An isolated and humiliated Russia is the biggest danger of 2023, political-risk consulting firm Eurasia Group said Tuesday, unveiling its annual list of top geopolitical risks.
“A humiliated Russia will turn from global player into the world’s most dangerous rogue state, posing a serious security threat to Europe, the United States, and beyond,” wrote Ian Bremmer, Eurasia Group’s president and founder, and Cliff Kupchan, the firm’s chairman, in the report.
Bluster aside, the Kremlin last year was careful to keep its war on Ukraine contained within the country, avoiding direct confrontation with NATO. In 2023, Russian President Vladimir Putin “can’t afford to be that cautious,” they wrote.
After promising a quick victory after its February invasion, Russia has no good military options to win the war, Eurasia Group observed. Russia also has little leverage left over either the United States or Europe. While it will cut off most remaining gas flows to Europe, increasing European public support for negotiations, this won’t prompt a rollback of sanctions, they wrote, or undercut military support for Ukraine.
“Defeated on the battlefield in Ukraine, increasingly staggered by sanctions, left without leverage over the EU or the United States, with little to lose from further isolation and Western retaliation, and facing intense domestic pressure to show strength, Russia will turn to asymmetric warfare against the West to inflict damage and weaken NATO unity, rather than employ overt aggression that depends on military and/or economic power that Russia no longer has,” Bremmer and Kupchan wrote.
Nuclear saber-rattling by Moscow will intensify, they predicted, with Putin’s threats likely to become more explicit.
While Putin is “Armageddon-averse,” nuclear signaling “is easier said than done, and the potential for mutually assured destruction because of accidents and miscalculation will be higher in 2023 than at any time since the Cuban missile crisis in 1962,” they wrote. “And unlike the height of the Cold War, Putin has no way to climb down or return to a prewar status quo.”
Kremlin-affiliated hackers are likely to increase cyberattacks on Western businesses, governments and infrastructure, they said. Russia is also likely to intensify its offensive against Western elections by supporting and funding disinformation and extremism.
Energy crunch
Bremmer and Kupchan also warned that a respite from soaring energy prices in the second half of 2022 is likely to prove temporary.
Oil
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and other energy prices spiked in the wake of Russia’s invasion of Ukraine, but subsequently retreated. Crude oil prices rose in 2022, but ended the year below levels seen just before the invasion. Soaring natural gas prices in Europe have also fallen back significantly.
“On oil, a faster-than-expected economic recovery in China driven by the country’s sudden exit from zero-COVID policies, combined with only a shallow recession in the United States that will not cause demand destruction, will increase crude-oil demand growth and expose an acute lack of new supply,” they wrote.
“On gas, the European Union’s need to rebuild gas storage from the second quarter of 2023 in the absence of cheap Russian supplies will create new competition for LNG and more demand for pipeline gas from Norway and North Africa,” they said.
Higher oil prices “will also increase frictions between OPEC+, led by Saudi Arabia, and global consumers, led by the United States, as both sides pursue conflicting fiscal objectives,” they said.
Other threats highlighted in the report include:
- “Maximum Xi”: Chinese President Xi Jinping has the strongest grip on power since Mao Zedong.
- Mass disruption: Artificial intelligence and other technologies will be a “gift” to autocrats seeking to cause disruption abroad and clamp down on dissent at home.
- Inflation: Rising interest rates and the threat of global recession could cause an emerging-markets crisis.
- Iran: The danger of regime collapse is low but is still the highest in more than four decades.
U.S. stock-index futures pointed to a slightly higher start for Wall Street as investors return from a three-day weekend to begin the new year. The S&P 500
SPX,
fell more than 19% in 2022, its worst yearly performance since 2008, while the Dow Jones Industrial Average
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shed 8.8%.
See: An interest-rate shock wrecked stocks in 2022. What pros say will drive the market in 2023.
