new injections of capital. High unemployment rates will

continue preventing many households and businesses from honoring their debts, forcing banks --

including those spared from the stress tests -- to defer action on a growing pile of non-performing

loans. The European Central Bank will work to keep potentially unnerving information from leaking

out in this process and will moderate demands on banks to avoid triggering panic in the financial

markets. The consolidation process, in which stronger banks absorb the weaker, will continue, and

the European Central Bank will be able to provide aid (in the form of providing financial assistance,

restructuring bailout agreements and relaxing austerity demands) to struggling eurozone countries

if the need arises. Greece, Cyprus, Portugal and Slovenia will be the most vulnerable countries that

could require such aid in 2014.

Challenges Arise in the European Core

The Franco-German relationship, which forms the foundation of the European Union, will undergo

strain this year as France's domestic tensions escalate. Paris and Berlin will make the necessary

effort to manage their relationship, even as their economic performance continues to diverge.

French President Francois Hollande will try to appease a diverse and growing group of

demonstrators and balance between business groups, local protest groups and unions though

reforms, such as revamping the country's taxation system, though progress will be slow and

uneven. Criticism from Germany and the European Union over France's resistance to cutting back

government spending will have little influence on French policy.

Germany will also have a busy domestic agenda, including efforts to pass energy reforms in

response to the rising costs that have come with the increased use of renewable energy.

Germany's energy reforms will trigger disputes at home and with the European Union, because

Berlin will be expected to prioritize domestic demands to avoid raising energy costs for German

companies over EU complaints that German state financial support for companies undermines

competitiveness on the EU level. Germany's decision to implement a minimum wage in 2015 could

dampen criticism of the country's trade surplus.

Though Germany will be preoccupied with managing stresses within the eurozone, it will attempt to

play a bigger role in Central and Eastern Europe, where Russia has been trying to strengthen its

foothold through commercial deals. The German government will debate internally over how to deal



Click to Enlarge

with the Russians on a tactical level, but neither Berlin nor Moscow will risk a rupture in their

bilateral relationship.

Germany will engage in a complex balancing act with Russia, particularly when it comes to the

thorny issue of energy policy. On the one hand, the completion of liquefied natural gas import

terminals in Poland and Lithuania in 2014 will demonstrate a continued commitment from the

European Commission to weaken Russia's energy leverage over Europe. Germany can be

expected to demonstrate its close relationship with Poland in other aspects as it balances against

Moscow. On the other hand, Germany likely will play a critical role in facilitating a compromise

between the European Commission and Russian state-owned energy firm Gazprom on the

European Union's ongoing antitrust probe.

Hungary and Bulgaria will also push for a compromise between the European Union and Russia on

energy policy, since they are among the European countries that hope to profit from Russia's

South Stream natural gas pipeline project. Hungary will maintain an antagonistic relationship with

Brussels, and Hungarian Prime Minister Viktor Orban's government will run a heavily anti-EU and

populist campaign ahead of elections in the first half of the year. Budapest's attempts to expand its

control over the Hungarian economy will continue, with utility companies and banks some of its

main targets.

Key Elections for Separatists

2014 will also be a significant year for European separatist movements. London will campaign

against Scotland's independence referendum in September, but the issue is unlikely to generate

substantial frictions within the United Kingdom.

In Spain, Catalonia's push for a referendum will be considerably more contentious. The Catalan

government will try to use its plans to hold a referendum as leverage in its negotiations with Madrid,

while the government of Prime Minister Mariano Rajoy will threaten to take the matter to the

Constitutional Court, where it would be annulled. Even if the referendum is actually held, the deep

divisions within Catalonia's political establishment will prevent a unilateral declaration of

independence in 2014.

Former Soviet Union

A Crucial Year Ahead for Moscow

Russia has a limited amount of time before the

United States uses a detente with Iran to

lighten its burden in the Middle East and turn its

attention to other areas of the world, including

Russia's neighborhood. Though Russia will

continue trying to build leverage in the Middle

East to quietly complicate U.S. plans for the

region, it will not be able to stand in the way of a deal. Therefore, this year will be a crucial period

during which Russia will resolve as many priority issues as it can while Washington remains

preoccupied with negotiations with Tehran. However, given the array of challenges Russia faces at

home and abroad, this will not be an easy task.

The tools that Russian President Vladimir Putin used to resurrect the Russian state when he came

to power are growing blunt. Economic malaise will drive social unrest in Russia at a time when the

state mechanisms traditionally used to manage that unrest are losing influence. Putin will be able to

manage the growing instability within the Kremlin and on the streets, but in the process he will

make the state more dependent on him in particular and thus more vulnerable in the long run.

Stagnant economic conditions will force Russia to confront vulnerabilities in its energy-based

economy. The Russian energy sector will continue evolving from a monolithic state-run sector

focused almost entirely on Europe to a more competitive, but still heavily state-influenced, sector in

which more players, such as Novatek, will be able to compete with Gazprom and sell to a more

diversified client base.



Table of Contents

Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

The Kremlin will also engage in policy changes in 2014 to

bolster non-energy sectors of the economy, including the

mining, metals, construction, food and auto industries. This

initiative will make limited progress in the short term, but the

Kremlin will loosen up restrictive investment policies in an

attempt to make these sectors more attractive to potential

investors. A restructuring of the economy will necessarily

create more competition among the Kremlin clans and could

lead to a large government reshuffle as Putin attempts to

manage various factions while trying to tame a frustrated

populace. With a full domestic agenda, Russia will carefully

weigh where it can afford to be more assertive and where it

will have to be more conciliatory in managing its foreign

affairs.

Russia's Maneuvers Abroad

Russia is nervous about the prospect of a U.S.-Iranian

rapprochement but likely will not be able to stop it. Moscow

will try to make the most of the situation by arguing that the

U.S.-Iranian negotiation has removed the Iranian military

threat and thus has rendered U.S. ballistic missile defense

plans for Europe obsolete. Russia will rely on its relationship

with Germany to try and build a coalition of NATO members willing to delay U.S. ballistic missile

defense plans or renegotiate the contracts to integrate Russia into an expanded defense system.

The United States will try to avoid a confrontation with Russia as it focuses on securing a deal with

Iran, but Washington is unlikely to compromise substantially on its ballistic missile defense plans,

designed in large part to balance against Russia and reinforce a U.S. military commitment to allies

in Europe.

Russia will continue its commercial acquisition strategy in Central Europe, but Berlin will be more

assertive on occasion in an effort to set some boundaries with Russia in Central Europe while

focusing on the much bigger issue of holding the eurozone together. Berlin and Moscow will take

care to maintain their bilateral relationship, but the two countries will engage in substantial

bargaining over Central Europe, Ukraine and the EU energy strategy.

Moscow's relationship with Berlin will be critical in managing the two major European energy

issues of 2014: the European Commission's antitrust probe into Russian energy monopoly

Gazprom and the legality of Gazprom's South Stream pipeline project connecting Russia and

South-Central Europe. With the upcoming turnover of European Commission members in 2014

and the array of compromises Gazprom can offer the European Union -- including giving further

price cuts to European customers and allowing third-party suppliers to access South Stream -- the

standoff between the European Union and Russia will move toward an eventual accommodation.

Moscow Consolidates Influence in Its Periphery

Russia's moves in the former Soviet periphery this year will mostly involve defending and

consolidating the gains it has made thus far. With Western influence in Ukraine neutralized for now,

Russia will move forward with plans to strengthen its ties to Ukraine's energy and economic

sectors. This will be a politically volatile year for Ukraine in the run-up to the presidential election

slated for early 2015, and protests against the president will occur periodically throughout the year.

Germany and the European Union will try to maintain some influence in Ukraine through their

support of opposition leaders like Vitali Klitschko, but Russia will maintain the upper hand in Ukraine

overall.

Moldova and Georgia, which moved forward with EU agreements in 2013, will become a focal point

of the competition for influence between the West and Russia. Russia can be expected to apply

economic, security and political pressure on Moldova and Georgia to try to prevent them from

following through with the agreements. Russia will probably succeed, particularly since the same

fundamental obstacles that prevented Ukraine from proceeding with its EU agreements are likely to



Click to Enlarge

obstruct Moldova's and Georgia's plans as well.

The Baltic states will continue to make progress in their energy diversification from Russia, with

Lithuania's liquefied natural gas import terminal coming online in late 2014. However, the Baltics will

continue to struggle to get the security commitment they seek from NATO and the United States in

the face of Russia's more aggressive military posturing in the region.

Russia will maintain a strong position in all three Caucasus states this year, though the U.S.-Iranian

talks will open the door for both Iran and Turkey to gradually become more active in the region. Iran

will seek to increase its social and political influence in Azerbaijan, while Turkey will try to mediate

talks between Armenia and Azerbaijan over Nagorno-Karabakh in an attempt to reopen relations

with Armenia. However, both Turkey and Iran face too many constraints this year to make much

headway in these efforts, allowing Russia to retain its predominant role in the region.

Armenia, Kyrgyzstan and Tajikistan will strengthen economic and security ties with Russia as they

progress with plans to join the Customs Union, which is set to become the Eurasian Union by

2015.

Russia Turns its Attentions to Asia

As Moscow looks beyond Europe to diversify its energy clientele, Russia will expand and deepen its

relationships in the Asia-Pacific region. Russian oil deals with Asian clients have already begun to

alleviate pressure in the Russian oil sector, but this year Russia will begin construction on energy

infrastructure designed to supply natural gas to Asia.

China's growing interest in Central Asia will unnerve Moscow, but Russia will avoid confrontation

and prioritize securing its own large energy deals with China this year. Russia will gradually

develop a counterweight to China at the same time through its warming relationships with Japan

and South Korea.

The Russian-Japanese relationship will be particularly important in 2014 as both states make

concrete moves to negotiate a peace treaty and ease territorial tensions. This will pave the way for

large deals involving security cooperation, Russian energy exports to Japan and Japanese

investment in Russia.

The U.S. drawdown in Afghanistan and the resulting gradual outflow of militants will exacerbate an

already tense security environment in Central Asia. Security deterioration in Central Asia will be

incremental rather than a sudden and significant destabilization. Border tensions and violence

among Uzbekistan, Kyrgyzstan and Tajikistan will continue to pose a threat in the region.

Kazakhstan and Uzbekistan both face uncertainties regarding presidential successions, but

political friction will build in Uzbekistan in particular as the competing clans struggle this year in

preparation for the eventual transition.

East Asia

China's Changes Reverberate in the Region

Three trends will shape East Asia and the

Pacific region in 2014. First, China will struggle

to implement reforms amid an economic

slowdown, consolidate the new

administration's power and assert its

influence in the region. Second, major powers

will respond to China's growing influence,

including the United States updating its engagements in the region and Japan reviving its

international status. Third, a range of Asian states will experience greater volatility as a result of

China's slowdown, U.S. monetary policy and internal political dynamics.

China's central government enters 2014 buoyed by optimism abroad and at home over a host of

ambitious social, economic and political reforms outlined during November's Third Plenary



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Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

Session. Now the real work begins for President Xi Jinping and his administration as they attempt

to implement these reforms while managing all the inherited pressures of China's economic

slowdown.

The cautious, incremental implementation of reforms in China over the next 12 months is

defined by the need to streamline government bureaucracy, address widening regional and rural-

urban economic imbalances and allow market forces to play a more significant role in the allocation

of resources.

Two structural reform areas will be key in 2014. First, Beijing

will accelerate market-oriented pricing for resources like

natural gas and water to improve efficiency. Second, it will

adjust the fiscal relationship between central and local

governments, widening taxes on property and coal, changing

existing taxes on resources and consumption, and expanding

local bond issuance programs, largely to stabilize local

government financing. The central government also will

further relax controls on interest rates, the exchange

market and the capital account to promote financial

liberalization, which is already underway in the Shanghai

special economic zone. However, while the central

government plans to restructure ineffective state-owned

enterprises and monopolized sectors, this process will likely

fall short within the year because of resistance from the

enterprises and leaders' concerns about unemployment.

In line with its broader goal to shift toward an economic model

less reliant on coastal export manufacturing, the central

government will extend reforms of residential registration and

rural land sales. Likewise, it will support further inland and

western development through new special economic zones

and infrastructure investment. However, restructuring the economy is a multiyear process -- one

that China's leaders will seek to balance against the need to maintain socio-economic stability,

resulting in gradual and partial execution.

Severe risks to social and economic stability will persist, mainly from recent credit accumulation,

threats to employment from slower growth and rising public anxiety over corruption and

environmental degradation. While the new leadership has signaled it will tolerate a moderate

economic slowdown and some increase in unemployment for the sake of reform, it will struggle to

balance these goals against rising public expectations and growing concerns over local

government debt. Localized instability in property markets is likely this year, potentially exacerbating

local government debt woes. However, despite the risk of systemic financial crisis, the central

government has the resources to manage these concerns throughout 2014.

Xi's Administration Consolidates Political Power

The Communist Party is showing signs of moving beyond its two-decades-old model of collective

leadership to build a more consolidated Party centering on Xi. A "strongman" model, like Deng

Xiaoping's leadership, has become attractive based on the belief that it would help the country

make critical decisions at a time of enormous domestic and international challenges.

Reforms always come with more intense ideological debate and rising political expectations that go

beyond the Party's interests. Hence, the Party will resort to tight control over social media, dissent

and the ideological realm in order to ensure that further economic opening will not jeopardize its

political authority, as the events leading up to the Tiananmen incident did.

Xi and his allies will burnish their public credentials and build confidence in the Party's

trustworthiness by continuing to wage an aggressive campaign against corrupt officials. This will

also serve to consolidate power throughout the Party and state bureaucracy. Xi will also try to

improve the judicial system gradually. Still, social unrest and alternative political demands will



intensify as different groups oppose what they view as either excessive gradualism or radicalism in

the central government's reform agenda.

China Repositions Itself Internationally

Supply line security and inland development have required Beijing to expand its security and military

focus in its periphery over the past decade. In 2014, Beijing will accelerate economic cooperation

with its neighbors to speed up development in its border regions and improve its strategic standing

among its immediate neighbors. In particular, China will refocus on development in the south and

west, looking to open up land corridors to reach Central Asia, Eastern Europe and the Middle East.

Beijing will move beyond energy to promote other trade and infrastructure deals in these regions. At

the same time, China will bolster its traditional foothold in Southeast Asia, seeking greater

connectivity and market share in the face of growing competition.

In the maritime sphere, Beijing's growing capabilities and assertiveness will continue pressuring

surrounding states, but China will not treat its neighbors uniformly. In Northeast Asia, China's

military modernization and assertions of influence will increase tensions with Japan, while

in Southeast Asia, China hopes that its accelerated economic outreach to countries like Thailand,

Malaysia and Indonesia will further divide the Association of Southeast Asian

Nations regarding territorial disputes and security concerns. China will court Vietnam and the

Philippines for joint exploration as the smaller countries look for third powers to strengthen their

position.

With the establishment of its National Security Committee, Beijing is looking to increase its general

level of involvement in external affairs. Beijing will attempt to use regional multilateral frameworks

and its allies to divert U.S. pressure while seeking to prevent competition with the United States

from disrupting its delicate domestic transformation.

Washington and Tokyo Increase Activity

The U.S. challenge of resurrecting a balance of power in the Middle East will limit Washington's

focus on the Asia-Pacific region in 2014, but the United States will gradually gain more flexibility to

pursue engagements there. It will work with allies and partners to increase military drills, visits and

dialogues while pressing forward with economic cooperation, including but not limited to the Trans-

Pacific Partnership.

Meanwhile, Japan will continue to act with a renewed sense of international purpose, aiming to

revive its international image as a great power. Tokyo will revise the legal, administrative and

policymaking frameworks for its new national security strategy. It will continue normalizing its

military, paying particular attention to expanding capabilities in the southwestern islands, facilitating

arms exports and changing policies to allow collective self-defense. It will also tighten its alliance

with the United States and its security cooperation with regional partners.

Tokyo will maintain the recently increased tempo of economic diplomacy, focusing especially on

infrastructure exports and emerging markets. It will court states that offer both economic and

strategic benefits especially -- including Russia, India and members of the Association of

Southeast Asian Nations. As Japan tries to solidify its energy supply chain security through

arrangements in Russia, the Middle East and elsewhere, the U.S.-Iranian negotiations will give it

the opportunity to pursue relations with Iran with fewer constraints but amid greater

competition among energy clients in Asia.

Domestically, economic stimulus will mitigate the impact of a higher consumption tax, but the

attempt to contain large deficits and debt while speeding up growth and inflation will reveal

constraints on the government's economic policies. The ruling party will pursue structural reforms

in a number of sectors -- most notably the electricity industry. However, these reforms will not have

an immediate, game-changing effect. The very slow restart of nuclear power will be politically

controversial, and energy import costs will remain high, contributing to trade deficits. In addition, the

need to raise wages will remain a major obstacle to broader economic revival. For these reasons,

political opposition will grow even as the ruling party remains broadly popular and firmly in control of

policy.



Click to Enlarge

Internal Challenges Grow Across the Region

Across Southeast Asia, a range of economic and socio-political challenges will become more

prominent in 2014. The region's emerging economies will capitalize on the gradual shift of

manufacturing investment away from China and the rising competition among developed countries

for market share in this economically ascendant region. However, they will face immediate

challenges as China's slowdown, Europe's weakness and expectations of tighter U.S. monetary

policy force them into a riskier environment.

In addition to economic volatility, several Southeast Asian countries face the prospect of political

instability and social discontent stemming from a variety of causes. Indonesia's new government

will face the test of whether it can maintain the past decade's relative stability despite budgetary,

trade and inflation troubles. Thailand will enter into the next episode of its ongoing political and

constitutional crisis, since the royalist establishment and regional populist movement probably will

not be able to forge a broad compromise to accommodate each other's interests in 2014. Myanmar

will continue its economic opening and political reform, but the election in 2015 will lend momentum

to political maneuvering and further ethnic and religious instability. Vietnam will strive to contain

rising public grievances as it restructures its economy. In countries as diverse as Malaysia,

Cambodia and Singapore, opposition pressure will spur the dominant ruling parties to try new ways

of restoring support. These trends will require governments to use a range of tools -- from public

spending to security forces -- to preserve their grip on power. Thus, while Southeast Asian states

differ in their specific problems and capabilities, growing internal challenges will be a general trend

in the region.

In North Korea, 2014 brings even greater uncertainties than usual. The ousting and unexpected

execution of North Korean leader Kim Jong Un's uncle, Jang Song Thaek, raises questions about

Kim's consolidation of power -- namely, whether the purge of Kim's rivals is unfinished. Moreover,

the struggle for consolidation will continue since Kim remains a new leader surrounded by older

generals and party leaders. With further consolidation and reshuffling expected, Pyongyang will

need to appear threatening to remind outside powers to give it space to deal with internal matters,

and it may engage in some provocations. However, when Pyongyang feels it stands on firmer

ground, it has the option of initiating various talks as well as continuing to experiment with

economic opening policies, not only with China and South Korea but also with other parties, such

as Russia. However much Pyongyang may reach out, it will not go so far as to make major

concessions on its nuclear or missile programs in the next year.

South Asia

India Gears Up for a Dynamic Year

Domestically, the looming national elections

in May 2014 will consume India's attention. The

incumbent Congress/United Progressive

Alliance government will be in a lame-duck

position for the first half of the year as the

domestic economy struggles with an overall

slowdown. Some sectors may see better-than-

expected growth, but overall the opposition Bharatiya Janata Party will position itself as the force

capable of lifting the Indian economy out of the doldrums facing many emerging economies. As the

Congress and the Bharatiya Janata Party square off in their decadeslong rivalry, the national

elections are likely to illustrate the rising clout and popularity of local parties on the national level,

reflecting growing frustration with the traditional duopoly of India's national politics. The large

numbers of people mobilized as part of the political process will create several avenues for conflict:

local communities pushing back against state and national authority, competing ethnic and

sectarian interests, and the ever-present jihadist and militant threat as those groups seek to take

advantage of a distracted central authority and large gatherings of people to stage attacks.

India's domestic political battle will take place at a time of near-unprecedented upheaval in the

Indian periphery. New Delhi will attempt to pursue its strategic interests in the broader Indo-Pacific

basin, including Nepal, Sri Lanka and Myanmar, as well as other Association of Southeast Asian



Table of Contents

Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

Nations, while trying to limit the risks of instability in Pakistan

and Bangladesh and of an Afghan state preparing for the 2014

NATO withdrawal. As New Delhi continues moving toward a

more stable working accord with Beijing, it will also try to

leverage its traditional relationships with the United States,

Australia and Japan into increasing foreign investment and

infrastructure development. Any major foreign policy shifts are

unlikely ahead of the national vote, but India's inherent

risks and interests in its periphery will remain largely

unchanged no matter who wins the election. The U.S.-Iranian

negotiations will create opportunities for India to expand its

ties with Iran and potentially cooperate in areas like

Afghanistan. However, a slow removal of sanctions will

threaten India's favorable payment arrangements for Iranian

oil, and Tehran's demand for euro-denominated payments will

continue exacerbating the economic challenges that India's

rising energy import bill poses.

Elections and Strikes in Bangladesh

Dhaka will face the daunting task of trying to hold a national

election that is free and fair enough to satisfy both

international observers and internal constituents, including the military. Bangladesh will attempt to

hold elections without a military-backed neutral caretaker government in place for the first time

since the country's return to civilian rule in 1990. While the outgoing Awami League-led coalition will

attempt to bring the opposition Bangladesh Nationalist Party, its Islamist allies and the military into

negotiations on its own terms ahead of any election, the party's attempts to retain power will face

significant resistance.

Violence, public unrest and protests will take their toll on overall security and stability. The country's

critical textiles and clothing manufacturing sector will suffer from continued, disruptive strikes for

higher wages. The government will grant concessions to labor, but strikers' awareness of the

government's weak position will spur further demands. New Delhi will seek to limit the outflow of

Bangladeshi immigrants seeking refuge within its borders, especially during its own elections-

related upheaval, but it will encounter limitations in trying to shape the outcome of Bangladesh's

political process to suit its own strategic imperatives.

Sri Lanka's Ambitions for 2014

Colombo will focus on consolidating its position in the Tamil-dominated northern and eastern parts

of the country following the provincial council votes in September 2013. Taking advantage of the

internal divisions already becoming apparent within Sri Lankan Tamil politics, President Mahinda

Rajapaksa's administration will try to revitalize provincial economies through outside investment

and infrastructure development. Colombo will also seek greater foreign capital inflows into the

country's ambitious infrastructure, energy and mineral extraction sectors. Agriculture and

manufacturing, specifically textiles production, will continue to be a focus of growth, especially as

Colombo attempts to take advantage of lower cost labor among the island's historically

disadvantaged and underdeveloped Tamil regions.

Sri Lanka will be caught in a competition between New Delhi and Beijing as both try to bring the

island nation into their spheres of influence. While Colombo wants to avoid being simply a satellite

of India, it cannot avoid developing a more stable working relationship with New Delhi -- something

India will pursue even in the face of domestic Tamil opposition. The Rajapaksa administration will

also work on consolidating its political relationships on the island, including courting Tamil votes

through promises of investment and development, ahead of the 2015 presidential election.

Afghanistan Prepares for the NATO Drawdown

Afghanistan faces two primary challenges in 2014: the drawdown of NATO forces and the decision

on the status of forces agreement with the United States. Stratfor believes that Kabul will eventually



Click to Enlarge

Table of Contents

agree to a continued U.S. military presence, despite elaborate outward waffling on behalf of

President Hamid Karzai's outgoing government aimed at limiting negative blowback from

announcing a decision publicly. This military presence will be too small to meaningfully affect

Washington's fitful negotiations with the Taliban, but the drawdown will also effectively remove

Afghanistan as a strategic priority for the United States.

Afghanistan will undergo a critical transition after a presidential election slated for April produces a

successor to Karzai, the country's only president since the fall of the Taliban government. It is

bound to be a rocky transition as the new president seeks to consolidate his position -- a matter

complicated by both Karzai's efforts to retain influence after leaving office and an anticipated

increase in Taliban attacks against Afghan and Western forces beginning in March or April.

Insurgencies and Military Issues Preoccupy Pakistan

The growing uncertainty in Afghanistan will have the most direct impact on its eastern neighbor,

which already faces a strategic dilemma on how to manage its own domestic jihadist insurgency.

Pakistani Taliban rebels under a new leader based in eastern Afghanistan will try to take advantage

of the vacuum created by departing Western forces and the Afghan Taliban insurgency to launch a

new offensive east of the Durand Line. Islamabad thus will have its hands full dealing with the new

Afghan leadership as well as the insurgencies next door and at home.

Meanwhile, Pakistani Prime Minister Nawaz Sharif's government will focus on enhancing civilian

control over the military after appointing the first military chief since the Musharraf era as part of a

reshuffle of the top brass that will be complete before the end of the year. Pakistan's efforts to

improve its economy will not see much success beyond some reduction in the duration of power

outages as electricity production slowly increases.

Latin America

Political Tumult Returns in Mexico

If 2013 was the year of unprecedented political

dynamism and cooperation in Mexico, 2014 will

be the year of a return to political infighting.

Having passed a raft of deep political,

economic and social reforms in 2013, Mexico

will now be faced with perhaps an even harder

task: implementation. With no constitutional

reforms on the agenda, alliances among the country's three major parties will be less imperative,

and interparty cooperation will likely stagnate.

Implementation of the aforementioned reforms will be replete with bureaucratic and political

hurdles. Secondary legislation for several of the country's major reforms -- including those on

telecommunications and energy -- will be negotiated throughout 2014, and the effects will not begin

to be felt until late 2014 if not 2015. Both reforms will address the key issue of

introducing competition into two sectors that have long been monopolized. For energy reform

specifically, secondary legislation likely will clarify the types of contracting models that will be

applied to certain energy activities.

On the security front, Mexican President Enrique Pena Nieto will struggle throughout 2014 to

implement his long-term strategy -- namely, creating a new national gendarmerie and consolidating

public security under a single, centralized command structure in each state. With few alternatives,

he will continue his predecessor's approach of using the military to target the leadership of

organized crime groups and to maintain order where needed.

Even though nationwide homicide rates may decline

throughout the year due to security improvements in the cities

that most heavily contribute to these figures, high levels of

violence and insecurity will continue in most of the country --

particularly the northeast and southwest. The expansion of



Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

citizen-organized militias -- commonly referred to as

community police or self-defense groups -- in Michoacan and

Guerrero states has added another challenge for Mexico's

military to manage in 2014.

Colombia Attempts to Quell Unrest

Colombia likely will reach a deal with the Revolutionary Armed

Forces of Colombia, or FARC, in 2014, thereby ending the

Western Hemisphere's longest insurgency. President Juan

Manuel Santos will push hard to have these negotiations

wrapped up by election day in May and will hold a national

popular referendum coinciding with the elections in order to

seal the deal. But even if negotiators do not reach a deal by

this deadline, Santos likely will be able to keep negotiations

alive if he is re-elected. That said, the longer they go on, the

more vulnerable to failure the talks become.

Even if the FARC reaches a peace agreement with the government in 2014, the deal's

implementation will be complicated, and any agreement likely will take months or years to fully

enact. With the FARC talks approaching a conclusion, the Colombian

government will continue exploring the possibility of starting formal peace talks with the National

Liberation Army, the country's second-largest guerrilla group.

With legislative elections in March and a presidential election in May, the Santos administration will

work assiduously to appease disgruntled farmers and struggling manufacturers by crafting new

economic policy that is more supportive of local production. The government will also auction off

overdue transportation infrastructure projects in 2014.

Venezuela Focuses on Economic Pressures

With no major elections in 2014, the Venezuelan government will focus on stabilizing its

deteriorating economy. Caracas will try to rein in high inflation and address scarcities of food and

consumer goods, with limited success. The widening gap between Venezuela's official exchange

rate and the black market rate makes devaluation in 2014 likely, which in turn makes a substantial

decrease in inflation unlikely.

Venezuela will continue relying on already overburdened state-owned oil company Petroleos de

Venezuela to fund national social spending and provide foreign currency to the central bank.

Significant investment from abroad into Venezuela's energy sector is unlikely, and the government

will have to consider raising fuel prices and/or reducing some Petroleos de Venezuela-funded

programs domestically and abroad to reduce the strain on the company.

Despite the increasingly unstable economic situation, Venezuelan President Nicolas Maduro will

not face a direct threat to his rule this year. No political faction within the ruling United Socialist

Party of Venezuela seems willing or able to challenge Maduro's position as Hugo Chavez's

successor, and the opposition remains weak. For now, Maduro appears to have gained the

cooperation of powerful government figures such as National Assembly leader Diosdado Cabello

and Oil Minister and Petroleos de Venezuela President Rafael Ramirez, as well as the armed

forces, in ruling the country. Despite the likelihood of further economic deterioration, the

government will continue to implement piecemeal measures to sustain the system without radically

altering its national economic policy.

Brazil Braces for the World Cup Amid Domestic Issues

Three major dynamics will define Brazil in 2014: global macroeconomic instability, the World Cup

and the presidential election.

Of paramount importance for Brazil is maintaining domestic economic stability as the global

economy experiences a structural shift. Facing the gradual end of the U.S. Federal Reserve's



Click to Enlarge

monetary expansion program and the end of a credit-driven growth spurt, Brasilia will need to adapt

to new economic realities and carefully balance inflation and growth in 2014, much as it did in

2013. Although major economic crises are not likely to develop, 2014 will be a year of higher-than-

desired inflation and slower-than-desired growth.

In June and July, the world's attention will be on Brazil as it hosts the 2014 World Cup. The

government will be wholly focused during the first half of the year on preparing for the games by

both finishing up major infrastructure projects and readying its law enforcement bodies to manage

associated social unrest and prevent violence. The political opposition will try to leverage any

popular protests as a means of gaining popularity ahead of elections.

In October, Brazilians will elect a new president. Incumbent President Dilma Rousseff and the

leftist Workers' Party comfortably lead in the polls and stand a good chance of winning four more

years in the executive branch. Most of the year will be spent campaigning, courting social

movements and building electoral coalitions. The Rousseff administration will continue to auction

off long-delayed infrastructure projects, with mixed success, and will continue to push for new

trade deals but will meet resistance from Buenos Aires.

Economic Troubles and Social Unrest in Argentina

With the economy struggling, less congressional support after midterm elections and the inability to

run for another term, Argentine President Cristina Fernandez de Kirchner will be in crisis-

prevention mode in 2014 while continuing to prepare a succession scheme.

A debt, inflation or current accounts crisis does not appear to be on the one-year horizon, but the

economic situation will nevertheless continue deteriorating throughout 2014. The government will

try to normalize its external position -- softening up trade restrictions and/or reaching deals with

lenders such as the Paris Club and multilaterals such as the International Monetary Fund and

World Bank -- in order to gain access to international capital markets. Buenos Aires will continue to

make piecemeal concessions to attract investment, particularly into its energy sector. However, on

the whole, the government will be constrained from deviating from the protectionist, interventionist

economic policies it has systematically implemented over the past decade.

Social unrest is a fact of life in Argentina, and opposition groups undoubtedly will focus on

distinguishing their policies from those of the government. Farmers, the middle class, labor and

other disaffected sectors of society will take to the streets in 2014, but broad-

based mobilizations against Fernandez's government may prove elusive as each group tries to

position itself behind potential competitors in the 2015 election.

Sub-Saharan Africa

Militancy Escalates Ahead of Nigeria'sElections

This will be an especially violent year in Nigeria

ahead of political party leadership elections in

December and national elections in April 2015.

The biggest issue at stake this year is whether

the southern Niger Delta region upholds a

political arrangement to rotate the presidency

back to the north. Nigerian President Goodluck Jonathan will face significant pressure to decline

nomination for re-election, but he will likely hold on to his eligibility through most of the year so his

support base can reap the financial benefits of his position before finally declining the nomination.

Jonathan can then be expected to angle for a party elder position to retain influence beyond his

presidency.

The uncertainty over Jonathan's ultimate decision will facilitate militant activity against civilians and

government officials in the north by Boko Haram. Niger Delta militants will also be active, but their

attacks will not result in substantial disruptions to energy production. Oil production is more likely to

be sporadically affected by damage to equipment during criminal thefts. The political constraints



Table of Contents

Introduction

Middle East

Europe

Former Soviet Union

East Asia

South Asia

Latin America

Sub-Saharan Africa

facing Jonathan's administration will prevent the government from passing a comprehensive

Petroleum Industry Bill designed to reform and diversify Nigeria's energy sector.

Integration Continues in the South and East

The economic and transportation supply chain infrastructure

in southern and eastern Africa will become more deeply

integrated. Angola and South Africa as well as Kenya and

Uganda will take major steps in 2014 to deepen their supply

chain connectivity, including pipelines, roads, rail and energy

infrastructure. Tanzania for the most part will be sidelined

from major infrastructure projects in the Great Lakes region,

both due to its physical underdevelopment and Kenya's

interest in preventing Tanzania from undermining its role as

the primary transit hub for the region. East Africa will see

incremental progress toward a customs union, but political

constraints will hobble efforts to form a monetary union.

South Africa Holds Elections

South Africa will hold national elections in April. Opposition

parties will not attract meaningful numbers of voters beyond

narrow factional supporters, resulting in a comfortable win for

the ruling African National Congress and its president, Jacob

Zuma. Collective bargaining over wage agreements in the

mining sector will reopen midyear. The bargaining process is already underway in the platinum

sector, as wage agreements reached in 2012 come up for renewal in 2014. The resolution of wage

disputes will largely be informed by market conditions for the commodity. If demand and pricing for

the commodity remain weak, the predominant unions -- the National Union of Mineworkers and the

Association of Mineworkers and Construction Union -- will be pragmatic in making wage

agreements. Once the national election is over, political alliances angling to win the 2017 African

National Congress leadership primaries will begin loosely forming.

Militants Remain Active in the Horn of Africa and the Sahel

While the capabilities of al Shabaab and al Qaeda in the Islamic Maghreb have been degraded in

the groups' main areas of operation, they will remain capable of conducting guerrilla attacks,

thereby justifying a sustained presence of international and regional counterterrorism forces in the

Sahel and the Horn of Africa.

Mali and its Sahel neighbors -- notably Mauritania, Niger, Chad and Burkina Faso -- will receive

continued extensive counterterrorism cooperation from countries including France and the United

States. France will draw down its forces to approximately 1,000 troops in Mali and shift more

security responsibility to the several thousand U.N. troops in the country, but Paris will retain the

capability to disrupt any lingering al Qaeda in the Islamic Maghreb cells trying to remobilize. Mali will

experience guerrilla attacks, but the attackers will not form a coherent insurgency. Tuareg

representatives will engage in what will end up being largely inconclusive political negotiations.

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