G-Zero and the Middle East

Today, we turn to risk #2 in our series of posts on Eurasia Group’s Top Risks for 2012 and answer the most common questions we’ve gotten about it.

Here’s a summary:

G-Zero and the Middle East – The inability/unwillingness of major powers to bolster the region’s balance of force will create new turbulence across North Africa and the Middle East in 2012 as unresolved political, sectarian, and ethnic tensions threaten more unrest. Continuing protests, autocracies under pressure, new democratic regimes fighting to establish stability, and the lack of a viable regional security framework will add to the potential turmoil. As this dynamic plays out in Syria, Egypt, Iraq, Libya, Yemen and Bahrain, neighborhood heavyweights — Saudi Arabia, Iran, and Turkey — will vie for influence and generate friction.

Q- What does 2012 have in store for the Arab Spring?

A- Last year’s Arab world uprisings will have lasting impact on North Africa and the Middle East. Protesters in Egypt and Tunisia proved they could force an autocrat from power. Demonstrators in Syria and Yemen have pushed their governments to the brink. Muammar al Qaddafi, in power since the Beatles were cutting albums, is dead. Saudi Arabia had to send troops across the King Fahd Causeway to prevent insurrection in Bahrain.

But let’s not overstate the lasting impact of last year’s upheaval. In Egypt, Mubarak is gone but his support structure lives on, and the country’s next president won’t be the Egyptian equivalent of Vaclav Havel. The military remains firmly in charge and will share power with the Muslim Brotherhood. The protesters who made themselves famous in Tahrir Square last year will be the odd man out as Egypt looks to form its next government.

In Syria, Bashar Assad’s presidency may not survive the year, but for the moment he remains in power. Military defections are a serious worry, but so far they’ve been limited. Sanctions hurt, but the business elites in Damascus and Aleppo haven’t yet begun siding with the opposition and calling for his ouster.

In Libya, oil production is ramping back up, though not as quickly as the new government claims, but powerful militias show no signs of renouncing their individual ambitions and joining the new Libyan army.

Bahrain continues as a majority Shia state ruled by a Sunni monarch. Monarchs in Jordan and Morocco remain firmly in place.

The governments of Saudi Arabia and Iran face no existential internal threats. The Saudis appear poised for a smooth process of succession when King Abdullah dies, and though Iranian President Ahmadinejad remains on shaky ground, Supreme Leader Ayatollah Ali Khamenei faces no direct near-term challenges.

That said, there is plenty of ongoing turmoil in some of these countries — especially in Egypt, Syria, and Libya — and Americans and Europeans don’t believe they can afford direct intervention. U.S. troops are leaving Iraq, and there is no other outside power or alliance of powers capable of maintaining the region’s delicate balance of power. That leaves local heavyweights — especially Turkey, Saudi Arabia and Iran — to compete for influence. None of them wants to get too involved in the complicated problems of its neighbors, but as the stakes rise in these less stable countries, they also face the risk of doing too little to bolster stability and to counter-balance their local rivals.

In short, the Middle East is top risk #2 this year because the absence of outside powers and the rivalries of local players could further destabilize a region that has already had its share of uncertainty and local violence.

Q- Syria remains in the headlines and there seems to be more violence in Iraq these days. What can we expect in these two countries?

A- In Syria, the risk is that prolonged stalemate will force the neighbors to intervene and bring things to a head. So far, the Arab League, led by Qatar, is most directly involved. As outside pressure on Assad increases, Iran may feel it has to bolster his government, one of the Islamic Republic’s few reliable friends. The Saudis may decide that bringing the turmoil to a close means using their leverage to force Assad out, empowering Syria’s Sunnis in the process. Turkish Prime Minister Erdogan’s government may join them to put an end to the violence that has pushed many Syrians across the border into Turkey. Assad’s fate may not be resolved quickly or easily, however, and Syria’s troubles may extend well into 2012.

In Iraq, sectarian rivalry is filling the vacuum left behind by departing U.S. troops. Until recently the most exciting investment story in the Middle East, Iraq’s stability is again in question. Nouri al-Maliki’s government is no longer intent on accommodating Sunni Arab powerbrokers to keep the peace. In response, Sunnis who once opposed Kurdish demands for greater autonomy are now pushing to create a semi-autonomous bloc of their own in the Sunni-majority western provinces of the country. Here again, Iran, Saudi Arabia, and Turkey may calculate that they can’t afford to hang back and let their rivals build new influence inside this country.

Q- What about Israel?

A- On the one hand, Israel will become more isolated. The Obama administration wants to reduce its risk exposure in the Middle East — at least to the extent possible given the region’s lasting importance for the United States — and to focus more of its attention and resources on East Asia. In addition, Israel recognizes the surge of populism across the Arab world, and relations have become much more complicated with Egypt, Jordan, and Turkey. Add Iran’s determination to continue development of its nuclear program and Israel will be on edge throughout this year. The risk has increased in recent weeks that Israel will face more violence in 2012 — both within Israel and perhaps with Lebanon.

That said, whatever the differences between President Obama and Prime Minister Benjamin Netanyahu, U.S.-Israeli relations remain central to the domestic political health of both governments. Israel is not going it alone. And an Israeli military strike on Iran remains unlikely for two reasons. First, sanctions weaken Iran, even if only by forcing Tehran to sell oil to Asian states that will pay well below market prices for it. Second, sabotage, including via cyberattacks, appears to have slowed Iran’s momentum in centrifuge development. This is a much less expensive and less dangerous approach than the conduct of bombing raids on Iranian territory.

Next up, another year of uncertainty for the eurozone.