Second Quarter Forecast, 2010
By: Stratfor.comApril 16, 2010
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The second quarter of 2010 will be defined by three global trends. The United States will be looking for a new approach to Iran and pressing harder in its economic disputes with China. Russia will push forward confidently with its plans to re-establish a regional sphere of influence, and Europe will be busy fighting corrosion at the foundations of its economic and political unity.

STRATFOR's annual forecast for 2010 addressed two primary trends: Russia's expanding influence in its periphery and the potential for a crisis to erupt over Iran's nuclear program. Moreover, the diverse repercussions of 2009's global economic crisis stood at the top of our list of regional concerns. During the first quarter, the Russian revival continued apace, but a series of events led the major global powers to retreat from confrontation with Iran. Meanwhile, the challenges facing Europe and China grew to become global trends.

We begin with a plot twist in the Middle East. Three months ago, Israel seemed to have run out of patience with Iran's attempts to become a nuclear-armed state, and the United States seemed broadly in line with its ally on the need to either impose devastating sanctions to force Iran to change or conduct military strikes to set back the nuclear program. Now, however, with sanctions in tatters and intelligence holes making Washington unwilling to accept the risks of a preemptive attack, the impending crisis has lost its immediacy and given way to diplomatic deferrals. This is not to say that the West's aggravation with Iran's expanding influence and nuclear ambitions has dissipated. Rather, the United States has shown it has no stomach for risking a third Middle Eastern war, and Israel has noisily resigned itself to the reality, knowing that it cannot afford to further alienate its chief security ally.

Meanwhile, Iran sits in a position of strength, as it has seen the international powers postpone several deadlines as well as dilute, delay and disagree on proposals for new sanctions. In the second quarter, the United States will work harder with its regional allies to encircle Iran while making new diplomatic overtures to the Iranian leadership. Though Tehran ultimately wants the United States to extract itself from the region, it recognizes that it has an advantage over Washington by virtue of its ability to influence conditions on the ground in Iraq and Afghanistan. In these matters, Iran will not be easily convinced to offer many concessions. The "crisis" with Iran is not over, but for now it appears increasingly likely that it will not be military in nature.

No such twist has prevented Russia from rebuilding influence in places once dominated by the Soviet Union. First, Moscow eliminated commercial and economic barriers with Belarus and Kazakhstan. Then, Ukrainian elections formally brought a pro-Russian government into power, again giving Moscow influence over a stretch of land that is integral to a secure Russian state.

Thus, Russia will press forward more confidently in consolidating influence in Kazakhstan, Belarus and Ukraine, along with Georgia and other former Soviet states, while searching for ways to undercut European and U.S. ties with the Baltics. Also, in the coming months, Russia's diplomatic game with its most influential neighbors-Germany, France, Poland and Turkey-will become more important as Russia seeks to secure the tacit understandings necessary to pursue its interests elsewhere.

In Europe, the iteration of the financial crisis that STRATFOR predicted in our annual forecast has given way to a crisis of political confidence that promises to have longer-term-and further-reaching-ramifications. The proposal to rescue Greece from debt default is a temporary solution, but it has reduced the chances that financial collapse will occur in the second quarter. This means that other Mediterranean states-also clinging to flimsy rafts-will not get sucked into a Grecian whirlpool during this quarter either.

A more troubling psychological challenge for the European Union has arisen as a result of the evident lack of internal coherence in addressing Greece's troubles. In short, this experience gave every EU state a hint of the self-interested struggles that will ignite should the union face greater tribulations-whether economic in nature or arising from external security threats, such as those posed by an increasingly formidable Russia.

And so EU members have realized that the union's most recent governing treaty-the Lisbon Treaty-though purportedly a means of bringing members closer, in truth only strengthens German and French leadership over the bloc. This is a bad thing for those member states averse to their leadership or incapable of dealing with Russia alone. In the second quarter, while domestic, economic and political troubles will still tear at European states from within, the critical trend for the Continent will be increasing dissent among member states as they try to frame Continental policy while grappling with the implications of their own disunity.

As with Europe, China's struggle to cope with post-crisis economic conditions has become a globally significant trend. Beijing would have plenty to worry about were its woes solely domestic: It is already facing the dilemma of how to better control its massive stimulus efforts without causing an even more destabilizing slowdown. But Beijing's economic policies have attracted harsher criticism from foreign countries that see China as operating at the expense of their own recoveries and have begun to demand change.

The worst of the news for Beijing is that the United States is foremost among these critics, as its economy is the most closely intertwined with China's and therefore its problems most plausibly imputed to China-not least because U.S. leaders no longer see the benefit in allowing a nearly $5 trillion economy to shirk international rules. Chinese and American leaders have several occasions in the coming months to negotiate, but Washington has signaled that it is ready to get tougher if its demands are not met, and Beijing cannot afford to appear weak or give too much ground. So beneath the diplomacy the pressure will inevitably rise.

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