November 2018 Risk Report

KCL Geopolitical Risk Society’s Monthly Risk Reports seek to provide an in-depth look at the latest developments across the Political Risk Sector with the objective of identifying, forecasting and analysing the most pressing emergent Geopolitical Issues in today’s world. This Report, by our Editor-in-Chief Will Marshall assesses the implications of President Trump’s withdrawal from the INF Nuclear Treaty, the IPCC’s latest Climate Change Report and the Fallout from the assassination of Saudi journalist Jamal Khashoggi amongst the most significant developments of the past month.

Security

Trump Announces Withdrawal from Landmark Nuclear Treaty

US President Donald Trump, in the latest twist of his turbulent love-hate relationship with Russian President Vladimir Putin, has announced his intention to unilaterally withdraw from the Intermediate-Range Nuclear Forces Treaty, raising fears of a return to the nuclear arms race which overshadowed the Cold War in Europe. The landmark treaty, designed to ease tensions at the height of the Cold War arms race prohibits both parties from ‘possessing, producing or test-flying a ground-launched cruise missile with a range of 300 to 3400 miles’ was signed in 1987 between US President Reagan and Soviet Premier Mikhail Gorbachev and is seen as a major factor in bringing the conflict between the two superpowers to an end.[1]

During a campaign rally in Nevada on Saturday 20^th October, the President stated ‘we’re going to terminate the agreement and we’re going to pull out’, citing allegations that Russia has been covertly violating the agreement for several years.[2] Trump’s actions have elicited widespread condemnations from senior Russian political figures and has raised the concerns of analysts and nuclear experts who fear the withdrawal could usher in a new episode of tensions between the world’s premier nuclear powers. In addition to providing further proof of the President’s willingness to destabilise the international security situation in his bid to put ‘America First’, experts have warned pulling out of the agreement would benefit Russia more than the US arguing that Putin would now be free to develop a medium-range nuclear capacity capable of directly threatening America’s NATO Allies whilst the US is unable to find a suitable ally in Europe willing to host such missiles. It is also feared withdrawal from the INF may encourage China and other Asian powers to develop a similar capacity as well as heightening the risk of proliferation to unstable regimes and non-state actors.[3]

The return to a US-Russia arms race is likely to further destabilise already fragile relations between NATO and its eastern neighbour and is only likely to accelerate Putin’s campaign of so-called ‘Hybrid Warfare’ aimed at undermining and destabilising European democracies via both overt and covert means since the Russian annexation of Crimea in 2014. The prospect of such an escalation is likely to raise particular concern among NATO’S easternmost members, notably Poland and the Baltic States who fear they will become Putin’s next Ukraine. The existence of large Russian minorities in Estonia, Latvia and Lithuania which Putin could use as a pretext for interference in the domestic affairs of the Baltics has long been a source of anxiety for NATO leaders, bolstered by Russian live missile tests in the Baltic Sea as recently as April.[4] Only time will tell whether Trump will decide to stand by his word and withdraw from the INF and what the reactions of his European allies and more importantly Russia will be to such a move? However, it is safe to say such a move would do little to ease growing tensions on Russia’s western frontiers – potentially making the outbreak of NATO-Russian hostilities higher than it has been at any time since the collapse of the Soviet Union.

Britain deploys troops to combat extremism across Africa’s ‘jihadist belt’

The British Military has agreed to step up its presence in Africa as part of a wider multilateral effort to combat extremism across the continent’s ‘jihadist belt’. This July, the first contingent of Britain’s contribution to the controversial French-led Operation Barkane, a 120-man strong detachment from the Royal Air Force including three multi-million pound Chinook Helicopters arrived at their base of operations in Gao, Northern Mali as part of a wider British ‘pivot to the Sahel’.

The Sahel is a 5,400km long ecoclimatic belt stretching from Senegal in the West to Sudan in the East, marking the frontier between the Sahara Desert and the Central African savannah. The region has long been a hotbed of political and ecological instability. A succession of corrupt governments, military coups and ethnolinguistic and religious tensions between the predominantly pastoral Muslims in the North and the mostly agrarian Christian population to the South has led to a dire lack of effective governance in the Sahel since independence in the 1960s. This, combined with endemic poverty, high fertility rates, over-farming and resultant famines have severely inhibited the region’s development with six of the ten countries at the bottom of the Global Human Development Index located in the Sahel. Climate Change has during recent years has further acted to inhibit development in the region, exacerbating the issues of over-grazing and desertification which have long plagued the population of this vulnerable region. It is this environment of chronic social, economic and political instability which has allowed radicalism to flourish in the region, with a proliferation of jihadist groups, from Boko Haram in Nigeria to Al-Shabab in Somalia operating across the permeable boundaries of the Sahel.

Whilst the commitment to the region does little to serve Britain’s direct strategic and economic objectives, the mission is aimed at limiting broader instability and illegal migration in the region which presents risks spilling over into Europe. Since the collapse of Colonel Gaddafi’s regime following NATO intervention in 2011, the EU has struggled to control flows of migrants into Southern Europe from the Sahel. Wing Commander Matt Roberts, commander of the British Force highlighted the significance of the mission in reaffirming the security relationship with the UK’s European partners. This echoes statements made by Theresa May earlier this year, in which the Prime Minister reaffirmed that whilst Britain was leaving the EU, ‘this does not mean the UK is leaving Europe’.[5] Whilst Britain’s decision to step up its presence in the Sahel is illustrative of a palpable shift in the locus of the jihadist threat towards sub-Saharan Africa what is perhaps more revealing is the model this operation provides for joint UK-EU security operations in the Post-Brexit environment. Such a move serves to highlight the crucial role such cooperation will play in rebuilding the partnership between London and Brussels in the turbulent upcoming years.

Health and Environment

IPCC Report on Climate Change and implications for Political Risk

The release of the Inter-Governmental Panel on Climate Change’s latest report at Incheon, South Korea last month has set off alarm bells amongst governments, scientists and policymakers across the globe, highlighting the dire consequences of global temperatures acceding more than 1.5°C above pre-industrial levels. The report, released on Monday 8^th October reiterated the critical warnings of previous IPCC reports, stressing the importance of governments making ‘rapid, unprecedented and far-reaching changes in all aspects of society’ to drastically reduce emissions by 2030 in order to avoid overshooting the 1.5°C target. To do so would require governments to cut emissions by up to 45% by 2030 compared to 2010 levels, with emissions falling to virtually zero by 2050.[6] Whilst the importance of limiting warming to less than 1.5°C above pre-industrial levels, what is startling about the latest report is not just the speed at which we are approaching such a target but the extent of the ecological impact of emissions surpassing these levels.

This latest report serves to underline the seriousness of Climate Change as a ‘threat multiplier’ and driver of political risk issues in upcoming decades. Even if global efforts to manage the crisis are successful at limiting temperature rises to less than 1.5°C above pre-industrial levels, the potential fallout could still be dire. Areas of the globe that are most vulnerable also tend to be those where the impacts of Climate Change are by far the most pronounced with the bottom 40% of incomes earners likely to bear 70% of the costs of warming.[7] The likelihood of long-term droughts, crop failures and famines is expected to drastically increase by up to 37% as a result of consecutive heatwaves at 1.5°C. It has long been known that such ecological effects have a strong correlation with political instability.

The Arab Spring uprisings of 2011 were preceded by a series of repeated droughts, stretching back as far as 2006 in Syria. Likewise, ongoing insurgencies from Afghanistan to Somalia are driven by food and water insecurity, with militant groups leveraging their control over aid supplies and widespread desperation among unemployed and poverty-stricken populations to serve as powerful tools of recruitment to keep the threat from militant groups alive and kicking. Interstate conflicts over natural resources are likely to be an emerging risk area in upcoming decades as well. Tensions over water resources are already brewing in Post-Soviet Central Asia as Tajikistan and Kyrgyzstan, who control the sources of the regions major waterways are seeking to leverage these resources to their advantage against neighbouring Kazakhstan, Turkmenistan and Uzbekistan. Climate Change also threatens to exacerbate existing interstate tensions. For example, in Kashmir, the rapid melting of the Siachen Glacier along the Indo-Pakistani Line of Control is likely to re-ignite unresolved territorial disputes over key strategic assets in the highly-contested region. Rising global temperatures will also serve to open up new arenas for geopolitical conflicts such as the Arctic Ocean, which is likely to become navigable to commercial vessels for several months per year by 2050 and is known to be rich in natural resources such as oil and natural gas.[8] Russia has already expressed its interest in the geopolitical and economic advantages of hegemony over the region with the creation of a new fleet of icebreaker warships and reopening of dozens of ex-Soviet bases along the Arctic coastline. Whilst Russia’s Western adversaries appear not to have woken up to the threat as of yet, the rising significance of new theatres of geopolitical struggle serves as a key reminder of the multiplicity of risks posed by a warming climate, even if international efforts to control rising temperatures ultimately prove successful.

WHO Gives Ominous Warning of Deadly Pathogen ‘Disease X’

The World Health Organisation has, for the first time warned of the dire threat posed by an as-yet-unknown pathogen known as ‘Disease X’ in its latest annual Global Strategy Plan. This is reflective of growing concerns among scientists and Global Health specialists of the dangers posed by the emergence of a new, deadly pathogen into a world where international travel, trade, urbanisation and migration dramatically multiply the risk posed by global pandemics.

The unique threat posed by ‘Disease X’ is the multiple roots from which such a disease could arise. There are estimated to be 1.67 million unknown viruses across the globe, with an expected 827,000 capable of infecting humans. Processes such as deforestation and mineral prospecting in remote regions, hitherto rarely visited by man hold the potential the risk of humans coming into contact with such a pathogen increases. This potential was exemplified during the 2013-16 West Africa Ebola outbreak, the origins of which can be traced back to the infection of a one-year-old child via fruit bat bite in a remote region of Southern Guinea in December 2013 which resulted in over 28,000 infections, including 11,310 fatalities.[9] There also exists the prospect of a pre-existing pathogen undergoing a significant mutation, increasing its virility and resistance to existing antibiotics such as H5N1 influenza, also known as avian flu which since its identification in 1966 has undergone multiple mutations resulting in outbreaks of various strains of the disease affecting over 700 people across 60 countries with a mortality rate of over 50%.

Perhaps most worrying, however, in terms of a global pandemic is the continued development of biological weapons programmes which WHO claims ‘could be deliberately developed and spread by humans.’[10] It is estimated as many as sixteen governments have or had biological weapons programmes which have allowed scientists to weaponise pre-existing pathogens, making them more infectious, deadly and easily transmittable. Whilst the prospect of a state-actor using such a weapon remains low given a governments’ inability to control the spread of an epidemic, the increased proliferation of biological weapons in unstable regions, such as the Middle East, raises the risk of such agents falling into the hands of rogue militant actors who are unlikely to hesitate to deploy these weapons.

Whilst scientists remain unsure about the likely nature or origins of a ‘Disease X’ pandemic, what is certain is that global trends in recent decades drastically enhance the risk of such an outbreak spreading uncontrollably. Global air traffic, which stands at over 4.4 million passengers per day allows diseases to rapidly spread from their region of origin via infected individuals who are yet to display symptoms.[11] The difficulties of containing such an outbreak can be illustrated by the West African Ebola Crisis which, despite being a relatively limited outbreak and with strict travel restrictions in place, nevertheless managed to spread via infected individuals into the US, UK and Spain. Similarly, global tendencies towards increased urbanization, particularly in Asia and Africa dramatically increase the risk of infections spreading rapidly among a large populace. It is predicted that up to 65% of the world’s population will live in urban areas by 2050 with the main source of this growth being in Central Africa, a location which is especially vulnerable given the endemic nature of diseases such as Ebola and Lassa Fever in the region.[12] Climate Change is also likely to increase the risk of pandemics, as rising temperatures and changing environments allow diseases such as malaria or yellow fever to spread to regions and populations unprepared for the impacts of such pathogens such as Southern Europe and the United States. Whatever the source, scientists and policymakers are right to take seriously the potential for the emergence of a new and deadly pathogen and the implications this might have in a globalised world.

Finance & Economics

Hammond pledges ‘End of Austerity’ amidst Brexit Fears

The release of the United Kingdom’s latest budget last Monday, several months earlier than usual in light of the looming prospect of Brexit early next year signals shows promising signs of optimism for the UK economy with Chancellor Phillip Hammond announcing that the era of austerity ‘is finally coming to an end’ amidst increased growth projections in coming years, despite the uncertainty surrounding Britain’s exit from the EU.[13] Whilst the 2018 growth forecast has bee downgraded from 1.5% to 1.3% as a result of poor weather earlier in the spring, annual forecasts for 2019, 2020, 2021, 2022 and 2023 have been all been increased to 1.6%, 1.4%, 1.4% 1.5% and 1.6% respectively. This is the result of better than expected management of public finances, with public borrowing £12bn less than previously projected as well as the most significant wage growth in a decade and debt as a percentage of GDP falling by 1.5% compared to the 2016/17 of 85.2% of annual GDP.

Hammond and the Tories are seeking to capitalise on this windfall to bring an end to the deeply unpopular Conservative programme of Austerity, introduced in 2010 to reduce public debt in the wake of the 2008 Financial Crash. The Government has pledged £23bn in extra funding for the National Health Service with a particular onus placed on elderly care in light of Britain’s ageing population as well as dealing with a looming mental health crisis facing the country.[14] Meanwhile, welfare benefits, which have been slashed by repeated budgets are finally seeing a recovery with work allowances for universal credit to be increased by 1.7bn and a projected 2.4 million families with children to benefit from an extra £630 per year in child benefits. There is also a renewed focus on affordable housing in light of the housing crisis affecting young people. In the last three decades, home ownership among 25-34-year-olds has almost halved nationwide, with proportions of young people owning their own home falling from 53% to 16% in Outer London.[15] This year’s budget takes concrete steps to rectify this, with all first-time buyers purchasing shared equity homes of up to £500,000 eligible for first-time buyers relief and an extra £500 million for the Housing Infrastructure Fund, allowing for the construction of an extra 650,000 affordable homes in an attempt to relieve skyrocketing price rises that result from increased demand.

However, despite these promising signs, there is evidence of a clear political motive in this year’s budget allocations. Increased budget allocations to devolved governments in Scotland, Wales and Northern Ireland may be seen as a bid to calm separatist rhetoric which has been on the rise since the 2016 Brexit vote, especially in pro-remain Scotland where the vote has ushered in calls for a rerun of the 2014 independence referendum which the ‘Yes’ side narrowly lost. More significantly, some pundits have claimed the easing of austerity comes as part of an effort to ameliorate public anger over the policy, with an eye to strengthening the Conservative position for an upcoming snap election.[16] Whilst Prime Minister Theresa May has explicitly ruled the prospect of an election out, this would not be the first she has gone back on her word. Calls for a snap election have been growing as the PM struggles to hammer out a deal with Brussels acceptable to hardline Brexiteers within her own party. Whatever the implications, this budget has proved deeply insightful as to the trajectory the British Government will take as it seeks to navigate the stormy waters of exiting the EU.

Whilst Western Investors shun Saudi, Emerging Economies take Centre-Stage at Crown Prince’s ‘Davos in the Desert’

The long-awaited Future Investment Initiative, conceived as a cornerstone of Saudi Arabian Prince Mohammad bin Salman’s ‘Vision 2030’ for the future of the conservative Middle Eastern Kingdom finally launched on Tuesday 30^th October under a cloud following the political fallout from the murder of Saudi journalist Jamal Khashoggi in Turkey. The death of the journalist, who has extensively criticised the Saudi regime’s hardline religious stance under suspicious circumstances on 2^nd October in the Saudi Consulate in Istanbul. Whilst Saudi Foreign Policy has long been a source of controversy, with actions from the sponsorship of extremist Salafist mosques to the gross Human Rights violations resulting from heavy-handed intervention in Yemen attracting widespread condemnation from the international community, the regime has so far yet to see any major repercussions from its antagonistic policies. However, such a flagrant and brutal violation both of Human Rights and International Law as the Khashoggi case has marked a fundamental shift, serving to jeopardise not only Saudi Arabia’s political legitimacy on the international stage but also bin Salman’s ambitious domestic vision of a dramatic restructuring and modernisation of the Saudi economy.

The Future Investment Initiative, dubbed by pundits as the ‘Davos in the Desert’ was supposed to be the centrepiece of bin Salman’s masterplan to reform the Saudi economy into a more diversified and privatized model by encouraging foreign investment across a range of key sectors including leisure, tourism, renewable energy, biotechnology and advanced manufacturing in a bid to reduce the Kingdom’s dependence on oil revenues. The blowback from the killing of Kashoggi however, has served to dampen the enthusiasm of previously keen partners of the Saudi vision, raising serious questions as to the viability of such a strategy if Saudi Arabia continues to adopt such an antagonistic position in foreign affairs. Several notable trade secretaries, among them British trade minister Liam Fox, French economy minister Bruno Le Maire and Australian trade minister Simon Birmingham have all withdrawn from the conference despite the close commercial and political relationships their respective nations share with Saudi. Dropout from the conference is not limited to national representatives. Senior international executives, including the CEOs of HSBC, Goldman Sachs, Credit Suisse and J.P Morgan have all rejected their invitations in light of the journalist’s death.[17]

Whilst the withdrawal of major Western names from the conference is undoubtedly a blow for the Crown Prince’s vision, what is perhaps more significant is the degree of attention the Future Investment Initiative has gained from outside the West. The political situation appears not to have deterred the hordes of Chinese bankers and Indian businessmen who descended on Riyadh last week.[18] Both of these Asian economic superpowers enjoy close links with Saudi, particularly regarding the Kingdom’s rich oil reserves but also across a wide range of sectors including construction, manufacturing, information technology and agriculture. As each of these rising powers strives to garner increased foreign trade and investment in their bids to transcend the middle-income trap and become full-fledged developed economies neither can afford to cut close commercial relations with such a significant trading partner. Therefore, whilst the Khashoggi debacle may have damaged bin Salman’s vision for the future economic development of the Middle Eastern Kingdom from a Western perspective, the differing international responses to the event serve to illuminate the growing linkages between emerging economies, potentially presaging a Saudi pivot to the East. Perhaps then, the much vaunted ‘Davos in the Desert’ has not been such a dramatic flop as current media reports tend to suggest.

Technology

Iranian Hackers target Universities in New Stage of ‘Hybrid War’ with the West

Hackers, allegedly linked with the Iranian Government have been targeting a series of universities and academic institutions as part of a campaign to obtain unpublished research and steal intellectual property, cybersecurity experts claim.[19] Analysts from IT Firm SecureWorks discovered the campaign, conducted via the creation of fake login sites closely resembling those of targeted institutions linked to the legitimate websites which when filled in by faculty members, gave the hackers access to confidential material. In total, 76 universities in fourteen countries, including Australia, Canada, Germany, Israel, the US and UK are known to have fallen prey to such attacks. A spokesperson from SecureWorks claimed the attacks, which have been conducted since May this year take a similar form to previous Cyber Attacks by threat group Cobalt Dickens, an organisation which has long been claimed to share close relations with the Islamic Republic of Iran.

This is not the first time hackers linked to Iran have attempted to target educational institutions. In March, nine Iranian nationals forming part of a similar group, known as the ‘Mabna Institute’, were charged by the US Department of Justice of the theft of 31 terabytes of confidential information from universities in 22 countries.[20] This latest attack points to a broader trend of non-direct ‘Hybrid Warfare’ in the strategies utilised by Iran to undermine its opponents. Such a strategy shies away from the use of conventional military force, rather seeking to weaken opponents through a broad range of strategies designed to strain a target’s defensive capabilities on a number of fronts. Cyber attacks of this variety are only one of the diverse methods, including the support for militant proxies as in Lebanon, Syria or Yemen and the cultivation of links and lobby groups among Shi’ite populations across the Greater Middle East which Tehran has pioneered as part of such an approach.[21] This modern approach to interstate conflict in a context where rivals cannot compete in conventional terms with Western military dominance pioneered not only by Iran but also by stronger adversaries such as Russia and China highlight the security threat cyberattacks will continue to pose in the coming years. Whilst Western governments have begun to recognise this emerging threat, the British Government, for instance, making moves to bolster its Cybersecurity defences with an unprecedented expansion of GCHQ and creation of the National Cyber Security Centre in 2016, the rising prevalence of such attacks clearly illustrates that much remains to be done in the realm of Cybersecurity to prevent the erosion of our valued institutions.

[1] https://www.itv.com/news/2018-10-21/us-nuclear-treaty-pullout-would-be-very-dangerous-step-says-moscow/

[2] https://www.theguardian.com/world/2018/oct/20/trump-us-nuclear-arms-treaty-russia

[3] https://www.theguardian.com/world/2018/oct/22/eu-us-nuclear-arms-race-inf-treaty-bolton-moscow

[4] https://www.independent.co.uk/news/world/europe/russia-latvia-missile-tests-baltic-sea-airspace-donald-trump-baltic-leaders-white-house-a8289451.html

[5] https://thedefensepost.com/2018/06/14/first-uk-troops-arrive-africa-sahel-france-barkhane/

[6] https://www.nationalgeographic.com/environment/2018/10/ipcc-report-climate-change-impacts-forests-emissions/

[7] https://climateanalytics.org/blog/2018/hot-dry-or-flooded-more-weather-extremes-beyond-1-5c-warming/

[8] https://www.bbc.co.uk/news/science-environment-37286750

[9] http://news.trust.org/item/20160609104923-cft2c

[10] http://www.theweek.co.uk/94432/what-is-disease-x

[11] https://www.statista.com/statistics/564717/airline-industry-passenger-traffic-globally/

[12] https://edition.cnn.com/2017/04/03/health/pandemic-risk-virus-bacteria/index.html