Investors will end up taking a hit for the foolish policies that are being followed in both the United States and Europe ever since the financial meltdown of 2008. Political leaders are allowing events in the world to spin out of control which will have dire consequences to the global economy.
Geopolitical instability creates uncertainty in the international markets. If one looks at the growing list of countries in turmoil including Libya, Syria, Nigeria, Mali, Central African Republic, Chad, Sudan, Lebanon, Iraq, Pakistan, Afghanistan, Ukraine, and Venezuela it is not hard to imagine there will an economic impact.
Where there is a weakness in enforcing the international order, established nations will press forward with policies that take advantage of it. Take the situation with Russia and the Ukraine. If forceful international action had been taken immediately against Russian moves toward expansion in Crimea, does anyway seriously believe that Russia would now be earnestly contemplating an invasion of eastern Ukraine?
Can observers seriously believe that China would be saber rattling in the South China Sea with the nation of Vietnam over the Paracel Islands, and the Philippines over the Spratly Islands if there was a feeling among the Chinese leadership that there would be serious consequences for that action? It is not to say the claims did not already exist but why press the issue now? It is only recently that China has asserted demands to these areas with ships, an oil rig, and by building structures and stationing personnel in previous uninhabited islands.
In addition to Vietnam and the Philippines, China has territorial disputes in the South China Sea that are now being pressed forward with Brunei, Taiwan, Malaysia and Indonesia.
China has also decided to bring forward the issue of the Senkaku Islands dispute referred to as the Diaoyu in Chinese. These uninhabited islands are presently administered by Japan as has been the case since 1895 with the exception of the American occupation that lasted from 1945 to 1972. Although China has continued to mention the issue since 1970 it is only in the last two years that the issue has become a major threat to peace in the area. It does not help that the territory and the waters surrounding are in an area that contains key shipping lanes. The nearby laden fishing grounds and possible oil reserves only complicate the contention between China and Japan.
The situation in Libya has not been stable since 2011. This summer there has been an evacuation of most Westerners from this country whose government has virtually collapsed. The United States along with other countries have evacuated their embassies as the nation has descended into chaos. It is a diplomatic disaster for the Americans and especially the Europeans. France and the United Kingdom led the effort supported by the United States to dislodge the dictatorship of Gaddafi presumably to bring democracy to the people of Libya.
Libya has the largest oil reserves in Africa. Production has declined by more than a million barrels a day. Before the 2011 Western intervention oil production averaged about 1.6 million barrels daily. The type of oil produced there is light sweet crude the most desirable type for industrial purposes. The loss of this source will be felt in Western markets particularly Europe, which had been the major destination for Libyan oil.
In West Africa, the return of French troops is not a good sign for possible investors in the region. Along with the 1,000 troops already stationed in Mali an additional 300 will be sent to Chad. Special forces will operate out of Burkina Faso, and drones will be flown from Niger. Armed forces from France will also remain present in Gabon, Mauritania, and Senegal. The total is now near 3,000. This is not including the 2,000 French troops already stationed in the Central African Republic. In addition, France is planning on beefing up its presence in the Ivory Coast by practically doubling its presence there to 800 troops.
The French explanation for all of this is to be able to respond to emergency situations in the region and to be able to combat terrorism across the region. It is a reversal of the previous policy of gradual military disengagement. What changed? The arrival of jihadists, al-Qaeda, and other revolutionary groups. The French alone are taking action. Elsewhere, the Europeans and the Americans seem quite content to view world events in this part of the world as in others from a distance.
The most populous nation in Africa and a major producer and exporter of oil is Nigeria. Here the central government is having to deal with Boko Haram. This organization is an Islamic fundamentalist group attempting to establish a state in the northern part of the country. Where does the support for Boko Haram come from? Unemployed youth who see the oil wealth of the country being stolen by a corrupt government. The north in Nigeria is mostly Muslim the south and coastal areas are Christian. Again, the West is reluctant to get involved despite the kidnapping of hundreds of school ages girls. If a civil war results the resources of Nigeria especially oil, will no longer be available to world markets. International investors are already pulling out in many regions of the country.
Another major oil producer is Venezuela. The rising civil discontent due to economic difficulties may seem to be strictly a domestic issue. However, the rising disorder and lack of investment in the all important energy sector has lead to declining oil production. At the end of 2013, Venezuela was the world’s 9th largest producer and the 12th largest exporter of oil in the world. Decreasing oil production is an economic and political problem not a supply problem. At 298 billion barrels of proven oil reserves the country can claim the largest supply in the world.
In comparison Saudi Arabia has proven reserves of 266 billion barrels and Canada is next with 173 billion barrels.
Venezuela is the 3rd largest exporter of crude to the United States. A disruption in the supply of oil to the north and elsewhere, will put more pressure on available world supplies of oil. This will provide an upward move in price with energy markets that will again effect the entire world economy.
Although Russia as a whole is only ranked 8th in the world in Gross Domestic Product (GDP), sanctions and trade disruptions by the West will impact the world economy and Europe especially. Russian energy exports are crucial to Europe. Exports of certain metals including platinum, palladium and nickel along with several others if interrupted, will impact industry throughout the world.
Foreign investment for Russia is already in serious decline and the Russian economy is in trouble as a result. More sanctions and the rising threat of a trade war, as the Russian government retaliates will have global repercussions.
The Middle East is becoming a quagmire of competing interests and conflicts. The most obvious concern is the vital energy exports coming from this region. To date, the majority of the oil fields are still outside the direct area of conflict. That could change if one considers how rapidly the terrorist group ISIS (Islamic State of Iraq and the Levant) is grabbing territory in Syria and Iraq while threatening Lebanon and Jordan.
When the United States and Europe failed to intervene in the Syrian civil war early on, the stage was being set for the birth of the ISIS movement. By failing to arm more secular rebels who were in opposition to the government of President Assad, it left the door open for more extremist groups to be supplied from elsewhere.
The most ironic situation is that ISIS is consolidating control of recently acquired territory and looking to expand further, with mostly American munitions and weaponry. All of these arms were captured by ISIS when the national army of Iraq simply collapsed, in the north of the country.
Too late the government of the United States realized the disaster unfolding. The recent limited intervention was claimed to be on humanitarian grounds. There were 40,000 Christian refugees trapped by the forces of ISIS and were about to be slaughtered or were going to die of malnutrition. The United States dropped in supplies and authorized limited bombing to facilitate this activity. It is important to note that ISIS states publicly that they intend to attack Western assets in the future.
The government of the United States also decided to reconsider the policy of funneling arms to the Kurds through the central government of Iraq. It became evident in the mounting crisis and disintegration of Iraq as a unified country, that arms that were meant for the Kurds were never delivered to them. It is important to note that Kurdistan is responsible for 10% of the production of oil inside Iraq at 360,000 barrels per day. Yet the United States still opposes allowing them to sell the oil themselves despite the present situation inside Iraq.
The government of the United States still clings to the silly notion that a change in the Shia dominated government in Baghdad will dramatically change the position on the ground in northern Iraq. ISIS is now well equipped with American military hardware and has a huge amount of money from the billions of dollars stolen from banks, in territory they now control. Why continue this nonsensical policy? Americans in the past decade have spent over 1 trillion dollars in Iraq and have lost nearly 5,000 soldiers there. Ignoring the advice of the military to leave some residual American forces inside Iraq, President Obama called for a full withdrawal from the country. Contrary to his claim that he left Iraq stable when American troops left in 2011, the country is now in a state of collapse. It is a geopolitical disaster, but the American president is more interested in assigning blame to others and instead is focused on dealing with the politics of this calamity.
The European and American governmental attempts to appear even handed in the Israelis and Palestinian conflict in the Gaza strip is again derisory. To equate a terrorist organization with a legitimate elected government does not bode well for the future. Israel has been a reliable ally in the region. The country follows Western principles for government and economics and it is in the interest of both the United States and Europe to preserve this nation.
The issue of a nuclear armed Iran is another missed opportunity. As was the case with North Korea during the American administration of President Clinton in the 1990’s the Iranians are simply going to run out the clock. The will dupe the Americans and the Europeans to endless negotiations and delays, until the possess the capacity and ability to announce they are a military nuclear power. This will ensure they will no longer be attacked by an outside power. Only the government of Israel, is publicly willing to admit this fact. The issue is of paramount importance given the threatening Iranian stance towards Israel and other countries in the region especially the all important Persian Gulf.
An increasingly dangerous world will make foreign and domestic investment increasingly problematic in ever larger areas of the world. European governments at present are reluctant to do anything that will disturb the comfortable living standards and economic growth in their respective countries. The problem with that strategy is that Europe needs the natural resources and export markets of the world at large, in order to keep the present system in place.
The present government policy of the United States is also short sighted. The policy of leading from behind as practiced by the Obama Administration has made the world a much more dangerous place for citizenry and investors alike world-wide. The idea that other countries will deal with the international issues and crises that are multiplying across the globe is not working all that well. The tradition is to wait on what the Americans will do before taking any independent action. This has been the case since the 1956 invasion of the Suez by the forces of the United Kingdom, France and Israel.
Considering that many of the insurgents on the move in the world intend to attack American and European assets it is absurd to continue policies that pretend that vital Western interests, are not in jeopardy. A number of these groups intend to bring the war to the West itself, not just citizens of these countries traveling abroad. They are designating Europe and the United States as legitimate targets. An attack against the citizens and infrastructure there will send world markets into a tailspin.
It is now time that politicians in both the United States and Europe level with the public about the dangers the world economic system faces as a result of unrest and war. The populace needs to understand that pretending that these global events will not impact domestic economies is becoming quite dicey. It is in fact becoming dangerous, if one considers how vulnerable the world economy has become, to threats of terrorism and war. This is true no matter how this ongoing threat manifests itself.