By Ziad K. Abdelnour
If 2014 proved anything, it’s that guessing at the state of the world a year down the line is a vain or even slightly embarrassing endeavor.
Indeed, who could have expected a year ago that Russia would take over Crimea, ISIS would break out of al-Qaida and declare a caliphate, the U.S. would start bombing Syria and Iraq while approaching a nuclear deal with Iran, or that Ebola would ravaged three west African countries and scare the world?
Nevertheless, as a physical commodities trader deeply involved in and abreast of world affairs, I thought I’d share with you my six top geopolitical predictions for 2015:
Commodity oil prices are headed only in one direction: Down. Crude oil is not the only commodity that is crashing and will continue to do so. Iron ore is on a similar trajectory and for a common reason – namely, the two-decade-long economic boom fueled by the money-printing rampage of the world’s central banks is beginning to cool rapidly. What the old-time Austrians called “malinvestment” and what Warren Buffet once referred to as the “naked swimmers” exposed by a receding tide is now becoming all too apparent and will get much worse before it gets better.
Oil and finance have proved to be the only two industries able to tip the world into recession and are likely to remain so. For Europe, the United States and China, a lower oil price is good news. It’s essentially a tax cut for consumers. The Economist estimates that the average U.S. motorist could save $800. But economies heavily reliant on oil revenues – Nigeria, Russia and Venezuela, for example – will suffer dearly. So may heavily indebted oil companies. For every $1 drop in the price of crude, Venezuela is estimated to lose some $700 million in revenue, making it difficult to service debt and fund basic imports. Stagnant global demand and the rise in U.S. shale oil production are two reasons for the fall in crude prices. Saudi Arabia’s decision not to cut its production is another; some oil analysts believe the Saudis are trying to retain their market share and make “nonconventional” sources such as shale less viable. Look out for major bankruptcies among smaller shale producers.
ISIS will slowly evolve into a more al-Qaida-like organization: As it loses ground in the Middle East, it’ll focus on terrorism abroad. This past year saw the proliferation of “lone wolf” attacks that may or may not be related to ISIS but were at least inspired by the group – car attacks in France and Canada, a hostage situation in Australia and a shooting in Ottawa. This shift in tactics will continue as ISIS loses ground and calls on its supporters overseas to launch attacks, as it did this past September.
No nuclear agreement will be struck between the U.S. and Iran. Ayatollah Khamenei won’t go all the way on a deal, while the P5+1, which will drop its demands on the disclosure of the Iranian Revolutionary Guards Corps role in the country’s nuclear program, won’t be able to stomach Iran’s requirement of a 10-year sunset clause and an insistence on plutonium reprocessing rights. Perhaps the best to be expected is an interim deal that further eases sanctions. The biggest foreign-policy initiative of Obama’s second term will basically end in failure, leading him to spend a lot more time focusing on lower-hanging fruit like rapprochement with Cuba.
Europe’s future will depend on its 2015 elections. Cheaper oil just may help Europe dodge another recession. But the European Central Bank is not taking any chances. It’s planning to take a page from the playbook of the U.S. Federal Reserve through a massive program of “Quantitative Easing” to buy sovereign bonds and shock the European economy into life. Most in need of the firepower: France and Italy. If ECB President Mario Draghi, oil and Germany can’t drag Europe back into growth, the popular mood will continue to darken, benefiting parties like the anti-immigration, anti-Europe UKIP in Britain and protest party Podemos in Spain. The British vote is in May, and few dare to predict the outcome. But it seems very likely that one or more of the smaller parties will be involved in coalition negotiations, and the historic decline in the vote of the Labour and Conservative parties will continue. From Finland to Portugal, elections in 2015 will be worth watching, as they will dramatically shape up the future of Europe.
Russia’s future is all in Putin’s hands. One of the safest predictions for 2015 is that Russians will have a tough year. Besides the sliding oil price, high interest rates to defend a vulnerable ruble, a shrinking economy and financial sanctions (slapped on Moscow by the United States and Europe because of Ukraine) are a toxic combination. The unanswerable question is how President Vladimir Putin will respond. Will he double down, seeking closer ties with China, India and the rest of Asia and causing mischief in the Baltics? Or will the Kremlin see the destabilization of Ukraine as not worth the candle? Until these issues are fleshed out, Russian companies will suffer, unable to tap into international credit markets and more than ever reliant on loyalty to the Kremlin. And Russian citizens’ standard of living will be hurt by inflation and crippling interest rates.
China at a critical stage. A historic transition in under way in China: the “pivot” from an economy based on being the “workshop of the world” into one more sustained by domestic demand. The Chinese leadership is walking a fine line between growth and introducing structural reforms that include a crackdown on institutional corruption and curbing what’s known as “shadow banking” – risky and loosely regulated lending estimated to be worth nearly $5 trillion. The coming year will be a critical stage in that transition.
Overall, I see democracy in the coming year losing big time and likely to lose even more if governments don’t start being problem solvers rather than being the problem themselves. What we are seeing is not the death of democracy; rather, representative democracy must adapt to our times. If not, we are in major trouble … worldwide.
Ziad K. Abdelnour is a Wall Street financier, president and CEO of Blackhawk Partners, founder and chairman of the Financial Policy Council and author of “Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics.”