Five greatest threats to the global economy

Flashpoints that could spell catastrophe

SQUEEZING through the recently discovered ancient drainage tunnels in the City of David, where the Jewish residents sheltered from the Babylonians in 585 BC, one is reminded how through the millennia the Near East has been bitterly fought over and subject to a constant flux of shifting alliances.

Never has it seemed more relevant in modern times as the world is again in turmoil, from Iraq to the West Bank and from the Ukraine to the South China Sea. The geopolitical stakes and risks are extraor- dinary high leading some strategic thinkers to compare the global landscape to that which preceded the First World War a century ago.

When the International Monetary Fund produced its April 2014 forecast of 3.6pc global output for the current year it added an important caveat. It warned that geopolitical factors, at the time mainly thought to be the turmoil in the Ukraine, posed a potential threat to its projections.

This summer there are five major geopolitical flashpoints, each of which, potentially, poses a threat to economic stability.

The ISIS advance in Iraq

THAT a small ragtag of 30,000 jihadists born out of Syria’s civil war could be a threat to Iraq, with its American trained forces and weaponry, would have seemed inconceivable a few weeks ago.

But ISIS is well funded, as a result of wealth created from kidnappings on the Turkish border, secret donations from Sunni Gulf states and the seizure of bank deposits in Mozul. It is also battle hardened from Syria.

Its seizure of refineries in Northern Iraq threaten the country’s oil production of 3.4m barrels a day or 11pc of the world’s current supply.

Brent crude has zipped up to $113 a barrel. So far the valuable fields south of Baghdad, including those operated by BP, remain in operation. But that cannot be guaranteed even with US-led intervention.

Middle East peace process

CURRENTLY at a ‘ pause’ and could become a deadlock as a result of the unification deal between Hamas and the Palestinian Authority led by Mahmoud Abbas.

There is a high level of tensions with Israel at present following the kidnapping of three Israeli youths from a bus stop on the West Bank two weeks ago.

Israel could potentially widen its search and rescue mission on the West Bank into a wider conflict with the threat to MidEast oil lanes and production.

So far, however, escalation has been avoided.

Iran nuclear talks

THE July 20 deadline set for Iran to relinquish its nuclear ambitions fast approaches.

Despite some conciliatory l anguage f rom President Rouhani of Iran, intelligence officials say little ground has been given on vital issues such as reducing the numbers of centrifuges and ending experiments with intercontinental ballistic missiles.

The US tilt at diplomacy with Iran is meeting heavy resistance in Congress. Pres- ident Obama will find it hard to persuade Capitol Hill to ease the financial and economic sanctions that brought Tehran to the bargaining table in Geneva.

Western oil and banking interests are champing at the bit for an end to sanctions that could re- open Iran as a market.

Ukraine-Russia

A FLASHPOINT that is on the borderlands of Western Europe. President Putin shows no signs of backing down from his efforts to infiltrate and recolonize Russian speaking enclaves i n Eastern Ukraine.

The so-called ‘ Putin doctrine’ – the idea that Moscow is planning to retake areas of vital Russian interest reaching into the Baltics – is almost certainly a myth because that would mean directly confronting NATO.

But the threat to gas supplies following cut- offs to Ukraine is a clear and present danger that will become worse as the world moves towards the autumn.

The crisis already has led to a Russian pivot towards Asia in the shape of the Chinese natural gas deal in which London-based Glencore is involved in financing.

Creating a secure environment in Ukraine, in which Western assistance co-ordinated by the IMF can be released, is proving extraordinarily difficult.

South and West China Seas

MANY strategic experts see this as the theatre for the next great strategic rivalry with China and the US – that has moved much of its navy into Pacific waters – eventually clashing.

At present the dispute is manifesting itself in proxy stand- offs between Japan and China and Vietnam and China.

There are overlapping claims to islands such as Senkaku in the Okinawa Sea that are claimed by both China and Japan.

Similarly, South Korea and Japan have clashed following large scale Korean naval operations in the region.

There are fears that a collision of war ships, an attempt to run blockades or guns fired in error could provoke an all-out war.

The tensions, serious as they are, could be unexpectedly good news for BAE Systems and other defence firms as surplus Asian nations rebuild their rundown defences.

Nevertheless, a conflict in the region – the locomotive of manufacturing output – could be devastating for Western economies. THE immediate highest risks for Western economic output come from an interruption of oil supplies in the Middle East and gas supplies from Russia via the Ukraine.

However, America’s increased oil and gas fracking activities together with new gas finds – such as those off the coast of Israel – make the world a little less vulnerable that it was after the Yom Kippur war in 1973 and the first Iraq war of 1990-91.

More serious long-term threats come from the China seas where a battle for hegemony, not dissimilar to that which caused two world wars, looks to be underway.

Globalisation has produced rich rewards in terms of fast economic development, industrialisation and prosperity.

But it has also brought with it profound new strategic concerns that could damage confidence and crush output at a time when the West is still recovering from the financial and euroland crises.