Four Geopolitical Hot Spots That May Get ‘Scary’

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Men walk past posters bearing pictures of fighters who were killed in battles during the ongoing Libyan conflict, on February 15, 2017 in the eastern Libyan city of Beghazi. Six years after the start of an uprising that toppled a dictator, Libyans in Tripoli see no reason to celebrate with power cuts, exorbitant prices and insecurity plaguing their daily lives. (Photo by ABDULLAH DOMA/AFP/Getty Images)

For event-trigger happy investors who take a big picture approach and like to follow prevailing political winds, nothing is as nerve wracking as the Middle East and Europe. Looking from 30,000 feet up, economist John Mauldin and his team of analysts say these are the four geopolitical hot spots to pay attention to in 2017.

Libya, Iraq, Syria and Yemen are breaking or have already done so. War lords, jihadis, and religious sects are creating new, invisible borders that are protected by guns. Whatever explodes in that powder keg region will have impacts on oil prices, and could impact Russia-U.S. relations if Syria’s government falls.

“Syria, Iraq, Yemen, and Libya no longer exist,” Mauldin Economics analysts George Friedman and Jacob Shapiro. “In their places are smaller warring statelets based on ethnic, national, and sectarian identities. Other borders — like those of Lebanon and Israel — are also redrawn to reflect actual power dynamics. A politically incorrect but accurate map is more useful than an inaccurate but politically correct one.” Their map can be seen .

The Middle East is defined by two key dynamics: the wars raging in the heart of the Arab world and the balance of power between the countries that surround this conflict. Egypt is an economic basket case, Mauldin’s team says. “It doesn’t qualify as a major power, even though it has one of the most cohesive national cultures in the Arab world,” they wrote.

Most people don’t think of Europe as tribal. Many of the borders there were drawn up hundreds of years ago, but the Slavs are different than the Anglos, and the Flemish are not exactly the same as the Bavarians despite being next door neighbors.

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Here’s the Mauldin map of ethno-regions in Europe that have strong leanings to nationalism. Sorry, open borders aficionados; the Normans just ain’t that into you.

Friedman and Shapiro’s take: "The European Union is a flawed institution because its members could never decide what they wanted it to be. European nation-states gave up some of their sovereignty to Brussels, but not all of it. So when serious issues arose — such as the 2008 financial crisis or the influx of Syrian and other refugees — EU member states went back to solving problems the way they did before the EU. Brexit shook the foundations. Elections in France and Germany as well as domestic instability in Italy will shake those foundations again."

China and the South Seas

This is a hot spot, but not a scary hot spot like the first too.

In a Jan. 12 confirmation hearing with Congress, nominee for U.S. Secretary of Defense James Mattis pointed to "Chinese aggressiveness" as one of the major reasons he thinks the world order is under its biggest assault since World War II. (Mattis also says there is "very little doubt" that Russia "interfered" in the election.)

Here’s the good news on this one: Mauldin’s team thinks this hot spot is overstated. China’s motive in asserting control over these large shoals is clear. If they cannot control these islands, they can be used against China in a potential military conflict. But herein lies the rub: China is surrounded by American allies like Japan, which has significant military forces to defend themselves from Chinese fighters. Those that don’t have sufficient military defenses, like the Philippines, have U.S. security guarantees. This is why Washington gets nervous when Manila threatens to become friendly with Beijing. It’s a military chess board over there. China is currently at a serious geographic disadvantage in the waters off its coast, Mauldin economists say. And this is why China will try to entice historic U.S. allies to switch sides. Trade bluffs could have as much to do with military positioning than real nuts and bolts issues like tariffs.

And lastly…

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