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Special Report: Global Risk Forecast 2016

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A look ahead to how recent events will impact global operations during 2016

Anvil's Head of Political Risk and Analysis, Joseph Frederick, shares his top ten risk considerations for business operations in 2016.

1. Volatility of Global Oil Prices

Rises in global petroleum production and stockpiling has suppressed oil prices. The price of Brent Crude Oil hit an 11-year low in December at USD36.05 per barrel and continued to fall, with early January prices slumping to below USD35 per barrel. OPEC, the United States and Russia will unlikely alter output levels for 2016. Iran is preparing to boost its imports after sanctions are lifted. The downward trend in prices will likely continue, and with this, there will be multiple, varied and overlapping impacts on political risks globally.

2. Proliferation of Global Terror Threat from the Islamic State, al-Qaeda and affiliates

Defeating the Islamic State (IS, Daesh) has taken on a greater sense of urgency in light of recent high-profile attacks in Paris, Istanbul, Beirut, Tunis, Sinai and San Bernardino. The international response has largely focused on the military aspect in Syria and Iraq. These will only yield short-term gains, particularly with respect to conceding territory. The organisation’s popular brand, however, will ensure that it has global appeal. IS has established a powerful presence in Libya and Egypt, among others, as it competes with al-Qaeda and exploits opportunities to gain more traction in Asia. South and Southeast Asia remain vulnerable to this potentially growing threat.

3. Cyber-Security Threats

The public and private sectors are deeply entrenched in an era of continually evolving cyber terrorism and criminality, where it is becoming increasingly challenging to mitigate and manage more detrimental, costly and impactful threats. Critical national infrastructure, cloud computing and mobile devices will increasingly be targeted by more clever phishing, ransomware and other malware attacks. McAfee Labs identified a growing number of attacks on employee owned systems—a trend that has grown in recent years—where personnel and other critical information are targeted and stolen. While off-site employees are provided with VPN software to access company systems, there may be lack of awareness on precautions being utilised whilst they work at home, hotels, airports or cafés. Vulnerabilities to internet-connected devices in automobiles, medical equipment and fitness wear, among others, will likely be found and exploited with greater frequency throughout the year.

4. Regional Conflicts

Intensification of conflicts in Syria, Iraq and Afghanistan are very likely for 2016. There may be momentary pauses due to battlefield gains and diplomatic interventionism, but their respective complexities make the formulation of positively impactful solutions extremely elusive. Ethnic and sectarian tensions are significant drivers of conflicts in Central African Republic, Democratic Republic of Congo, South Sudan, Myanmar and Yemen, and diplomatic rivalries could incite aggressive behaviour on the Korean Peninsula. Additionally, new regional conflicts may emerge. Russia’s intervention in Ukraine heightened concerns over possible aggressive actions against Baltic states in the form of a cyber-war, which will have significant implications on the private sector.

5. European Migration and Civil Unrest

The Syrian civil war and other Middle East conflicts have displaced millions of people and presented Europe with significant migration challenges that have political and security implications. Newer border controls, rise of populist anti-European Union (EU) forces and civil unrest have been some of the blowback from the crisis, which is reshaping the EU agenda. The UK’s referendum to leave the EU, which could be held as early as mid-2016 is a development to monitor, especially as it may provide the impetus for others to follow or to renegotiate for improved membership.

6. Iran’s Elections and Nuclear Programme

Iran is preparing for parliamentary elections, including for the Assembly of Experts, which will be held in February 2016. The Assembly of Experts will more than likely select the next Supreme Leader of Iran, who has significant influence over the trajectory of the country. Additionally, should President Hassan Rouhani and his supporters in the legislature win the elections, they will be well-positioned to forward their reformist agenda and Rouhani stands a good chance of winning the 2017 presidential race. The number of reformist candidates registering and approved by the Guardian Council will be a significant indicator of their prospects in the elections. Based on previous election trends, the odds are skewed in favour of a conservative parliament. If this is the case, then the question will centre on whether the new parliament will be less extreme and more supportive of the nuclear agreement. With North Korea testing a hydrogen bomb in January, it may provide the impetus for Iran to push forward with missile testing.

7. Russia’s Foreign Interventionism

Russia’s foreign policy continues to take the West by surprise. After being somewhat ostracised in 2015 in the aftermath of its Ukrainian adventurism, it spent the better part of the year trying to improve its public profile until Syria. Its relations with Turkey have ebbed to new lows as evidenced by the downing of a Russian jet in November and the devastating terrorist attack against a Russian passenger jet in Egypt are the outcomes of its Syrian campaign. Growing anti-Moscow sentiment triggered by Syria among Islamist militants in the North Caucasus and Central Asia could become another blowback. Additionally, there is a huge trust divide between Russia and the West that could be bridged if there is greater collaboration over solving the crises in Syria and Ukraine.

8. Iran and Saudi Arabia Destabilising Gulf Region

The execution of prominent Shia cleric, Sheikh Nimr al-Nimr, in Saudi Arabia has enflamed tensions between these regional states and triggered a series of retaliatory diplomatic actions. Demonstrators set ablaze part of the Saudi embassy in Tehran, compelling Riyadh to sever all diplomatic ties. The rippling effect has seen Bahrain, Sudan and Kuwait also cut relations with Tehran. On the ground, sectarian tensions are likely to have profound security implications across the region with respect to negatively influencing proxy conflicts in Yemen and Syria, as well as hampering anti-Islamic State efforts. Should tensions between Riyadh and Tehran not ease, the region is possibly set for a more tumultuous 2016.

9. China’s Economic Manoeuvring

China’s economic slowdown continues to have a global impact. Global stock markets had a shaky start to the year due to economic concerns with China coupled with the slide in world oil prices. Asian stocks have been dropping and this has had ripple effects on exchanges worldwide. Beijing’s latest solution is illustrative of the government’s efforts to engineer boom and bust periods. It has repeatedly devalued the yuan, but lately it has shortened trading hours in order to control the volume of shares traded, which has added more uncertainty to the situation or the perception of the situation. The impact on business has been palpable though. Manufacturing has slumped, deeply affecting many economies hugely dependent on exports, and China’s appetite for commodities, including copper and other metals, continues to decline, which has meant slower growth in countries like Australia, Brazil and Malaysia, among others. There are fears that the effects of the Chinese downturn will plunge Asia into another crisis akin to 1997-1998 or worse 2008.

10. Climate and Natural Disasters

Warmer weather trends are anticipated globally for 2016, mainly due to man-made climate change and the El Niño oceanic phenomenon. This warming has caused more prolonged droughts, longer bush fire seasons, heavier rainfall and flooding as well as stronger hurricanes and tropical cyclones globally. This current El Niño is forecast to worsen up until spring or summer, potentially triggering more extreme weather events. The US National Aeronautics and Space Administration reported that this year’s El Niño had similarities to the one in 1997, which was the strongest on record. Earthquakes and volcanic eruptions are an ever-present threat along the Pacific “Ring of Fire” but countries like Japan, Indonesia, US and Chile remain vulnerable to major events.