2005 decade forecast

8/14/2019 2005 Decade Forecast

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Foreword

This is Stratfors third Decade Forecast. We publish one every five years so they overlap. It is interesting

to see how these forecasts have evolved. Our first forecast was only a few pages long; this one

comes in at 45 pages. It is not clear to us whether increased size makes for increased accuracy, butthere is no question that increased staff makes for increased size.

We were quite pleased with our first forecasts accuracy, particularly with our forecast of an economic

meltdown in East Asia. Our second forecast suffered a deep flaw when we failed to forecast the U.S-

jihadist war and, in fact, miscalculated on the Middle East as a whole. However, the rest of the

forecast was stronger. We included evaluations of our past performance in each of the sections,

continuing our belief that our credibility rests both on accuracy and on honesty when we fail.

A decade forecast is the longest we attempt at this time, because anything greater than a 10-year

forecast encounters historys tendency to have wild discontinuities. Even a 10-year forecast has

discontinuities built in. A 10-year forecast in 1980 would have had to forecast the collapse of communism

in Eastern Europe. A forecast in 1910 would have contained World War I. The art and science offorecasting requires that you recognize that the least likely outcome is simple extrapolation. You can

draw straight lines for a year, but drawing them out for 10 years is dangerous.

A decade forecast, therefore, is about predicting the unexpected. But it is precisely the wildly

unanticipated that a decade of history throws up at you. Predicting in 1995 that the United States

would invade Afghanistan in 2001 would have been enormously difficult. It would have been far easier

to draw a straight line showing that the post-Cold War interregnum would be eternal.

It follows from this that expecting the U.S.-jihadist war to continue to dominate the world in 2015 14

years after the war started is fairly unrealistic. If the Islamic world remains the focus of the international

system, it will be on very different terms than today. In fact, it is our view that the jihadist issue will notgo away, but will subside over the next decade. Other currently barely visible issues are likely to

dominate the international scene.

Perhaps our most dramatic forecast is that China will suffer a meltdown like Japan and East Asia and

Southeast Asia before it. The staggering proportion of bad debt, enormous even in relation to official

dollar reserves, represents a defining crisis for China. China will not disappear by any means, any

more than Japan or South Korea has. However, extrapolating from the last 30 years is unreasonable.

We also expect there to be significant political consequences. At the moment, there appears to be a

buying frenzy in China, similar to the dot.com meltdown. Irrational exuberance rules the day.

At the same time that we see China shifting into a dramatically different mode, Russia is in the

process of transforming itself once again. After 20 years of following the Gorbachev-Yeltsin-Putinline, which sacrificed geopolitical interests in return for strong economic relations with the West, the

pendulum is swinging sharply away from that. The Russians no longer see the West as the economic

solution, but as a deepening geopolitical threat. It is not clear whether it will be Putin or his successor

who changes Russias course definitively, but we expect a dramatic change to come during this

decade a more authoritarian, state-dominated economy, coupled with intense efforts to recover its

sphere of influence.

There is one curve that will not reverse itself. The long wave that has lifted the United States since

1880, perpetually increasing its economic, military and political power in the world remains intact. We


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see the U.S. economy continuing to be the consistent, dynamic presence in the world. The coming

demographic crisis that will hit the rest of the world will not hit the United States nearly as hard. Not

only is the United States not contracting its population domestically, but its ability to manage its

population through relatively painless immigration patterns cushions what other problems might arise.

Militarily, we expect the United States to maintain control of the seas as well as of space, ensuring

strategic global domination.

As a result, the United States will continue its domination and the world will increasingly resist thatdomination. Our core forecast is that the United States will remain an overwhelming but not omnipotent

force in the world, and that there will be coalitions forming and reforming, looking for a means to

control the United States.

We expect the main focus of the international system to gradually move away from the region between

the Levant and the Hindu Kush, south to the Arabian Peninsula, farther north and east. The Eurasian

heartland and the Western Pacific are both more likely to dominate world attention in a decade than

the Middle East. In particular, the economic weakening of China and insecurity in the region is likely

to create a focus for instability later in the decade.

The world will remain what it always has been: a dangerous place in which nation-states, and occasional

non-nation-state actors, continue to struggle, compete and make war. What follows is our estimate ofwho the main actors will be, where the struggles will be, what sort of competition will take place and

where wars might occur.

Founder

Strategic Forecasting, Inc.


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Table of Contents

Regional Forecasts:

United States....................1

East Asia....................10

Russia/Former Soviet Union......................18

U.S. Military..........................24

Middle East...................................27

South Asia..........................32

European Union..................................36

Latin America.........................40Africa........................44

Economic Forecast:

Global Economy...........................6

Stratfor Products and Services....................46

What the Media Are Saying..........................................................................48

Contact Stratfor...........................................................................................49


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United States

In our first decade forecast, publishedin late 1995, we wrote: The key to

understanding the next decade willbe to understand that the internationalsystem is in massive disequilibrium.One power the United States hasan overwhelming economic and politicaladvantage. Ordinarily, it would be in theinterest of such a power to impose apax on the world. However, because ofgeography the location and size ofthe United States the costs ofimposing such a pax substantiallyoutweigh the benefits. Any givenintervention in Eurasia carries with it ahigher cost than the benefits. The onlyexception to this might be interventionsin the Persian Gulf, where the economics of oil occasionally make intervention beneficial.

In our second decade forecast, published in January 2000, we wrote: The United States remains atthe center of the international system. It is the pre-eminent global military, economic and politicalpower. Militarily, the U.S. Navy controls the worlds oceans more completely than any empire in history.As important, the United States exercises almost complete control of space, enabling its intelligenceapparatus to see deep and its military to shoot deep and with precision. Economically, the UnitedStates is experiencing an unprecedented boom, surging past all other regions of the world. This military

and economic power yields unprecedented political influence. This is complemented by geography.As the only great power native to both the Atlantic and Pacific oceans, it can influence events globallywith an ease that magnifies its inherent power. Thus, the fundamental question of the next decade for both individual countries and the international system as a whole will revolve around the UnitedStates. The question, increasingly, will be this: How can other countries limit American power andcontrol American behavior?

Concerning the American economy, we wrote in 1995: The United States is by far in the best financialand demographic position to capitalize on this tendency [increased wealth creating further investmentand further consumption]. Interestingly, the national deficit, which is declining as a proportion of GDP,has not had the effect feared. The primary problem of the deficit that it crowds out private borrowersand raises interest rates has simply not happened and it will not happen. What it has done is cripple

the federal governments ability to finance new social initiatives. The key structural issue the U.S.deficit with East Asia is primarily a political rather than economic problem, and will be dealt with assuch.

We went on to say in 2000: The United States will continue to lead the world economically, in spite ofthe probability of a recession some time in the first half of the decade. However, structural problems,including an aging population liquidating capital holdings in retirement and a severe labor shortage,indicate serious problems later in the decade.


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We regard these forecasts as generally accurate and continue to see the United States moving alongthis general path. The United States continues and will continue at least for the next 10 years to be thecenter of gravity of the international system. It continues to be economically, militarily and politicallypre-eminent. The events of Sept. 11, 2001 which we did not forecast nevertheless fit with ourgeneral forecast that the United States will remain generally aloof from international entanglements,unless they affect the Persian Gulf and the region surrounding it. That will be and has been theprimary cause of American intervention. It has resulted in the fulfillment of a second forecast. The

international system continues to revolve around the question: How can other countries limit Americanpower and control American behavior?

The U.S.-jihadist war has caused the United States to surge into the region between the Mediterraneanand the Hindu Kush with overt, covert and political power. This has unbalanced the U.S. global posturemilitarily, and accelerated the process of resistance to U.S. power globally.

The United States is, first and foremost, a global hegemon. It has interests throughout the world,which it manages with tools ranging from economic influence to military intervention. The foundationof its power has been and continues to be the control of the seas. That control remainsunchallenged, and the United States is therefore free to intervene in Eurasia as its interests dictate.

All interventions in Eurasia, however, pose a fundamental challenge to the United States: demography.The force that the United States can field, the force that it can deploy and the force that it encountersin Eurasia are always out of balance. Having inserted forces in Eurasia, the United States always findsitself at a massive demographic disadvantage if it must engage in manpower-intensive forms of warfare.In Korea, Vietnam and Iraq, the core demographic disadvantage of warfare in Eurasia created seriousdifficulties.

The greatest difficulties did not necessarily arise in the immediate theater of operations. Rather theyarose from a trend toward an unbalanced force. The United States has global interests. U.S. naval andair power may or may not be engaged to its full capacity in a Eurasian war, but the Army always is.These wars tend to draw in ground forces disproportionately. As a result, an unsustainable imbalance

in Americas global posture emerges. These postures always are corrected by systematicdisengagement.

We expect the United States to disengage from Iraq and also from the rest of the Islamic world during the first half of the decade this forecast covers. This does not mean that a force may not be leftin any or all of these countries. However, inasmuch as we forecast a general decline of jihadistcapabilities and the emergence of an internal containment system in the Islamic world, we wouldexpect that the level of effort in the region will decline.

This also will be driven by increasing resistance to American power that will manifest itself not somuch in mere criticism of American policies, but in the formation of coalitions that can resist theUnited States. Most European states will lack sufficient interest in challenging the United States, but

we expect that East Asia will become increasingly an area of instability, where resistance to the UnitedStates will become increasingly rational. Therefore, we expect that by the end of this decade, U.S.focus on the Islamic world, while far from disappearing, will become less significant than U.S. interestin the Pacific Basin. U.S. alliance structures currently driven by the U.S.-jihadist war will shift onceagain, to reflect increased tensions in the Western Pacific. We would expect a decline in U.S. foreigninvolvements in the years on either side of 2010, followed by increased involvement in Asia.

Economically, the United States continues to lead the world in spite of the recession in the first half ofthe decade. It is indeed facing serious structural problems though the obstacles presented by anaging population should not crop up until around 2015.


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We do not expect a return to growth rates seen in the 1990s, except sporadically. We would expect tosee another recession during the first half of the decade, as we return to a more traditionally spacedexpansion. However, we do not expect to see a major, long-term economic contraction or period ofstagnation. We do not anticipate a return to the 1970s and certainly not to the 1930s.

The central factor we have been concerned with has been demographic. The United States has theleast significant demographic problem of any major power. First, like the rest of the developed world,

and unlike most of the developing world, the United States has a bulge in its population there aremore 40- to 50-year-olds than there are in any younger 10-year bracket. A similar, although lesspronounced, bulge existed in the United States from 1995 to 2005.While young workers are net consumers of credit, older workers who have often paid off their mortgagesand already sent their children to college are net providers of credit. Having an unprecedentedly largedemographic bulge in that age bracket enjoying unprecedentedly high per-capita incomes injects anunprecedentedly large amount of capital into the economy as their savings are converted intoinvestments.That abundance of capital radically reduces borrowing costs, allowing firms to successfully financethe complete replacement of their industrial plant in just a few short years. The positive impact on

worker productivity formed the basis of the United States 1995-2005 economic boom. It also allowedAmerican firms to capitalize on the technologies of the computer revolution and take them forward.

Research and development costs money. Implementation costs money. The golden age of the U.S.baby-boom generation allowed most firms to do both. Repeatedly.The bulge in the next 10 years will be significantly larger than the bulge from the past 10. During thenext decade the bulk of the baby boomers will be net creditors and moving toward retirement. Theyrepresent the largest demographic bulge in U.S. history.

Furthermore, the U.S. population is the youngest and fastest-growing population among all the

major economies. U.S. baby boomers had kids lots of them. So many that some demographersrefer to them as the echo boomers, although they are more popularly known as Generation Y. But inthe United States unlike in Japan and most of Europe there was no sharp contraction in birthrates before or after Gen Y. The American Gen X is certainly smaller than the baby-boom generation,but only by about 15 percent. In Germany, Italy and Spain the gap is around 35 percent.

This pattern is set to replicate in successive generations as well. The U.S. population increased by13.2 percent between 1990 and 2000, while the European and Japanese populations barely heldsteady. The United States is set to grow even more; birth rates are up across all regions and races even the dominant white population grew between 5.9 percent and 8.6 percent (depending upon howone defines white) between 1990 and 2000. Conversely, other countries such as Japan, Germany,Italy and Spain all face the prospect of shrinking populations in the decade to come.

The net result of this population structure is that the U.S. investment boom of the 1995-2005 decade isnot only replicable, but repeatedly replicable. Also, by having a relatively robust demographic in youngergenerations, the United States can for the next 10 years at least manage both an investmentboom and the funding of its social security system. Elsewhere, in contrast, smaller successivegenerations are creating a financial crunch. Italy already is spending about 13.8 percent of its GDP onfunding its pension program; with its relatively youthful population, the United States spends only about4.4 percent.


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Far more important and the singlemost important fact about the UnitedStates is its institutionalized capacityto absorb immigrants. Unlike Europe orAsia, the United States is capable ofrelatively seamlessly absorbingmigration at virtually any social level,

from impoverished Central Americanimmigrants to highly skilledprofessionals. As a result, it can shapewhatever demographic order, within amatter of years, it requires. It generatedan industrial working class in less than20 years in the late 19th century andsupplemented its skilled technical classduring the 1980s.

This means that many fears about acollapsing social security system or

housing prices based on existingdemographics are inherently flawed. TheUnited States can shape itsdemographics at will. Europe can do thisonly with massive social dislocation.Asia cannot do it at all on a broad scale.This, plus the fact that the worst-casescenarios have by now already beenfactored into expectations and thereforeinto the market, means expectations ofcalamity are irrational.

At the same time, there is a seriousstructural issue in the economy: thetrade deficit.

When we look at the federal deficit, wesee that there really is nothing out of theordinary going on. Particularly when welook at a five-year moving index, we cansee that we continue to operate well within normal bands. It is the trade deficit that has broken newground.

The U.S. balance of trade broke into negative territory in the mid-1970s and has remained there since.This first break was driven by the surge in oil and other commodity prices. What is important aboutthis index is not only that it has remained in negative territory since then but also that it has continuedto trend higher, particularly when smoothed out by a five-year moving average. The five-year movingaverage reached a peak in the mid-1980s, fell back until the early 1990s and then began an uptrendthat has continued until this point, rising to near 5 percent of GDP in 2004.

What is interesting about this 30-year trend is that it has had no impact on the economy. To thecontrary, the massive expansion that began in the 1980s coincided with the expansion of the deficit,


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Global Economy

In Stratfors 1995-2005 decade forecast we wrote: The decade ending 2005 will be marked by twocontradictory trends. On one hand it will be a period of unprecedented global economic prosperity

and growth. On the other hand, it will become a period of increasing fragmentation and tension inthe international system. As in the period prior to World War I, prosperity and instability will go hand inhand.As we said 10 years ago: Prosperity leads to greater economic integration and dependency resultingin greater insecurity by increasing the importance of international economic relationships and thereforeincreasing the opportunities for friction. This, in turn, leads to greater insecurity.This pattern did not end with World War I or World War II. During the past 10 years we have seenrecord global economic growth accented by the Sept. 11 attacks and new heights of development asthe computer revolution put down roots. This was in stark contrast to the financial crisis that struckAsia with its worst-ever recession at the same time. Europe is (unsuccessfully) attempting to squareits internal political commitments with its newly diverse membership in the European Union, whileAsian states are walking the love-hate tightrope of historical hatreds and economic cooperation. Theworld is richer than it has ever been but it is far from the united world that many dreamy-eyed forecasterspredicted in the early years after the Cold War ended.

The United States has a number of advantages over potential competitors. From a military and economicstandpoint, its single most important advantage is location: The United States is the only major, unitedcontinental economy with easy access to both the Atlantic and Pacific oceans. Though Europecontrols a continent, it is not a united economy, no matter what Brussels says, and the Continentcertainly does not bow to a singular economic and political structure. Japan is a united economy, butits reach is limited by location and it is not continental in scope. Russia might have (albeit constrained)

access to global markets, but the tyranny of distance not to mention the debris of empire preventsit from unifying its internal economy.The United States location guarantees it the opportunity to shape the global economic system butopportunity does not equal fact. What will ensure that the United States will continue for the nextdecade as the center of the global economy is the same unique feature that Stratfor identified in 1995:demographics.Demographically, the United States is unique among the worlds major economic centers. First, itspopulation is aging which results in the aforementioned bulge in the 40- to 50-year-old age group.This bulge will not be replicated in the other major developed economies in this decade, leaving theUnited States by far as the largest pool of capital.

Japan had a bulge, but it peaked in 2000, and its near-retirement generation is among the smallest inJapanese history. Most European countries have such a bulge, but are 10 to 15 years behind theUnited States. Only France has demographic patterns that indicate there will be anything but a dearthof investment capital outside the United States.From 1995 to 2005, Europe also lacked such a bulge, to which Europes lackluster growth ratesattest. Japan did possess a bulge during this period, but the governments spendthrift policies soaked


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up all available local credit. During that period, Japan transformed from the largest sovereign creditorin human history to the largest sovereign debtor.

The youth and growth rate of the U.S. population is also not being replicated in other major economies.In the case of Japan, the World War II population bulge signaled the beginning of a slow hollowing outof the Japanese population. Their bulge already has passed and, with the exception of a smaller bulgethat will mature around 2030, each successful Japanese generation has gotten smaller. In the decade

to 2015, Japan faces a credit crunch that will only magnify its other problems. After 2030, Japan willhave an ancient population that will likelynumber 10 million fewer than it doestoday.In Europe, the problem is that there isno replacement bulge for the generationthat will mature around 2020. With thepossible exception of France, all themajor European countries face afeature that demographers call apopulation chimney, as each

successive generation is smaller thanthe one before it.Finally, there is really only one way thatEurope and Japan can correct thisproblem without drastically increasingtheir birth rates a process that wouldtake 50 years to work its way throughthe system. That solution isimmigration. But again, the UnitedStates is the outlier, having proven itself

the only country capable of absorbingwave after wave of immigrants.At their core, Europe and Japan definethemselves by ethnicity. Non-Japanesemake up less than 1 percent of theJapanese population. Europe is farmore diverse than that, but no majorEuropean states can approach thediversity of the United States, in which25 percent of the citizenry defines itselfas not purely white. Even then, many

of Europes minorities are actuallyethnicities from other European states(i.e., Germans living in the Netherlands).In all, the total non-European makeupof Europe is less than 10 percent.For Europe and Japan, replicating theAmerican success is structurallyimpossible. In theory, Europe could


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consumption and, by extension, slower growth across all sectors of all economies. Second, lesssupply always increases volatility. Crunches are next to impossible in well- or over-supplied markets;lower supply means the swings from economic booms to busts will be far more rapid and far moredisruptive overall.For the United States, the above description will manifest itself sometime around 2015, as the bulk ofthe U.S. baby boomers pass into retirement. For Japan, it begins here and now.


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East Asia

In its 1995-2005 decade forecast, Stratforsaid: We strongly feel that the last decades

surge in East Asian economies will bepeaking early during the 1997-97 cycle. Thisproved very prescient. We also said it wasextremely unlikely that Chinas growth spurtwould continue. And while China did see a dipin its growth rates following the Asian economiccrisis, it hopped back on the wagon relativelyquickly.

The 2000-2010 forecast for East Asia centeredon China and Japan. Regarding the latter, wenoted that the country likely to take a leadingrole in Asia is Japan an assessment wesee playing out. Japans shift toward formalizingits role as a military player rather than remainingsolely an economic player has acceleratedsince the Sept. 11 attacks in the United States.Japans movement toward military power alsoillustrates Stratfors core idea for East Asia inthe 2000-2010 forecast: Nations that had reliedon their economies in the previous decade asthe sole measure of their international standing and influence would move toward a more balancedreality in which economic power by itself will be supplemented by political and military power.

On China, we said, Our forecast is for a deeply troubled China, increasingly torn by domestic strife,with a government, in the face of it, alternating between brutal repression and helplessness. Chinaappears to be facing no such intense struggle, at least on the surface. However, not far below theseplacid waters swirls a mix of economic, social, political and security issues waiting for the slightestexternal stimulus to bring them bubbling to the top.

As for the rest of East Asia, we said, The Korean Peninsula will become the epicenter of tensions inNortheast Asia a forecast we see taking shape. In Southeast Asia, we said, Indonesia will continueto be the center of attention as it struggles to maintain unity and redefine its role among its neighbors

again, a prediction we still stand by.

On the whole, Stratfors long-term East Asian forecasts have been right on the money. However, wehave always been bearish on China not for ideological reasons but for structural ones and ourforecasts, which we believe remain fundamentally accurate, have not matched the bullish view thatothers give to the Chinese economy and national status. Our view of Chinas future is in stark contrastwith the positive outlooks we see coming from investment houses and others.

One key reason for the difference is that most forecasts on China are linear in essence they saythat since the Chinese economy is clipping along at 8 percent or 9 percent GDP growth each year, in10 or 20 years China will dominate the global economy. Our basic supposition, however, is that theshape of the world today is probably the least likely shape of the world a decade or two out. The world


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operates in cycles, long and short, and linear extrapolations fail to take into account the reactions andarrestors on growth or decline. For example, in 1990, a year after the Tiananmen Square incident, theprediction that China would be the regional economic engine a decade later would have been laughable,as foreign investors fled the country and the hands of repression were clearly seen. A decade later, itwas hard to keep foreign money out of China, and Beijing was even beginning to look at ways to slowthe economy.

China is obviously a major factor for East Asia in the next decade. And in looking at China, the statusof the economy particularly growth is the core issue. It is our view that Chinas economic growthrates, driven largely by foreign investment, trade and government spending, will continue to slow. Thisslowing will exacerbate underlying structural tensions in the Chinese economic system betweenthe urban and rural areas, between the coast and the interior, between the north and south, betweenthe rich and poor and between the center and the periphery and at its core between the state-controlled and market economies.

Why, then, if Stratfor sees a China on the verge if not already in the midst of massive internalupheaval, is there a general global acceptance of the idea that not only is China on an unstoppablerise, but that people should pour their money into the Chinese economy? In part, this is due to tunnelvision assessors of the Chinese economy are looking only at the booming center-coastal economies

in and around Shanghai. In part, it is intentional self-delusion, a failure to connect the dots.

There is no shortage of reporting on the underlying weaknesses of the Chinese banking system, thestate-owned enterprises (SOEs), the unemployment problems, the uneven distribution of wealth andlabor and myriad equally troubling and seemingly insurmountable problems. However, the holy grail ofselling a single orange to each of the 1.3 billion Chinese continues to blind others to the reality of thesituation, and the desire for a piece of what someone else might get has fed a steady stream ofinvestment into China, keeping the system on life support and justifying the positive outlooks.

But on this last point, something has been overlooked: In recent years, foreign direct investment (FDI)moving into China has declined, but this

trend is hard to see clearly. U.S.investment in China was the key driverin bringing China up from the Asianeconomic crisis. Weary of waiting for thereturn on investment in China, U.S.investors slowed the flow of FDI.However, the herd mentality and theshiningly optimistic assessments ofChina as the next golden goose led to asuccessive wave of Europeaninvestments. This was followed by Asianinvestors, who did not want to be left

behind.

This rush of foreign investment andinterest in China has masked theChinese economys underlyingweaknesses and given the governmenttools to maintain control. But it will notlast. Already there is dissent forming inthe international community, and theneed for quicker profits or any profits


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is driving companies and investors to look elsewhere. Rising interest rates and the perception ofstrong market fundamentals are bringing investments to the United States. High energy prices, sectorbubbles and the resurgence of China threat fears are taking the shine off the Chinese economy.

Beijing has enjoyed a brief respite from these fears. The external pressures on China were set toincrease in late 2000 with the election of U.S. President George W. Bush. By early 2001, China andthe United States were in a tense standoff as a U.S. E-P3 sat on a Chinese runway on Hainan Island.

The incident was resolved, but the strains on U.S.-Chinese relations were not relieved. The came theSept. 11 attacks in the United States, and suddenly China became a back-burner issue. Beijing evenbecame, briefly, a fellow target of international terrorism, convincing Washington that Uighur militantswere tied to Osama bin Laden and out to create a greater Islamist state in western China and CentralAsia.

But while Beijing had some time and took advantage of it to effect a relatively smooth transition fromJiang Zemin to Hu Jintao, the so-called Third and Fourth Generation leadership Washingtonsoverwhelming infatuation with bin Laden, al Qaeda and international jihadism began taking a moreproportional position in the American global strategy. For China, this means the return of U.S. pressure.

The same factors that led to the downfall of the Qing Dynastyin 1911 are still inescapable today. China

is showing classic symptoms apparent before the end of dynasties: the disruption of internal economicwealth, increasing gaps between rich and poor and between regions, the economic encroachment ofoutside powers and the undermining of the social contract with the state. The central government haslost its legitimacy after trading ideology for money that is now supplied from afar rather than fromwithin.

The balance between the center, which seeks to pacify and stabilize the vast interior population, andthe coastal periphery, whose economic and political interests lie in foreign trade and are thereforeultimately aligned more with foreign nations than the center of China, continues to create friction. Thecenter, in order to maintain control of the interior, must take money from the periphery. Fears of issuesof social stability lead the center to take action in the interior, which might be anathema to the interests

of the coastal provinces.

China today has two economies: the import/export economy based in the densely populated coastalregions and the remains of the old Maoist SOE-based economy in the interior and the Northeasternrust belt. FDI supports the import/export economy, while the central government must keep theSOEs afloat. In 2003, SOEs employed 375 million of 750 million workers and controlled 57 percent ofthe countrys industrial assets. The SOEs are kept alive and at times bailed out by preferentialbank loans, but the inefficient enterprises are giant capital vacuums, compounded by corruption andcontinued mismanagement.

Bad loans in China, most of which stem from lending to SOEs, have been estimated to reach as highas $500 billion by no less than the investment houses who have a vested interested in making this

number appear as low as possible. That isnot far off Chinas $609.9 billion as of Jan. 1, 2005 inforeign currency reserves. Beijing is constantly pulling from its own reserves to feed the state banks,which in turn feed the SOEs. Since 1999, Beijing has spent about $275 billion in asset transfers andbailouts in attempts to solve the bad loan problem. All such fixes have failed, since they do notrequire the SOEs to change their operating policies. The SOEs, in turn, feed the people who, underthe communist system, came to expect and depend on the continued existence of a state-sponsored Iron Rice Bowl.

The coastal areas, where the import/export economy is based, received 87 percent of Chinas FDI inthe last three years, but western China, which is home to many SOEs and farming operations, received


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Second, Beijing could revert to the Dengand Jiang method of encouragingunabated and unequal growth at theexpense of profit, occasionally trimmingdead wood in SOEs, pumping moneyinto the banks to recycle into theinsolvent SOEs and thereby maintain

the bare minimum of social stability toavoid significant unrest. Any smallstirrings are met with crackdowns onsocial movements. This, however, onlyfurthers the underlying structures thathave rotted out Chinas economicexpansion, and, in relying on the Asianmodel and the Communist model, itfails to address the true problems.

A third method is that being attemptedby Jintao. This involves slowing growth a few percentage points, more closely regulating the economy

from the center and trying to direct FDI into the worst of the SOE areas, namely the northeast. In themidst of this, Beijing seeks to take a million small steps toward addressing underlying weaknesses.This simply prolongs the pain even if regionally isolated and builds tensions between haves andhave-nots. And it relies on foreigners good will or poor judgment to invest in the worst of the Chinesestate institutions. Ultimately, if social stability can be maintained (and this seems unlikely for long),Chinas best case is a sustained slump, reminiscent of the past few decades in Japan.

The fourth option is the Mao method: Close the country and economy and undertake a massivesocial restructuring. This is not really an option among the Chinese leadership, which has a vestedinterest in expanding trade with the outside world.It also would result in a loss of international power,at least for a decade or so. Without the ideological underpinnings that allowed Mao Tse-Tungs social

revolutions, gaining any sense of national buy-in for another Cultural Revolution would be highlyunlikely, and the opposition to such a path would be anything but quiet.

The first and fourth options appear untenable now and in the foreseeable future. The fight is not overclosing the economy or keeping it open, but over the pace and scope of economic growth versuseconomic fundamentals. It is a core question of defining strength. While the Hu method has won outfor now, if things start to bite and they likely will there will be a renewed push for the Jiangmethod, though whether China can entice others into a new boom too many times is unclear.

The government is challenged now to prove its legitimacy as the center of the nation. Under Mao, theunderpinning was ideology and a sense of international embattlement. Under Deng and Jiang, thatunderpinning was the promise of money and material goods. Chinas rapid growth economy is very

young, and tearing that promise away even in the name of market fundamentals is extremelydangerous. The only way South Korea managed it was to rely on a very close sense of ethnic nationalismand to put the blame for the pain on a non-state actor, the International Monetary Fund. China hasneither the ethnic homogeneity nor pervasive sense of nationalism to ask for much self sacrifice, andthe stresses on the system will continue to compound.

If China adheres to the World Trade Organization (WTO) accession agreement and opens its bankingsystem in 2006, the SOEs will collapse, since Chinas banks would no longer able to funnel money tobail out non-performing companies. Strengthening the SOEs through reform creates massive new


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pools of unemployed labor, leaving even more disgruntled and disillusioned former state workers withno jobs and nowhere to turn. Ending bank lending to the state institutions creates hundreds of millionsof new unemployed. A social cataclysm of that magnitude will tear the country apart or at minimumlead to the collapse of the Party and the government. Therefore, China will choose another path.

Beijing will want to prop up the SOEs as long as possible to buy time to convert them into productivemembers of Chinas economy. However, time is not on Chinas side; the country must open its economy

before the SOEs can be converted. The center will want to forestall this as long as possible and istherefore unlikely to accede to its full obligations under the WTO agreement.

Beijing, then, will seek to mitigate the internal upheavals now apparent from the 1979 economic openingand reform thesystem. Mismanagement, rampant corruption and the combination of an Asian (growth-driven rather than profit-driven) and Communist (social control over profits) economy has left Beijingwith few immediate solutions. If China slows its opening and reforms the most likely path, albeitdone in a subtle Chinese way FDI will begin to dry as foreign investors shift away from China. WhenFDI dries up, growth in the import/export economy will slow down. When growth slows down, socialstability issues will become more pronounced, since there will be less and less money to pump intothe SOEs. Capital flight by Western investors already has begun, with Asian investors making up thedifference, but they will be unable to sustain adequate levels for very long.

FDI decreases also factor into the rifts between the center and the periphery in somewhat unexpectedways. A decrease in FDI is what triggered the 1999 corruption crackdown. In 1999, FDI going intoChina decreased by more than 11 percent as a result of the Asian financial crisis. With less moneycoming into the country, the center tried to keep the SOEs afloat with money from the import/exporteconomy. This was met with resistance in the periphery, and the center responded by moving in andtaking what it wanted under the guise of a crackdown on corruption. In extreme cases, the peripheryreacted violently; in others it simply took the money and ran.

China will struggle on through 2008. The Olympics are a powerful force, driving economics and providinga rallying point to keep divergent interests temporarily subdued. That will not last. Nationalistic entreaties

playing off the Olympics, space programs and the like can do little to hold the disparate interests andfactions together. Intentionally or not, the face of the Chinese Communist Party will shift in the yearsshortly following the Olympics.

The turmoil this will likely cause will lead to a loss of central control and a regionalization of power, ashas often been seen in Chinese dynastic transitions, in which the country while nominally unified will in fact become a cluster of fiefdoms, effectively modern warlord states. The capital will have anational leader but the centers reach and influence will be at the mercy of the regions. In a place suchas Afghanistan, this is called status quo; in China, warlordism only this time, there will be nuclearweapons in play.

As Chinas economy triggers social upheaval, other Asian states will look for different sources of

strength and regional leadership. The alternative to China is Japan, and Japan is embarking on a moreaggressive assertion of its leadership role in Asia and seeking to spread its influence and securitysphere along its energy supply lines through the Indian Ocean to the Middle East. This process willcontinue through the decade.

Japan already has the capability of projecting its military power better than China. Although Chinapossesses a larger fleet of Landing Ship Tanks (LSTs) and landing craft, it lacks important logisticaland support elements necessary to project maritime power. Chinas navy also lacks a sufficient numberof large-scale and advanced landing ships amphibious assault ships and dock landing ships.Although China can eventually build these capabilities, Japan already has the experience and the


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technical ability to sustain forces overseas for extended periods of time. Its involvement in Iraq where Japan has 900 troops, naval vessels, helicopters and aircraft (the biggest deployment since1945) and Aceh province in Indonesia demonstrate that. By the end of the decade, Japan alsointends to have a significant aerial refueling capability, which is essential for power projection. Chinasaerial refueling capability continues to be based around the aging H-6. With no deliveries of the Backfirebomber, the H-6 continues in the bomber role and few have been converted to aerial refueling. Finally,Japan has the experience of training with the United States and its allies for decades.

Japan is a modern state suffering from a lasting economic malaise and looking to reshape its rolewhile seeking new economic strength and security. The Japan of the Cold War was content to rely onWashington for its security needs, and the unnatural state of the worlds largest economy protectingthe fundamental interests of the worlds second largest economy with little outlay by Tokyo is longgone.

Japan sits in a volatile region, and the United States is looking to establish Tokyo as a cornerstone ofan enhanced regional security alliance system. With Japan watching a fading China, however, Tokyois unlikely to stand by and simply watch the downturn and unrest and wait to see what happens.Tokyo will seek to exploit the economic advantage, supporting coastal areas of China, backing Taiwanand generally assisting in the disintegration of the Chinese state apparatus.

Looking at a China that is fanning the flames of nationalism, Taiwan will seek to align itself with Japan,because Tokyo can offer Taipei security benefits that Beijing cannot. This situation will feed on itself:China will react strongly to a Taipei-Tokyo axis, and Chinese reaction will prompt closer cooperationbetween Taiwan and Tokyo.

That the confrontation between China and Japan will move beyond the political and economic spheretoward the military realm before the end of the decade appears likely. Should there be a war betweenChina and Japan, Korea will attempt neutrality, though leaning toward one side China. However,Korea will seek U.S. assistance to stand between its two neighbors. If Washington is unable or unwillingto stop Beijing and Tokyo, Korea will be left dangling.

Korea is clearly defined by its geography. A peninsula situated between two regional, historic, competitivepowers, Korea has been a conduit for technology and culture and the main avenue for invasion inseveral directions. Koreas traditional solution was to pay suzerainty to China its contiguous neighbor while isolating itself from Japan, its maritime neighbor. When faced with invasion, Korea calls onoutside powers, be they China, Russia or the United States.

This pattern is ingrained in the geographic features of Korea, and has been unchanged by the divisionof the peninsula.

Korea is, therefore, a reactive state whether the reaction is expressed as isolationism or as aninvitation to foreign powers. Koreas future is rarely shaped by domestic desires or strategic planning

because its size and location leave it always vulnerable to the designs and actions of its neighbors.

The divided Korea has exploited its neighbors in an attempt by each side to gain the upper hand. TheCold War gave Korea tremendous strategic importance in the confrontation between the Soviet Unionand the United States, as well as in the often contentious relationship between the Soviet Union andChina. Seoul clearly benefited from the former, Pyongyang from the latter.

The end of the Cold War also ended the support network that kept Korea divided. That is not to say thesituation cannot continue, but the interests of the two Koreas have rarely been different only the


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ideology has. Both Koreas seek a strong, independent Korea, and with the Cold war structures shattered,the two are working closer together to achieve this in spite of their ideological differences.

Over the next decade, this cooperation will become more apparent, though ideology will still present abarrier for significant cooperation early on. While there is concern in the South for the economicaffects of unification, it is ideology seeking a face-saving way for neither ideology nor elite to bede-legitimized that stands in the way of unification.

Friction points between Japan and China will include areas beyond Korea and Taiwan, with competitionfor sea-lane control, however one-sided. The wild card is whether the tensions between Beijing andTokyo at some point exceed Washingtons comfort zone or interests. Intervention between twoAsian powers is something not readily leaped into, and Washington could engage in a balance-of-power strategy between the two, keeping them occupied in East Asia and preventing either from everrising to challenge U.S. control of the seas.

The Indonesian archipelago will be a friction point while Australia peruses a policy of using Indonesiaand the Pacific Islands as a bulwark against encroachment from the mainland and the South ChinaSea. Indonesia could be out of oil by then, but Canberra must ensure Jakarta (or Australia) remains incontrol of the islands in order to keep the Chinese (or multiple militant groups, criminal gangs and

other powers) away from the Australian heartland and prevent them from having interdiction capabilitiesin the major shipping lanes. Australia can expect U.S. support in this endeavor.


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Russia/Former Soviet Union

Ten years ago,Stratfor said

Russia wouldregain lost parts of itsempire by 2005.Ourmistake was takingfor granted that theRussian people andleadership at the timewould have the politicalwill to do so. Russiaremained capable ofattaining its formergreatness despite thefall of the Soviet Union but the desire to useits capabilities never materialized. Russias moderately pro-Western leadership for the past decade under former President Boris Yeltsin and during the early years of President Vladimir Putins regime has driven the country toward the West, and the Russian people have tolerated this course so far,albeit grudgingly.

In 2000, Stratfor said that, by 2010, Russia would re-emerge and reclaim its former territories, beginningwith the Baltics and Georgia; return the Russian army to the Polish and Romanian borders; andcooperate with China to block the United States. As of 2005, we have again been wrong and for thesame reasons. Until now, Russian and Chinese leaders have thought they could gain more by

cooperating with Washington than with each other.

Stratfor believes our forecast from five years ago will come true, if not by 2010 then by 2015. We basethis belief on objective reasons, such as the hard geopolitical realities Russia has faced for hundredsof years. Pro-Western governments content with supporting roles in a U.S.-dominated world mightcome and go, but Russia and its inevitable geopolitical challenges remain.

We believe Russia is at the beginning of a reversal that will take it on an anti-U.S. course. The turningpoint could come soon, or it could be years away. Russias deepening systemic crisis and a fierceand continuous struggle between nationalist forces and pro-Western, Washington-supported factionswill make for a very painful reversal of indeterminable length and depth. A series of policy failures possibly including the loss of territories, such as those in the Caucasus, or even Russias disintegration

to the point where Moscow has only nominal control and some regions declare independence willhappen during the next decade. But by the end of 2015, Russia will be more of a nationalist and statistentity.

Russias current geopolitical phase marked by continuing decline began in 1992, after thedisintegration of the Soviet Union. Given that Russian phases usually last 25 to 45 years (such as thebuilding of Soviet Russia as the second superpower from 1917 to 1961 and a period of stagnationfrom 1962 to 1991), the current phase might end as early as 2014 or 2015. Even before then, however


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it is unclear exactly when, but sometime in the next decade centripetal forces will replace thecurrent centrifugal forces as Russias center of gravity.

What do we think will bring about Russias reversal in the coming decade? Geopolitically speaking,with Russias brother state Ukraine vital to Russias survival joining the West as a geopolitical

junior ally in 2005, Russia is running out of room to hide from a coming conflict with the West. Moscowand central Russia will become indefensible if there is a war between the North Atlantic Treaty

Organization (NATO) and Russia. The prospect of a pro-U.S. revolution the likes of which alreadyhave changed regimes in several former Soviet republics adds urgency, too. Central Asia, theCaucasus, Moldova, Belarus and virtually all of the former Soviet Union (FSU) will see attempts with varying degrees of success to replace even moderate pro-Western regimes with openly pro-Western governments.

Furthermore, on its current course, Russia has been collapsing slowly but surely and there is noreason to believe this decline will stop without a change in strategic course. As an independentgeopolitical power and perhaps even as a sovereign united state, Russia must either strike back atforeign interlopers soon or die.

The odds are currently against Russia. Centrifugal forces tearing it apart and bringing it down prevail.

Inside the country, Russias post-Soviet elite has been Westernized, and many would not mind seeingRussia go the way of the Soviet Union. Members of this elite also value their checkbooks more thantheir country, and since economic ties between Russias center and its outlying regions are becomingweaker than those between the outlying regions and foreign neighbors, the elite has little use for areasbeyond the center. Russias fundamental crisis also is deepening; separatism among ethnic minoritiesis on the rise; Islamist militancy is spreading from Chechnya to other Muslim-populated regions; militantattacks continue unabated; and demographics show that ethnic minorities with no allegiance to Moscowoutlive ethnic Russians.

Meanwhile, foreign interest in getting something from the crumbling Russia and FSU from controlof largely untapped natural resources to chunks of territory is greater than it was even during the

period of foreign intervention in Russia from 1918 to 1922. Even tiny Estonia has territorial claims toRussia.

However, we think Russia will preserve or restore its territorial integrity and sovereignty andagain become a major international player with a traditional anti-Western geopolitical course. Themain geopolitical threat to Russia this coming decade comes from the U.S.-led West, which threatensRussia more than all other players combined, so it will be against the West that Russia responds.

An understanding of Russias fundamental geopolitical patterns is required to understand why Russiais not about to go quietly into oblivion. A power more than 1,000 continuous years in the making,Russia is not about short-term trends; it should be analyzed and predicted in its entirety, in terms oflong-standing geopolitical traditions.

One such tradition is that, even at its lowest, Russia has always remained essentially an integrated,vital state. Also, foreigners previous attempts to use Russian collaborators to remake Russia to theirliking have invariably failed. Traditionally, Moscows strategic response to life-threatening events hasalways been slow from outsiders perspectives, too slow and we suspect Russia will again takeits time in the course of its upcoming reversal, no matter how risky it is to move slowly in this situation.Another long-term Russian tendency is to show its best and, in fact, succeed every time its veryexistence is in mortal danger. There is no reason to believe Russia will behave differently this timearound.


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Russia has always been saved by movements that begin outside the countrys centers of power, withnew forces frequently emerging from within Russia to preserve the nation. This time, we expect Russiasgeopolitical revival will not begin in Moscow or St. Petersburg which have less to do with the realRussia than New York or Washington, D.C., have to do with the real United States but in the outlyingareas. Intelligence shows that, while pro-Western tendencies still dominate Moscow, an anti-Westernbacklash is growing in the provinces and within many strata of Russian society even in some partsof the current elite (though Russia might form a new elite to make its upcoming move a success).

There are two schools of thought on how to revive Russia from within, i.e., how to strengthen itseconomy. One was represented in the early 1980s by then-Communist Party General Secretary YuriAndropov, who argued the regime could only be saved by opening to the West and modifying theSoviet system while accommodating Western geopolitical appetites in exchange for economic benefits.Communist Party General Secretary Mikhail Gorbachev used this theory to develop his policies ofglasnost and perestroika. After Gorbachev failed, the same camp decided the Soviet Union should bedisintegrated, though the same elite would remain in power as new capitalist Russian leaders.

Putin is an heir to that thread. Right now, the levers of power and the state apparatus are essentially inthe hands of the Andropovites.

The state itself has consistently re-evaluated its position out of increasing discomfort with the cost-benefit analysis. Putin does not want to change Russias fundamental strategy, but he hopes to makea few technical changes. However, his continuing drive toward the West has not brought Russia anysuccess and has left it with an ever-deepening internal crisis, raising Shakespeares question of to beor not to be for the Russian nation.

The other school of thought on Russian revival is that Andropov was wrong and the current andcoming consequences are not because of Yeltsin and Putins mismanagement but because of afundamental misunderstanding of the forces driving Western policies and the effect of the market onRussia. The Andropov position calls for technical changes in Russias economy and marketization;the second position argues that Russias current policy is a fundamental failure and must be adjusted.

In Russia and this is dramatically different from China and India pro-market forces have beenpro-Western at the expense, it seems, of Russian national interests. Many pro-Western reformers inRussia do not see themselves as part of Russia; some of them argue they are citizens of Earth ratherthan Russia, and that they must contribute to the success of the global market rather than the Russianmarket. This attitude cannot help but alienate these pro-Western members of the elite from manyother Russians.

Because the Andropovites failed to deliver, we expect the second school of thought to take over in thecoming decade. We already see the first two issues that will take Russia in this direction: Ukraine andthe retirement problem. Ukraine is an issue of foreign encroachment and shows Russias formerallies moving toward the West. Russias retirement situation, where the elderly are no longer paidbenefits and have no savings to draw from, is an enormous problem affecting more than a quarter of

Russias population and, as an extension of the marketization of Russia, it points to the failure ofthe countrys current course.

The retirement issue might be the impetus for genuine popular resistance to any further market systeminroads and it could escalate into a struggle against Russias current pro-Western course. Certainly,the existing protests are a far cry from what is usually required for a change of regime or course.These particular protests likely will die down, but new demonstrations will arise because the overallcrisis in Russia will not go away anytime soon; on the contrary, it will deepen.


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Stratfor senses a powerful counterforce coming gradually but certainly to confront Russias currentregime. This movement will come from those population segments the Russian oligarchic elite hasexcluded systematically from wealth acquisition Russians from rural areas and small cities and theelderly who seem to be stirring for more and larger protests. This, coupled with Russias beingpushed from the FSU and its internal systemic crisis, indicates that a defining moment for Russia iscoming.

One such moment came in the 1980s, when the KGB realized the Soviet Union might not survive andthe Andropov strategy was born. Another such moment was when Yeltsin and Gorbachev faced offover the question of Soviet survival, and the Soviet Union was dismantled. Yet another pivotal momentcame after NATOs Kosovo war, when Russia had the chance to confront the West, and Yeltsindecided the costs of doing so would outweigh the benefits, so he stayed his pro-Western course. Itseems to us that in the coming decade, Russias decision will be different, even if Putin has to bereplaced to clear the way for Russia to strike at the West.

The Russian people see the state as essentially a Jewish monopoly exploiting the Russian masses a majority of Russias top oligarchs are Jewish to enrich a very small, cosmopolitan and pro-Western segment of Russian society (the segment the West sees as the whole of Russia). ThoughRussia has money and reserves, these are not in the hands of the country but of individuals from

state officials to oligarchs who are out for their own interests. For example, though there are peopleliterally starving in some provincial areas, Russias agricultural industry exports food and reaches outto only some inside the country. Likewise, Russian end users rarely see the effects of Russian oilindustry revenues.

It can no longer be argued that the West is benign or that the market economy is working for mostRussians; the only argument that can be made is that the current difficulties are temporary, and overtime, Russias current course will work out. But if Ukraine joins NATO, Russia will lose the bufferbetween itself and the West, and Russia will have no time to wait and see if Westernization will workin its favor.

Furthermore, an attempt by Washington to replace Putin with a more accommodating Russian presidentmight happen soon but that attempt could spiral out of control and result in anti-Western forcesbacked by Russian masses taking power instead. And beyond that, death tolls from HIV/AIDS in Russiawill probably snowball three years from now and remain high for a long while, finally driving home thepoint that the Russians and their nation are dying and not as gradually as in the past.

Thus, a reversal of Russias course is highly probable. We are not sure how it will take place, but thereare several possibilities:

1. The elite holds on to Russias capital and center while the rest of the country crumbles. St.Petersburg and Moscow remain Westernized enclaves in a country that has no interest inwhat goes on there. This could result in the delegitimization of the Russian state and

hence disintegration, with nationalist enclaves emerging in the provinces.

2. A popular uprising from the streets overthrows the regime and introduces a more traditionalRussian government with anti-Western characteristics.

3. A palace coup pushes Putin or his successor aside, and Russias course changes fromwithin the government.

4. Under undeniable pressure from a majority of Russians, Putin changes his tack andbecomes nationalist and statist.


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On the whole, we expect a fundamental Russian crisis and prolonged fighting in various forms including military conflict at times. A number of scenarios could play out, but in the end, Russia willbecome the nationalist, statist entity it was before the last 20 years of openness and marketization.

The question now is what the reversal will look like. The Communist Party is likely finished in Russia;it will not be the driving force. A new, anti-Western leading force will emerge from street protests andpopular anger. Moreover, a completely new elite will probably form from this period of turmoil. The new

elite will consist of national capital representatives, mostly from the production economic sector; patrioticintellectuals; officers in the military, security and intelligence; and popular resistance leaders.

By 2015, the regime will probably be religion-oriented, with the Russian Orthodox Church taking aleading role, joined by moderates from other large religious traditions in Russia, such as Islam andBuddhism. A new regime will have to draw upon one resource or another for its strength; traditionally,Russian morality and human capability have been vital to the countrys success. With the communistideology in crisis and the market ideology inspiring relatively few Russians, moral strength can bedrawn from revived religious values that argue for a strong Russia and a just society. Also, it willprobably be a very conservative regime, resting on the foundation of a production economy, with low-paid workers, intellectuals and peasants as well as those dependent on social benefits.

As the largest continental power and chief influence over Eurasia, Russia cannot escape its geopoliticalfate: to maintain its territory by fighting seafaring powers (the United States, the United Kingdom andJapan) looking to assert influence in the strategically valuable Eurasian region. Russia and its immediateneighbors within whose borders Russia has direct security interests happen to be located in avery strategic area. If Russia disagrees with the U.S., U.K. and Japanese visions of its future and thatof its neighbors, then Russia will have to fight. Thus, no matter the extent to which Russias currentpro-Western government shies away from confronting these forces, it will not be able to avoid the fightforever. It will probably join forces with other continental powers Germany, China and India by2015.

The regime will accept the idea of private property and adopt some form of market economy with state

control. The economy will give priority to the development of Russian national capitalism, caring forRussian internal economic development and creating Russian competitive high-tech products. It willnot cater to Western monopolies or be based on selling Russias natural resources as it is now. Thegovernment will be much more geopolitically assertive, having as its foundation the principle of respectedinternational power and Russias international greatness.

Similar struggles between pro- and anti-Western forces will take place in all FSU countries this decade,with Muslim FSU countries also experiencing an upsurge in Islamist militancy and radicalism, which isattractive to the impoverished. The Islamist force with the most potential to succeed is not a militantgroup, such as the Islamic Movement of Turkestan militant groups have drawn the attention ofintelligence and security services and are thus more likely to be crushed. A radical organization calledHizb ut-Tahrir, which is not militant in nature, could avoid defeat as it spreads the message of

overthrowing secular regimes in Central Asia during the coming decade.

As in Russias case, various outcomes are possible in these countries from the disintegration ofsome states to armed conflict in others. In the end, when a reversed, militarily and politically strongerRussia emerges sometime in the next decade, some FSU nations will realign themselves with Russiawhile others will remain in the pro-U.S. camp. Though we do not forecast the re-emergence of theSoviet Union within the next 10 years, some new Russian-led alliance consisting of several FSUcountries or parts of these states will emerge by 2015.


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This would not be the end of the fall in terms of the Russian and FSU economic crisis. The regionalready is in freefall, and nothing can stop that immediately or even in 10 years. This reversal is aboutthe systems structure and direction, changes in which will attempt to address the economic crisisover time probably beyond the coming decade.

In such a reversal, economic and other problems will intensify. But Russia has proven many timesthat it and its people can survive any hardship, as long as the struggle for Russias greatness is made

and is shared by its leadership and the masses.


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U.S. Military

The peaks and troughs and localized strains the U.S. military has felt during the war on terrorismin general and the Iraq war in particular will prove to be immaterial in the coming decade.

Regardless of the outcome of the war though Stratfor suspects it will end in Washingtonsfavor U.S. military dominance will remain absolute during the next decade.

The U.S. military is the unquestioned and sole global military power; this is based primarily on theability of the U.S. Navy to dominate the worlds oceans. This condition of hegemony is only partiallybased on the superior numbers and technology of U.S. naval vessels and augmented significantly byU.S. dominance in space-based reconnaissance technology. On a broad scale, this situation will notchange in the next 10 years especially regarding U.S. naval dominance but the next decadeprobably will see the emergence of cautious challengers to U.S. dominance over space.

Fundamental technological breakthroughs have often driven fundamental changes in warfare, andStratfor expects the next decade to be no different. The next step in revolutionary warfare likely tobecome operational by 2015 is hypersonic scramjet technology. Having been developed by the UnitedStates for going on two decades now, this technology capable of traveling at 15 times the speed ofsound, meaning an aircraft with a weapons payload could fly from Seattle to Beijing in less than half anhour will have a coming-out party of sorts over the next 10 years.

The availability of such a unique standoff weapon will allow for rapid response and battlefield dominancein every corner of the world. This already is provided in part by the U.S. Navy, but now weapons can bedelivered to a target far from any substantive naval presence and rapidly enough to negate anyconventional countermeasures an enemy might have on hand. Technology like this solves manylogistics-associated force projection problems simply because assets do not have to be in theater inorder to launch a strike. Naturally, this will be another warfare tool for the United States and will not

supplant traditional tactics and techniques. As situations require, ground forces will still have to besent in to hold ground and force a political outcome favorable to the United States. This weapon would,however, give the United States rapid first strike or retaliatory capability in corners of the world whereU.S. forces cannot instantaneously interdict or where the overriding geopolitical concerns do not requirethe physical presence of traditional U.S. military assets.

This will force those seeking to counter the United States to look to asymmetric methods and towardthe one area the U.S. military is still subject to competition space. After all, the quickest, stealthiest,most expensive aircraft in the world is still rendered useless if it cannot navigate or if intelligence onthe target cannot be gathered quickly.

Given the virtual inevitability of U.S. naval dominance, state and non-state actors only viable recourse

will be the pursuit of asymmetric naval forces to limit Western mercantile and U.S. military access.Guerrilla navies are limited to regionally focused militant organizations (Tamil Tigers) and oceangoingpirates; in 10 years, however, the use of these navies might rise. Considering the ability of a singlesmall craft to disable a U.S. naval vessel as evidenced by the attack against the USS Cole it isa logical step for anyone seeking to disrupt U.S. naval operations but without the conventional militarystrength to do so. Southeast Asia is the most likely area for this development, since the region alreadyplays host to a number of maritime pirates and criminal organizations that can find safe s

2005 decade forecast

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