New Year Special: Year in Review and 2010 Predictions

I would like to wish all Sublime Oblivion readers a very happy and successful New Year. One of my major motivations for writing is getting comments and feedback, so please continue – the more you inflate my ego, the more time I will feel compelled to spend on the blog. 😉

Year in Review: 2009

All in all, 2009 was rather less interesting that 2008, which saw three thresholds of portentous significance – the final peaking of global oil production, the discovery of the magnitude of the Arctic methane meltdown, and the collapse (and partial recovery, abetted by prodigious state credit infusions) of the global financial system. Simultaneously, Russia, China, and other rising powers have begun presenting a rising challenge to Western hegemony on an ever broader front. The key trends of 2009, whether leaders and pundits recognized it or not, were about managing the consequences and realities of 2008.

From the American viewpoint, 2009 was the year of Obama. He realized that the “cowboy diplomacy” pursued by Bush alienated key allies on perceived vital issues (Afghanistan, stimulus spending, etc), and sought to reinvigorate relations with its traditional allies and reach out to its enemies. Though publics tended to be enthusiastic, governments were not as moved; the European states continue stalling on commitments to Afghanistan, whereas Russia, China, and the Muslim world have decidedly spurned him on the basis that actions speak louder than words. They have a point. Obama has essentially continued post-2006 Bush policies based on a “realist” appraisal of American interests – prodigal military spending, “occupation” of the Middle East (as perceived by Muslims), support for Israel, resistance against Russian neo-imperial ambitions for the former Soviet space, engaging with China without reference to human rights, supporting sanctions against Iran while leaving “all options on the table”, etc. This creates a certain impression of schizophrenia to the administration’s actions – popular abroad but spurned by friend and foe; repudiating the Bush legacy but continuing it in practice; talking of reforming healthcare and closing Guantanamo, but stymied by discredited Republicans at home. It’s all a muddle.

So is the bind that the US is stuck in regarding Iran. Officially it supports gasoline sanctions, but they are unlikely to have much effect if Russia circumvents them (which it is likely to do given its continued geopolitical jockeying with the US) – and even if Russia acquiesces to the sanctions, enforcing the sanctions will be difficult. Israel is a loose cannon. It cannot allow the possibility of a radical Islamic regime acquiring a nuclear capability, and will do everything – including striking its nuclear installations – to prevent it. As a consequence, the US will be drawn in because of their fears that in the aftermath, the Iranian military will mine the Strait of Hormuz and interdict the Gulf oil shipping which carries 20% of world oil production. This may usher in a general Middle East war whose geopolitical, economic, and financial ramifications may veer wildly out of control, possibly culminating in the fall of Pax Americana itself. In both the US and Iran, domestic forces are driving the two countries to a confrontation. This is a geopolitical predicament that is becoming increasingly clear, with the US issuing greater threats and Iran intensifying its nuclear brinkmanship in the last few months of 2009.

Even as the US was focused on the Middle East, the Kremlin has been using the resultant “window of opportunity” to continue reasserting its influence over the former Soviet space – expanding the scope of the CSTO military alliance, strengthening ties with Ukraine’s Russia-friendly political forces, pressuring Uzbekistan with a new military base in Kyrgyzstan, and making a customs union with Belarus and Kazakhstan. Though its economic crisis was deep, it did not have major negative internal effects either humanitarian or political, which put Russia in a yet stronger position relative to its Near Abroad. With the Kremlin’s simultaneous strengthening of internal control (e.g. over the oligarchs), Russia continued to return to its past-and-future as a Eurasian empire.

Driven by desperate credit infusions and fiscal spending, the US and Europe began to experience an anemic recovery in mid-2009, – but one that cannot be sustained, especially since the resource fueling it (yes, oil) has peaked, and will decline at an accelerating pace after 2010. The price of recovery is massive new debt, transferred from private to sovereign hands, and a widening of the same imbalances that caused the crisis in the first place. Yet a far worse example of eating the seed corn is the debacle of the Copenhagen summit, where the nations of the world failed to agree on emissions cuts to check runaway global warming. We need to limit the temperature rise to no more than 2C, because after that there are numerous tipping points that will make an accelerating Klimakatastrophe inevitable; this implies that at the minimum, global emissions should peak by 2015, and decline by 80% by 2050 over 1990 levels. The commitments made at Copenhagen are feeble, more so even than Kyoto – largely thanks to Chinese sabotage. (Well, at least we didn’t die of swine flu). In related news, the increasing habitability of Greenland has driven it to make further strides towards declaring formal independence from Denmark.

Riding roughshod over Ireland and the Czech Republic, the EU finally passed the Lisbon Treaty, which gives the large, pro-strong-Europe countries like Germany, France, and Italy far more voting power relative to Euroskeptic nations. Should the Franco-German bloc wish, it now has many of the tools to dominate Europe and present an economic and cultural challenge to US hegemony; whether they will manage to do so is very much open to question, given the rising pressures on European unity presented by trends such as: 1) the rising power of France relative to Germany and 2) the deep-grained economic predicaments of the Mediterranean Rim.D

The skylines lit up at dead of night, the air-conditioning systems cooling empty hotels in the desert, and artificial light in the middle of the day all have something both demented and admirable about them: the mindless luxury of a rich civilization, and yet of a civilization perhaps as scared to see the lights go out as was the hunter in his primitive night. – Baudrillard

There is perhaps no better metaphor for the spectacle of Dubai going bankrupt just as it completed the greatest monument to petro-fueled Gulf vanity, the 818-meter tall Burj Dubai.

Though the Gulf states have increased moves to band together in a customs union, and are slowly but surely transferring their alliance to China – the country likely destined to be the last hegemonic power of the industrial age.

Edit 1/5/09 – There is a better metaphor (or personification?), and best of all it was probably unwitting. From Facebook: Vilhelm Konnander has just (LOL) read today’s “The National” about Burj Dubai: “The tallest tower in the world, its feet anchored in the UAE and its crown floating in the clouds, was inaugurated in an eruption of fireworks last night.”

2010 Predictions

1) World economy continues an anemic recovery, though there are significant risks to the downside.

2) Obama’s honeymoon period is over, his approval ratings are on the downslide, and his major domestic and foreign policy initiatives have almost all failed. Republicans will carry the mid-term elections in 2010, but there is a strong mood of apathy and a sense that what is really needed is a new party, a new politics – though this will only start playing a great role in the post-Obama, or post-2012, era. Rising violence in Iraq (perhaps abetted by Iran, to demonstrate to the US the dangers of attacking it); a false quiet in Afghanistan, as the Taleban limit activity to conserve their strength while the US presence in Afghanistan is strong (they know the Americans will retreat the bulk of their forces soon enough anyway).

In the UK, Gordon Brown (New Labour) will almost certainly lose to James Cameron (Conservatives) in the mid-2010 elections.

3) Possible wars. Foremost looms the shadow of Iran and the bomb, of course. I doubt the US will attack in 2010, unless Israel forces its hand. It will first exhaust its options with sanctions, etc, which will almost certainly be ineffective. The Iranian IRGC-linked hardliners in power (figurehead – Ahmadinejad), under pressure from the Rafsanjani / Mousavi clerical clan, will not yield, and will remain defiant internationally to justify increasing their hold on internal power. There will be tension, but no war – especially since the US still needs to develop its Massive Ordnance Penetrator, the next-generation bunker-buster, to have a high level of confidence that a bombing raid on Iranian nuclear installations have truly done their job. (True, postponing the strike to 2011 or 2012 makes the world economy more vulnerable to disruption because oil prices will be higher then and oil supplies tighter, but then again I highly doubt the administration takes “peak oil” into consideration in its strategic planning). Likelihood: 25%; Severity: 6.

What is much more likely to happen is a new war between Israel and Hezbollah. Since 2006, Israel may have infiltrated Hezbollah, aided by internal splits within the organization, and has taken stock of lessons learned during the unsuccessful last war; it may now want to send a signal to Iran and preemptively incapacitate one of its most effective means for retaliating against Israel into the bargain. Israeli special forces are more than capable of producing a false flag, even if Hezbollah refrains from doing it for them. Furthermore, Hezbollah is causing Saudi Arabia trouble by sending fighters and weapons to the Shia insurgency in Yemen fighting the Saudis; SA would appreciate an Israeli crippling attack on Hezbollah, and may give concessions to Israel, such as allowing it to use its airspace in a strike against Iran (the US has said it will shoot down Israeli planes flying to Iran over Iraq). This further increases the incentives for Israel to pummel Hezbollah, this time round with a real, large-scale ground invasion. Likelihood: 50%; Severity: 3.

A new Russia-Georgia war remains a serious possibility, if Saakashvili uses his rapidly rebuilding military forces to make another megalomaniac lunge at reclaiming South Ossetia, or if Russia orchestrates a false flag to give itself the justification to roll in the tanks to Tbilisi and set up a puppet regime. In the latter case, the “new cold war” atmosphere of August 2008 will begin to appear to be distinctly jovial. Likelihood: 10%; Severity: 4.

Finally, we should note that a) Azerbaijan and Armenia have a bitter rivalry, cultural and geographic over the Armenian-populated and -occupied Azeri enclave of Nagorno-Karabakh, b) though it lost a war to Armenia in the early 1990’s, Azerbaijan has been implementing a rapid military modernization since 2006 with the help of oil pipeline transit revenue from the BTC, and its military budget alone is now equivalent to Armenia’s entire state budget, c) Armenia and Turkey are slowly moving towards a reconciliation under Russian brokerage, which threatens Azerbaijan’s strategic position, and d) Armenian-Azeri talks over Nagorno-Karabakh have recently collapsed. The obstacle to war is that Turkey and the US, though friendly with Azerbaijan, are very unlikely to give it direct support; but Armenia is in the CSTO military alliance with Russia. An Azeri attack will almost certainly lead to a decisive Russian response, furthermore there is a large Russian military base in Gyumri, Armenia. Unlike Saakashvili, Aliyev is a rational leader, and for now Russian and Turkey have a mutual interest in keeping things contained. That said, the possibility of a new war cannot be fully discounted – especially if it is simultaneous with the chaos unleashed by a US-Israeli war with Iran and its proxies.

Expect instability, but not collapse, in Pakistan, Egypt, Mexico, some or all of the Baltic states. Despite the occasional rhetoric, there is very little chance of a new Korean war, a Venezuela-Colombia war, or an Israel-Syria war.

4) Given that Russia’s demography has continued improving even in 2009, a year of deep economic contraction and scare stories (false) of an abortion apocalypse, it is almost certain that it will continue improving further in 2010 and that the year will see the first year of positive population growth since 1994 (or 2009). Birth rate = 12.5-13.0 (reasons), Death rate = 13.5-14.0 (a reason), Net Migration = 1.5-2.0, all / 1000. Economic growth of around 3-5% of GDP sounds reasonable. Lots of privatizations and corruption investigations as part of the Surkov clan’s struggle against the siliviki and “their” state companies. Ukraine under Yanukovych will join Eurasec or the Russia-Belarus-Kazakhstan customs union, but is yet unlikely to join the CSTO or give Russian 2nd language status.

5) Oil production in 2010 will be around the same as 2009 – increased demand will collide with geological depletion to keep output stable. Oil prices in H1 will remain at 70-90$, and will rise to 90-110$ in H2 on the basis that background geological depletion will be cancelled out by OPEC going back on its 2009 production cuts to fuel the ongoing global recovery. Of course, if there are serious confrontations with Iran, the oil price will veer right off the historical charts.

6) No major AGW-related physical events (except for a heatwave or two), given that solar irradiation remains at an unusually long trough – expect the fireworks by 2012-15. AGW skepticism will become more popular in the wake of Climategate. China and its proxies will prevent any more significant action being taken at the next UN climate change summit in Mexico, than was “achieved” in Copenhagen. By year-end the performance of the world’s top supercomputer will exceed 3 petaflops (repeat of 2009 prediction).

7) China’s growth will slow from around 8% in 2009, to perhaps 5% in 2010 as it cuts back on the loose credit in recognition of the problems this is going to create further down the line (this is already happening). Otherwise, expect China to continue keeping a low profile as the US insists on shooting itself in the foot.

What about the 2009 Predictions?

How did my previous set of 2009 predictions go?

1) Correct about the American H2 2009 stimulus-boosted recovery, though too pessimistic about its strength. That said, doesn’t change the fact it’s unsustainable, even in the medium-term.

2) Correct about the end of deflation, resumption of credit flows, and rebounding commodities.

3) I was completely, 100%, totally right on my oil price predictions.

However, an incipient global recovery in the second half will result in a rebound in oil prices from around 40-50$ per barrel in the first half, to 60-80$ in the second.

Not so much on food, admittedly.

4) Right on Germany’s and Japan’s steep GDP declines, not so much on China’s anemic growth – massive credit expansion and fiscal stimulus in the People’s Republic has resulted in the building of ever more unneeded capacity, resulting in a growth rate of around 8% instead of the predicted 2%. Correct on rising protectionism, and the economic collapses in the Baltics and Ukraine.

5) The “flight to safety” ended, and as predicted the US $ weakened relative to the Euro (1 Euro = 1.41$ on Jan 1st 2009, = 1.46$ on Jan 1st 2010, now with an upward rather than a downward trend). The pattern for the yen has been similar. The latest CBO figures suggest that the US budget deficit will be 9.9% of GDP for 2009, within my predicted band of 8-13%.

6) Very wrong on Russia’s GDP growth – instead of 1%, it will decline by around 7-9%. I misunderestimated the depth of its consumers’ and companies’ reliance on credit, and the extent of its credit crunch. Nonetheless, the core of what I predicted, such as the declining influence of the oligarchs and the lack of any significant fall in real wellbeing, has been correct. There have been no serious political challenges to Putvedev, as Russia’s ruling tandem retain extremely high approval ratings. And as predicted, the RTS has recovered to above 1000 (to around 1500 in fact).

7) Wrong that Yushenko and Saakashvili would not survive 2009 as political leaders. Well, Yushenko will almost certainly (95%+) be kicked out of the Presidency in the coming Ukrainian elections, probably in favor of Yanukovych.  Saakashvili, with his deepening megalomania, has managed to hang on, despite spirited defiance from the opposition and an attempted military coup. If he survived 2009, most likely he will survive for a few years more.

8) My optimistic forecasts on Russia’s demography, which bucked the conventional “wisdom”, have been fully validated, and in the case of the death rate even substantially superseded.

In Russia, the birth rate will be between 11.5 and 12.5 / 1000, the death rate at 14.5 and 15.5 / 1000 and net migration will fall substantially to 0.5 / 1000. For comparison, the figures for the first ten months of 2008 were 12.1, 14.8 and 1.7 respectively.

According to Rosstat figures for Jan-Nov 2009, the birth rate was 12.4, the death rate was 14.1, and the net migration rate actually rose to 1.8 / 1000 during Jan-Oct.

9) No major new wars.

10) Slightly wrong on supercomputer performance, totally correct on oil production fall. Contrary to prediction, no major AGW physical  “event”.