Stratfor's Third Quarter Forecast
June 27, 1999
Note: This Forecast should be read in conjunction with Stratfor's
Decade Forecast prepared in 1995
(http://www.stratfor.com/services/giu/decade.asp),
its 1999 Annual Forecast (http://www.stratfor.com/services/giu/1999.asp)
and its Second Quarter, 1999 Forecast
(http://www.stratfor.com/services/giu/2q1999.asp)
Stratfor's organizing theme for its 1999 Annual Forecast is found
in the title: "A New and Dangerous World." That concept remains
valid and the fundamental trends identified within that theme
remain intact. The most important trend identified in that
forecast has now become manifest. We wrote that "Russia and China
will be moving into a closer, primarily anti-American alliance in
1999." That process is the most important global trend today. It
is well under way and is also intensifying.
It should be understood that this trend was not put into play
because of the Kosovo crisis, although it is clear that it was
intensified and accelerated by it. Indeed, Stratfor's ability to
predict the Kosovo crisis in its 1999 Annual Forecast was
predicated on this trend already being in place. A critical
element in Milosevic's strategy was his view that the deteriorating
relationship between Russia and the United States had opened a
window of opportunity for dealing with the Kosovo situation. It
was precisely because Milosevic saw this process in Russian foreign
policy as already under way that he took the risks he did. At the
same time, Milosevic's failure to allow U.S.-Russian tensions to
mature opened Serbia to a partial reversal in Russian policy that
left him in a series of untenable positions.
The split between Russia and China on one hand and the United
States on the other has still not fully matured. Therefore, the
response, a Sino-Russian alliance, has not yet fully taken shape.
Nevertheless, matters are rapidly moving in that direction.
Therefore, it is our view that the single most important global
theme of the Third Quarter of 1999 will be fairly quiet, yet
intense, diplomacy between Russia and China as they explore the
precise meaning and implementation of their strategic relationship.
A summit meeting will take place in Beijing between Boris Yeltsin
and Jiang Zemin some time this summer or autumn. The precise date
is not altogether certain at this point. There are two reasons for
this uncertainty. First, and most important, there is a tremendous
amount of work to be done at the ministerial level and below prior
to the summit. It is one thing to speak of a strategic alliance.
It is another thing to implement one. There are some real issues
outstanding between Russia and China. Second, both Russia and
China will use the available time to try to extract concessions
from the United States and the West in general, under the
assumption that they will be eager to prevent a Sino-Russian
alliance from solidifying. Both of these reasons point to a fairly
slow process.
There are fundamental geopolitical issues that need to be resolved
by the Russians and Chinese. The most important of these is the
status of the Central Asian republics of the former Soviet Union.
China is experiencing substantial unrest from Moslem groups in its
Xinjiang province. These groups are drawing support from, at
least, elements within predominantly Moslem states of the former
Soviet Union, and perhaps from some of the states themselves.
China clearly wants Russia's help in dealing with that problem.
Russia, however, is hesitant at this point to get bogged down in
pacifying the region. Yet, at the same time that it is hesitant,
there is a growing movement inside of Russia that regards the
collapse of the Soviet Union as a monumental error and which dreams
of its geographic, if not institutional, resurrection. We think
these forces are gaining strength, which means that there is
growing support for a more expansionary Russian foreign policy.
The geopolitics of the region may actually be a force pulling
Russian hard-liners and Beijing closer together.
A more important issue on the table is what the alliance will mean
in relation to the United States. The purpose of the alliance is
twofold. First, it is to create a counter-weight to the United
States that would force the U.S. to take Russia and China
seriously. The second purpose would be to provide a focal point
for secondary states looking for a safe haven from American power,
which would, in turn, enhance the power of the Sino-Russian bloc.
What this means in practical terms is unclear. It might range from
a general policy of coordination to a mutual defense pact pledging
each side to support the others' wars. Neither side wants to be
excessively exposed to the adventures and vulnerabilities of the
other. At the same time, too loose a relationship leaves room for
manipulation. Thus, this summer will be devoted to very quiet and
very important discussions in Moscow and Beijing aimed at defining
the relationship in concrete terms. The goal is clear: to have a
summit conference sealing the relationship no later than mid-autumn
and hopefully sooner-perhaps by the end of the summer.
There is an important second reason for delay. Neither Russia nor
China want to burn their bridges with the West. Quite the
contrary, each is using the threat of a Sino-Russian alliance as a
lever to extract concessions from the United States. At the very
least, they do not want a split with the United States to turn into
a generalized confrontation with the West. Russia, in particular,
is engaged in a complex game in which it is using its ability to
create and solve problems for NATO, and the United States, as a
tool for solving its own massive financial problems through Western
loans, aid, and investment. China has plunged its relations into
the deep-freeze with the United States as well, but continues to
hope that U.S. fears of having to confront a Sino-Russian alliance
will cause the United States to redefine its relationship with
China on terms more favorable to China. Both Russia and China want
time to explore ways to use the threat of an alliance to extract
concessions. Each sees the very process of negotiations as being a
useful tool for extracting U.S. concessions. This means that there
is a real element of distrust between China and Russia concerning
the other's commitment to the idea of strategic alliance that needs
to be overcome. All this takes time.
In our view, the strategy of using the threat of alliance to
extract concessions from the United States will fail and the
alliance will form. Here are some of our reasons for thinking
this:
*The very process of using the Sino-Russian negotiations as a tool
for extracting concessions is creating the opposite effect in
Washington from what Moscow and Beijing want. The very slowness of
the process, coupled with periodic overtures, particularly from
Russia, is convincing Washington that neither the Russians nor
Chinese are serious. Therefore, the United States will not be
forthcoming and the process will indeed end in an anti-American
alliance.
*Yeltsin has limited room for maneuver vis-a-vis the West. While
his ability to manipulate Moscow's political structure is awesome,
every tack takes him away from reform and further toward the
conservative position. Primakov may have been sacked, but Yeltsin
could only go as far as Stepashin for a replacement. The days of a
Kiriyenko are past. Each twist and turn confirms the main trend.
*The ability of NATO to get Hungary, Romania, Bulgaria, and for a
time, Ukraine, to agree to prohibit overflights to reinforce
Pristina, has driven home Russia's geopolitical isolation to the
Russian military. The military understands that it is powerless to
influence events in Central Europe but it also understands it can
influence events along Russia's own periphery, in areas where the
Russian military still has the upper hand and NATO and the U.S. are
relatively weak. The pressure to reassert Russian power along
Russia's periphery is extremely strong and will be hard to resist.
That will increase tensions with the United States and decrease
possibilities for accommodation.
*Russian needs and Western resources are completely out of synch.
No amount of money can save the Russian economy-certainly no amount
that the West would be rationally prepared to invest. We have no
doubt that all sorts of hints and promises were made during the
last days of the Kosovo war to induce Russian compliance. It
suited Yeltsin's short-term political interests to believe those
promises. Nothing substantial will come of it, beyond a few
billion dollars of no real consequence.
*China's demands on the United States are essentially undefined and
indefinable. The bottom line is that China wants to go back to the
good old days of ample capital flows. These have dried up for
economic, rather than political reasons. While Asia is recovering
somewhat, we see this as a cyclical upturn in a long-term down
trend. It will not substantially change Western investors' lack of
appetite for Chinese investments and loans.
*One of China's demands is a basic change of the atmospherics in
Washington to help facilitate China's access to potential American
financial partners. The problem is that the atmosphere is not
being defined by the Administration, which has lost control over
its China policy. The Administration's opponents are in control of
the mood toward China in Washington. They do not want to see a
thaw while Clinton remains in office.
*Which brings us to the most important point. A scandal-weary
Washington is facing a summer of foreign policy scandals. The
China spy scandal shows every sign of exploding again, as
revelations this weekend show that the Administration clearly knew
about Chinese espionage in 1995 and did nothing about it. This
weekend also brought Kofi Annan's statement that it appears that
the U.S. used UN cover for espionage against Iraq. The U.S.
continues to bomb Iraq, toward no clear end. The Kosovo situation
is promising to reside somewhere between instability and chaos. As
elections approach, the Republicans will do everything possible to
exploit these problems. This will lead to a serious lock-down in
the Washington policy-making apparatus.
We therefore expect that the Third Quarter of 1999 will bring
Russia and China to the brink, if not over the edge, of a formal
alliance whose goal will be to contain American power and provide a
counterbalance to American geopolitical power.
Europe will be left in a particularly uncomfortable position. On
one hand, Europe's interests are intimately linked with those of
the United States. On the other hand, Europe has much greater
vulnerability than the U.S. to tensions within the international
system. As such, Europe is inherently more risk averse. A
conservative, assertive evolution in Russian politics will leave
countries like Germany with major strategic challenges with which
it doesn't want to deal. The weaknesses of NATO's geography, where
Hungary is physically isolated from any other NATO country and in
which strategic countries like Romania are outside the alliance, is
something that comes to the fore only when there is confrontation
with Russia. Ongoing confrontation will mean the need for rapid
and dangerous evolutions in NATO. This is something that the
Europeans do not want to see happen. Aside from the costs inherent
in expanding NATO, NATO expansion logically means EU expansion.
With the euro doing so poorly, and an emerging cyclical weakness in
Europe's economy, this is not something the Europeans want to deal
with now.
Therefore, France and Germany will be working throughout the summer
to get the United States to respond to the evolution of events in
Moscow and Beijing. They will be joined by Japan, which does not
want to see itself trapped between China and the United States
while struggling with its economic problems. Thus, a secondary
round of diplomacy can be expected within the Western alliance as
the second tier powers try to find a way to focus Washington's
attention on the unfolding reality. We expect them to fail.
Washington will be utterly self-absorbed this summer. In failing,
we expect to see a new process emerge. Countries like Japan and
Germany, rather than simply marching in lock-step with Washington,
will start to search for means to establish some sort of political
neutrality between the new China-Russia alliance and the United
States, while still maintaining economic ties with the United
States. As the Sino-Russian situation solidifies, the Western
alliance will become more fluid. Indeed, one of the strategies of
a Sino-Russian alliance will be to use German and Japanese fears of
a new confrontation to create both fluidity and opportunities for
favorable economic relations with these increasingly insecure
countries. Germany is particularly vulnerable, given its fairly
harrowing experience following the American lead in Kosovo.
In short, the inevitable readjustment in the international system
will be nearing fruition during the summer of 1999. American power
from 1989-1999 was simply too overwhelming economically,
politically, and militarily to endure. It led to risk-taking and
carelessness that while not exposing the United States to major
risk, did expose others. These others inevitably are working to
create a counterbalance to the United States in order to increase
control over it. The process will not be confined to the Eurasian
powers, Russia and China, but will extend to more traditional
allies, who will redefine and modify their behavior to take
advantage of the new geopolitical reality.
There are, of course, issues not directly connected to this main
theme that will be of importance during the Third Quarter of 1999:
*The Indonesian elections seem to be promising a dangerously
ambiguous outcome. The leading candidate, Megawati, may well not
be able to form a government or, if successful, may not be able to
govern because of the political configuration. We judge the risks
to be not only high, but also an opportunity for Chinese-American
competition as each tries to influence events in this strategic
country.
*The United States still regularly conducts minor air attacks on
Iraq. The purpose of these attacks is unclear and they seem to be
going on more out of habit than out of a coherent strategy with a
clear goal. We do not think that this situation can go on
indefinitely. Since this is a domestic political issue as well as
a foreign policy issue, we expect a major review of U.S. policy on
Iraq during the Third Quarter, triggered by political criticisms of
the ongoing and endless air campaign.
*The tension within Iran is rising once again, with moderates and
traditionalists locked in an endless battle that does not seem able
to resolve itself or go away. As Russia's presence in the Caucasus
Mountains increases over the summer, these two issues will begin to
intersect.
*We do not regard the Asian recovery as a reversal of the main
trend. This is particularly true in Japan, where the basic issues
that caused the banking collapse have not been dealt with.
The post-Cold War world is over. We are now deep into the
transition to a new era.
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