• Industry: Financial Services, Investments
  • Type: Business and industry issue
  • Date: 3/21/2013

Geopolitical Outlook - The emergence of a new global order 

Countries from virtually every corner of the world remain in a state of flux. There appears to be a new global order and set of alliances emerging, the results of which will likely lead to massive changes across the globe in the coming years.

The energy sector remains one of the focal points of this attention, with seismic shifts taking place on the supply and demand sides of the ledger. Among the 34 countries that comprise the Organization for Economic Co-operation and Development (OECD), oil and coal consumption remain in decline, while consumption in China continues to increase at a rapid pace. There’s also a significant, new source of petroleum on the world stage, as the super-fields of Iraq are fully operational. In addition, the Shatt al-Arab river (Arabic for ‘Stream of the Arabs’), which lies on the border of Iran and Iraq, has been opened for shipping for the first time in more than three decades, giving oil tankers access to Basra and paving the way for a dramatic increase in oil exports from Iraq. The big winners remain the OPEC countries, as demand for petroleum increases and oil prices continue to climb.

There are shifts taking place in the west as well, as the massive extraction of natural gas and oil from North America’s shale beds have led to plummeting prices for natural gas. At the same time, an increasing number of coal-fired electricity generating plants continue to be converted to natural gas, given the combined attractiveness of the commodity’s low emissions as well as its low price.

On the political scene, numerous countries in the Middle East, including Egypt, Syria and Libya to name just a few, continue to witness high levels of unrest.

Meanwhile, there remains a high degree of concern among many countries (with the US and Israel at the top of the list) that Iran is enriching uranium not for purposes related to energy generation as the country continues to state publicly but, rather, as part of its pursuit of a nuclear armaments program.

Few countries (if any) are immune from the tension on the global stage.

Spotlight on China

China continues to be in a state of political transition with the recent changes to the country’s politburo. Historically, such periods of political transition have tended to dampen policy change in China, an effect that may well be exacerbated during an economic slowdown like the one the country is currently experiencing.

It’s clear that what happens in China will have implications for much of the rest of the world. As several astute business writers have observed, “If China sneezes, we’ll catch more than a cold.” It remains to be seen how the country will respond to this period of economic sluggishness and impending political change.

Old wealth in the new order

With all this instability, many of the members of the world’s ‘old economic guard’ are finding themselves in unfamiliar and unpleasant territory. The eurozone is in disarray, with member countries struggling to come to terms with solutions to the unprecedented debt crisis that threatens to tear the region apart.

The US is dealing with a growing divide between the elite wealthy and the remaining 99 percent of the population – an income gap that continues to spawn unrest.

Japan, that former economic powerhouse, continues to be an economic laggard, with the outlook for the country’s gross domestic product remaining grim by all measures.

While the ‘old wealth’ has its hands full coping with the challenges associated with the shifting geopolitical landscape, there exists substantial opportunity for many of the world’s emerging markets. What remains to be seen is whether these emerging markets countries will be successful in meeting the short-term challenges posed by factors including political stability, government effectiveness, regulatory quality, rule of law and control of corruption to name a few.