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The civil unrest in the Mideast, the eurozone debt crises, and the U.S. debt ceiling are all issues that keep Nomura geopolitical analyst Alistair Newton up at night.This past week he gave his midyear review of “Issues Which Keep Me Awake At Night” a full tour of the world’s big trouble spots.
He has a great track record. For example He flagged Egypt as a worry spot early on, well before protesters took to the streets.
Newton believes the transition in MENA will be long-drawn and uneven, given the current situation in Libya, Syria and Yemen. He expects threats to oil and gas output to be restricted to Libya, Yemen, and possibly Sudan, but that distribution threats in countries with ongoing protests and in Iraq after US-withdrawal cannot be ruled out.
Newton believes one of the most important developments has been that OPEC according to IEA is already producing 1.3 million barrels per day above the agreed total, and that Saudi Arabia may unilaterally boost production over concerns of the impact of oil prices on the global economy.
Public and parliamentary discontent in core Eurozone countries and those in the periphery is rising. There are still major hurdles to be overcome in Greece with protests against austerity measures, the involvement of private creditors in the bailout, and a potential downgrade of Greek's credit status to 'D'.
In terms of Portugal, the new government, which will only take office at the end of June, will have little time to implement new measures called on by the EU and IMF. These include major labour market reforms that would have to be voted through the parliament by early July.
Newton believes that the European Banking Authority's (EBA) decision to leave out certain types of hybrid capital from this years stress tests will make them more credible.
Newton isn't optimistic on seeing the debt ceiling raised by August 2. 'We see little concrete evidence of progress yet, even though party leaders have committed to try to reach agreement within a month and formal negotiations under the chairmanship of Vice President Joe Biden reconvened on 9 June.'
Pakistan's security threats have increased, its economy continues to remain fragile. Osama bin Laden's killing has also overshadowed crucial political changes in the country which has seen a broadening of its ruling coalition. Pakistan's recent meetings with China have been seen as a threat to the U.S. and India and the risk of a major terrorist attack on India may be increasing.
Thailand's July 5 election has been cause for concern for Newton. Opinion polls show that the opposition Pheu Thai Party (PTP), which is loyal to former prime minister Thaksin Shinawatra and led by his sister, is gaining plurality and could set off mass protests. The border dispute between Thailand and Cambodia meanwhile remain a stalemate.
Talks between North and South Korea appear to be frozen and South Korea is blaming the north for alleged cyber attacks in March and April this year. Newton is concerned that North Korea will 'renew ―bad behaviour‖ in an effort to extort concessions from the international community -- perhaps especially as the 100th anniversary of Kim Il-sung approaches on 15 April 2012.'
Turkey's ruling Islamist-liberal Adalet ve Kalkinma Partisi (AKP) won nearly 50% of the vote, and secured a third term in the national June 12 election but failed to secure a crucial two-thirds majority which Newton believes will be a setback in getting parliamentary approval for constitutional changes. The AKP is however expected to replace the old constitution with a new EU compliant one.
The Democratic Progress Party's (DPP) is expected to threaten President Ma Ying-jeou post in the presidential and parliamentary elections slated to begin January 2012. DPP presidential candidate Tsai Ing-wen is expected to campaign on environmental issues that include scrapping nuclear power. She has also promised to review he Economic Co- operation Framework Agreement (ECFA) between China and Taiwan.
Newton believes that if Tsai Ing-wen were to win the election, it could spark cross-strait tensions between China and Taiwan and has a negative impact on US/China relations.
China is focused on a smooth transfer of power to the 5th generation leadership and to manage that the leadership needs to ensure high economic growth, show an increasing balance between domestic and export-led growth but the renminbi is unlikely to appreciate fast enough.
Newton doesn't expect anti-China legislation progressing in Congress and the U.S. Treasury is expected to redirect focus on market access, he does however think that the issue could gain traction as the 2012 election nears.
In terms of internal issues, Newton expects nationalist sentiments to rise in China. In terms of international issues, he believes border disputes with India and Japan are likely to rise as the U.S. is intent on boosting its military presence across the Pacific Rim.
Newton believes that Vladimir Putin will probably be re-elected president of Russia in 2012. With constitutional amendments Putin would serve a six-year term. 35% of people polled for Nomura's report Russia: The end of 'tandemocracy'? believed that Putin would run for President, win and appoint Medvedev as his prime minster.
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