2011’s Top Risks: Will North Korea spin out of control?

By Ian Bremmer and David Gordon

Following the sinking of a South Korean naval vessel and the shelling of a South Korean island in 2010, more North Korean provocations are almost certain in 2011. The likeliest steps include a third nuclear test, a long-range missile test, conventional attacks, or terrorism. With the United States and China often at cross purposes on this problem, this low-likelihood, high-impact risk in definitely one to keep an eye on.

The North’s belligerence and its willingness to inflict casualties to make its point is almost certainly the result of a faster-than-expected leadership transition in Pyongyang. That’s the only variable that could explain the sudden dramatic change in behavior of the past several months. The aggressiveness could be coming from external concerns — that Kim Jong-Il’s third son, Kim Jong-un, will be vulnerable to international "testing" if Pyongyang doesn’t first prove his mettle. Or it could be internal — if Kim Jong-Il fears the military isn’t sold on his son’s accession, especially in the event that the father dies suddenly. The latter scenario is much more troubling in terms of North Korea’s willingness to provoke military conflict on the peninsula, but there’s no way of knowing which of the two is the more likely. Beijing’s view is that it’s unwise to take any steps that would roil the North Koreans while a change of regime is in the offing. And change inside North Korea certainly appears to be underway.

Meanwhile, the South Korean political landscape is among the most polarized in Asia, and the hard liners are — at least for the coming year –pulling the strings. President Lee Myung-bak has no desire to provoke war, but he’s also politically disposed to take measures that Pyongyang will view as overtly hostile, steps like creation of a reunification tax that plans for an eventual North Korean collapse and more military exercises inside what North Korea considers to be contested territory. And some within the South Korean military may want to prove that their country is not the North’s punching bag.

A response to North Korean escalation will likely be designed to avoid any appearance of escalation, unless Pyongyang directly targets peninsular South Korea or U.S. forces. The North threatened both in a recent statement.

The biggest risk here will materialize only if the North Korean transition begins to fail and regime collapse looms imminent. In this case, the United States and China would find themselves with sharply different priorities, as the U.S. military looks to ensure security of the North’s nuclear arsenal while the Chinese look to prevent a flood of sick and starving North Korean refugees into China. There’s been no military-to-military discussion, let alone coordination, for scenario planning between the United States and Chinese leadership. That’s not the best recipe for crisis management.

On Wednesday, we’ll move toward a more macro theme: capital controls, which takes its place at no. 6 on our list of 2011’s top risks.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm’s head of research.